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Final Report

Egypts Packaging Sector Development Strategy (PSDS) And Action Plans

Prepared by: Development Options Limited (DOL) Dated: 21st October 2004

Contents Section: Part A Introduction And Executive Summary 1 Introduction.. 1


1.1 1.2 1.3 1.4 1.5 1.6 1.7 Importance Of Packaging Sector.. Key Sector Features Terms of Reference. Sector Steering Committee PSDS Implementation Mechanism Timing Of Review Activity Structure Of Report.. 1 1 3 4 4 4 6

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Executive Summary..
2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21

Packagings Dual Roles.. 7 Global Packaging 7 Packaging Materials 7 Twin Peaks Market Development Potential . 8 International Supply Chains And Customer Relationships. 8 Regional Export Performance. 9 Egypts Current Sector Positioning 9 International Development Drivers 9 Results of IDD Comparison 10 Reasons For Weak Activations 10 Packaging Sector Development Strategy 11 Development Activities 13 Ability Of Companies To React.. 14 Company Review Results 14 Export Readiness And Performance.. 15 Benchmarking. 16 Business Development Programmes... 17 Development Activities Package. 18 Implementation Mechanism 19 Fresh Horticultural Produce 19 Improving Sector Performance 20

Part B Egypts Packaging Sector Development Strategy 3 Strategic Positioning National Packaging Sectors 22

3.1 3.2 3.3 3.4 3.5 3.6

Packaging Sector Roles Sector International Development Drivers (IDDs) Development Relationships Between IDDs... Selected Country Positioning.. International Trends In Packaging Materials.. Egypts Twin Peaks Development Opportunity

22 22 22 23 24 27

International Development Drivers Country Comparison... 29


4.1 Results Of IDD Comparisons. 4.2 Egypts Weak Activation Of IDD1 4.3 Egypts Weak Activation Of IDD2 4.4 Egypts Weak Activation Of IDD3 4.5 Egypts Weak Activation Of IDD4 .. 29 30 32 39 39

Packaging Sector Development Strategy (PSDS). 41


5.1 Overall Situation. 5.2 Phases Of PSDS.. 5.3 PSDS Phase 1 5.3A Board Packaging. 5.3B Plastic Packaging. 5.3C Glass Packaging.. 5.3D Metal Packaging.. 5.3E Activating IDD1 5.4 PSDS Phase 2 5.4A Industrial Sector In Its Own Right 5.4B Integrated Board And Plastic Packaging Groups 5.4C Twin Peaks Market Development Strategy.. 5.4D MDP1 Board And Plastic Packaging Into Europe 5.4E MDP2 Glass And Metal Packaging Into Region 5.4F MDP3 All Packaging Types Into Gulf States. 5.4G Pull And Push Effects On IDD1. 5.4H Activating IDD4 5.4I Comparison To UK.. 41 41 42 42 48 49 49 50 50 52 52 53 53 54 55 57 57 57

6
6.1 6.2 6.3 6.4 6.5

Stages To Implementing PSDS.. 59


Integrated PSDS Delivery Stage 1 Of PSDS Stage 2 Of PSDS Stage 3 Of PSDS Stage 4 Of PSDS 59 59 60 60 66

Development Activities Package.


7.1 Development Activity Areas

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7.2 Action Points Within A DAP.. 7.3 Design Of Implementation Mechanism. 7.4 Structure Of DAP For PSDS.. 7.5 Removing Constraints On Development 7.6 Strategic Development Projects.. 7.6A Addressing Structural Issues. 7.6B Product Development And Technology Service. 7.6C Domestic Consumer Products. 7.6D Privatisation And Modernisation 7.6E Communicating The PSDS.. 7.6F Reviewing And Monitoring The PSDS 7.7 Assessment Of Development Opportunities 7.8 FDI And International Strategic Alliances. 7.9 Business And Market Development Programmes. 7.9A IBDP.. 7.9B DCBDP.

68 69 69 69 69 70 70 72 72 73 73 74 75 75 76 79

Implementing PSDS 83
8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 Implementation Mechanism Private Sector Involvement. Overall Structure. Delivering Development Activity Packages... Management Structure Managing Development Activity Delivery. Action Plans.. Next Steps.. 83 83 84 85 86 87 89 90

Sector Performance Agreement And Funding Package 91


9.1 9.2 9.3 Improving Sector Performance.. Funding Package. Costs And Benefits 92 92 93

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Action Plans For Egypts Packaging Sector 94


10.1 Action Plan Overall PSDS Implementation. 94 10.2 Action Plan Remove Constraints On Development 94 10.3 Action Plan Strategic Development Projects.. 95 10.3A Action Plan Structural Issues Virgin Fibre.. 95 10.3B Action Plan Product Development And Technology Service 10.3C Action Plan Domestic Consumer Products. 96 10.3D Action Plan Privatisation And Modernisation. 96 10.3E Action Plan Communications 97 10.3F Action Plan Research And Monitoring. 97 10.4 Action Plan Assessment Of Development Opportunities. 97
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10.5 Action Plan FDI and International Strategic Alliances98 10.6 Action Plan Business Development Programmes..99 10.7 Action Plan Market Development Programmes99

Part C Results And Conclusions Of Review Activity In The Global And Domestic Packaging Sectors 11

112

Global Overview.. 112


11.1 11.2 11.3 11.4 11.5 11.6 11.7 Global Packaging Sector.. International Companies Leading World Packaging Materials. Country Reviews.. International Sector Structure Drivers. Conclusions On International Competitiveness. Regional Export Performance Packaging Type 112 114 124 128 133 134 137

12

Domestic Supply Chains


12.1 Application Of Supply Chains 12.2 Influences On Packaging Supply Chain. 12.3 Sourcing Packaging Input Materials. 12.3A Aluminium 12.3B Aseptic Packaging 12.3C Board Supply Chain 12.3D Glass Packaging.. 12.3E Metal Packaging.. 12.3F Polyethylene Supply Chain. 12.3G Polypropylene Supply Chain.. 12.3H PET Supply Chain 12.3I Polystyrene Supply Chain..

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142 146 146 146 146 146 147 148 149 150 151 152

13

Domestic Board Packaging


13.1 13.2 13.3 13.4 13.5 13.6 Board Terms.. Board Packaging Internationally. Pressures For Change Options To React To Changes.. Domestic Supply And Demand. Sourcing Material Inputs..

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153 154 155 156 156 157

14

Domestic Plastic Packaging 159


14.1 Polystyrene. 14.2 Polyethylene 14.3 Polypropylene
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14.4 PET. 14.5 Film And Film Printing.

162 163

15

Company Review Results

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167 168 168 172 172 176 176 176 178 180 181 182 184 184 185 187

15.1 Introduction 15.2 Assessment Of Product Capabilities 15.3 Board Packaging Company Results 15.3A Domestic Results.. 15.3B International Comparisons. 15.4 Plastic Packaging Company Results.. 15.4A Material Inputs Polyethylene and Polypropylene.. 15.4B Added-value Processing Film manufacture and Printing 15.4C Added-value Processing Plastic Containers 15.4D Added-value Processing Film Printing. 15.5 Glass Packaging Company Results 15.6 Metal Packaging (Tin Cans)Company Results.. 15.7 Processed Foods Company Results 15.7A Dairy and Fruit Juice.. 15.7B Edible Oil.. 15.8 Pharmaceuticals Company Results

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16.1 16.2 16.3 16.4

EU Regulations
Introduction.. Summary EU Regulations Relating To Packaging Key EU Food Packaging Regulations.. Further Information..

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189 190 192 203

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17.1 17.2 17.3 17.4 17.5 17.6

E-Commerce In Packaging205
Role Of Internet Trading Throug h The Internet.. B2B Applications CPFR On-line Auctions Egypts E-Commerce Marketing Strategy 205 206 206 207 207 208

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18.1 18.2 18.3 18.4 18.5

Review Of Packaging Designers


Briefing Process Quality Control Market Research Designer Involvement Human Resource Development

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209 210 210 211 211
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18.6 18.7 18.8

Innovation And Creativity Locally Produced Packaging Materials Printing Equipment

211 212 212

Part D Fresh Horticultural Produce 19 Preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS) 214
214 214 215 215 217 219 219 221 223 ...224 224 ..226

19.1 Fresh Horticultural Produce In Context 19.2 Basis Of Selecting Fresh Horticultural Produce 19.3 International Development Drivers (IDDs) 19.4 Base Position IDDs 19.5 Develop From Base Position IDDs 19.6 Weak Activations Of Fresh Horticultural Produce IDDs. 19.6A IDD1a And IDD1b 19.6B IDD2a And IDD2b 19.6C IDD3a And IDD3b 19.6D IDD4 19.7 Preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS) 19.8 Next Steps

20
20.1 20.2 20.3 20.4 20.5 20.6 20.7 20.8 20.9

Fresh Produce Results And Conclusions. 228


Current Situation..228 Role Of Europes Supermarket Chains..228 Strategic Objective228 Changing Attitudes228 Understanding Market Requirements.229 Packaging In Context230 Development Partners..230 Packaging Issues231 Market Development Strategy. 232

Part E - Appendices Appendix 1 - Preparation Of Sector Development Strategies Appendix 2 - Steering Committee Members 235 250

Appendix 3 - Response To Additional Points Raised By Steering Committee 252 Appendix 4 Packaging Companies Reviewed
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Appendix 5 - Statements Of Commitment For International Business Development Programme 261 Appendix 6 - Statements Of Commitment For Domestic Capabilities Business Development Programme 266 Appendix 7 - Board Raw Materials: 267

A Background B Global Paper Making C Main Non-wood Fibres D Use Of Straw E Use Of Bagasse F Conclusions G The NACO Process H The Chempolis Process I Process From Grant S.A. J Mill Case Study K Enzyme Treatment L Upgrading Straw Into Paper M Research Institutes

280 280 280 281 274 275 286 292 303 309 312 313 316

Development Options Limited

Abbreviations
ALEB B2B bn CCS COD CPFR DAP DCBDP DD DOL EC ECSA EEC EGP EU or EUR FAO FDI FHPSDS FT GBP GCC GoE HACCP - Agriculture Led Export Business - Business-to-business - billions - Crown Cork and Seal - Chemical oxygen demand - Collaborative, planning, forecasting and replenishment - Development Activities Package - Domestic Capabilities Business Development Programme - Development drivers - Development Options Limited - European Commission - Egyptian Cold Store Association - European Economic Community - Egyptian Pounds - European Union - Euro - Food and Agriculture Organisation - Foreign direct investment - Fresh Horticultural Produce Sector Development Strategy - Financial Times - Pounds sterling - Gulf Co-operation Council - Government of Egypt - Hazard Analysis Critical Control Points

HDPE HEIA HRD IBDP IMC IP ISO JSG kg kg/year LPS MC MDP MENA MIS MoFTI MoI mm mn mncs OD OI OPC OPS OS

- High density polyethylene - Horticultural Exporting Improvement Association - Human Resource Development - Internationalisation Business Development Programme - Industrial Modernisation Centre - International Paper - International Organisation of Standardisation - Jefferson Smurfit Group - Kilogramme - Kilogramme per year - Lignin precipitation system - Medium consistenc y - Market Development Programme - Middle East and North Africa - Management Information System - Ministry of Foreign Trade And Industry - Ministry of Investment - millimetre - millions - multi-national companies - Oxygen demand - Owens Illinois - Oriental Petroleum Company - Oriented polystyrene sleeves - Oxygen scavenging

Development Options Limited

PDATS PET PP PSDAM PSDS PVC p/y RCF RDA SSCC ToR UAE UK UPEHC US VCM VICS $ or USD

- Product Development And Technology Service - Polyethylene terephthalate - Polypropylene - Packaging Sector Development Activities Mechanism - Packaging Sector Development Strategy - Polyvinyl chloride - Per year - Recycled fibres - Recommended daily allowance - Smurfit-Stone Containers Corporation - Terms of reference - United Arab Emirates - United Kingdom - Union of Producers and Exporters of Horticultural Crops - United States - Vinyl chloride monomer - Voluntary Inter- industry commerce standards - United States Dollars

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Part A
Introduction And Executive Summary

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Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Introduction

Background Development Options Limited (DOL) was awarded the contract by the Industrial Modernisation Centre (IMC) to undertake a study of Egypts Packaging Sector. The assignment started on 30th March 2004, with a four month period for completion. A draft final report was submitted dated 29th July, but due to holidays during August it was not th possible to hold a final Steering Committee meeting until 8 September, when a final presentation of the recommendations and conclusions was accepted. This report is dated 21st October 2004 due to the time that was required to transfer the content of the presentation into report format and to have the final text accepted. We take this opportunity to express our gratitude for having been selected to undertake this important assignment.

1.1

Importance Of Packaging Sector

The importance of Egypts Packaging Sector can be summarised as follows: It is a significant industrial sector in its own right with annual sales of EGP 8 bn. All consumer products are presented in packaging which performs a number of roles, including: protecting the products inside; pr oviding the printed surfaces for presenting brands and customer information; meeting technical regulations on the presentation of products; meeting technical specifications for maintaining the shelf-life of products; providing convenience to the retailer to store, present and sell the product; and convenience to the end customer to consume the product. With some consumer products the value of the packaging can be greater than the value of the product inside. Successful international consumer product manufacturers place stringent quality standards on the packaging supplied to them as consistency of product presentation is a pre-requisite of maintaining their brand image. The range of packaging products and their quality, that can be sourced from domestic packaging manufacturers, at competitive prices, is a key issue in determining the improved export performance of Egypts consumer product manufacturers.

1.2

Key Sector Features

Roles Of Packaging The Packaging sector , in any country, perform two roles; firstly, to supply high quality and innovative packaging to domestic manufacturers of consumer products; secondly, international trade in packaging inputs and final packaging products. The dual roles demonstrate an unusual feature of packaging sectors, worldwide, as the sectors final packaging products are applied to final consumer products that are either produced domestically, or externally; and can end-up being sold anywhere in the world.

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Pull And Push Effects Based on the first role above there are two close relationships between the packaging and consumer product manufacturing sectors in any country: The Pull Effect where rapid growth in the sales of domestically manufactured consumer products pulls through increased sales of domestically manufactured packaging products. Under this situation a national packaging sector is riding on the back of the improved performance of the same nations consumer product manufacturers. The Push Effect that is applied by consumer product manufacturers on their packaging manufacturing suppliers. If the former are: innovative in introducing new products; active in selling into leading international consumer markets; and have strong international brands, they will continually push their packaging suppliers to innovate in the types of packaging products being offered to meet increasingly demanding customer and statutory requirements.

Customers And Branding A key issue for Egypts Packaging Sector is the extent to which domestic consumer product manufacturers recognise the importance of branding their products, as this will determine their attitude to the quality of the packaging being supplied to them. The study has indicated, that in one production batch the packaging manufacturer will be faced with having to meet very stringent product quality standards, as specified by mnc customers; whereas in the next batch, the products will be destined for an indigenous consumer product manufacturer that stresses low price, over product quality. It may be viewed that addressing this issue should be the responsibility of the other vertical sector studies; such as food, pharmaceutical and white goods that are covering consumer products made in Egypt, but we suggest this is a crucial issue for the future of Egypts Packaging Sector and should be covered by this study. Trade In Packaging Trade in packaging input materials includes: raw materials (for example wood pulp); packaging input materials (for example kraftliner and PET sheets); and final products (for example printed corrugated board and printed plastic film). Under such trade, sales are business-to-business. The development of international supply chains has resulted in packaging input material flows between countries at all stages in the supply chain, including final product packaging. Manufacturers of packaging products may have purchased a combination of domestically-sourced and imported raw and semi-processed input materials to produce the packaging product. The packaging product may be in semi-finished (component for integrated final packaging) or final form, and could be sold domestically, or exported. This requires the packaging to not only meet the customers internal packaging specifications, but also have the flexibility to meet statutory regulations and consumer information, in different markets, and in different languages. It is to meet these requirements that the manufacturers of packaging, in international supply chains, have become increasingly sophisticated.

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Packaging Regulations An issue for Egypts Packaging Sector is how an understanding of: international regulations; supply chain requirements; and customer product specifications should be developed. If Egypt had vibrant consumer product manufacturing sectors, which are already exporting in large quantities into Europe, the lessons would already have been learnt. Such export led vibrancy appears not to exist, and therefore, the issue is where and how these capabilities should be developed. Having such capabilities is a prerequisite for selling packaging as a product, either direct to European consumer product manufacturers, or into international packaging supply chains. Domestic Regulations And Standards A key issue related to the last point is that Egypts packaging regulations are considerably more lax than in the worlds leading developed consumer markets (EU, Japan and North America). As most of Egypts consumer product manufacturers are domesticallyoriented in their sales they face significant challenges in meeting the higher regulation requirements in export markets. Many of the regulations relate to the packaging rather than the product sold in the packaging. There is also the issue of domestic packaging product specification standards which is a theme which appears in many places within the report.

