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Value Chain Mapping Report

Upgrading Medicinal and Aromatic Plants Value Chain Access to Export Markets

July 2011 UNIDO/ETRACE

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Executive Summary

This report reveals the results of the value chain analysis and mapping activity conducted on a

random sample at the different levels of the Medicinal and Aromatic Plants (MAP) value chain

including exporters, growers, traders and service providers. Relevant information was gathered

through in‐depth interviews and field visits, in addition to stakeholders’ consultations. The

analysis identifies the trading shapes, existing clusters and linkages between value chain actors.

In addition, it emphasizes on the current gaps and potential areas for project interventions.

The mapping exercise shows a high level of complexity in the relationships and the linkages

between value chain actors especially in the middle layer (traders/pre‐processors). In most

cases the trader is selling pre‐processed materials to several exporters, who might be

competing at the same market and/or exporting to the same exporter. In some cases the trader

is exporting part of his products to same or other export destinations. The complexity of the

networks and the competition of the different layers result in a mistrust situation between the

value chain actors.

The analysis also emphasizes on a low level of integration and collaboration between MAP

service sectors such as extension, academia and research, as well as their isolation from the

industry. On the other hand, there is are a large number of researchers in the MAP field at

different governmental institutions including Agricultural Research Center (ARC), National

Research Center (NRC), Desert Research Center (DRC) and the faculties of agriculture and its

affiliated centers at different universities. Some of the active researchers provide individualized

services to the export companies as free lance consultants.

The majority of small‐scale growers are using conventional production methods and

applications using low‐tech inputs supplies which are negatively affecting the yield and final

product quality. Large‐scale producers, on the other hand, are using modern techniques and

input supplies including imported seeds and transplants.

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Most of medium and large‐scale exporters are well linked to the global markets and are

continuously exploring new market opportunities. They are implementing many certification

schemes such as organic, food safety and quality management systems as a tool to increase the

marketing opportunities and to satisfy the demands of their clients.

A number of exporters are already working on initiatives to increase the level of value addition

to their products especially those producing essential oils. Moreover, there are also product

development initiatives in the dried herbs and spices sector to produce new varieties and

product forms demanded by the markets.

The value chain mapping activity confirmed most of the bottlenecks identified during the

project development phase and this is listed in detail at the end of this report. This exercise

served also in a better understanding of the organization of the value chain and revealed the

different shapes of clusters and relationships between actors, which will help in designing

customized technical assistance interventions through the planned service centers.

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List of abbreviations

AEC Agricultural Export Council

ARC Agricultural Research Center

ESHEDA Egyptian Spices & Herbs Export Development Association

DRC Desert Research Center

JAS Japanese Agricultural Standards

MAPs Medicinal and Aromatic Plants

NOP National Organic Program

NRC National Research Center

NTC National Technical Coordinator

SECO State Secretariat for Economic Affairs – Switzerland

SP Service Provider

UNIDO United Nations Industrial Development Organization

VC Value Chain

VCM Value Chain Mapping

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Contents

EXECUTIVE SUMMARY......................................................................................................................... 2

1 INTRODUCTION.............................................................................................................................. 7

1.1 Background ...............................................................................................................................................7

1.2 Objective...................................................................................................................................................8

2 METHODOLOGY ...........................................................................................................................10

2.1 Description of the Activities .................................................................................................................... 11

2.2 Data Capturing System............................................................................................................................ 12

2.3 Sample Characteristics ............................................................................................................................ 16

2.4 Stakeholders Consultation ...................................................................................................................... 17

3 VALUE CHAIN ANALYSIS............................................................................................................17

3.1 Growers .................................................................................................................................................. 17

3.2 Traders.................................................................................................................................................... 19

3.3 Exporters................................................................................................................................................. 20

3.4 Service Providers (SP).............................................................................................................................. 23

3.5 Value Chain Mapping .............................................................................................................................. 24 3.5.1 Shape 1.......................................................................................................................................................24 3.5.2 Shape 2.......................................................................................................................................................25 3.5.3 Shape 3.......................................................................................................................................................25 Sample Value Chain Map ........................................................................................................................................30

4 FURTHER FINDINGS, RECOMMENDATIONS AND RESULTS...........................................31

4.1 Revision of the sector bottlenecks .......................................................................................................... 31

4.2 Conclusions & Recommendations ........................................................................................................... 36

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5 ANNEX..............................................................................................................................................39

List of Tables

Table 1 – Geographical range of the selected sample

Table 2 – List of companies interviewed and visited during the value chain

Table 3 – List of main products and quantities produced by the exporters in the sample

Table 4 – List of service providers interviewed in the value chain analysis

List of Figures

Figure 1 – Exporters with owned facilities for drying, screening and packing

Figure 2 – Exporters with screening and packing facilities only

Figure 3 – Exporters with no owned/contracted farms and factories

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1 Introduction

1.1 Background

Egypt has been producing and exporting Medicinal

and Aromatic Plants (MAP) products for many

years. However, the Egyptian MAP sector suffers

from poor conditions of the produce in terms of

quality and safety standards, lack of professional

advisory services, in addition to a highly

underdeveloped value chain (VC). These factors

negatively affect the position of Egyptian MAP

products in export markets and consequently the bargaining power of Egyptian exporters, in

addition to high level of rejections due to nonconformity to TBT/SPS requirements. The MAP

exports generate revenues of approximately US$ 100 Million, representing about 10% of the

total processed food export in Egypt. The Egyptian Processed Food Sector Strategy included the

Herbs and Spices as one of the 9 subsectors considered in the "Opportunities and

Benchmarking" section. Above that 80% of MAP production is located in Upper Egypt which is

considered a priority development area by the Government of Egypt. Being labor intensive, the

MAP sector employs more than 140,000 workers, in addition to other supporting manpower.