1.3

Terms Of Reference

Key requirements of the Terms of Reference (ToR) for the Packaging Sector study, and how they have been met, are described below with the results presented in Part C of the report: Global review of the international packaging sector. Apply country comparisons between Egypts Packaging Sector and the sectors in MENA countries and against international best practice. The countries that were selected by the Steering Committee are Saudi Arabia and Turkey as MENA countries, South Africa as a regional leader, and UK for international best practice. Review 30 companies, which during the study was divided into; Interviews of domestic packaging manufacturers and their domestic consumer product manufacturer customers to obtain their views on issues and opportunities, with 79 interviews undertaken. Benchmarking of companies in Egypts Packaging Sector, which was undertaken through the results of detailed reviews of 27 packaging manufacturers, and 13 food processors that are significant users of packaging. International best practice benchmarking was applied to Egypts board packaging sub-sector.

Structure the review activities by selecting four packaging product areas, with board, plastics, glass and metal (tin can) packaging having been selected by the Steering Committee. The compete supply chains have been reviewed for each of these product

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

areas, from raw material sourcing to final product application. In should be noted that aluminium packaging was not included in the four product areas.

1.4

Sector Steering Committee

A key requirement of the ToR was the establishment of a Steering Committee, which has met on five occasions during the study. The names of the committee members are provided in Appendix 2. We take this opportunity to thank the members of the Steering Committee for their observations and comments on the presentations and draft versions of the two main reports. A number of areas were raised during the study that have not been covered by the review activity, including: education and training; logistics and retailing; the difference between consumer packaging and packaging for handling; and how to improve the cold chain system in Egypt. Responses to these areas of activity are provided in Appendix 3. 1.5 PSDS Implementation Mechanism

A key element of any sector development strategy is the need for an implementation mechanism. Recomme ndations on how such a mechanism should be established to realise the development potential of Egypts Packaging Sector and implement the Packaging Sector Development Strategy (PSDS) are presented in Part C of the report. In particular, we express our gratitude to the representatives of the private packaging manufacturer businesses, and consumer product manufacturers, represented on the Steering Committee for their support in preparing the PSDS. We wish them every success in using their businesses as leaders and demonstrators to other private businesses in Egypts Packaging Sector. 1.6 Timing Of Review Activity

It needs to be recognised that all of the review activity of the domestic packaging sector was undertaken before the end of July 2004 and therefore was undertaken before the implementation of reductions in import tariffs announced by the new Government in August 2004. 1.7 Structure Of Report

The structure of the report can be summarised as follows. Part A Section 1 & 2 explanation. Part B Section 3 Describes: the main roles of the packaging sector in any economy; the International Development Drivers (IDDs) that apply to any country to determine its growth performance and the relationship between the IDDs; the background to the packaging sectors in the four selected comparator countries; the main international trends in packaging materials, and indicates the ir international life-cycles, divided into developed and developing countries. The introduction and executive summary does not require any

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Section 4 Describes the development driver weak activations in Egypts Packaging Sector that need to be overcome if sector performance is to improve. Weak activations are identified for each of the four packaging product areas covered by the review activity; board, plastic, glass and metal. This section describes strategic issues such as: product quality; product costs; production capacity; the lack of involvement in international supply chains; and lax application of Egypts existing packaging regulations and standards. All of these issues combine to create the most significant overall strategic issue, which is weak activation of pull and push effects within Egypts Packaging Sector. Section 5 Describes the Packaging Sector Development Strategy (PSDS) as a framework for achieving stronger activation of the international development drivers, within Egypts Packaging Sector. Strengthening the level of activation of the development drivers is to be achieved in two phases, with different development drivers to be activated under each phase. The section describes: three Market Development Programmes; how to generate strong the pull and push effects; and a number of product development initiatives. Egypts PSDS is compared to the development of the UKs Packaging Sector, as the international best practice comparator. Section 6 Presents the four stages of implementing the PSDS and how the activation of the development drivers will be strengthened during each stage. Overall timeframes for implementing each stage are provided. Section 7 Describes the content of five development activity areas that provide a structure to the wide range of individual development activities described under the stages of the PSDS in the previous section. The five areas are combined into an overall Development Activities Package (DAP), which provides a framework for implementing all of the activities described in section 6. Section 8 Describes the recommended approach to implementing the PSDS, through the establishment of the Packaging Sector Development Activities Mechanism (PSDAM). Each part of the PSDAM organisational structure is described. The section also describes how each of the DAP will be implemented through the overall sector mechanism. Section 9 Describes the structure of the agreement between the businesses in Egypts Packaging Sector and the Government of Egypt (GoE) covering, annual improvements in sector performance, and contributions to increased national economic growth rate, that they will deliver in exchange for GoE funding to implement the PSDS. Section 10 Provides 3 year Action Plans for the implementation of the overall PSDS, and for each of the five development activity areas under the Development Activities Package. Part C Section 11 Results of the global review activity and includes the results of the country comparisons. Section 12 Results of the domestic review activity, using the supply chains for each of the four selected product areas to structure the results.

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Section 13 Results of the detailed domestic review of board packaging. Section 14 Results of the detailed domestic review of plastics packaging. Section 15 Benchmarking results of the detailed company review activity, across the four product areas, and includes the results of the international best practice comparison. Section 16 Results of the review of EU regulations relating to packaging. Section 17 Describes the growing role of e-commerce. Section 18 Results of the review of packaging designers. Part D Section 19 Presents a preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS), which was requested by the Steering Committee as an add-on area of activity to the content of the ToR. The section describes the relationship between this sector and Egypts Packaging Sector within the strategic objective of increasing exports of fresh horticultural produce. The IDDs relating to this sector are identified alongwith their weak activations within Egypts Fresh Horticultural Produce Sector. Section 20 Results of a specific review exercise of the fresh horticultural sector that was requested by the Steering Committee. Part E Appendix 1 Provides a description of how sector development strategies should be prepared and their role within economic development. Appendix 2 Lists the members of the Steering Committee for the packaging sector study. Appendix 3 Provides a response to a number of points that were raised by the Steering Committee which are not addressed in the main body of the report. Appendix 4 List of packaging companies covered by interviews.

Appendix 5 Statement of commitment for packaging companies to participate in the Internationalisation Business Development Programme. Appendix 6 Statements of commitment for packaging companies to participate in the Domestic Capabilities Business Development Programme. Appendix 7 Results of a detailed international review of alternative solutions to sourcing and processing virgin fibre, requested by the Steering Committee.

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

Executive Summary

2.1 Packagings Dual Roles


Any packaging sector performs two roles within a national economy: Supporting other consumer product manufacturing sectors to present their products to consumers, domestically and internationally, in packaging that meets market requirements and statutor y regulations. Achieving a positive trade balance in packaging, through maximising the exports of packaging products in their own right.

One of the most fundamental conclusions of this study is that Egypts Packaging Sector should be viewed as an industry in its own right, with strong potential to export packaging products, independent of consumer products within the packaging. Developing the sectors dual role is a key feature of the Packaging Sector Development Strategy (PSDS).

2.2 Global Packaging


The global packaging sector has annual value of $ 417 bn in 2002, with Egypts Packaging Sector representing 0.3% of the global sector at $ 1.3 bn of sales. The consumption of packaging materials in Egypt is 10 12 kgs per capita, compared to 22 kgs per capita in Saudi Arabia and 90 160 kgs per capita in Europe and North America. Relocation of packaging production capacity to lower cost manufacturing countries, in pursuit of the consumer product manufacturers that have already relocated. Increasing sophistication of packaging applied to consumer products, for example readyto-heat-meals, has resulted in packaging representing a higher proportion of final product value. Low growth in packaging sales in the developed consumer markets; between 1999 and 2001; 1.2% in Western Europe and 0.8% in North America; compared to growth of 23.8% in Eastern Europe, which was the worlds fastest growing packaging market over this period. The worlds 10 largest packaging manufacturers account for 13.7% of the world market, with the annual turnover of each of these companies being three times the annual size of Egypts domestic packaging market. Most of these international companies having manufacturing facilities in Europe and North America, with recent expansions into Eastern Europe and China. They are under-represented in the MENA region, representing a FDI opportunity.

2.3 Packaging Materials


Board packaging still represents the most significant packaging material with global sales of $ 122 bn (29.2%); followed by rigid and semi-rigid plastics at $ 80 bn (19.2%); films, foils and flexibles at $ 60 mn (14.4%); metal containers at $ 40 mn (9.6%); glass

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

containers at $ 25 bn (6.0%); sacks, bags and labels at $ 24 bn (5.8%); caps and closures at $ 14 bn (3.6%); with other types of packaging representing $ 58 bn (13.9%). Plastic packaging, in particular flexibles, are growing fast in developed consumer markets at the expense of glass and metal packaging which are in the declining phase of their product life-cycles. Although glass and metal packaging are on the decline in developed consumer markets, these packaging materials have still to reach their peak in developing consumer markets, where their qualities can more closely meet supply chain and customer requirements. The life-cycles of different packaging materials, in different markets have determined the extent of consolidation in global packaging sub-sectors. The level of consolidation of manufacturing capacity ownership is : high throughout world glass and metal packaging sub-sector; high in board and rigid plastics in developed consumer markets, but low in these product areas in developing consumer markets; with most countries still having relatively low levels of consolidation in flexible packaging. Developing consumer economies continue to have fragmented board and plastic production as the need for integrated packaging supplies is yet to take-off. Countries with developing domestic consumer markets and objectives to increase packaging exports, need to recognise the higher level of sophistication of packaging and quality standards in developed consumer countries if they are planning to sell packaging products into these markets.

2.4 Twin Peaks Market Development Potential


The combination of the stage of development of Egypts domestic and neighbouring consumer markets and its proximity to the worlds largest developed consumer market, the EU, results in it having twin peaks market development potential to export its packaging products. Within the domestic and regional market there is still strong growth potential for glass and metal packaging, where this is in decline in developed consumer markets. This provides a FDI opportunity to attract international manufacturers as they open-up new manufacturing facilities to meet the requirements of the emerging market. With the European market Egypts packaging manufacturers have the opportunity to sell increasingly sophisticated board and plastics packaging, separately, or as integrated packaging.

2.5

International Supply Chains And Customer Relationships

The customers of the worlds largest packaging manufacturers are the worlds largest processed food manufacturers, such as; Heinz, Kraft Foods, Nestl and Unilever. The same applies in the Pharmaceutical Sector. International packaging manufacturers have multi-site manufacturing facilities, in proximity to their leading customers. There are also strong working relationships between; the packaging manufacturers, their material input suppliers and the consumer product manufacturers to develop new packaging materials, packaging products and packaging application systems. It is difficult for manufacturers of packaging products, based in developing countries, to break into such supply cha ins and established customer relationships. This can only be achieved by the manufacturer building-up confidence in the consistency of their product quality. When selling into international supply chains that are directed at developed consumer markets, packaging manufacturers must be internationally competitive to be treated as

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

equals by the other elements in the supply chain and the customers of the chain. This represents a significant challenge for packaging manufacturers based in developing countrie s where product quality requirements and regulations are less stringent.

2.6

Regional Export Performance

The leading regional exporters of packaging products in 2002 were: Turkey, over $ 300 mn, and Saudi Arabia, over $ 100 mn . Egypt is in 11th place for regional exports of packaging with sales of $ 5.2 mn in 2002, behind countries such as: Israel $ 106.4 mn; South Africa $ 63.5 mn; Iran $ 18.6 mn; UAE $ 16.4 mn; Jordan $ 9.4 mn; Morocco $ 8.0 mn; Bahrain $ 7.9 mn; and Kuwait $ 5.8 mn.

2.6

Sector Vision

The vision for Egypts Packaging Sector is to achieve 3rd place in regional export performance within five years, which will require export sales over $ 100 mn based on 2002 values; and to take away the lead position from Turkey within ten years, which will export sales of over $ 300 mn, again at 2002 values.

2.7 Egypts Current Sector Positioning


Exports represent only 0.4% of the value of Egypts domestic packaging market. Up to now the sector has been domestically-oriented and has operating only under the role of supporting other consumer product manufacturers. The most significant issue for Egypts Packaging Sector is how it breaks -out of its historic domestic orientation, which has resulted in its performance stagnating. Under the traditional view of the sectors role within the domestic economy, any improvement in sector performance will be dependent on increased performance within Egypts consumer product manufacturers. As these are also domestically-oriented, the whole demand supply relationship is dependent on the performance of the domestic economy. The new government has stressed the need for export-led growth, with this review demonstrating the extent to which the sector is currently dependent on domestic sales. The PSDS needs to be realistic about the extent of the changes that need to be applied within Egypts Packaging Sector to achieve export-led growth.

2.8

International Development Drivers

Global review activity was used to identify the International Development Drivers (IDDs) that determine the rate of growth of any national packaging sector. They are split into IDDs that relate to the role of the sector to support other sectors, and those that result in 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices nd 2 Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product IDD3b Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa)

Development Options Limited

Packaging Sector Development Strategy & Action Plan

September, 2004

IDD4 Selling packaging in international markets using imported input materials the sector being able to operate as an industry in its own right, see para 2.1.

2.9

Results Of IDD Comparison

The Steering Committee selected four countries as comparators to Egypt with; Saudi Arabia and Turkey selected as strong regional competitors; South Africa as leading regional country; and UK representing international best practice.
In the following table , the stronger the activation of the IDDs, represented by a green colour, the better will be the performance of the sector; the weaker the activation, represented by a red colour, the lower will be the performance, to the extent that very weak activations may hold-back the realisation of development potential.
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices 2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product IDD3b Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) IDD4 Selling packaging in international markets using imported input materials UK South Africa Saudi Arabia Turkey Egypt

Plastics

Chemicals / Plastics

N/a

N/a

Egypt has weak activations against all of the IDDs, whereas each of the comparator countries, apart from South Africa, have strong activations against all of the IDDs. In the case of South Africa the weak activation against IDD1 is offset by strong activations against the other IDDs.

2.10 Reasons For Weak Activations


The reasons for the weak activations of the IDDs within Egypts Packaging Sector are summarised in the table overleaf. Historically, the most significant weaknesses have been those affecting IDD1 and IDD2, as these relate to the traditional role of the sector to support other sectors of the economy. The weaknesses affecting IDD3a have not been an issue up to now as the sector was not expected to perform an exporting role. The adoption of the PSDS will change this situation and these weaknesses will now become more significant to overcome.

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International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices

Reasons For Weak Activations Slow growth in domestic sales Slow growth in export sales Weak pull and push effects Board Packaging: No domestic source virgin fibre Lack of spare production capacity Tariffs on imported kraftliner Some poor quality waste recycled Plastic Packaging: High domestic input prices Tariffs on imported base plastics Supply chain inefficiencies Glass Packaging: Quality problems some producers Production capacity shortages Metal Packaging: Quality problems some producers Production capacity shortages 11th position in regional exporting performance. Lack of exporting experience amongst manufacturers. Some production exported as does not meet domestic quality requirements. N/a Currently non-existent activation

Egypt

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product

IDD3b IDD4

Ownership of packaging manufacturing facilities in developed consumer markets Selling packaging in international markets using imported input materials

N/a

2.11 Packaging Sector Development Strategy


The key roles of the Packaging Sector Development Strategy are to: First turn the weak (red) activations of the IDDs into positive (green) activations to start the process of stimulating improved sector performance. Second to strengthen the positive (green) activations of the IDDs to accelerate the rate of improved sector performance and for the sector to make contributions to higher levels of national economic growth.

The description of the PSDS is split into two phases; Phase 1 which concentrates on strengthening the activation of IDD2, supported by IDD1; and Phase 2 which involves generating strong pull and push effects on the domestic packaging sector, by activating first IDD3a, and later IDD4. In the main body of the report, describing the content of the two phases, is followed by a description of four stages of implementing the PSDS with timeframes applied to each stage. Describing the content of the four stages is too detailed for an executive summary which has been restricted to summarising the content of the two phases.

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Phase 1 Phase 1 is structured by the four main product areas that were selected by the Steering Committee, as IDD2 relates to raw and input materials. Phase 1 1st Element There will be two elements to Phase 1. The first element will be used to activate IDD1. The delivery of the development activities against IDD1 should be equally across the product areas.
Metal (Tin Can) Effective application of existing packaging legislation, in particular in relation to fresh and processed food, and pharmaceuticals. Development of new national standards to be applied to Egypts packaging products. Board Plastics Glass Egypt Now

Phase 1 2nd Element The second element, and main element under Phase 1, will be directed at activating IDD2, where the expected level of activation will be stronger than under IDD1. Under this element the development activities to be delivered will be different under each product area.
Board Virgin fibre study Remove import tariffs Improve waste collection Privatisation 4 companies Avoid independent actions Integrated Solutions Plastics Product upgrading programme Mnc technical support Inputs at international prices Consolidation Polystyrene into PET PET recycling Glass Implement upgrading projects and extra capacity Implement new investment project Attract FDI Metal (Tin Can) New capacity Metal workshops Tops and closures Egypt Now

Phase 2 As with Phase 1 there will be two elements to Phase 2. Phase 2 1 st Element The first element of Phase 2 will be directed at activating IDD3a . It is structured using four initia tives that form the basis of achieving a significant improvement in exporting performance: Develop the role of Egypts Packaging Sector as an industry in its own right. Establish packaging groups that are first integrated between paper and board and carton / corrugated manufacturers, with a second stage of integration into board and plastic manufacturers.

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Implement the Twin Peaks market development strategy, see 2.4. Stimulate pull and push effects on IDD1.

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The deve lopment activities that will be implemented under each of the four initiatives are:
Industrial Sector In Its Own Right Export led growth Product innovation Integrated Board And Plastics Groups Twin Peaks Market Development Strategy Implemented through 3 Market Development Programmes (MDPs): Board and plastic packaging into Europe. Glass and metal packaging into regional market. All packaging types into Gulf States. Pull And Push Effects On IDD1 Exporting packaging starts based on existing production capacities. Pull effects board packaging meeting international standards. Product Development and Technology Service new product development. Multi-site manufacturing to support fresh produce exports. Integrated packaging solutions to meet requirements of international customers Egypt Now

Investment in new virgin and recycled paper and board, and carton / corrugated 1 manufacturing facilities. Integrated board packaging companies. 2 Integrated board and plastic packaging 3 manufacturers.

Phase 2 2nd Element The development activities that will be directed at activating IDD4 are:
Become tier 1 suppliers into international packaging supply chains. Out-sourcing FDI relocating part / whole of existing supply chains to manufacture in Egypt. FDI into Egypt for domestic and regional markets.

2.12 Development Activities


It is the implementation of development activities that will achieve the stronger activation of the IDDs and the improvement in sector performance. The presentation of the development activities in the tables under Phases 1 and 2 represent only a summary of the more detailed recommendations provided in section 5, and under the four stages of implementation in section 6. It would be extremely difficult to co-ordinate and control implementation if each of the development activities is progressed independently. It is our view that it will be essential to have an easily understood structure for the development activities. This is to be

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achieved in two steps. The first step involved collecting together the individual development activities under five headings: 1. Remove constraints on development. 2. Strategic development projects. 3. Assessment of development opportunities. 4. FDI and international strategic alliances.

5. Business and market development programmes. Under the second step the five development activity areas are grouped together under a single Development Activities Package (DAP).

2.13 Ability Of Companies To React


The implementation of most of the development activities involve removing obstacles to achieving improved exporting performance and creating a business environment that is conducive to entrepreneurial actions. It is crucial for the design of the PSDS that a realistic assessment is made of the ability of companies to respond to removing the obstacles and reacting to the improved business environment. The company review activity of the overall sector methodology was used to address this issue and to reach conclusions on the need to business development programmes to support companies to achieve their full potential for export sales. The need for market development programmes has already been indicated under Phase 2, 1st element to activate IDD3a.

2.14 Company Review Results


The results of detailed reviews of 27 packaging manufacturing companies, across four product areas, are provided in the following table, without indicating the identity of the companies. A low product capability score (pcs) indicates poor product capability, whereas a high score indicates good product capability. Only companies that achieve a pcs of 9 are already internationally competitive and could start to enter international supply chains , and the European market under Market Development Programme 1. Packaging Product Area Board Packaging: Paper / board inputs Carton / corrugated board packaging Plastics Packaging: Film manufacture and printing Containers Film printing Glass Packaging Metal (Tin Can) Packaging Total No. Companies 5 6 Product Capability Scores By Company A B C D E F Average 3 1 6 2 6 5 7 9 9 9 6.2 5.8

3 4 3 4 2 27

4 5 5 7 7

5 5 8 7 9

5 6 8 8 7 9

4.7 5.8 7.0 7.8 8.0 6.2

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In the overall board packaging product area, the pcss of paper / board manufacturers range from 3 to 9, and 1 to 9 in carton / corrugated board packaging. Carton / corrugated board packaging has three companies achieving a pcs of 9, which is the only product area with more than one company that is internationally competitive. In plastics packaging there is less spread of pcss, but they are concentrated in the middle scores of 4 to 8, with no company scoring 9. In glass and metal packaging there is more consistency of higher scores, but under each product area only one company achieves a pcs 9. Based on the 27 manufacturers covered by the company review there are 6 companies that are internationally competitive : 1 in paper and board; 3 in carton / corrugated board manufacturing; 1 glass manufacturer; and 1 metal packaging manufacturer. Although three carton / corrugated board manufacturers are scored as being internationally competitive , and each have existing exporting experience, all of them accept they do not have sufficient internationa l market exposure and require market development support if they are to significantly increase their exporting performance. 2.15 Export Readiness And Pe rformance Although a pcs of 9 indicates an ability to compete in international markets, the availability of production capacity to meet export orders needs to be taken into account, alongwith existing export experience. Packaging Product Area No. Of 9 Scores Production Capacity Availability Spare Production Capacity As % Of Current Production 15.6 24.0 Comments On Exporting Experience

Board Packaging: Paper / board inputs Carton / corrugated board packaging Plastic Packaging: Film manufacture and printing Containers Film printing Glass Packaging

1 3

26,000 32,000

All supply domestic market Three 9s existing exporters

9,850 5,300 1,050 10,500 (manufacturers with product quality issues) -

29.4 51.0 13.0 6.1

Metal (Tin Can) Packaging Total

All 3 companies are exporting ranging from 5 to 60% Half exporting at 10 20%. 2 out of 3 exporting at 10% each The two manufacturers with the lowest scores export 5 and 20% of their production, but this is due to the quality being too low for the domestic market. The 9 score is operating to full capacity. The 9 score already exports 25% of production, but is operating to full capacity for domestic demand.

84,700

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Key conclusions are:

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The most significant levels of spare production capacity are in plastics, but none of the manufacturers have a pcs of 9. The company with a pcs of 9 in glass packaging is operating at full capacity to meet domestic demand. The business scoring 9 in metal (tin can) packaging is already exporting 25% of production, but is operating at full capacity. The only product area where there is the combination of a number of companies with pcss of 9 scores; spare production capacity; and export experience is carton / corrugated board packaging.

The starting-point for achieving a strategic increase in packaging export sale s will have to be from the carton / corrugated board packaging product area. Although the three businesses that achieve 9 scores have some exporting experience, they have each agreed that they require to receive business development support, if they are to be successful in substantially increasing sales into leading consumer product markets and international supply chains.

2.16 Benchmarking
An additional output of the company review activity was to benchmark Egypts packaging manufacturers against manufacturers in other countries. The requirement for this further assessment is to check that the approach to applying pcss of 9 does indicate companies that are internationally competitive. The approach that was applied concentrated on the product area where Egypt has greatest short-term potential to increase packaging exports; carton / corrugated board packaging. The best of Egypts carton / corrugated board manufacturers h as been benchmarked against the best producers in Saudi Arabia, South Africa, Turkey and UK. The results are: UK Product capability score Production capacity utilisation Productivity tonnes/employee Average age machines years 10 100 400 South Turkey Saudi Africa Arabia 10 9 9 100 300 100 90 100 90 Egypt 9 100 150 Comments On Comparison Same as regional competitors. Same result as other 4 countries Egypt better than regional competitors Equal oldest m/cs, but not causing a problem with productivity Best rate of any of the competitors

10

10

15

15

Waste rate

10%

10%

15%

10%

9%

The above results are positive as the best of Egypts carton / corrugated board manufacturers is: equal with the best in all five countries on production capacity utilisation; equal with the best regional competition on product capability score; equal

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with the best in Turkey on average age of machinery. Most encouragingly, though, Egypts best manufacturer is better than the regional competition in productivity per employee; and has the best result of all five on its waste rate. This indicates that there is real potential for Egypts best carton / corrugated board manufacturers to compete with, and beat. the international competition. The benchmarking demonstrates that the pcs system does identify companies that are internationally competitive. It is recommended that the approach to benchmarking, applying product capability scores and company performance indicators, should be carried forward into the implementation of the PSDS. In the context of the positive result that the three carton / corrugated board manufacturers can be confidently accepted to be already internationally competitive, there are three crucial points that need to be taken into account: As already indicated all three carton / corrugated board manufacturers have indicated that they lack exporting experience, in particular, into developed consumer markets, as in Europe. They have requested business and market development assistance to open-up new markets and to increase export sales. Any company that is categorised as being internationally competitive needs to implement a continuous improvement programme to keep-up with their competitors. The three carton / corrugated board manufacturers require assistance in designing and implementing internal continuous improvement programmes. It was indicated above, under the Global Packaging heading, that all of the worlds top ten packaging companies have turnovers that are three times the size of Egypts total Packaging Sector. Even though the three carton / corrugated board manufacturers are internationally competitive, they lack scale and market presence to fully capitalise on this positive outcome. Within the PSDS each of these companies will have a crucial role to play in acting as the catalysts to establish large integrated packaging groups. This process will also require support to ensure any mergers, acquisitions, strategic alliances are implemented effectively and are properly funded.

A key conclusion is that even the companies that are categorised as being already internationally competitive require substantial business development support if they are to achieve their full export sales potential.

2.17 Business Development Programmes


There are two key conclusions from the company review results for the design and implementation of Business Deve lopment Programmes: Only a few packaging companies are already internationally competitive , with the majority requiring fundamental up-grading if they are to get close to achieving this classification. At least half of the companies that achieved the required pcs score of 9 have structural issues with production capacities, or production process, that need to be overcome before they can start to fulfil their exporting potential.

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The small number of companies that are already internationally competitive require their own Business Development Programme, as already described.

It can therefore be concluded that all of Egypts packaging companies will require to participate in a Business Development Programme if they are to become successful exporters, or to support the development of domestic consumer products in other industrial sectors. In addition to the three Market Development Programmes, two Business Development Programmes are required: Internationalisation Business Development Programme (IBDP) for packaging companies that are already internationally competitive. Delivery of this programme should include overcoming internal structural issues within the participating companies. Domestic Capabilities Business Development Programme (DCBDP) for all other packaging companies to achieve improvements in their product capability score and at the same time to introduce them to export markets at a rate that is in pace with their pcs improvements.

2.18 Development Activities Package (DAP) Five development activity areas are recommended to be implemented through a single Development Activities Package (DAP): 1. Remove Constraints On Development , such as: the complete removal of import tariffs on kraftliner and plastic inputs for packaging that will be exported; and reduce plastic input prices to international levels. 2. Strategic Development Projects six project areas: Address structural issues affecting the domestic supply of raw and input materials, in particular progress the area of sourcing and processing virgin fibre. Product Development And Technology Service (PDTS) to support technical upgrading, new product development and the application of new technology. Domestic packaging manufacturers to promote new packaging products to domestic consumer product manufacturers. Privatisation and modernisation of 4 public enterprises. Communicating the content of the PSDS throughout Egypts Packaging Sector. Reviewing and monitoring the delivery of the PSDS.

3. Assessment Of Development Opportunities assessment of a range of development opportunities identified through the review activity and continue to identify new opportunities. Examples of opportunities that have already been identified are: aluminium foil, in particular for use in pharmaceutical packaging; aseptic packaging,

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which is currently all imported; andconvert existing manufacturers of polystyrene packaging to work with PET. 4. FDI And International Strategic Alliances This development activity should be progressed in close co-operation with the Ministry of Investment (MoI). FDI is proposed to be the lead activity to increase production capacities in glass and metal (tin can) packaging and to overcome current product quality issues. 5. Market And Business Development Programmes above, see 2.16. Have already been described

2.19 Implementation Mechanism


The key features of the implementation mechanism are: Board Of PSDS to oversee the implementation, review and up-dating of the PSDS. The Board should comprise a majority of representatives from the private packaging companies, including appointing the Chairperson, with public sector representatives from key Ministries, such as Ministry Of Foreign Trade and Industry (MoFTI), and MoI. Packaging Sector Performance Agreement between the Board of PSDS and GoE, with MoFTI in the lead role for the government, on agreeing the target annual improvements in sector performance that will be delivered in exchange for funding to implement the content of the PSDS. Packaging Sector Deve lopment Activities Mechanism (PSDAM) which will act as the PSDS Boards executive to implement the content of the DAP. PSDAM Executive Team to include: CEO; manager(s) of the two Business Development Programmes; marketing specialist to deliver the three Market Development Programmes; sector specialists to manage the PDTS; market research and promotion to support FDI initiatives; business analysis capability to assess the development opportunities; and sector researchers to continue the global and domestic review activity. Sub-committees to guide the day-to-day implementation of each of the five development activity areas within the DAP. Actions Plans have been prepared for the setting-up and operation of the overall PSDS structure and to deliver each of the development activity areas.

2.20 Fresh Horticultural Produce


The Steering Committee requested the study should cover Egypts Fresh Horticulture Produce Sector as it: is a significant customer for Egypts Packaging Sector; demonstrates the challenges in meeting EU regulations; and it is a sector that can increase its export performance in the short to medium-term. IDDs are identified on the same basis as for the packaging sector. The review activity concluded that Egypt has weak activations across all of the IDDs which are holding-back achieving improved export performance. A preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS) is

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presented. The structural issue relating to no domestic sourcing of virgin fibre to be processed into material inputs for Egypts board packaging manufacturers was identified from this area of review activity as it has key strategic implications for supporting the growth of exporting fresh horticultural produce into Europe.

2.21 Improving Sector Performance


One of the elements of the implementation mechanism is the Packaging Sector Performance Agreement. The table below provides preliminary proposals for the types, and levels, of improvement in sector performance that could be offered by the PSDS Board to GoE, in exchange for a funding package. The performance indicators have been prepared up to the end of the fifth year of delivery to coincide with the Sector Visions see 2.6.
Annual Performance Indicator 1. Direct Trade In Packaging Products IDD3a: Increased exports Reduced Imports Total Direct Trade Improvement 2. Indirect Added-Value Trade - Push Effect IDD1: Fresh Horticultural Produce 30% value increased exports EGP 1 bn Processed Foods 20% value increased exports EGP 250 mn Pharmaceuticals 20% value increased exports EGP 100 mn Total Indirect Added-Value Trade Total Direct Trade and Indirect Added-Value Trade 3. New Job Creation - minimum 4. New Investment: FDI Strategic partner (could be in-kind value) Indigenous Total Improvement EGP 600 mn EGP 50 mn EGP 650 mn

EGP 300 mn EGP 50 mn EGP 20 mn EGP 370 mn EGP 1,020 mn 1,000 jobs

EGP 600 mn EGP 100 mn EGP 100 mn EGP 700 mn

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Part B Egypts Packaging Sector Development Strategy (PSDS)

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Strategic Positioning National Packaging Sectors

3.1 Packaging Sector Roles


National packaging sectors play two development roles: Supporting other sectors of the national economy by supplying packaging that meets their requirements, and those of their customers. As an industrial sector in its own right, selling its own final packaging products in international markets.

One of the most fundamental issues for Egypts Packaging Sector is that up to now it has been viewed too much as being restricted to playing only the first, supporting role. A key conclusion of this study is that it can only make a significant contribution to national economic development, in the short to medium-term, if it is encouraged to operate as a sector in its own right. This point is developed further in the next section.

3.2 Packaging Sector International Development Drivers (IDDs)


The packaging sectors International Development Drivers (IDDs) have been identified based on our global overview activity, see section 11, to enable national comparisons. The international development drivers for the worldwide packaging sector are indicated in the following diagram. An explanation of the role of IDDs with national economic growth is provided in Appendix 1. 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices 2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product IDD3b Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) IDD4 Selling packaging in international markets using imported input materials

3.3 Development Relationships Between IDDs


The relationships between the packaging sector development drivers are: For developing countries having access to domestic sources of packaging raw / input materials, at the required input quality, and at competitive prices (IDD2) , provides national packaging sectors with the competitive advantage to develop their indigenous packaging manufacturing capabilities. In developed economies this is much less of a factor in determining competitive advantages as the packaging manufacturers should already be internationally competitive, and can operate successfully based on imported input materials (IDD4). The most significant development driver is IDD1, through its activation of pull and push effects within nationa l packaging sectors. The pull effect is activated through

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having fast growth in the sales of domestically produced consumer products, which increase the demand for domestically produced packaging. The push effect is where the consumers of the packaging (manufacturers of consumer products, consumers, or retailers of these products) require increasingly sophisticated packaging specifications, or new types of packaging which pushes the packaging manufacturers to innovate and develop new packaging products and techniques. IDD1 can either be activated by increasing domestic consumer demand (which is not under the influence of packaging manufacturers), or through increased exports of packaging as a product, which is under their control (IDD3a). As packaging has a relatively low value to weight ratio it is expensive to transport over large distances. For countries that have relatively small regional markets (South Africa) IDD3a is unlikely to be an option to be activated strongly, and in such circumstances an alternative is to activate IDD3b. The activation of this development driver is not required by Egypts Packaging Sector, as it has the ability to activate DD3a. A strong activation of IDD3b is not important for Egypt as it can activate IDD3a. The strength of activation of IDD4 indicates the stage of development of a national packaging sector, as a strong activation requires well develope d, and internationally competitive, packaging manufacturers. Packaging sectors in developing countries are more likely to rely on the activation of IDD2, than IDD4, whereas with packaging manufacturers located in developed consumer markets the emphasis is the opposite. A further sign of developing country status is achieving strong growth in their packaging sectors will rely on activating IDD1 and IDD2, where the role of national packaging sectors is restricted to supporting developments in other sectors. A key feature of moving from developing to developed economy status is to switch the achievement of sector growth to IDD3 and IDD4 with the national packaging sector being sufficiently strong to export packaging as a product in its own right. A key issue for Egypt in the context of this last point is that although the overall regional market can be determined to have developing status, there are at least two countries, Saudi Arabia and Turkey, where their packaging sectors are benefiting from an activation of DD4. In Saudi Arabia this is due to the growth in the use of sophisticated packaging within its domestic food and building products sectors. With Turkey, the activation is due more to supplying packaging products into developed consumer markets in Europe and European supply chains. Two of Egypts main regional competitors have already reached the stage of activating DD4. Countries that experience strong pull and push effects on their domestic packaging sectors, through rapidly growing domestic consumer product sales and increasing exports of packaging as a final product, will have the fastest growing national packaging sectors.