The project aims at raising the position and competitiveness of Egyptian MAP products in

export markets and developing its internal supply chain. This will be based on integrated

development strategies of three pillars: 1) Improving productivity, quality and compliance to

TBT/SPS requirements throughout the supply chain. This will be achieved through establishing

MAP service centers affiliated to the Agriculture and Agro‐Industries Technology Center

(Etrace). These centers will provide sustainable advisory services to supply chain members and

upgrading the capacities of pre‐farm and post‐farm gate SMEs; 2) Strengthening SME capacities

in product development and value addition for export growth and diversification. The main

Picture no 1 – Trader in Beni Suef

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target in this endeavor is to introduce ideas and knowledge of new products to the export

markets and; 3) Enhancing position in export markets through coordinated efforts by enforcing

compliance criteria, branding, establishing a national quality mark and competitive pricing

strategies. This will be achieved through establishing a MAP export consortium to manage a

collective export and branding strategy coupled with building trade capacity of exporting SMEs

and upgrading linkages with international buyers.

The Project will adopt UNIDO trade‐capacity building approach, which coincides with SECO

policies for the developing countries, providing institutional capacity building, equipment and

training. The proposed activities will impact a large number of small out‐growers and SMEs and

integrate them into export VCs.

1.2 Objective

The project has undergone a six month inception phase. The objectives of the inception phase

are to evaluate and validate project design and sketch out necessary amendments to the

project document including a baseline assessment for the MAP sector. In addition to the value

chain (VC) mapping report, other outputs of the inception phase include a revised logical

framework, a revised project work plan, a detailed work plan for the first year of the project, a

monitoring and evaluation plan and a revised budget. This report shall document the approach

to the inception, discuss the findings and present the outcomes.

In addition, the main objective of conducting a VC analysis is to identify the main players in the

supply chain of MAPs, and their linkages with other stakeholders influencing the processes of

production and trade. The VC mapping will lead to a better understanding of the sector,

identifying production clusters, popular products, classification of each level of membership in

the supply chain, and thus the possibilities of interventions to ongoing initiatives.

Furthermore the VC analysis includes the conduction of beneficiaries’ feedback on the project

products and directions of them towards new technology transfer, business development,

value added products and the principle of cost sharing of requested services.

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2 Methodology

In the context of the VC analysis and mapping, the current situation of the MAP sector is

analyzed by conducting a gap analysis and studying the internal systems applied in each level of

the supply chain. The following steps are used for the mapping process:

1. Understanding of the MAP Sector/ Sub‐

sector relating to VC through: review of

project documents, analysis of secondary

data and interaction with Key persons.

2. Preliminary interaction with key persons in

the district associated with the VC

(Agricultural Export Council, Agricultural

Research Center, National Research Center, Desert Development Center, Certification

Bodies, and Farmers’ Associations) for developing a district focused flow diagram linked

to the VC and identifying clusters for the field study.

3. Developing questionnaires for in depth analyses for the VC with sector key players and

stakeholders, in addition to conducting a pre‐testing for the implemented tools through

initial field visits.

4. Field study: in depth interaction with number of VC stakeholders linked to each of the

identified clusters through production, supply and trade activities.

5. Finalizing the district focused VC flow diagram.

6. Identifying the activities and actors including understanding the links/dynamics between

the activities and/or actors.

7. Identifying the supporters/Business Development Service Providers (BDSP) and

elaborating their inputs towards the development of the VC.

8. Identifying existing and potential enterprises and employment opportunities; and also

challenges related to the development of the VC.

Picture no 2 – Marketing Visits

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9. Developing a VC mapping diagram.

2.1 Description of the Activities

Data Collection

As a first step for the activity, the sample and its characteristics have been identified by

collecting information about the producer history, location, company size, list of

products and targeted countries characteristics of applied systems. This was performed

by asking each VC actor about his clients and suppliers to identify communication

shapes and define clusters.

Secondly, main VC actors in the production chain at each level of the MAPs have been

listed and identified with further details of scale, specialization, direction, attitude and

new initiatives. Main and secondary VC actors with influence in traceability, food safety,

quality and food chain configuration are identified and evaluated.

Drawing Value Chain Diagram:

Collected data of several VC actors are presented in a diagram exploring VC directions

with flow arrows. In this chart, number of exporters, traders, farmers, and SPs are

allocated in the diagrams (see diagram 1, 2, 3 & 4).

Illustrating Communication Channels between Value Chain Actors:

After depicting the VC actors, the communication map is prepared to capture the

current gaps in communications and provide an overall picture of the chain actors cross

relationships and connections.

Describing Production Steps:

Description of the production steps is done through identifying each step of the

production processes, recording reasons for implementing each step, and showing how

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this step can prevent a food hazard or quality decrease. As a result several production

steps have been listed with overview of the production chain.