3.4

Selected Country Positioning

The table overleaf summarises the positioning of each of the comparator countries in the global packaging sector, based on the results of the global review activity presented in section 11.

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Turkey: Turkey is currently activating all four development drivers, but with the strongest activation being on DD3a. strong export performance of packaging as a product and DD4. selling packaging in international markets using imported input materials. In 2002 Turkey achieved packaging exports of over $ 300 mn, with sales of $ 40.8 mn in carton and corrugated board where it has net imports of $ 760 mn in input materials. Exporting performance has achieved strong pull effects on feys packaging sector, but also strong push effects as one of its largest international markets is the UK. Saudi Arabia: Saudi Arabia has a world strength in plastics, which it is using to provide competitive advantages to its manufacturers of plastic packaging. In addition, it has been experiencing strong growth in domestic demand for consumer products. An example of this is ready-to-heat meals sector which has grown to an annual value of $ 934 mn In addition to experiencing strong growth in domestic demand, Saudi Arabia has also become the regions second largest exporter of packaging products with annual sales in excess of $ 100 mn. Although it can be expected that its sales of plastic packaging will increase rapidly, it also exports $ 27.1 mn of board packaging where all of its virgin fibre requirements are imported. Saudi Arabia has become a country that is activating all of the development drivers for its packaging sector. South Africa: South Africa did not have the option of developing its packaging sector through DD3a due to its geographic position and the sector had already developed to its full pull and push potential through domestic demand for consumer products. The only development driver that was open to it in the late 1990s was DD3b. This has been implemented very effectively with South African packaging companies now owning significant packaging manufacturing facilities in Europe, in particular the UK. The continued activation of DD3b is providing long-term benefits in generating strong push effects on South Africas domestic packaging sector. Egypt: Egypts packaging sector is suffering from all-round weak activation of the four development drivers (see next section). Due to the economic recession in recent years there has been low growth in domestic demand for domestically produced consumer goods. With production capacity over-supply in many sectors, there has been strong price competition with packaging being an area of cost reduction. There have therefore been weak pull and push effects on the domestic packaging sector. At the same time Egypt remains an insignificant exporter of packaging,; 11th place for exports within the region. There has been a slight activation of DD3a, but in some areas this involves low quality packaging (for example glass) being sold into countries that will accept such quality. As DD3a requires strong exporting performance, there is effectively no activation of this development driver. The strongest activation is on the left-hand side of the diagram which indicates Egypts packaging sector is operating as a developing economy. The activation of DD2 is constrained by structural issues (see below).

3.5

International Trends In Packaging Materials

Product Life-Cycles Within any sector study there is the need to identify product types that are experiencing international growth and those that are in relative decline. In most sectors the differentiation is the result of product life-cycles; whereas, in packaging the life-cycle is the result more of the properties of different types of packaging in relation to: consumer spending power; stage of consumer sophistication; development of retailing and product presentation; and market positioning of international brands.

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Within international supply chains glass is heavier to transport than plastic, or board. On a bottle filling line a problem with a breakage with a single bottle will result in a batch being destroyed, whereas with plastics there is less likelihood of debris damage. Collecting and recycling plastic is less expensive than with glass and metal packaging. Developed Countries The following diagram indicates the packaging materials lifecycle in developed countries:
Packaging Materials Developed Countries Life-Cycle: New High Growth Products Flexible Plastics Rigid Plastics Traditional Slow Growth Products Board

Glass & Metal

Fragmented

Consolidated

In developed economies glass and metal are viewed as traditional packaging materials that have slow, or possibly negative, growth rates depending on the country and the consumer products sector. Flexible plastics are the emerging new area of packaging with rigid plastics at the peak of their life-cycle. In developed economies board packaging is past its peak, but is not as advanced as glass and metals. Reasons for board packaging having this status include increasing imports of boxed consumer products from manufacturers in low cost countries, such as China , with the packaging sourced from within China. A further feature of the application of the packaging life-cycle is that in the emerging new areas there is a high level of fragmented producers. With the more traditional forms of packaging there have been high levels of consolidation amongst international players. Although this is partly due to the levels of investment that are required to set-up manufacturing plants, the maturity of markets is also a strong factor. Worldwide Packaging Materials Based on figures from The Packaging Institute (2002) plastics have recently taken-over from board as the leading packaging material: Packaging Material Plastics Board Metal Glass Sacks, bags and labels Caps and closures Others Total World Value In USD Bns 134 122 40 25 24 14 58 417 % World Packaging 32.1 29.3 9.6 6.0 5.8 3.4 13.9 100.0

Plastics and board are the worlds leading packaging materials, accounting for over 60% of the world market in packaging. Metal and glass packaging are very much second tier.

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This point is further demonstrated by changes in the use of primary and secondary packaging in three consumer product areas, (excluding tertiary packaging which is used for distribution), in Europe and North America, between 1999 and 2002: Consumer Goods Plastics + 5.8% Metal + 2.7% Paper + 1.7% Glass + 0.1%
Source: The Packaging Institute

Beverages Plastics + 6.0% Metal cans + 1.0% Glass + 1.0%

Pharmaceuticals Plastics + 4.2% Glass - 3.8%

Across all three consumer packaging areas plastics are the fastest growing form of packaging, with glass having the lowest performance. Developing Countrie s In developing countries there is a significantly different packaging materials life-cycle, as indicated in the following diagram:
Packaging Materials Life-Cycle Developing Countries: Metal Glass Board Rigid Plastics

Fragmentation

Developing countries are still experiencing rapid growth in the use of glass and metal packaging. This is for two reasons, firstly the materials are easier to use in workshop type production environments, and secondly food products can be sterilised within these packaging types to provide long shelf-life, without requiring refrigeration. Due to the lack of refrigeration in wholesale and retail supply chains the use of rigid plastics is just starting and flexible plastics has yet to start. In the same way that the worlds leading food manufacturing companies have already started to target emerging and developing countries to maintain sales growth, it can be expected that the worlds international glass and metal packaging manufacturers will also be assessing these markets. Egypt The situation with Egypts packaging sector is indicated in the packaging lifecycle diagram, overleaf. Egypt is at a mid-way stage between the life-cycle profile of a developing country and that for a developed country. The only packaging material that appears to have past its peak is metal packaging, though, this is still performing well in the beverages sector. The past peak status allocated to metal packaging is due to its reduced range of applications within the domestic market, though there is expected to be continued strong growth of this type of packaging type related to beverage sales.

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Egypts Packaging Materials Life-Cycle: Glass Board Rigid Plastics Flexible Plastics Metals

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Fragmented Consolidated

The strongest growth opportunities in metal packaging relate to regional developing consumer markets, where transport, retail and household refrigeration is still in its infancy. In these countries high proportions of processed food products will continue to be in metal, and glass packaging. The opportunity for Egypts packaging sector is to supply the packaging requirements of the food processors that are meeting demand. The opportunity for Egypts national economy is to have the processed foods manufactured here, and to have these products exported in metal, or glass, packaging also manufactured in Egypt. Glass is at its peak due to it still being the preferred packaging material for many consumers over plastics, and also due to its importance for increasing exports of food products suc h as tomato paste and olives. Board packaging still has not yet reached its peak due to expected further growth in exports of fresh produce and consumer products manufactured in Egypt. Strong growth can also be expected for rigid and flexible packaging as food standards and regulations are imposed more strictly within Egypt and exporters have to comply with international regulations and customer requirements. Egypts packaging sector has an unusual profile of company structures compared to international norms in developed and developing countries. In Egypts glass and metal packaging sub-sectors there is already a high level of consolidation. In board manufacturing there is a relatively high level of consolidation in paper and board manufacturing, but in carton / corrugated board there is both consolidation and fragmentation. In plastics the level of consolidation appears to be higher amongst the flexible packaging manufacturers, than in rigid plastics. In fact the level of consolidation within the flexibles area of activity appears to be ahead of the stage of development of the rest of the packaging sector , whereas internationally it is the reverse.

3.6

Egypts Twin Peaks Development Opportunity

With Egypts geographical position situated in the north-eastern corner of Africa, within the geo-polit ical sphere of the Middle East, and with close proximity to Europe , it has the opportunity to apply a twin peaks market development strategy, to benefit from the peaks in packaging types, in both developing and developed countries, see diagram overleaf The two elements of the market development strategy for Egypts packaging sector should be:

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.
Egypts Twin Peaks Market Development Strategy: Rigid Plastics Flexible Plastics Board Glass Board Metals

Developed Country

Developing Country

1. Sell increasingly sophisticated board and plastic packaging into developed European countries, and later into the Gulf States. The European market for packaging products is one of the most competitive and sophisticated in the world and care will be required to apply a market entry strategy that avoids competing with the main p-layers headon. A number of the Gulf States have been investing in a rapid development of their packaging manufacturing capabilities, in particular, in board and plastics. T heir manufacturers can be expected to react strongly to attempts by Egyptian packaging manufacturers to enter their domestic markets. Egypts board and plastics manufacturing companies will require considerable internal product and financia l strength to be able to successfully enter these markets. If Egypt is to become one of the regions top three packaging manufacturers it must start to sell into these markets to be taken seriously. The issue is timing as the market entry strategy should involve waiting until Egypts packagin g manufacturers are sufficiently strong to take-on the challenge;
Taking into account projects that are under construction, Saudi Arabia will have increased its board packaging manufacturing capacity from 90,000 to 450,000 tonnes p/y from 2000, up to the end of 2004.

2. Sell more basic glass and metal packaging into developing countries in African and other regional countries.
Recent Export Opportunity Notice From US Dept of Commerce: Highlighted that, although the use of metal packaging is declining in the US, it is still an important packaging material for Egypt and its neighbouring countries, citing tinned processed cheese as an example.

Implementing the Twin Peaks market development strategy will require a combination of available domestic production capacity that is capable of manufacturing products to the required quality and packaging businesses that have the management capabilities to successfully enter each type of international market. The market development strategy will be particularly challenging for Egypts board and plastics manufacturers, where the first stage of development is to enter the European market with their packaging products.

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International Development Drivers Country Comparison

Comparator Countries
The four comparator countries, to Egypt, that were agreed with the Steering Committee are Saudi Arabia, South Africa, Turkey and UK, with UK acting as the country with international best practice. Turkey and Saudi Arabia have been used, as the global overview indicated they are positioned first and second, respectively in packaging exports from the region (see section 11.7). South Africa is included as it is the country in the region that has most successfully internationalised its packaging sector (see section 11.4).

Approach The stronger the activation of a development driver the greater the support to achieving a high level of sector growth. The weaker the activation (or the nonexistence of an activation) the less the operating framework of the sector will contribute to its growth, to the extent that the weak activations will be hindering the achievement of growth. The stronger the positive activation of a development driver the stronger the shade of green; the weaker the level of activation the stronger the shade of red.

4.1

Results Of IDD Comparison


UK South Africa Saudi Arabia Turkey Egypt

International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices 2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product IDD3b Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) IDD4 Selling packaging in international markets using imported input materials

Plastics

Chemicals / Plastics

N/a

N/a

The overall results of the comparison are: All of the four comparator countries are dominated by green which indicate that they are experiencing strong positive activations of the IDDs, thus, contributing to strong growth performance in the sector. Egypt is the only country to be dominated by red, which indicates that the weakness of the activation is sufficient to be holding-back growth. The only other country with a red against one of its IDDs is South Africa, but this weakness is overcome by the green (positive) activations against its other IDDs.

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It should be noted that Egypts red (weak) activations are against the two IDDs which relate to the 1st role of the packaging to support other sectors, in addition to its weak activations of the IDDs under the 2nd role. Saudi Arabia has a green activation under IDD4 as in 2002 it had achieved $ 27.1 mn of exports of cartons, boxes and cases which is an area of packaging where it has to import all of its raw / input materials, except for re-cycled fibre. The strong green IDD activations for the UK should not be surprising as it was selected as the international best practice comparator country. The strength of the green activation under DD2 is less than the other IDDs as the UK is significantly reliant on the import of virgin pulp imports. The activation of this IDD will become weaker as the UK becomes increasingly dependent on gas imports to produce base plastics.

Assessment Of Activations The remainder of this section concentrates on identifying the reasons for the weak activations of each of the IDDs for Egypt. 4.2 Egypts Weak Activation Of IDD1

Demand From Consumer Product Manufacturers Most of Egypts consumer product manufacturers concentrate on the domestic market for generating their sales. The consequence of this is that their demand for packaging is determined by the growth of the domestic market, where it is known that Egypts economy has been slowly emerging from a recession. Recent annual growth rates have been significantly lower than achieved during the 1990s. There has therefore been a weak activation of IDD1, due to a combination of low growth in sales of consumer products in the domestic market and the lack of strong export sales to compensate for the domestic situation. Pull And Push Effects The lack of growth in demand from consumer product manufacturers results in a weak pull effect on Egypts Packaging Sector. In addition our assessment of domestic supply chains (see APP3) identified a lack of pressure on Egypts packaging manufacturers to innovate in producing new types of packaging, which results in overall weak push effects. This situation can be compared with Saudi Arabia where its packaging manufacturers have been faced with supplying a ready-to-heat meals sector with a value of $ 934 mn, (see section 11.4). This part of the food sector is still in its infancy in Egypt. Implementation Egypts Packaging Regulations / Standards A further reason for weak push effects relates to the lack of imposition of Egypts existing food packaging regula tions by food manufacturers and retailers. Compared to other countries in the region there is an overall lack of a set of national product standards relating to packaging. Examples of a lack of application of existing regulations are:

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Egypt is unusual in continuing to have a high level of polystyrene packaging in its food sector. In developed countries this traditional plastic has been relaced mainly by PET. The continuing reliance on polystyrene has resulted in its domestic re-cycling into packaging products that end-up in direct contact with food. This is illegal by Egypts own food regulations. Much of the fresh produce sold in Egypts supermarkets is sold in polystyrene trays. Even if made from virgin material this breaks EU food regulations as PET has been determined to provide a superior food safety barrier. Egypts polystyrene manufacturers have been slow to switch to working with PET, which has resulted in there being only one manufacturer of fresh produce PET containers. Most fresh produce exporters have to import their PET containers as finished packaging products. The continued use of polystyrene trays and plastic film to present fresh produce domestically, in non-chilled environments, results in the produce sweating and experiencing rapid deterioration in quality depending on the ambient air temperature. The same fresh produce sold in most supermarkets in Egypt will have a shelf-life of 2 4 days, compared to 30 days for the same produce that is shipped in containers to European supermarkets. This contributes to the high wastage of fresh produce in Egypt (estimated to be 30 40%), which will become an increasing issue with the priority that is being given to increase fresh produce exports. Almost all of the fresh produce that is distributed within Egypt is in corrugated boxes, with liner that has been manufactured using re-cycled waste. Fresh produce growers in Egypt are aware that with many of their more sensitive products (such as strawberries) EU regulations require that the corrugated box has liner that must be manufactured from virgin fibre. One of Egypts fresh produce growers had to meet the costs of destroying a complete consignment sent to a EU port as the corrugated boxes were made totally from re -cycled fibre. The grower had specified this to the corrugated board manufacturer, but as this company was faced with increased input costs of imported kraft liner it cut corners and used domestically-sourced liner.

The above examples are significant, as in the absence of push effects from Egypts domestic consumer product manufacturers, there is a general lack of pressure on Egypts packaging manufacturers to innovate in developing new packaging products and to achieve higher product quality standards. This has an adverse effect on the ability of Egypts packaging manufacturers to be able to meet increasingly stringent packaging standards and requirements, applied in developed countries, and by mncs operating in Egypt and . Overall there are weak push effects on Egypts Packaging Sector. Conclusion The main reasons for weak pull and push effects in Egypts Packaging Sector is slow growth in the sales of domestic consumer product manufacturers and a lack of dynamism in opening new export markets. We do not see this situation changing in the short to medium-term, unless the other sector studies, covering consumer products, indicate otherwise. It is therefore our view that the development strategy for Egypts packaging sector should start from a position that there will not be a strong activation of DD1, in the short or medium-term. The exceptions to this conclusion are: Exports of fresh produce, where the pull effects will come from increased exports and the push effects from Egypts packaging manufacturers having to work with PET to meet the requirements of packaging that is in contact with the produce. Although this area of activity could generate a relatively strong pull effect, there will not be much of a push effect in the short-term as the packaging is unsophisticated.

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Strengthened push effects could come later as new forms of packaging are developed to support exports of fresh produce (see sections 19 and 20). Mncs, where we are aware of a number of switches to new forms of plastic packaging and the potential to source types of packaging that are currently being imported. This could generate a strong push effect if domestic packaging manufacturers can have their products accepted and enter into supply contracts.

Based on the above conclusion the only way to achieve accelerated pull and push effects is to activate IDD3a and for Egypts packaging manufacturers to stimulate improvements in sector performa nce through exporting packaging as a final product. This conclusion is significant as being a developing country Egypt would normally use a strong activation of IDD2 to support export sales. The results of the next assessment of the activation weaknesses around IDD2 are important to determine the extent to which Egypts Packaging Sector can rely on a strong activation of this development driver.

4.3

Egypts Weak Activation Of IDD2

Factors Determining Weak Activation The weak activations around IDD2 are divided into: Constraints on development that affect the whole of Egypts Packaging Sector, but board and plastics packaging in particular. Structural issues in the supply of input materials , where the most significant issues relate to sourcing materials for board packaging. Product quality, where the most significant issues relate to glass packaging, but there are issues of quality consistency across most types of packaging sourced domestically. Product costs, where the most significant issues relate to plastic packaging. Production capacities, where the most significant issues relate to metal and glass packaging.

Constraints On Development Board Packaging be removed: There are two significant constraints on board packaging that need to

Current lack of a domestic source of virgin fibre used in the production of paper and board as material inputs into the manufacture of carton and corrugated board. As it will take 2 3 years to resolve this constraint, in the meantime, the issue relates to the domestic availability of virgin fibre input materials at internationally competitive prices. Specifically this relates to importing virgin fibre in the semi-processed form of kraftliner. Tariffs on imported board and kraft liner from virgin fibre, which is currently not available to be purchased domestically. Few indigenous consumer product manufacturers will specify the use of virgin material in the paper and board that is

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manufactured for them to be used in products that are sold domestically. As a high proportion of such materia ls will be exported, these tariffs merely increase the cost of exporting board packaging, compared to selling it into the domestic market and result in the final product prices that can be offered by Egypts board packaging manufacturers being less competitive than their international competitors. Plastic Packaging need to be removed: There are three significant constraints on plastics packaging that

Tariffs on imported base plastic inputs, such as co-polymers, p olystyrene, PET and PVC, which are not produced domestically and, therefore do not compete with domestically sourced products. As indicated in the last section, Saudi Arabia is in the process of establishing a world class position in plastic packaging. As Saudi Arabian plastic packaging manufacturers are on Egypts doorstep every effort should be made to enable Egypts plastic packaging manufacturers to purchase their material inputs at as low a price as possible . This will provide them with the best chance of competing against Saudi Arabian, and other Gulf States plastic packaging manufacturers in Egypts domestic market and in regional markets. Inflated domestic prices to source base plastics. The following table indicates the extent to which domestic plastic packaging manufacturers pay more for their input materials than international prices. Plastic Material % Over International Price Polypropylene Polystyrene + 52.5% + 45.2% PET + 35.6% Polyethylen e + 17.4%

There are domestic monopolies in both the production of polyethylene and polypropylene. With 100% of the propylene being imported from Gulf States, the logic of domestic manufacturing of polypropylene has to be questioned, in particular when the result has been higher prices being paid by Egypts plastic packaging manufacturers. It has been reported to us that previously the Saudi Arabian manufacturer provided 10% discounts on its international price and credit facilities of up to six months. Not only has the price these manufacturers pay increased significantly, there are also not any credit facilities available from Egypts domestic manufacturer. The role of intermediary sales agents in adding 15 20% margins on to the price they pay for imported materials, and increased costs due to supply chain inefficiencies. This situation is partly the result of the selling practices of the domestic manufacturers and the n i ternational suppliers (selling through domestic agents, rather than direct business-to-business), but also due to the relatively small size of many of the domestic manufacturers and the jobbing nature of much of their activity. If such businesses are purchasing small quantities, and require credit periods, they are at the mercy of the traders who will charge high prices.

Structural Issues Board Packaging (see section 13) The most significant structural issue is that there is currently no domestic source of virgin fibre to use in paper and board production as a packaging input material. All carton board layers and paper for corrugating (mainly kraft liner) that is specified to be produced from virgin fibre has to be imported.

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Poor quality paper and board waste is being used as recycled input materials at some of the paper and board mills. Some waste is being collected to relatively high standards, but on site visits we have noted waste that has obviously been mixed with other forms of rubbish, which will affect the quality of the recycled output products. Structural imbalances exist between the paper and board manufacturing sub-sector and the users of its output in the carton and corrugated manufacturing sub-sector. There are four main issues: Current tight production capacity within the paper and board input materials subsector, with existing facilities operating at over 85% design capacity utilisation. One large carton / corrugated manufacturers has a dedicated paper mill, which can meet all of its paper input requirements, but it uses only recycled fibre and can only produced recycled paper at an input to board manufacturing. Another large manufacturer is in the process of adding its own paper mill, again to use recycled fibre. As of now 30% of this sub-sectors production capacity is not being utilised, with this projected to increase to 40% by the end of 2005, based on current levels of sales. This excess production capacity could be used to support the implementation of the Fresh Horticultural Produce Sector Development Strategy (FHPSDS), which is provided in preliminary form in section 19. Poor quality products from the two public enterprise paper and board manufacturers. As these two companies represent 32% of production capacity (more than double existing spare capacity, at under 15%), there is a high level of dependency on their production as inputs to many of Egypts carton and corrugated board manufacturers. Although, based on the first issue above there appears to be 15% spare production capacity in paper and board, most of this is not available to be brought into productive use. The majority of the spare capacity (77%) is in the two public enterprises where technical problems result in them having maximum effective operating capacities of 66% and 80%, whereas all of the privately-owned paper and board manufacturers are operating at 100%. Part of the reason for the structural imbalances is the poor management of the public enterprise manufacturing facilities.

The consequence of the poor product quality from the two public enterprise manufacturers is carton and corrugated manufacturers deciding to invest in their own dedicated mills (one already and another currently implementing a project). If all of Egypts paper and board manufacturers were capable of producing high quality products the carton and corrugated manufacturers would not be required to invest in this area to secure material input supplies of the required quality. We suggest that this requirement has held-back the development of the carton and corrugated manufacturers into other areas of packaging products, such as plastics. There are two further structural imbalance issues relating to developing Egypts board packaging sub-sector: Rakta Co. (one of the two public enterprises) has the only mill facility that is capable of using rice straw to produce paper. A lack of innovation and commercial dynamism within this company has resulted in a conclusion becoming accepted in Egypt that it is not possible to produce paper from rice straw without incurring significant

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environmental problems. Our research of this issue (see Appendix 7) has indicated that a number of technical processes and technologies exist, from different countries, on how to overcome the issues. Without having used this sector study to challenge Raktas conclusion, we suggest the prevailing view in Egypt would still be that rice straw should not be used to produce paper. Rakta has performed a considerable disservice to the development of Egypts packaging and printing sectors from drawing its negative conclusion. The issues, indicated above relating to production capacities, need to be viewed within the context that currently all of Egypts paper and board manufacturers are working only with recycled fibre, to produce inputs for the carton and corrugated manufacturers. Virtually all of the packaging inputs that are made from virgin fibre are imported as kraft liner. If this material is to be produced domestically using domestically sourced virgin fibre, there is insufficient milling capacity to support this sector development.

There needs to be a holistic approach to overcoming all of the above structural imbalances, which should be based on: The privatisation of the two public enterprises (Rakta Co. and National Paper Co.), their modernisation to improve product quality, and investment to address the technical issues that are restricting the maximum utilisation of production capacity. Overcoming the view of most of the leading carton and corrugated manufacturers, that they need to have their own dedicated paper and board manufacturing facilities to secure supply and gain an acceptance for the pooling of production capacities. Related to the last two points is the need to determine the most cost effective way of introducing additional production capacity to produce paper and board from virgin fibre that will be sourced domestically. It is proposed that all existing paper and board manufacturing facilities should be covered by a review to determine how the additional production capacity cab be best introduced.

Plastic Packaging (see section 14) All propylene which is used in the domestic manufacture of polypropylene is imported. There is a project to establish a domestic propylene manufacturing facility, but further information is required to determine the stage of development of this project. Glass Packaging There are two stages to manufacturing glass; forming and heating ovens. The plants do not stop production until the ovens require to be replaced, which based on international norms is every 9 10 years. The four domestic glass manufacturers that were reviewed (see section 15.5) as having average machinery ages of: 15; 15; 20 and 25 years, which indicates that an oven replacement programme is required. Metal Packaging There is no domestic manufacturer of aluminium beverage cans. The main user of such packaging is Al Ahram Beverages Co. which uses aluminium for its beer cans as it provides for a higher quality of print. The review activity focused on tin can production, where there is two leading manufacturers, see section 15.6. This subsector suffers from production capacity shortages. Other forms of metal packaging are the bulk containers for edible oil, ghee and olives which are mainly produced in workshops.

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Product Quality Overall Quality We have reviewed 19 food processing companies, split between 15 indigenous producers and 4 multi-national companies.
Value Of Packaging In Final Food Product: The average value of the packaging in the final food product for the multi-national companies is over 30%, compared to 10% for the indigenous producers. The indigenous food producers were more concerned about the cost of the packaging than its quality.

All of the mncs, except the user of imported aluminium cans, provided negative comments on the consistency of quality of the packaging products being sourced domestic ally:
Comments On Product Quality : Lack of consistency in the whiteness of the plastic film surface which affects the colour consistency in printing the film. Lack of consistency in printing the customer facing side of carton board. Flashings not being properly removed from plastic moulded containers. One of the mncs has had to relax its international quality standards when applied to printed film sourced from Egypt, otherwise it would not be constrained in its ability to source such packaging domestically.

The difference in responses between the indigenous food producers and the multi-national companies is significant. The latter have invested very significantly in building-up their international brands and their packaging is one of the most important ways in which the brands are presented to their customers. One of the mncs indicated that if they are faced with increased input costs on price sensitve products, they will cut the quantity of the product inside the packaging, rather than compromise on the quality of the packaging. Mncs have developed sophisticated tests for assessing the extent to which the packaging they are supplied meets their tight product specifications. Packaging that is outside the margin of acceptance will be rejected. Egypts packaging manufacturers are faced with two types of customers: Technically (product quality) demanding mncs. Cost demanding indigenous companies.

This must create problems in managing production runs when operators have to set very high standards on one run, with the next not requiring such standards. Further review activity is required on why the indigenous food manufacturers stress the cost of packaging over its quality. This issue is outside the scope of this study as it requires a detailed review of such companies. The issue is important to identify the extent to which these companies understand the greater importance that is given to packaging in developed consumer markets. In many cases presenting food products in the same packaging in which they are sold domestically would result in the products not being accepted in international markets. These issues need to be addressed within the

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context of approaches that need to be implemented to build-up brand equity and the technical capabilities that are required to set and test tight packaging specifications. Glass Packaging The issues with glass packaging apply more to the processed food sector than to the pharmaceutical sector, where the main item made from glass is ampoules. In processed food problems with glass quality have been reported to us, with black marks appearing in the glass. We understand this is due to problems of firing the glass in the ovens.
A multi-national company has had to place extra quality inspectors at the start and e nd of its glass packaging production line to identify the affected items. This has also required slowingdown the speed at which the line is running.

The issue with misshapen glass packaging is when the lid or top is put-on, either it does not fit and the production line has to be stopped to retrieve the affected item, or the glass breaks which not only requires the line to be stopped, but also requires a batch of other items to be destroyed, with the number depending on internal safety procedures. Product Costs Plastic Packaging The high costs of obtaining base plastic input materials have already been indicated. Import tariffs are a cause (adding to costs) and an effect (protection) of high domestic prices for packaging input materials. The most serious issues relating to such tariffs are, the inefficiencies that are allowed to continue, either in supply chains (see above under plastics packaging), or in the packaging manufacturers. One of these inefficiencies is the small size and approach to managing many smaller packaging manufacturers, in particular in the plastic containers area of activity, which operates too much on a jobbing basis. If there had not been any protection of domestic manufacturers these smaller operators would either have had to expand, specialise, or close. This would have provided a larger market share to the larger, more modern and more efficient manufacturers. The part of Egypts packaging sector that is being affected most strongly by this situation is printed film packaging. Egypts film printers either purchase domestic or imported film, depending on the specifications and requirements of their customers. These purchases are at inflated prices due to a combination of import tariffs and supply chain inefficiencies. Film printers in Lebanon, Syria, Turkey can source the same film either from their domestic markets, or imported at international prices. These printers can under-cut Egypts printers in quoting for film printing contracts as their input material costs are lower.
One of Egypts leading film printing companies indicated that under the current domestic pricing regime for film they would be more competitive relocating their complete operation to Lebanon. One of the mncs indicated that based on a recent review of regional prices it would be cheaper for them to import their printed film from Saudi Arabia or Turkey.

The above situation of Egyptian manufacturers being under-cut by regional competitors will spread across many consumer product sectors and will accelerate in its impact from 2005. The process will affect Egypts packaging sector in one, or more, of the following ways:

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Imported consumer products will be cheaper, and be in higher quality packaging, than the Egyptian equivalents. Not only will Egypts domestic consumer product manufacturers lose sales, but their packaging suppliers will also lose their sales. Through initiatives to reduce costs Egypts consumer product manufacturers start to import their packaging as it can be imported at lower cost than domestic sourcing. Egypts packaging manufacturers are forced to reduce their prices to retain customers and maintain sales volumes, but margins are squeezed to such an extent that there are no funds available for business up-grading. Under this scenario Egypts packaging manufacturers will manage to compete in the short-term, but will become increasingly uncompetitive as regional competitors up-grade their businesses.

Production Capacities Overall The overall sector development strategy must take into account the available spare production capacity by type of packaging. The following table provides such information for the 27 companies that provided detailed results. Packaging Type No. Of Companies Reviewed Current Production Capacity Utilisation 86.5% 68.7% 77.3% 66.2% 88.5% 94.2% 100.0% Available Spare Production Capacity In Tonnes 26,000 32,000 9,850 5,300 1,050 10,500 Spare Production Capacity As % Current Production 15.6% 24.0% 29.4% 51.0% 13.0% 6.1% -

Paper and board Carton / corrugated board Plastic film Plastic containers Film printing Glass Metal (tin cans)

5 6 3 4 3 4 2

There are current and immediate production capacity constraints in glass and metal (tin can) packaging. If Egypts Packaging Sector is to achieve its full development potential there are likely to be production capacity shortages in the medium-term in paper and board and carton / corrugated sub-sectors of board packaging. Metal Packaging The two largest manufacturers of metal packaging (tin cans) are both operating at full capacity (47,000 tonnes p/y). These are used mainly in the beverages and processed foods sub-sectors where tin is cheaper than aluminium. Glass Packaging Although there are domestic glass shortages only two out of the four producers we reviewed are operating at full capacity. The four producers have original design capacities of 182,000 tonnes p/y, but are operating at 171,500 tonnes. Two producers have spare capacity of 10,500 tonnes p/y which should be brought into productive use as quickly as possible.
The domestic glass manufacturer with the lowest production capacity utilisation of 82%, is the same company that is exporting 20% of its production, which suggests it requires technical upgrading to be able to operate to its full capacity to supply the domestic food sector. Achieving full production and directing all production to the domestic market would increase domestic supply by 16,100 tonnes p/y 9.4%.

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There are shortages of glass jars and bottles to supply domestic food manufacturing requirements.
Both Heinz and Americana Group have reported glass jar shortages which have held back their export sales of tomato paste and olives, respectively.

Film Printing Production capacity is getting tight in film printing. If technical issues are taken into account production capacity is becoming tight in paper and board manufacturing, which has already been explained above. Production Capacity Availability The areas of packaging where there are not current production capacity constraints are: carton / corrugated board plastic film production plastic containers - spare capacity of 32,000 tonnes p/y; - spare capacity of 9,850 tonnes p/y; - spare capacity of 5,300 tonnes p/y.