2.2 Data Capturing System

The National Technical Coordinator (NTC) has designed and pre‐tested a group of

questionnaires for 4 levels of the VC actors

covering all types of interventions and

participations with other stakeholders. The

description of these questionnaires is as follows:

Form 1 – Medicinal & Aromatic Plants Exporter /

Processor Questionnaire

Exporters in the supply chain of MAPs can be identified by the conceptual meaning as to ship

the MAPs goods out of the ports of Egypt. The seller of such goods is referred to as an

"exporter" who is based in the country of export, whereas the overseas based buyer is referred

to as an "importer". In Egypt there are some actors in the supply chain of MAPs playing more

than one role at a time, so one actor can be:

• Exporter, or

• Exporter and producer, or

• Exporter, producer and grower

The designed questionnaire focuses on the following areas for the exporter/processor:

• Company Profile: legal name, owner of the company, contact information and contact

person.

• Description of the Operation: type of production (fresh, dried and essential), number of

products, production sites and its locations, product list with annual quantities, grades

(organic, clean and conventional), volume of annual production, permanent and

Picture no 3 – Tea Packing

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seasonal staff, gender issues and description of the applied systems for quality and

safety measures.

• Supply Chain Management: procurement system, number of suppliers, means of

transportation (goods), and naming a list of 3‐5 main suppliers for further in‐depth

interviews.

• Business Management: number of products directed to export markets, main

destinations, production capacity, exporting percentage of total production, labels and

trademarks used, annual rejections percentage and logistics system applied.

• Directions and Attitude: business vision, self motivation, main challenges and problems,

feedback on the project work packages, opinions on formulation of export consortium,

business competitiveness, value addition initiatives and opinions on cost sharing

principle.

Results of the interviews with exporters/processors are discussed in the VC mapping (section 3)

of this report.

Form 2 – Medicinal & Aromatic Plants Grower Questionnaire

the questionnaire is implemented through the field visits

to MAPs growers and farmer’s association. The designed

form tackles MAPs growers through both technical and

social aspects to identify differences between MAPs

growers and other growers cultivating and adopting

another pattern of agriculture. The questionnaire

addressed the following areas:

• About the Grower: location, contact information, number of co‐farmers (associations)

and total cultivated area.

• Applied Farming System: description of the irrigation systems (surface, dripping,

spraying and pivot), soil type, seeds sources and the propagation system, fertilization

Picture no 4 – Trials of New Products

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system, pest control system, crop rotations and adopted products, permanent and

seasonal staff and harvesting and drying activities.

• Supply Chain Management: identifying the main sources of all agricultural inputs and

the main suppliers to each grower/farmer’s association.

• Marketing: main products, clients (exporters and/or traders), contracting type, labels

and trademarks used, rejections and distances between production and drying facilities.

• Directions and Attitude: business vision, self motivation, main challenges and problems,

feedback on the project work packages, identifying sources and type of extension

services, acceptance of new technologies, opinions on the cost sharing principle.

Results of the interviews with growers/farmer’s associations are discussed in the VC mapping

(section 3) of this report.

Form 3 – Medicinal & Aromatic Plants Service Provider (SP) Questionnaire

SP is an entity that provides services to other entities.

Usually this refers to a business that provides subscription

or web service to other businesses or individuals. Examples

of these services include inputs such as fertilizers,

pesticides and seeds, quality systems consultants, and web

application hosting. The questionnaire addresses the

following areas:

• Service Provider Profile: service type (consultation, research, extension, input supplies

with technical support provided by the seller), name of the organization, contact

information of the provider and his institute.

• Description of Specialization: background, years of experiences, previous researches,

cooperated researches and list of publications.

• Directions and Attitude: business vision, self motivation, challenges and common

problems and feedback on the project work‐packages.

Picture no 5 – Meeting with AEC

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Results of the interviews with services providers are discussed in the VC mapping (section 3) of

this report.

Form 4 – Medicinal & Aromatic Plants Trader / Pre‐processor Questionnaire

The trader in this VC is an investor who buys and

stores MAPs for a period of time (months to years).

His goal is to profit from short‐term gains in the

market. Usually the trader is grower or director of

farmer’s association. In some cases traders can be

considered as small scale exporters because some of

them could find an exporting opportunity that

attracts them to export by their own and under their

responsibilities. The questionnaire addresses following areas:

• Trader/Pre‐Processor Profile: person in charge, legal formulation, contact information

and contact person.

• Description of the Specialization: production pattern, number of products, production

sites (number/locations), main products, grades, staff capacity and gender issues.

• Supply Chain Management: number of contracted farms, technical support provided to

the farmers, means of transportation of the stuff from contracted farms to the draying

facility.

• Business Management: number of products directed to export companies, main clients,

annual production, contracting type (annual contracts, cash & carry and local

purchasing) and used labels/trademarks.

• Directions and Attitude: business vision, self motivation, main challenges/common

problems, feedback on the project work packages, experience in export, acceptance of

new technologies, food safety procedures and rejection policies.

Results of the interviews with traders/pre‐processors are discussed in the VC mapping (section

3) of this report.

Picture no 6 – Trader in Fayoum

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2.3 Sample Characteristics

Geographical Range:

The NTC has visited many Egyptian governorates where the exporters, processors, traders,

growers and SPs are in place. The following table depicts number of VC actors visited in each

governorate.

Table 1 – Geographical Range of the Selected Sample

Governorate Number of Actors

Greater Cairo (Giza, 6th of October City) 11

Alexandria 5

Fayoum 28

Beni Suef 8

Minya 8

Assyuit 9

Sample Size:

As mentioned earlier, the NTC has drawn a random sample of exporters from some Egyptian

governorates (21 exporters). Each exporter explained his production system and cooperated

with the interviewer to extend the study to 3‐5 of his main suppliers (traders/pre‐processors).