4.4

Weak Activations Of IDD3a

The global overview activity indicated that Egypts Packaging Sector has low export sales of packaging as a final product, see section 11.7. The level of export performance is well below the level required to generate strong pull and push effects.

4.5

Egypts Weak Activation Of IDD4

We have not identified any involvement of Egyptian packaging manufacturers supplying into international supply chains. Export sales tend to be either into regional consumer product manufacturer customers, or relatively small one-off orders from developed countries.
E-auction: Earlier this year Neslt Egypt used an e-auction for the first time to select its packaging suppliers. Prior to starting the auction the company had been told that it would have to pay 20% more than last year. During the final hour of the auction prices fell to the same level as last year.

The use of e-auctions and supplying to mncs provides Egyptian packaging companies with a taste of how they will have to operate in international supply chains. Overall Conclusions There are a series of weak activations around IDD2, which are significant for achieving improved sector performance. Under the assessment of IDD1 it was concluded that Egypts Packaging Sector will have to activate DD3a to achieve stronger pull and push effects. The weak activations around IDD2 mean that it will be difficult for the majority of Egypts packaging manufacturers to be able to become involved in export markets in the short to medium-term. The reason for reaching this conclusion is that until the weaknesses around IDD2 are resolved, and turned into strengths, the packaging businesses that are exporting will have to rely on their manufacturing skills to provide them with competitive advantages in European markets. The results of the company review activity, see section 15, indicated that there are few businesses in Egypts Packaging Sector that are already truly

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internationally competitive and have spare production capacity to support increasing export sales. Most of the packaging businesses have product capability issues that need to be addressed before they can start to compete effectively international markets. This is a key conclusion that is behind the Packaging Sector Development Strategy (PSDS) described in the next section. It is important to understand the context of the last point. We are not stating that Egypts packaging businesses should not atte mpt to export into less demanding regional markets. If they decide to pursue this line of development they can do so based on support being delivered to strengthen their product capabilities. The issue is that Egypts Packaging Sector needs to make a significant jump in its product capabilities and to be able to offer integrated packaging solutions for sophisticated consumer products. In addition to generating more export sales and strengthening the pull effect, there also needs to be a strong push effect. Selling existing packaging, including its product quality issues, into regional markets will not generate the required push effect. Based on the content of this section there should not be any expectation that Egypts packaging sector as is will make a positive contribution to increasing the national economic growth rate. As of now , none of the development drivers are being activated to generate pull or push effects, with the sector as a whole being in a state of hibernation. The weak activations apply both to the role of the packaging sector in supporting the development of other sectors, and to exporting packaging in its own right, as a final product. The implementation of the Packaging Sector Development Strategy will play a crucial role in improving the sectors performance and increasing its contribution to increasing the national economic growth rate.

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Packaging Sector Development Strategy (PSDS)

Introduction It is important to understand the difference between the content of this section, which presents the overall Packaging Sector Development Strategy (PSDS) and the next section, which describes the stages of implementing the PSDS. In this section the key elements of the PSDS are described on their own. In the next section the overall content is divided into four stages, with explanations provided of the interaction between the different elements within each stage of implementation. It should also be noted that in this section the content of the PSDS is described in two phases. This is required to emphasise the importance of addressing the constraints on development and the structural issues that are choking the activation of IDD2. If this situation is not resolved as a matter of priority, there will be a much weaker activation of IDD3a , than is planned, and there will be a much lower level of improvement in sector performance. The applicatio n of two phases in this section is used to emphasise this point and the phases are not linked to the four stages in the next section.

5.1

Overall Situation

The last section concluded - none of the development drivers are being activated to generate pull or push effects, with the sector as a whole being in a state of hibernation. Section 3, concluded that the other regional players are activating the IDDs more successfully than Egypt, with section 4 indicating Egypts Packaging Sector is suffering from weak activations across all four IDDs. S ection 3 also indicated that the most significant IDD for stimulating growth, in most countries, in particular developing countries, is IDD1, which can be activated through increased demand, either domestic or from exports, for domestically produced consumer products. The last section also concluded - it is therefore our view that the development strategy for Egypts Packaging Sector should start from a position that there will not be strong activation of IDD1, in the short or medium-term. As of now we do not see any evidence of having a much stronger activation of IDD1 to assist Egypts Packaging Sector. Section 3 indicated that most developing countries achieve growth in their packaging sectors by combining the activation of IDD1 and IDD2, as they are not yet sufficiently advanced to activate IDD3 or IDD4. The above conclusion is highly significant for Egypts Packaging Sector and is one of the most important factors behind the recommended PSDS. If we are wrong about the rate of growth in domestically produced consumer products the only implication will be a further benefit to Egypts packaging sector as the pull and push effects will be strengthened by domestic and export demand for packaging. This issue needs to be addressed through integration between the PSDS, and the sector development strategies that are being prepared for consumer product industries, such as food processing and white goods.

5.2

Phases Of PSDS

It is recommended to have a two phase PSDS to take into account the overall situation as described under the last sub-section. The first phase involves overcoming the activation weaknesses around IDD2, and addressing structural issues under IDD1. Under more

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normal circumstances a national packaging sector strategy would start by describing how to strengthen the activation of IDD1. For the reasons already expla ined this approach is not appropriate for Egypts Packaging Sector. Under Phase 1, the proposals for strengthening the activation of IDD2 are therefore described before turning to IDD1. Achieving a stronger activating of IDD2, as a first step, is not only important to inject competitive advantages into Egypts Packaging Sector, but also as a test of commitment that the Government Of Egypt (GoE) is serious about providing the conditions under which the sector can realise its full development potential. If the activation weaknesses around this IDD cannot be overcome, it should be accepted that there will be a low chance of success in implementing the second phase of the PSDS. The second phase relates to using the activation of IDD3a to stimulate strong pull and push effects, and to have knock-on activations of IDD1 and IDD4. The strength of these activations will be determined to a significant extent by the strength of activation of IDD2, under Phase 1. A key element of the PSDS, though, has been to identify shortterm initiatives that can be taken around IDD2 that will support the start of achieving a stronger activation of IDD3a , until the major structural issues are addressed. It is important to recognise that there are strong dynamics between the elements of Phases 1 and 2 which need to be nurtured if the weak activations across all of the IDDs are to be turned into strong activations.

5.3

PSDS Phase 1

The content of Phase 1 of the PSDS is indicated in the diagram overleaf. The column on the right of the diagram is taken from the IDD activation comparison in the previous section, which is dominated by red (weak) activations. As the lead area of activity is IDD2, which relates to raw and input materials, the approach to strengthening its activation is based on the four product areas covered by the review activity. The green colour indicates that activity under each of these four product areas will overcome the weaknesses that were described in the previous section. All four product areas have the same shade of green as it is not possible now to indicate which will achieve the strongest activations, and an objective should be to achieve equally strong activations across all of them. Addressing structural issues that are affecting the activation of IDD1 are described at the end of this sub-section.

5.3A Board Packaging


Domestic Source Virgin Fibre In board packaging there needs to be a significant initiative to utilise rice straw and bagasse, or other fibres, to provide domestic sources of virgin fibre to manufacture paper and board within Egypt. Bagasse is already used at the paper mill at Qena to produce writing paper (it should be noted that it was originally planned that this mill would produce newsprint from bagasse, but this ceased soon after starting production). Rice straw is used at Rakta to produce paper for school books. Although, the current quality of the paper made from bagasse is acceptable, the quality made from rice straw is poor, see Appendix 7 for more detaile d description.

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Phase 1 Of DSPS
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices Board Plastics Glass Metal (Tin Can) Egypt

Effective application of existing packaging legislation, in particular in relation to fresh and processed food, and pharmaceuticals. Development of new national standards to be applied to Egypts packaging products. Virgin fibre study Product up-grading Implement up-grading New capacity programme projects and extra Remove import tariffs Metal workshops capacity Mnc technical support Improve waste Tops and closures Implement new collection Inputs at international investment project prices Privatisation 4 Attract FDI companies Consolidation Avoid Polystyrene into PET independent PET recycling actions Integrated Solutions

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product IDD3b Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) IDD4 Selling packaging in international markets using imported input materials

Not activated under Phase 1

Not applicable to Egypt

N/a

Not activated under Phase 1

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UK: Imports 45% of its inputs to paper and board manufacturing as virgin pulp. Various initiatives to use straw waste to produce domestic virgin fibre. Saudi Arabia: Imports c. 40% of its inputs to paper and board manufacturing as virgin pulp. Afforestation projects which could provide domestic supplies of wood pulp in the future. Turkey: Combination of domestically-sourced wood pulp; imported wood pulp; and domestic sourcing of bagasse. South Africa: Although South Africa has significant sources of domestically-sourced wood pulp it still converts 3 mn tonnes a year of bagasse into virgin paper and board for packaging. China: About 17 mn tonnes a year of rice straw are converted into virgin paper and board. India: Is a significant converter of rice straw into paper and board, with laws imposed on farmers to ensure there is maximum use of rice straw in paper and board production. Egypt: Afforestation projects such as that planned near Badr City to take the treated wastewater from the near tanneries project could provide a source of virgin fibre if appropriate trees are planted.

No domestically-sourced virgin fibre is currently used in Egypt to produce paper or board for packaging. It has been reported to us that 10 - 15% of the fibre used in the manufacture of recycled paper and board is imported virgin pulp (used to strengthen the domestically produced pulp from recycled waste), but this is not supported by the import data we obtained, see section 12. As indicated above many other countries have the same situation as Egypt, with no domestic source of wood based pulp, but they either import wood pulp as a raw material, or utilise alternative domestic sources of virgin fibre. The situations in other countries, can be contrasted with Egypt, where only 0.5 mn tonnes of the annual supply of 1.75 mn tonnes bagasse waste is converted into paper (1.25 mn tonnes is used as fuel, which could be substituted for example by natural gas), with a worse situation of only 0.13 mn, out of 3.0 mn tonnes of rice straw being converted. The area planted this year (2004) as rice has increased and there the supply of straw is likely to increase to over 4.0 mn tonnes. Although it is accepted in Egypt that bagasse can be used to produce paper there has not been any policy recognition of the role it could play in providing a source of virgin fibre for paper and board production. Egypt has turned-away from using rice straw as a source of virgin fibre, due to the experience with Raktas pollution problems. It appears that research and academic stakeholders have written-off utilising rice straw as it has been identified as the causing the black liquor pollution from Rakta into the Mediterranean Sea. We have been in contact with HunterConsult Incorporated who provided the original design of Rakta 40 years ago. They have confirmed that the facility can be up-graded to produce the required quality of paper and board from rice straw, while at the same time meeting international pollution standards. We are aware that a visit was made by two Professors of Engineering to view a test facility in the United States that uses rice straw, but returned with a negative report. Our comment on this situation is that the United States has significant forest resources and is a major supplier of wood pulp and virgin fibre board. It does not have the same degree of dependency as other countries such as China and India on non-wood sources of virgin fibre. It is our view, as indicted in Appendix 8, that finding solutions to the rice

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straw issues, that are appropriate to Egypt, are more likely to come from these countries. We have also received comments that three, or four pilot tests have been undertaken at Rakta Co., with all of these having failed. We have seen the test facility and it is our view that it is too small to provide meaningful results. It also has to be recognised that the pilot plant has been added onto a manufacturing facility that has not been up-graded to modern standards of production. The issues can only be properly addressed through further detailed study of the options presented in Appendix 8, the selection of the preferred option, and building a dedicated new test facility that is based on the recommendations of the study.
Egypt And Rice Straw: The situation with rice straw represents a classic example where old thinking has been accepted as the norm in Egypt; where other countries have found ways of addressing the problem, through the application of technology, to their competitive advantage.

The issue over having domestic sources of virgin fibre is becoming more important due to increasingly stringent international regulations on the use of packaging in food and pharmaceutical products, which are also matched with increasingly demanding corporate standards amongst international companies in these sectors.
Regulations And Specifications: Through international regulations, see section 16 for the situation with the EU, any paper or board packaging that is in direct contact with products for human consumption must be made from virgin fibre, or must have a protective layer on the food contact side. Most fresh products that are consumed as is (not peeled, such as oranges) must be transported in corrugated boxes, where the lining paper that has been made from virgin fibre. International food companies specify virgin board to be used on the customer facing side of their cartons to ensure there is a high quality finish (feel and quality of printing). In Egypt, not only is existing legislation in this area not being applied, but there is a lack of packaging product standards across the different types of packaging. An example of this is the production of corrugated boxes for Egypts citrus fruit exports. Although these boxes do not need to include virgin kraftliner, they must have sufficient reslience to be transported and integrity to contain the products undamaged, to meet logistic and customer requirements. The lack of packaging standards in Egypt results in exporters having a lack of confidence in the packaging, with some consignments being refused due to the quality of the corrugated boxes.

Egypts Kraft Liner Imports: In 2003 Egypt imported 13,203 tonnes of kraft liner and carton board made from virgin fibre, due to the lack of domestically-sourced virgin fibre. Egypts three largest carton / corrugated board manufacturers, representing 132,000 tonnes of production capacity (50 % of the total), an average of 42% of their input materials are imported. This compares to 47% in Saudi Arabia and 49% in the UK. In both Saudi Arabia and the UK the emphasis is on importing virgin pulp, compared to Egypt where the emphasis is on importing semi-processed kraft liner and carton board. It should be noted that the smaller carton / corrugated board manufacturers do not import any input materials and rely totally on domestically sourced recycled fibre.

Through the supporting review activity, see Appendix 8, we have explored the issue of securing supplies of virgin fibre for paper and board manufacturing as a packaging input material, as far as possible, with the results presented in this appendix. There is now the need for a dedicated in-depth study of how the sourcing and production activity can be best implemented. It is proposed that this study should examine Egypts complete paper and board sector, including all types of paper (printing, newsprint, coated papers, packaging) , from a holistic perspective. As this is outside the scope of Egypts Packaging

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Sector, and therefore the study behind the PSDS, we suggest that this proposal requires wider assessment. For example, the Terms of Reference (ToR) for the study should take into account the recommendations of the separate study of Egypts Printing S ector , in addition to the recommendations contained within the PSDS. From the perspective of the PSDS the purpose of the study should be to examine how Egypts paper and board manufacturing sector should be developed over the next decade to: Meet domestic requirements cost effectively, by paper and board type. Support the development of indigenous national sectors, such as packaging and printing, by providing competitive advantages to enable them to substantially increase their export performance. Allow these sectors to support the development of domestic consumer product manufacturers to become internationally competitive.

Again , from the perspective of the PSDS, the in-depth study should cover the following points and will require up to six months to be completed: Complete a technical assessment of other types of virgin fibre (abacus, palm fonds and others as identified), in addition to the assessment of rice straw and bagasse provided in Appendix 8. Recommend the most appropriate sources to be developed for Egypt. Prepare projections on the overall requirement for paper and board production (domestic consumption and export sales), compare to existing production capacities and identify the requirements for increased production capacity. Prepare 5 year projections on the annual availability of the various sources of virgin fibre, by Governorate. Determine the most economic size of production unit for processing the recommended source(s) of virgin fibre into various forms of paper and board. This needs to assess the concept of having mini-mills to be close to the sources of raw fibre supply. Assess the alternative techniques / technologies for processing the virgin fibre and recommend the most appropriate for Egypt. Undertake a deta iled feasibility study of the recommended selection (source of fib re and processing technique) to demonstrate how the units will perform commercially. Determine the extent to which existing production facilities should participate in the processing of virgin fibre and recommend the facilities. Recommend the most effective role that each of the existing paper and board manufacturing units can contribute to sector-wide improvements in product quality and improved exporting performance.