The second level of investigation and VC analysis was conducted by visiting the traders/pre‐

processors (15 traders) in the four suggested governorates of the project (Fayoum, Minya, Beni‐

Suef and Assyuit) to identify the production systems applied in this level and to define a sample

of growers contracting with the trader in his own supply chain. Eighteen growers have been

interviewed, representing different levels of the business scales (small, medium and large).

Finally, a set of interviews conducted with SPs (15 SPs) from many institutions such as academia

professors, researchers, consultants and extension employees.

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2.4 Stakeholders Consultation

During the VC and the inception phase of the project, the NTC has consulted the following

stakeholder to validate and verify the project’s services and work packages:

• The Agricultural Export Council “AEC”

• Egyptian Spices and Herbs Export Development Association “ESHEDA”

• Industrial Modernization Center “IMC”

• Food Technology Center (FTC)

• SIPPO Expo‐link, Switzerland Embassy

3 Value Chain Analysis

During the inception phase a group of activities were in place to identify and map the VC of

MAPs sector in Egypt. The NTC has designed and formulated data collection tools as mentioned

above to facilitate the process of VC analysis and mapping. These tools were targeting four

levels of the VC members (growers/farmer’s associations, traders/pre‐processors, SPs and

exporters/processors).

3.1 Growers

In the VC analysis the NTC visited a number of

growers and farmers’ associations (linked to

identified clusters). Visits outcome shows that

the majority of MAPs are cultivated by small

growers in old conventional areas of

cultivations and concentrated in certain

locations for each specific crop (such as Basil in

Assyuit). Usually the traders and/or growers

formulate an entity where they can facilitate their production and trading under one organized

Picture no 8 – Thyme farm in Minya

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umbrella which is the farmers’ associations. Small growers are suffering from the lake of

awareness and extension services, in addition to the increases of inputs prices.

However, the VC analysis captured a few large scale growers who achieved vertical integration

in the chain such as modern irrigation systems, new seeds and cultivars, modern facilities for

drying and collection. Further details of the results are presented below:

− The NTC has visited growers’ farms in the targeted governorates with the following

concentration: percentage of 22% from

Assyuit, 16% from Beni Suef, 44% from

Fayoum and 16% from Minya.

− Total cultivated area visited of the

suggested governorates are 779 acre,

operated by 18 farms (owned, rented) and

the largest farm of this sample is 220 acre

located in Assuit, while the smallest one is 2 acre located in Fayoum.

− Several irrigation and fertilization systems are founded in the selected sample. Only 16% of

the total samples are applying modern patterns, while the majority of growers are applying

old ways of irrigations and fertilization manual practices.

− Seeds are one of the major challenges for growers due to the shortage of new seeds. Most

of the growers are using their own seeds (cultivated in previous seasons) which have many

defects and incompliance with the market demand. Very few growers are using new

imported seeds from Enza Zaden http://www.enzazaden.com/ and HILD

http://www.hildsamen.de/eng_ueber_uns.htm

− Most of the growers (more than 55%) in the VC sample are adopting the organic farming

systems as they know that it will give them better marketing opportunity and they are

familiar with the organic regulations such as the EU regulation No. 834/2007, National

Organic Program (NOP), Japanese Agriculture Standards (JAS), Bio‐Suess, Naturland and

other standards and trademarks.

Picture no 9 – Farm in Assuit

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− The majority of interviewed growers have experiences in the medicinal and aromatic sector.

Some of them started this business since childhood via family business models.

− The majority of growers accept the idea of testing new inputs such as improved seeds,

fertilizers and drying practices but they require full packages of technical support and they

prefer to see the trials on experimental fields and study tours before adopting the new

techniques on their own farms.

3.2 Traders

Traders and pre‐processors are playing a significant role in the VC of MAPs. They are dealing

with growers and exporters from both sides of the chain and they are the main gate for the

growers. They provide technical support services and extension to the growers of their scope of

work and usually they supervise the harvesting and transportation from the field to the drying

facility, basic cleaning and screening

operations, separate the products according

to quality and sell them to

processors/exporters. In some cases, they

receive the raw materials dried from the

growers. As for essential oils the pre‐

processors/local traders receive fresh

produce and perform oil extraction

operations in small units. In both cases, the pre‐processing facilities are located in the middle of

the cultivation areas and are characterized by very poor manufacturing and hygienic conditions.

The following results are concluded from the VC analysis:

− The sample covers 20% from Assuit, 20% from Beni Suef, 46% from Fayoum and 14% from

Minya.

Picture no 10 – Trader in Assuit

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− The traders are not specialized in certain list of products; they are producing and offering a

wide range of raw materials products. Most of the traders have many locations for drying,

sorting and storage.

− The majority of interviewed traders provide technical support to their growers supervises

the harvesting and drying activities and performs lab analysis on their products to ensure

the quality and safety of the purchased stuff.

3.3 Exporters

This represents the final processing activity in the VC. The VC analysis shows that some of the

exporters have their own farms and they outsource the rest of their demand from other

contracted farms or traders. Also, the NTC observes that there are many types and shapes of

exporters in the Egyptian MAPs sector, described as follows:

• Exporters with owned facilities for drying, screening and packing,

• Exporters with screening and packing facilities,

• Exporters with no owned/contracted farms and factories.