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Before preparing a detailed ToR a decision needs to be made on the extent to which all types of paper should be covered by the study. This point also applies to waste collection for recycling, see below. Remove Import Tariffs It is likely to take 2 3 years before there will be a supply of domestic virgin fibre to provide Egypts carton / corrugated board manufacturers with a competitive advantage. In the meantime the exporting performance of these manufacturers will be hindered through inflated costs of imported kraft liner and board, due to import tariffs. The level of import tariffs have been reported to us as being 15 23%, with one of the issues being fluctuations in the percentage applied between consignments. There is also an issue that depending on conditions in the international paper market, it is possible for Egypts carton / corrugated board manufacturers to purchase consignments at below going international prices. Although such situations can provide competitive advantages, these are partially removed by Customs increasing the value of consignments to international le vels, to calculate the level of import duty to be paid. One of the carton / corrugated manufacturers has undertaken a review of the drawback rebates they received from Customs over a recent two year period, with the result that against an average of 18% duties being imposed only 6% was received by way of rebates. Due to issues relating to obtaining supplies of imported kraft liner one carton / corrugated manufacturer carries 6 months stocks of this material which incurs significant inventory costs and cash flow implications. It is recommended that import tariffs on kraft liner should be removed as quickly as possible to support exports of board packaging. Improve Waste Collection Problems with the quality of recycled paper, due to issues with waste collection procedures were covered in the last section. Although the issue of obtaining a supply of domestic virgin fibre was covered by the review activity, this was not the case with waste collection. Further consideration of this issue is required to determine the most effective way to improve the situation. One way would be to extend the scope of the study of domestic sourcing of virgin fibre, to cover both virgin and recycled fibres. This needs to be considered within the implementation framework for the PSDS, see section 8. Privatisation There are two public enterprises in paper and board manufacturing National Paper Co. and Rakta Co.; with a further two in carton / corruagted manufacturing Moharrem Press Co. and Verta Co.. All four companies require significant modernisation if they are to play useful roles to implementing the PSDS. The two paper and board manufacturers currently play important roles in the supply of domestic ally recycled board. It is proposed that their privatisation should be held-back until their future role is clear based on the study indicated above. The privatisation of the two carton / corrugated board manufacturers can proceed immediately as the modernisation of their original production capacities could provide useful contributions to increased exports of board packaging. Avoid Independent Actions

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While the virgin fibre study is being undertaken, key players in the board packaging area of activity should avoid taking independent actions that could impact on the overall national situation. In this context we are aware that one of the leading carton / corrugated manufacturers already has its own dedicated facility for manufacturing paper from recycled waste and another is in the process of purchasing a second-hand mill, as described in greater detail in the previous section. Integrated Solutions It should be noted that we are not recommending that each carton / corrugated manufacturer should have its own dedicated paper and board facility. Our recommendation relates to the carton / corrugated manufacturers as a group controlling the quality of production of their input materials to ensure they can meet quality requirements in export markets. Achieving this objective should be based on an integrated approach between the leading carton / corrugated manufacturers to help each other out with supplying either recycled ,or virgin , input materials to support Egypts exports as a whole. Although these businesses may be strong competitors in the domestic marke t, it would be to the advantage of implementing the PSDS if they can cooperate to maximise their individual competitiveness in export markets.

5.3B Plastics Packaging


Product Up-grading The results of the review of plastic packaging companies, see section 15.4, identified the need for a mass programme of product capability up-grading across the sub-sector. This should be developed i n to a Domestic Capabilities Business Development Programme (DCBDP) for plastic packaging companies, see section 7. Mnc Technical Support Approaches should be made to mnc food manufacturing companies operating in Egypt to request that they provide internal technical support to their suppliers to assist them to upgrade the quality of their final products and the consistenc y of meeting their customer product specifications. It is our understanding that this approach could provide the greatest benefits in plastic packaging, but it could also be extended to cover board packaging. Inputs At International Prices The starting-point should be the removal of all tariffs on imported plastic input materials and avoiding monopolistic pricing. While this is being implemented there should be further review activity to determine how domestic supply chains operate to minimise cost increases and improve effectiveness. Proposals for progressing this area of activity are described in the next section, under Removing The Constraints element of the PSDS. Consolidation The last section identified that a weakness of Egypts plastic packaging sub-sector is the fragmented business structure with too many small players, with relatively low product capabilities. The benefits of, and approaches to, consolidation into larger production

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units should be a key element of the delivery of the DCBDP for plastic packaging companies, see next section. The integration of plastics companies in with the board companies participating in the internationalisation programme also needs to be progressed. Polystyrene Into PET A specific product capability initiative is required to support existing manufacturers of polystyrene packaging to convert to working with PET. Preferably this should include the processing of PET pellets into PET sheets to achieve this stage of added-value within Egypt. It is recommended that this area of activity should be put forward as a sector development opportunity, see section 7. PET Re-cycling We have identified new technology relating to re-cycling PET which results in a product which has the qualities of virgin PET. Having such a recycling facility in Egypt could provide a competitive advantage over countries that import all of their PET in virgin form. We understand that the minimum size of the re-cycling plant is 50,000 tonnes p/y which is over four times current imports of virgin PET into Egypt. Such a project would only work if Egypt recycles PET sourced from other countries in the region. It is recommended that this project merits further study and should also be put forward as a sector development opportunity, see section 7.

5.3C Glass Packaging


The following existing projects should be taken into consideration to be supported to overcome the current supply constraint: Technical support to Misr Co. to make its recent investment fully operational, as quickly as possible. Modernisation of the forming process at Arab Pharmaceuticals Co., through the implementation of a new electronic control system, which should increase its production be 50%. Installation of a second oven at National Glass Co. to be dedicated to the production of bottles. New project to be located at 10th Of Ramadan City, but as yet we have not been able to identify the planned production capacity of this project.

The first three of the above could be progressed as business development activities, but the fourth represents a FDI activity. The way these can be progressed are described further in sections 6 and 8.

5.3D Metal Packaging


The projects to be pursued include: Additional production capacity in tin cans as both manufacturers are operating at full capacity, though, this should be addressed in the context of the attraction of FDI

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proposals presented in sections 6 and 8. FDI is proposed as the way forward based on the content of the market development initiatives described later in this section, under phase 2 of the PSDS. Review of metal workshops producing the 5 litre + bulk containers for products such as edible oil. There is a danger that these small workshops could be put under severe competition if an international packaging manufacturer opens a significant production facility in Egypt producing these packaging items. A product up-grading programme should be implemented for these workshops, based on an objective of achieving consolidation into larger units. This should be implemented as a matter of priority to be able to determine the success of the initiative before entering into detailed negotiations with international metal packaging companies. If the initiative is successful it is recommended that one of points to be negotiated is that the international company sources its regional requirements for such containers from the new production facilities that emerge out of the initiative.

5.3E Activating IDD1


The diagram for Phase 1 of the PSDS at the start of this sub-section indicated two areas of activity for strengthening the activation of IDD1, which can be achieved in the absence of strong growth in demand for consumer products: Effective application of Egypts existing packaging legislation, in particular, in relation to fresh and processed food, and pharmaceutical, products. It is important that any such activity is applied equally to all manufacturers in each sub-product area and should focus on the use of re-cycled materials, where virgin materials are required in areas such as board and plastics packaging. Development of new national standards to be applied to Egypts packaging products, with this to be one of the first issues to be considered through the implementation mechanism presented in section 8.

5.4

PSDS Phase 2

A diagram indicating the proposed content of Phase 2 of the PSDS is provided overleaf. It assumes the willingness of stakeholders, in particular GoE, to accept and implement the recommendations for Phase 1, described above. As in dicated in the introduction to Phase 1, the implementation of Phase 2 will be in parallel, and some of its activities may deliver results ahead of the activities under Phase 1. Under Phase 1 the main IDD to be activated was IDD2, with the four main packaging product areas providing the structure for the strengthening of the activation. Under Phase 2 the strengthening activity will be focused on DD3a, which involves export led growth of packaging as a product in its own right. The activities under DD3a are directed at ensuring investment in product capabilities and opening new markets to be able to increase export sales. As under the Phase 1 diagram, the existing weak activations of the IDDs for Egypt are indicated in the diagram, with the green shading indicating where the strong activations of the IDDs will generate increased growth.

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Phase 2 Of DSPS
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices 2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product Egypt

Activated through strong pull and push effects from activating IDD3a.

Not activated under Phase 2

Industrial Sector In Its Own Right Export led growth Product innovation

Integrated Board And Twin Peaks Market Plastics Groups Development Strategy Implemented through 3 Investment in new Market Development virgin and recycled Programmes (MDPs): paper and board, and carton / corrugated manufacturing facilities. 1 Board and plastic packaging into Europe. Integrated board 2 Glass and metal packaging companies. packaging into Integrated board and regional market. plastic packaging 3 All packaging type manufacturers. into Gulf States.

IDD3b

IDD4

Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) Selling packaging in international markets using imported input materials

N/a

N/a

N/a

Pull And Push Effects On IDD1 Exporting packaging starts based on existing production capacities. Pull effects board packaging meeting international standards. Product Development and Technology Service new product development. Multi-site manufacturing to support fresh produce exports. Integrated packaging solutions to meet requirements of international customers N/a

Egypt Now

N/a Become tier 1 suppliers into international packaging supply chains. Out-sourcing FDI relocating part / whole of existing supply chains to manufacture in Egypt. FDI into Egypt for domestic and regional markets.

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5.4A Industrial Sector In Its Own Right


A key conclusion of the study is that, in the absence of a strong activation of IDD1, Egypts Packaging Sector will have to rely on exporting packaging as a product; representing the second role of the sector as described in section 3, to stimulate growth. Under this approach strong pull and push effects will be achieved through activating IDD3a. It is accepted that this is a highly challenging approach for a sector with little exporting experience. We have already explained that the alternative; to wait for domestic consumer product production to grow rapidly to provide the required pull effect, and manufacturers to innovate in specifying their packaging requirements, will take too long to have a positive impact. Under such an approach, Egypts Packaging Sector will be at the mercy of its regional competitors, which will be getting increasingly competitive through their internal strengthening of the ir pull and push effects. The key issue is how to achieve a rapid strengthening of the activation of IDD3a, to generate the required pull and pus h effects, with the background of a sector that has been domestically-oriented, and viewed as only being a supplier to other sectors, for the last thirty years. 5.4B Integrated Board And Plastics Packaging Groups

The link between Phases 1 and 2 will be established through the formation of Egyptian integrated board and plastics packaging groups. This is likely to involve three elements: Investment in new paper and board manufacturing facilities using both virgin and recycled fibre (see Phase 1). Inte gration between the paper and board, and carton / corrugated manufacturers based on: strategic alliances; mergers; acquisitions ; or FDI to form board packaging companies. Whatever the approach the result should be closer integration between the paper and board manufacturers, and the carton and corrugated businesses. Domestic strategic alliances between the integrated board companies and plastic packaging manufacturers, or take-overs through acquisition. This is likely to take the form of strategic alliances initially to provide the board groups the opportunity to obtain an understanding of plastic packaging manufacturing and to determine how this should be integrated into their board operations.

The purpose of forming these groups is to maximise the competitive advantages that can be obtained from using domestic sources of packaging raw and input materials, at the required quality and at competitive prices. This will apply to domestically-sourced: Recycled paper and board. Virgin paper and board. Polyethylene. Polypropylene; Recycled PET, if the assessment of this deve lopment opportunity is positive.

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In addition the packaging groups will have enhanced purchasing power to obtain the following imported input materials at competitive prices: Co-polymers. Polystyrene. Virgin PET. PVC.

5.4C Twin Peaks Market Development Strategy


Egypts Twin Peaks market development strategy has already been described in section 3 and should be implemented as:
Peak 1 Board and plastics packaging sold into developed European consumer markets Peak 2 Glass and metal packaging sold into developing countries in the region

Under these two peaks, three Market Development Programmes (MDPs) are planned to be implemented.

5.4D MDP1 Board And Plastics Packaging Into Europe


The starting-point for the first MDP is the removal of import tariffs on board packaging as this will provide the product for the first stage of market entry into European consumer markets. Further market research will be required to determine if the sales effort should be directed at consumer product manufacturers or into packaging supply chains. Research undertaken through this sector study has indicated that the fastest growing market for packaging is Eastern Europe. With eight of these countries having recently joined the EU, further strong growth in consumer products sales can be expected. A number of international packaging companies have already opened manufacturing plants in this market, but these have tended to have been in the larger countries, such as Czech Republic, Hungary and Poland. An alternative market entry strategy for Egypts board manufacturers would be to concentrate on the smaller Eastern European countries such as Estonia, Latvia, Lithuania, Slovakia and Slovenia. Further market research is required to identify the most suitable countries for direct selling to consumer product manufacturers. An alternative approach is to sell board packaging into packaging supply chains, where the lead manufacturer may be operating at over-capacity, or is looking to source base materials at lower costs than manufacturing in-house. Under this approach the marketing should be directed at leading packaging manufactures in countries such as France, Germany, Italy, Spain and the UK. As the strategic alliances with domestic plastic packaging manufacturers start to provide positive results, there will a growing capability to offer a wider range of packaging products to either the consumer product manufacturers, or into the international supply chains. As the co-operation with the domestic plastic packaging manufacturers develops

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new products should be introduced. The Product Development and Technology Service (PDTS), see section 7 can play an important role in this area of activity. It is recommended that fresh produce packaging should be selected as an area for demonstrating the advantages of close co-operation between board and plastic packaging manufacturers (see sections 19 and 20). An objective should be set for Egypt to develop new world class forms of packaging products and systems for fresh produce. A target should be for Egypt to become the no. 1 regional exporter of fresh produce packaging within a period of five years. A significant boost would be given to achieving this objective if there is success in securing significant domestic supplies of virgin fibre for board manufacturing. As the range of packaging products available for export increases, the more Egypts packaging manufacturers can penetrate European consumer product manufacturers and international supply chains. With the latter, as the international reputation of Egypts packaging sector grows, companie s will be attracted to set-up out-sourcing manufacturing plants in Egypt where it can act as a low-cost location. As this form of FDI involves international packaging companies manufacturing in Egypt to fit into their international supply chains, there is a dependency on Egypts new packaging groups to demonstrate to these companies Egypts capabilities.

5.4E MDP 2 Glass And Metal Packaging Into Regional Market


The second MDP can be implemented in parallel to the first and involves attracting international companies, specialising in glass and metal packaging, to open production facilities in Egypt to serve the regional market. The key selling points to attract the investments should be: Egypt as an established packaging manufacturing country; with all of the input material sourcing requirements operating efficiently; engineering support for equipment maintenance and repairs; free market access to regional developing markets; mncs already selling into these markets; and efficient distribution channels to serve market requirements.
Nestl selected Egypt to act as its regional manufacturing hub for a range of food products. Its sales into regional countries such as; Djbouti, Eritrea, Ethiopia, Kenya, Libya, Somalia and Sudan are counted as domestic. Nestl Egypts regional sales are only counted within Nestl worldwide as exports, when it sells into another Nestl region. The percentage of the worldwide sales of international food companies in developed countries is falling. These companies are increasingly focusing on developing countries to achieve their corporate growth objectives. Egypt already has Americana, Danone, Heinz, Kraft Foods, Nestl and Unilever manufacturing plants. The extent to which this can be further developed into Egypt being a hub for food sales into Africa, the greater will be the demand for packaging. International packaging manufacturers, in particular in glass and metal, which are relatively expensive to transport, would have the advantage of entering these markets through selling their production to customers within Egypt. The cost of transporting the packaging would be the responsibility of the food companies based in Egypt.

For this market development initiative to work effectively there should be a focus of FDI activity on attracting international packaging companies to manufacture in Egypt. The objective should be to attract packaging manufacturers that are already well known to the international food companies, where they can have high degrees of confidence in the consistency of quality. This does not necessarily require the investment to be made totally by the international packaging companies; an option is to match domestic / regional investors with international packaging companies with the product range manufactured under licence.

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ISI Emerging Markets, reported on 14th July 2004, that GAFI had recently approved an investment in a new glass manufacturing facility in Egypt. The break-down of the capital of EGP 250 mn is; 44.45% from Egypt; Arab 22.2%; with the remainder from Switzerland. The article does not indicate if the Swiss investor has involvement in international glass packaging manufacturing. If such a party is not already involved inj the project it is recommended that it should become a requirement for progressing the investment further.

5.4F MDP 3 All Packaging Types Into Gulf States


This third MDP is related to the successful implementation of the first and second market development initiatives. In glass and metal packaging the manufacturers that are attracted to operate from Egypt should view the Gulf States as part of the regional market to be served from Egypt. This should also apply to the board and plastic packaging groups that will be established under the first initiative. With the latter, the need to strengthen product and financial capabilities before attempting to enter this market was highlighted in the section on Egypts international packaging sector positioning. One way to achieve this would be to establish international strategic alliances with, and / or international investments into, Egypts packaging groups (to be established and developed under the first initiative) to provide the required strength. One option for achieving this would be to explore such international co-operation with South African packaging companies. The section on international comparisons described how South African packaging companies used DD3b to become international players in packaging. Although these companies had to use DD3b to activate their internationalisation, they will be aware of the market development potential within the African continent. A joint strategic approach to develop and protect the African packaging market could be entered into between Egypts packaging groups and South Africas existing international packaging companies. A key feature of such a joint approach is a pincer movement on the market with the South African packaging companies developing from the south, and Egyptian packaging groups developing from the north. The South African packaging companies are likely to be well aware of Saudi Arabias aspirations for its packaging sector. The extent to which such companies are interested to work with Egyptian packaging groups to penetrate the Gulf States market should be explored during an discussions over joint initiatives.