The visited companies are listed in the following table:

Table 2 – List of Companies Interviewed and Visited during the Value Chain Analysis

S. Name location

1 Royal for Herbs Giza

2 United for Import and Export Fayoum

3 Pure‐land for Export and Import Minya

4 Al‐Sherif Co. for Export and Import Alexandria

5 Naggari Co. for International Trade Alexandria

6 The Egyptian Office M.A.A Assuit

7 Royal Herbs Beni‐Suef

8 International Company for Food Industries ‐ TIBA Cairo

9 Long Life Herbals Fayoum

10 AMA for Import and Export Alexandria

11 Egy‐Herbal Fayoum

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S. Name location

12 Safe Herbs and Spices Fayoum

13 EGINTEX Alexandria

14 Orient Group Alexandria

15 Elwefak El Sauidi for Food Industries Cairo

16 Dehydro Foods Co. Cairo

17 Egyptian Organic Agriculture Co. Fayoum

18 Fridal for Herbs and Essential Oils Giza

19 Giza for Seeds & Herbs Giza

20 Organic Valley Fayoum

21 AMD Verde for Import and Export Fayoum

Through the conducted visit, the NTC asked each exporter about the main products his

company offers and the quantities of each item. Results are presented in the following table:

Table 3 – List of Main Products and Quantities Produced by the Sample Exporters

Product Quantity/Tons

Fennel 7562

Green Basil 4848

Caraway 3447

Peppermint 3155

Marjoram 2265

Hibiscus 1553

Parsley 1545

Chamomile 1525

Spearmint 1242

Lemongrass 1180

Anise 1175

Coriander 1010

Dill 765

Calendula 170

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− Total annual production for all the 21

exporters is about 29,430 tons which

represents more than 70 % of the total

production of Egypt.

− Production specialization cannot be

witnessed in the sector as 52% of the

exporters are working in organic, clean, conventional and pesticide free products, while

only one company is specialized in organic, and 42% are not interested in the certification of

products and selling their products as conventional products with acceptable level of

maximum residues of pesticides.

− Exporters have different requirements regarding form and quality of the raw material,

whereas 23% of the sample requires raw plants because they have either drying facilities or

dehydration lines. Fourteen percent of the exporters in this sample have no facilities and

export packed products from trader’s facilities. The majority of the sample (57%) are

receiving raw materials in two main forms: raw dried/fresh and/or semi processed.

− Most of the exports are directed to the European market and the United States. Some of

the exporters have contacts to other markets including: Gulf, Asia, Japan, and Australia.

− The NTC asked each exporter about his opinion on the formulation of export consortium

and they have expressed their negative feedback on this issue (80% of the exporters) stating

that this idea will not be reasonable and will create problems between exporters. However,

the majority of exporters expressed their acceptance of cost sharing principles as they

believe this will ensure the commitment of the members receiving technical services from

the project.

Picture no 11 – Factory in Fayoum

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3.4 Service Providers (SP)

As stated before, these are the technical support bodies

that deliver technical consultation, extension, research,

training, and/or marketing services to the MAPs producers

at all levels. They are available in the sector but their role is

not formally identified because most of the researchers

think that the main source of extension is the Ministry of

Agriculture and Land Reclamation (formal extension

services) while there are many informal sources for extension.

The following list presents the interviewed SPs and consultants in some selected governorates:

Table 4 – List of SPs Interviewed in the VC analysis

S. Name Location S.P. Type Organization

1 Dr. Adel Abdel Aziz Beni‐Suef Researcher ARC

2 Dr. Mahmouod Ali Hassanain

Fayoum Professor FOA‐Fayoum Univ.

3 Dr. Ebtisam Abdallah Fayoum Professor FOA‐Fayoum Univ.

4 Alaa Idress Fayoum MSc FOA‐Fayoum Univ.

5 Dr. Khairy El Sherif Cairo Certification Body ECOA

6 Dr. Nabil Hegazy Cairo Certification Body ECOA

7 Dr. Mahmoud Abdelhady Minya Professor FOA‐Minya Univ.

8 Dr. Salah Sayed Ahmed Cairo Researcher NRC

9 Dr. Mohamed Abdel Wahab

Cairo Researcher DRC

10 Dr. Elsayed Elbadawy Fayoum Researcher Agricultural Department in Fayoum

11 Dr. Hany A. El‐Shemy Cairo Professor Cairo University

12 Ahmed Taha Fayoum Consultant FAODA

13 Mohamed Medany Fayoum Consultant FAODA

Picture no 12 – Trader in Fayoum

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S. Name Location S.P. Type Organization

14 Essam Eldeen Ahmed Mohamed

Assuit Consultant Agricultural Department in Assiut

15 Dr. Hassan Elfoly Minya Researcher Agricultural Department in Minya

3.5 Value Chain Mapping

Value stream mapping is a lean manufacturing technique used to analyze and design the flow of

materials and information required to bring a product or service to a consumer. It is

recommended that VC mapping be conducted in two phases:

a) An initial basic map after the collection of initial data illustrating participants and

functions, and

b) Adjusted mapping, which is conducted following additional and follow‐on interviews.

The detail level of the map depends on mission objectives and requirements established at the

outset.

The following shapes are the main findings of the value chain mapping activity:

3.5.1 Shape 1

As illustrated in Figure (1), this can be considered as controlled chain because the exporter is

fully aware and managing all production steps starting from the farm level followed by

processing and eventually the exporting level.

The main players in this chain are: 1) the exporter who is the leader of the VC, 2) the processing

facilities that can be drying facilities or dehydration ones, and 3) the agricultural suppliers that

can be farms managed by exporters company’s staff or contracted farms under the supervision

and technical support of the company’s staff.

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In addition, exporters outsource some of their demand from trusted traders, which is a bit risky,

so most of the exporters require several proofs to ensure the quality and safety of the

purchased materials

3.5.2 Shape 2

This is different for the above VC shape in the control of all production steps. In VC shape 2, the

exporter invests more in the analysis and investigation of the received products at the gate of

his factory or processing facilities. Most of the supply chain management procedures are

covering most of the information of each supplier and building relations with traders to ensure

the quality and quantity of received stuff. In some cases the trader and/or the contracted farms

are linked to the coverage of technical support provided by the company but this is very rare

and not usually accepted by this chain members.

3.5.3 Shape 3

The third shape of clusters is the most unstable one because it is very risky. In this VC shape the

exporter is not controlling any of the production steps. Actually, he is directly purchasing the

final products from trusted traders or local market. In this case the trader/pre‐processors

finalizes the shipment from receiving the raw material till packing and loading containers. The

trader is the only person who has information about the content and quality of the shipment.

Usually, the exporter has no responsibility of rejections in case of quality issues as they pay

after the release of payments from importer, however, in case of food safety crises and

complaints the exporter can be subject to pursuit by his importers.

Figure 1 – Exporters with Owned Facilities for Drying, Screening and Packing.

Figure 2 – Exporters with Screening and Packing Facilities Only.

Exporter

Processing ProcessingProcessing

Trader TraderTraderContracted

Farms

Traders

FarmerFarmer

Figure 3 – Exporters with no Owned/Contracted Farms and Factories

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Sample Value Chain Map

4 Further Findings, Recommendations and Results

Before going through the final conclusion and recommendation, the following section will overview and

describe the major bottlenecks observed in the MAPs sector in Egypt.

4.1 Revision of the sector bottlenecks

Poor Agricultural Practices

The majority of farmers do not implement good agricultural practices. Although they are very

skilled in terms of utilizing their limited knowledge and resources, the yields are relatively low,

and in most cases the uninformed use of pesticides causes product contamination. Farmers are

used to blindly spraying pesticides without giving attention to neither the appropriate types nor

doses. Poor collection and handling practices result also in microbiological contamination.

Land Fragmentation

Not only the rent of agricultural land in Egypt is amongst the highest in the world but also land

fragmentation in Egypt is one of the highest in the world. This fragmentation of ownership does

not remarkably allow for economies of scale. It also causes significant fluctuations in the supply

which makes it difficult to plan and have proper export commitments. In the case of organic

products, this causes huge problems with pesticides contaminations from neighboring non‐

organic farms.

Shortage of Proper and New Varieties

Egypt has not been able to introduce newer and more demanded MAP products. Same

traditional products have been planted and exported for many years. Seeds that are used are

old and weak with relatively low yields, most of which are also mixed varieties. There have been

no innovations neither on the way of growing nor on the type of seeds. Imported new or pure

varieties get also mixed and become weak over years. This is primarily due to lack of proper

research and development efforts. Processors and exporters exert very limited effort in this

area, as they are not directly involved or connected to the farming part of the supply chain. The

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high fragmentation may also be a cause of their limited interventions. Another cause of this

problem is the lengthy procedures set by the Ministry of Agriculture and Land Reclamation on

the importation of new varieties.

Poor Drying and Handling Practices

In Egypt, the drying of fresh collected MAPs is commonly done by one of the following ways:

• Sun drying by flattening in the field and/or on the sides of roads. This is the most

unhygienic way for drying. The product is exposed to a variety of contaminants including

animals’ and birds’ droppings, dust, and many kinds of microbiological hazards. For

some products, direct sun drying affects the quality of the produced product and lowers

its content of essential oils.

• Drying on concrete floors amongst the farm or

on roofs of buildings. This method is to some

extent better but still completely un‐hygienic as

the product is open to a great variety of

contaminants and pollutants.

• Drying in primitive drying facilities. Such

facilities are with concrete floors and with

fences, but still open to the atmosphere and to direct sun. Very few more sophisticated

facilities are covered with plastic sheets or with shadow nets. Yet, the handling practices

need to be upgraded to meet acceptable

hygienic standards.

• Drying in greenhouses with natural or forced

ventilation. A few pilot drying facilities were

built in this manner. Yet, they suffer from poor

design and low capacity. Designs need to be

revisited and handling practices have to be

Picture no 13 – drying station

Picture no 14 – drying methods

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upgraded.

• Drying in specially designed ovens. Not all MAPs can be dried this way, since it greatly

affects the final product quality. The color of the final product is darkened and the oil

content is much less.

Unfortunately none of these ways is up to any acceptable standard, and this is considered one

of the major bottlenecks affecting the development of the sector. Moreover, MAP operators

reported that post‐harvest losses range between 25% and 40% due to poor handling practices

implemented.

In a nutshell, the drying processes need to be revisited. Technical upgrade is necessary and

should be based on techno‐economic studies considering all the hygienic and product quality

aspects.

Traceability

Traceability is a real challenge within the high fragmentation of the supply chain. Nevertheless,

it is possible with organized efforts. Exporters should

insist on securing the traceability data back to the field

and not to suffice with one step back to the trader.

This will positively impact the organization of the

supply chain and the commitment of all its members.

Squeezed Prices

Egyptian exporters have a weak bargaining power

when it comes to prices, although Egyptian products have a high demand in the export markets

and in some varieties have the leading market share. It is reported that prices can be as low as

one half or one third of those of competitor countries.

This can be led back to one or more of the factors listed below:

Picture no 15 – dehydration machines

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• Poor reputation of Egyptian products in terms of quality and safety, resulting from

fraud cases of inexperienced small scale exporters ruining the image of the rest of

serious exporters.

• Price competition among Egyptian exporters,

where some local traders with poor experience

in dealing with international clients considerably

reduce prices just to close a certain deal.

Typically, foreign importers use their quotations

as a negotiation tool to reduce the prices of

reputable exporters.

• Lack of pure and new varieties, as most of the varieties grown and handled are mixed,

and most of the exporters are not able to source pure varieties or certain varieties not

traditionally grown in Egypt.

• Lack of branded products, as all products are exported in bulk and without any brand or

quality trademark. For price improvement, a quality endorsement trademark should be

developed and promoted, and/or more value added steps should be conducted in order

to export final products to consumers. Merely all the exported products are re‐

processed and in many cases repackaged and re‐exported.

• Global competition, where products from countries like India, China, Morocco, Pakistan,

Turkey, Romania, Australia and Canada are posing serious threats on the local industry.

Although some of the Egyptian products are irreplaceable to a certain degree, the

demand is not very elastic. Importers will resource to other countries, when necessary,

in order to meet their quality and cost targets. These places are able to produce cheaper

and with higher yields compared to Egypt and therefore they become an issue for

consideration.

Picture no 16 – new imported seeds

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International Standards and Regulations

A greater challenge facing the industry is the increasingly enforced regulations for MAP

importation in export countries and in Europe in particular. In addition to different quality and

food safety certifications requested by major importers, traceability requirements comprise

another challenge to local operators and exporters with the high fragmentation of the value

chain.

Access to finance

Although this is a labor intensive industry and although the way it is run in Egypt is not of high

cost, in addition to its being a small family run business and highly fragmented, some reports

still highlight that producers have problems in raising funds. However, this is not an industry

related issue, it is rather a problem with the banking system in general. Due to the recent

complications that banks went through, they have imposed very tough measures and have

made it very difficult for businesses to approach them.

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4.2 Conclusions & Recommendations

According to the results concluded from the VC mapping activity most of the bottlenecks

identified during the project development phase are confirmed. In addition the VC mapping

exercise provided a better understanding of the organization of the value chain and help

revealing the various clusters and relationships between actors in the MAPs sector in Egypt.

These will surely support the design and implementation of the project intervention in general,

and the technical assistance it provides in particular.

During the value chain mapping and stakeholder validation meetings all value chain actors

confirmed the importance of this project to develop the medicinal and aromatic sector in Egypt.

They mentioned that the project will create major new opportunities to improve the position of

Egyptian exports at international markets.

The project partners such as AEC, ESHEDA, IMC and FTC confirmed their contribution and

commitment to the project as expressed before during the development phase of the project.

They declare that they will provide technical, financial and managerial support to ensure the

success of the project.

As a result of the value chain mapping activity the NTC is recommending to consider the

following issues:

1. Linkages between MAP value chain members should be improved with increased value

chain efficiency, transparency, and responsiveness to market demand. It is essential to

establish industrial platforms that link research and technical services and industry, and

support encouraging the value chain actors to participate in national development

initiatives that help improving sector’s linkages and thus creating bases of trust between

all actors at different levels of the VC.

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2. The project should provide technical assistance to the identified clusters formed by

exporters and their suppliers back to the primary production with the objective of

upgrading each cluster in terms of quality enforcement and access to export.

3. Collaboration initiatives should be established with national stakeholders to strengthen

relevant governmental and non‐governmental institutions serving the MAP sector to

ensure sustainability of the project.

4. Importance of studying and exploring different ways for technology transfer including

proper customization to local demand and domestic conditions.

5. The project should integrate with research centers such as Agriculture Research Center,

National Research Center, Desert Research Center and other national institutes to

formulate national research plan targeting the medicinal and aromatic sector. This plan

should address the key steps needed to improve this sector, create positive

interventions with the project stakeholders and focus on the identified bottlenecks.

6. The sustainability of planned service centers shall be evaluated through regular

previously identified and tested processes in order to set the appropriate way of

operating these centers and thus ensures the sustainability of the project.

7. The project should implement the principle of cost sharing to be a part of the

sustainability plan. In other terms, this will help ensure the commitment of beneficiaries

and targeted clusters to the upgrading requirements.

8. There are some new initiatives introduced by the Faculty of Agriculture, Cairo

University, for producing natural medicines based on extracting certain active

ingredients from medicinal and aromatic plants. These initiatives will help in the

responsible work package for product development as it will create new demand for the

pharmaceutical industries. So, it is highly recommended that these initiatives are

studied and tested within the context of the project.

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9. A great attention to the role of extension services is needed to ensure the outreach of

the project services and the technical support activities. This is to ensure the effective

delivery of these services to all SMEs in the targeted governorates.

10. It is recommended that the project study the quality mark schemes applied in India and

China and customize it to match the local context. Both markets have shown remarkable

success stories in the area of quality mark design and introduction to the international

markets.

11. Further investigations on the cluster shapes shall be conducted to formulate the

eligibility criteria for accepting clusters and the type of services required

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5 Annex

Annex 1: Questionnaire for Growers

Annex 2: Questionnaire for Exporters

Annex 3: Questionnaire for Traders

Annex 4: Questionnaire for Service Providers

Upgrading the Medicinal & Aromatic Plants Value Chain ‐ Access to Export Markets

1

Annex 1 – Medicinal & Aromatic Plants Growers Questionnaire

Date Interviewer Time GPS Grower Contacts Grower Name Total cultivated area Address: Telephone: Fax: Email: Website: Mobile:

Applied farming system Irrigation type surface dripping spraying pivot Soil Type Seeds source and type Fertilization system Pest control system Product list

Grades Organic Clean (pesticide free) Conventional Other……….. No. of permanent staff No. of seasonal staff Experience (years) Harvesting and drying activities

Suppliers Supplier name Location Supplier name Location Input supplier(s)


2

Marketing Number of items produced annually

Main traders (Clients)

Annual production (tons) Price (average)

Contracting type annual contracts local markets Other……….. Labels, trademarks used Percentage of annual rejections

Distance to drying yards

Directions towards MAP development Where do you see the development of Medicinal and Aromatic Plants sector in Egypt after 5 years? Positive feedback Negative feedback

How can you increase your production?

What are the main challenges / problems disturbing your business?

How can you increase the quality of your production?

If you are planning a project to develop the map sector in Egypt, what are the main areas shall be covered (areas for value addition) and what are the priorities?


3

Directions towards MAP development

Do you receive any extension services? If yes, what type and source?

Would you accept the idea of using new seeds for cultivation?

Would you be interested to pay fees for receiving extension services?

If yes, what areas would you be interested on?


1

Annex 2 – Medicinal & Aromatic Plants Exporter / Producer Questionnaire

Date Interviewer Time GPS

Company profile Company Name:

Owner Name:

Address:

Telephone: Fax:

Email:

Website:

Contact Person: Mobile:

Description of the operation plan Type of production Fresh Dried Essential oil Number of products Number of production sites Location of production Site(s)

Item Q/T Item Q/T Item Q/T

Product list

Grades Organic Clean (pesticide free) Conventional Other……….. Annual production Year of

Establishment

No. of permanent staff No. of seasonal staff

No. of females staff Type of work (females)

Description of applied food safety procedures


2

Procurements Number of raw materials suppliers

Source location(s)

Receiving grade(s) Raw material packaging type

Transportation provided by supplier provided by exporter third party contract Other………..

List of suppliers

Marketing Number of products directed to Export

Main destinations

2010 2009 2008 Production capacity Annual production volume

Exporting percentage Domestic sales percentage

Labels, trademarks used Percentage of annual rejections

Logistics contracted with shipping companies exporting via owned company not applicable Other………..




3

Directions towards MAP development What are the main challenges / problems disturbing your business?

How can you increase the percentage of exported quantities?

If you are planning a project to develop the map sector in Egypt, what are the main areas shall be covered (focused for value addition) and what are the priorities?

What is your opinion on creating export consortium to help in branding Egyptian MAP products?

How can you raise the selling prices of your products?

Do you have future plans of creating new products or changing the exported product forms?

Would you accept the principle of cost sharing for all project activities? Yes No

What do you prefer to be a form of interaction between producers and the new station for modern draying:

renting the station from the MIFT MIFT operates the station and serve producers with reasonable fees Other ...........


1

Annex 3 – Medicinal & Aromatic Plants Traders / Processors Questionnaire


Trader / Processor profile Trader / processor Name Company type Address: Telephone: Fax: Email: Website: Mobile

Description of specialization Type of production Fresh Dried Essential oil Number of products Number of production sites

Location of production Site(s)

Product list

Grades Organic Clean (pesticide free) Conventional Other……….. No. of permanent staff No. of seasonal staff No. of females Type of work

Suppliers & contracted farms Number of contracted farmers Location(s) Receiving grade(s) Technical support services to contractors

Transportation provided by farmers provided by trader third party contract Other………..

List of suppliers (contracted farms)


2

Marketing Number of products directed to Export companies

Main clients

Annual production (tons)

Price (average)

Contracting type annual contracts cash & carry local markets Other………..

Labels, trademarks used



What are the main challenges / problems disturbing your business?

How can you increase the exported quantities of your production?

If you are planning a project to develop the map sector in Egypt, what are the main areas shall be covered and what are the priorities?


3

Directions towards MAP development

Describe your experience towards export? Have you tried to export by yourself?

Would you accept new technologies in the field of draying and processing?

Describe your rejection policy? Where do you direct rejected lots?

Describe your food safety procedures?


1

Annex 4 – Medicinal & Aromatic Plants Service Provider Questionnaire


Service Provider profile Service provider type consultant researcher extension input supplier Organization Address: Telephone: Fax: Email: Website: Contact name: Mobile:

Description of specialization Background

Years of experience Previous researches

Names of co‐researchers

List of publications


2


How can you develop your services?

What are the main challenges / problems disturbing your services?

If you are planning a project to develop the map sector in Egypt, what are the main areas shall be covered and what are the priorities?

Documents

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