5.4G Pull And Push Effects On IDD1


Exporting Packaging Strong pull and push effects will be achieved through exporting packaging as a product, through activating DD3a through the implementation of the three MDPs. A pre-requisite for being able to achieve such implementation is the establishment of indigenous packaging groups with strong product capabilities in board and plastics packaging. The formation of these indigenous packaging groups will also have implications for the structure and operation of the domestic packaging sector. Pull Effects Board Packaging Current spare capacity amongst domestic carton / corrugated manufacturers is identified to be 32,000 tonnes, in section 4.3. We understand that there is a further 50,000 tonnes

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of unused production capacity within the two public enterprises, which requires modernisation. We are aware of one further private project to add a further 48,000 tonnes of production capacity for the paper and board input materials. In total this additional 130,000 tonnes, assuming all projects are implemented, should provide sufficient capacity to support the pull effects of increased exports of board packaging and increases in domestic demand. Role Of PDTS One of the benefits of exporting board and plastic packaging into Europe is the pull effect this will have on the capabilities of Egypts packaging manufacturers to produce increasingly sophisticated forms of packaging. The role of the PDTS in assisting with new product development has already been indicated. It will be up to the new packaging groups to sell their new capabilities and products into Egypts domestic consumer product manufacturers. In this role the packaging groups could act proactively and assist in instigating a process of change and development within the consumer product manufacturers. The extent to which plans for increasing Egypts processed food exports focus on basic food products, such as edible oil and tomato paste, the more that packaging can be used to differentiate the products. Under these circumstances it is Egypts packaging manufacturers that can lead export development for some of Egypts food products, by providing new consumer (European) oriented packaging, and possibly also access to markets through their involvement in international supply chains. Multi-site Manufacturing One of the differences between Egypt and Turkey is the concentration of packaging manufacturing facilities in the Anatolia region, which is Turkeys main area for exporting fresh produce. The main reason for this concentration of manufacturing activity is due to the high cost of transporting corrugated board in relation to its value as a product. A substantial increase in the exports of fresh produce from Egypt is planned, with the produce to be grown the length of the country, depending on the harvest season for each product. This will generate a requirement for corrugated board manufacturing facilities the length of Egypt, which does not exist now. The results of the study into sourcing virgin fibre should also be taken into account, in particular the concept of mini-mills, see step 1 of the PSDS, above, as these mills will provide the main input material into the corrugated manufacturers. Integrated Packaging Solutions Tier 1 suppliers to mncs are usually other mncs, or large national suppliers that are viewed as strategic partners, rather than mere product manufacturers. Conditions of being accepted as a tier 1 supplier to the mncs includes being able to offer integrated packaging solutions and having internal product development capabilities to work with them in developing new forms of packaging. If indigenous board and pla stic manufacturers can achieve tier 1 status, these companies will benefit from being: Integral to the development of the mncs into the regional developing country markets. An accepted supplier into their international packaging supply chains , which could open-up new markets through developments within the supply chains.

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Considered as a low cost source of packaging into the international supply chains, at the expense of ma nufacturers in higher cost locations.

Role Of Packaging Groups The formation of strong indigenous Egyptian packaging groups, being able to offer integrated packaging solutions, at a minimum covering board and plastics, is a crucial element of the overall PSDS. The extent to which this element of the strategy is successful will determine the strength of activation of DD3a, and its impact on generating the pull and push effects within Egypts packaging sector. If the packaging group concept is not imple mented, or fails in its implementation, the activation of DD3a will be left to the international packaging companies operating in glass and metals, with such companies also having to be attracted to develop board and plastics capabilities. The downside of this situation is that at best Egypts packaging sector will become a regional player and it will miss-out on the opportunity to become an international player in board and plastics packaging.

5.4H Activating IDD4


Through the activation of DD3a , Egypts Packaging Sector will gain a higher international profile. Through improvements in product capabilities Egypt should also generate a reputation of producing high quality and reasonably priced packaging. Based on increasing international recognition will come the potential to activate IDD4, selling packaging in international markets using imported input materials, through activities, such as: Becoming dedicated tier 1 packaging suppliers into international supply chains in areas where Egypt does not ha ve strengths under DD2. In these areas the sales will be gained only thr ough manufacturing capabilities. Out-sourcing FDI where an existing part of an international supply chain decides to relocate to Egypt as it provides a lower cost manufacturing location close to its point of entry into the supply chain(s). Attracting FDI into Egypt to supply the domestic and regional markets.

5.4I

Comparison To UK

In sections 3 and 4 the positioning and performance of Egypts packaging sector was compared to the UK providing international best practice. If Egypt is successful in implementing Phases 1 and 2 of the PSDS, the comparison to the UK will change to have the following similarities: Egypt will have strong pull and push effects generated through the activation of DD3a, which has been one of the strongest IDD activations in the UK. This also applies to the activation of DD4, where Egypt will be targeting international supply chains, where the UK already has a strong presence. The strong push effects in Egypt will result in moves into multi-site manufacturing and offering integrated packaging solutions through the formation of packaging

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groups. These developments are already well-established in the UK and accepted as the norm. In the UK packaging groups work closely with their customers to develop new packaging products, techniques and systems. This is planned to be the case in Egypt through Egypts leading packaging businesses becoming integrated packaging groups and them working closely with domestic consumer product manufacturers.

The main differences between the diagrams are: The strong pull effect from demand for consumer products generated within the UKs domestic market, as it may be many years before there is similar strength of growth in Egypts domestic consumer market. The use of international group purchasing within the UKs leading packaging companies to minimise the cost of their input materials. In Egypt the first step is to remove constraints on developing the sector and overcoming structural issues relating to the domestic supply of raw and input materials. A development into international group purchasing can come following the formation of Egypts integrated packaging groups. In the links between DD3a and DD4, where Egypt has the advantage of becoming a low cost location for manufacturing packaging (based on the removal of the constraints and overcoming the structural issues). Achieving this status should result in FDI into Egypt by international packaging companies. As the European packaging market is becoming saturated there is likely to be less FDI into the UK. Main mnc customers of the UKs packaging companies have already started to manufacture in Egypt with the objective of opening-up the regional developing countries market. Based on these development the international packaging supply chain is already moving in Egypts direction. Egypt should be viewed as being located in a growth market for packaging, whereas the UK is located in a mature market. There will be the threat to the UKs packaging sector of companies relocating packaging capacity to countries, such as Egypt, to follow the requirements of their main international customers. The UKs leading packaging manufacturers have strong internal research and development activities to develop the application of new input materials and technology to offer new packaging products and systems. Egypts packaging manufacturers are a long way from having these internal capabilities. The first step in Egypt should be the establishment of the Product Development and Technology Service (see next section).

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Stages To Implementing PSDS

Phases And Stages The PSDS was described in section 5 as being in two phases; Phase 1 which concentrates on strengthening the activation of IDD2; and Phase 2 which involves generating strong pull and push effects on the domestic packaging sector, by activating first IDD3a, and later IDD4. It has already been explained that the phases used to structure the description of the overall content of the PSDS are not linked to the four stages of implementation described in this section.

6.1

Integrated PSDS Delivery

In this section we present and describe four stages to implementing the , as diagrams on the following pages ten descriptions of the key points that need to be progressed within each stage. Key reasons for presenting the four stages are to: Introduce the role of development activities being delivered to generate strong activations of the IDDs. Each of the dot points within each diagram represents a development activity. Highlight the interaction of the development activities across the four product areas to generate strong activations of the IDDs. Demonstrate the importance of integrated development activity within each stage to generate sufficient momentum to move to the next stage.

ssential that the linkages are established to achieve the improvements in sector performance and it will be the responsibility of the implementation mechanism described in section 8 to ensure this happens. It should be further noted that the development activity linkages are too complicated to present in Action Plan format, and are not presented within the Action Plans in section 10.

6.2

Stage 1 Of PSDS

One of the first steps in implementing of the development strategy involves undertaking the study of sourcing and processing domestic sources of virgin fibre and improving the collection of waste paper and board for recycling. These two activities will not deliver improvements until the recommendations start to be implemented dur ing stage 2. Stage 1 should involve the removal of import tariffs on imported kraftliner, plastic input materials and on packaging machinery. A key element of stage 1 should be the start of delivery of the International Business Development Programme (IBDP see next section) which will be targeted at the three leading carton and corrugated board manufacturers. There should also be the start of delivery of the Domestic Capabilities Business Development Programme (DCDBP, also see next section)), which will be focused on the smaller carton / corrugated manufacturers; the paper and board manufacturers; and the plastics packaging manufacturers. The objective should be to have a group of 10 plastics packaging businesses to start delivery of the DCBDP.

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The removal of the import tariff on imported kraftliner should result in lower prices charged to exporters of fresh produce, which should help them to sell more and therefore generate a pull effect. The reduction in import tariffs, combined with the start of implementing Market Development Programme (MDP) 1 (see last section) , through researched approaches to new markets, should result in increased export sales of board packaging, as a product into Europe. A further area of activity under stage 1 should be to start to undertake research of the glass and metal packaging markets in developing countries in the region, as a first step in implementing MDP2, see last section. The delivery of stage 1 is planned to be from Q4 / 2004 to end Q2 / 2005.

6.3

Stage 2 Of PSDS

A series of technical improvements should be implemented to existing paper and board manufacturing facilities, which alongside improvements in waste collection systems should improve the quality of recycle d paper and board. Preliminary implementation of the recommendations for sourcing and processing domestic virgin fibre should start to result in improved price competitiveness in board packaging. The implementation of these supply initiatives should be supported by the PDTS to ensure that improvements are sustainable and result in new product innovations. During stage 2 there should be continued delivery of the IBDP to the leading carton / corrugated manufacturers, with the group being joined by other businesses that reach the required level of up-grading through participating in the delivery of the DCBDP under stage 1. The businesses that have been up-graded, but do not join the IBDP should receive support to start exporting into regional markets. There should also be a new group of businesses recruited to join a second delivery of the DCBDP, which are likely to be a further 10 plastic packaging manufacturers. Based on the delivery of development activity relating to securing a domestic source of virgin fibre it will be possible to start the preparatory work to offer the four public enterprises to be offered for sale. The further implementation of MDP1 should result in new selected European markets being opened-up for board packaging, plastic packaging and integrated board plastics packaging solutions. There should also be the start of board sales into European packaging supply chains. Having domestically-sourced virgin kraftliner should assist these market developments. The delivery of stage 2 is planned to be from Q2 / 2005 to the end of Q4 / 2006.

6.4

Stage 3 Of PSDS

One of the key elements of stage 3 will be the full scale implementation of the recommendations of the study on virgin fibre supply and processing. This will take longer than the implementation of the re-cycling recommendations (see stage 2), due to the need to identify investors, put together finding packages, source equipment and build the new facilities. By the start of this stage it should be clear how each of the internationalised carton / corrugated manufacturers will become directly involved in producing paper and board from virgin fibre.

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Stage 1
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices Board Packaging Plastics Packaging Egypt

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product

Application of Egypts packaging regulations to food and pharmaceutical products. Introduction new national packaging standards. Pull effect from implementing a Fresh Horticultural Produce Sector Development Strategy (FHPSDS). Remove import tariffs on imported virgin fibre. Study on domestic sourcing of virgin fibre for paper and board packaging. Overcome sector structural issues fragmented structure of plastic packaging manufacture. Delivery of Internationalisation Business Development Programme (IBDP). Support integration between paper and board Remove constraints on the development of and carton / corrugated manufacturers to plastics packaging by bringing down input establish board companies. prices to international levels. Overcome sector structural issues fragmented structure of plastic packaging manufacture encourage mergers. Delivery of Domestic Capabilities Business Development Programme. Market research of developed European consumer ma rkets and Eastern European countries for board and plastic packaging. Carton / corrugated board manufacturers increase exports based on participation in IDBP. And MDP1 Market research in regional developing consumer markets for glass and metal packaging. PDTS supports manufacturers to improve product quality. Removal of tariffs improves price competitiveness. Research of international supply chains. Not applicable to Egypt N/a

IDD3b

IDD4

Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) Selling packaging in international markets using imported input materials

Not activated under stage 1.

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Stage 2
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices Board Plastics Glass Metal (Tin Can) Egypt

Continued application of Egypts packaging regulations to food and pharmaceutical products. Continued introduction new national packaging standards. Continued pull effect from implementing FHPSDS. Implement recommendations of Continue to bring down Specific Metal container study of domestic sources of input prices to investments to workshops virgin fibre. international levels. overcome business upproduct quality grading. Privatisation of two public Continue to overcome and quantity enterprise carton / corrugated sector structural issues issues. manufacturers. fragmented structure of plastic packaging PDTS new forms of manufacture encourage packaging and packaging mergers. systems for fresh produce. Establish integrated paper and board, and carton / corrugated Existing manufacturers participate in manufacturers integrated board companies. DCBDP, or in IDBP if increased production capacity. FDI search activity. Keep up-to-date with developing consumer market developments.

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product

Increased export performance Market research of of integrated board companies. developed consumer markets. Selected European markets, with market data and entry plans. First group of plastics companies complete First 3 board companies DCBDP. complete IBDP. 2nd delivery DCBDP. 2nd delivery IBDP. Not applicable to Egypt Board packaging sold into international supply chains.

IDD3b

IDD4

Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) Selling packaging in international markets using imported input materials

N/a

Not activated under stage 2.

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Stage 3
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically IDD2 Domestic sources of packaging raw and input materials of required quality and at competitive prices Board Plastics Glass Metal (Tin Can) Egypt

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product.

Pull and push effects from selling board packaging Pull effect from increased exporting of food into European markets. products Continued pull and push effects from increased Push effect from stronger domestic competition. exports of fresh produce. Significant quantities Board companies Complete up-grading New FDI production of domesticallyabsorb plastics existing facilities. capacity operational sourced virgin fibre companies to and overcome New FDI production being processed for establish integrated production capacity capacity operational board packaging input packaging companies. constraints. and overcome materials. Use PDTS to convert production capacity Continue delivery of Privatisation of two polystyrene packaging constraints. metal workshop paper and board manufacturers to PET. business up-grading. manufacturers. PDTS supports product Study of PET capabilities in integrated recycling. packaging solutions board and plastics. Integrated board and plastics packaging groups. Start of multi-site manufacturing. New packaging product range and system being sold to domestic fresh produce growers. Out-sourcing FDI. Sold to leading Sold to leading consumer product consumer product manufacturers. manufacturers Sold as integrated packaging to leading consumer product manufacturers. Being sold into regional export markets .under MDP 2 Being sold into regional export markets under MDP 2.

IDD3b

IDD4

Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) Selling packaging in international markets using imported input materials

Not applicable to Egypt Board and plastic packaging sold into international supply chains, either separately, or as integrated solutions.

N/a

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Stage 4
International Development Drivers 1 st Role Supporting Other Sectors IDD1 Strong domestic or export demand for consumer products produced domestically Board Plastics Glass Metal (Tin Can) Egypt

IDD2

Domestic sources of packaging raw and input materials of required quality and at competitive prices

2 nd Role Industrial Sector In Its Own Right IDD3a Strong export performance of packaging as a product

Strong product capabilities across all four packaging product areas increases domestic competition, manufacturers actively encouraging domestic consumer product manufacturers to adopt new packaging systems, techniques and products. Strong activation of IDD1 through exports of packaging as a product in its own right and increasing exports of domestic consumer products in domestic and export markets. All public enterprises Fragmentation of this All product quality All product quality sold and modernised. sub-sector overcome. issues overcome, with issues overcome, with surplus domestic surplus domestic All integrated board At least 10 plastic production capacity o production capacity o manufacturers packaging support long-term support long-term operating to manufacturers growth in exports. growth in exports. international best operating to practice. international best FDI plants fully FDI plants fully practice. operational. operational. Fully integrated packaging groups across different combinations of packaging product areas. These packaging groups with international strategic alliances, possibly with South African packaging manufacturers. Packaging companies from all four product areas participating in the IBDP.

MDP 1 operating successfully

MDP 2 operating successfully.

MDP 3 to sell sophisticated packaging products into the Gulf States On target to achieve sector vision. Not applicable to Egypt N/a

IDD3b

IDD4

Ownership of packaging manufacturing facilities in developed consumer markets (only South Africa) Selling packaging in international markets using imported input materials

Selling into international supply chains across all four product areas. Egypt recognised as the regional hub for manufacturing packaging.

THE

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From the start of stage 3 these core businesses will be referred to as board packaging groups They will be assisted in implementing their board and plastics integration projects through participating in the IBDP, which will also assist to determine the extent to which the core board businesses should be involved in the privatisation and modernisation of the four public enterprises. If they are not to be involved the privatisation process should be managed through the delivery of the FDI and International Strategic Alliance activities. At the start of stage 3 the core board packaging groups will know how they will be directly involved in the manufacture of paper and board inputs from both re-cycled and virgin fibre. They can therefore turn their attention to developing their businesses into plastics. By this time there will ha ve been two de liveries of the DCBDP and at least 20 plastics manufacturers should have been up-graded to be ready to start to sell their products in export markets. These businesses will be introduced to the board packaging groups to determine how integrated board and plastic packaging groups will be formed. Options include; acquisitions, mergers, or strategic alliances. Once these expanded groups start to be formed they should be referred to as board and plastics packaging groups. Under stage 3 the PDTS will switc h from working on new product development using board (under stage 2), to plastics. The new board packaging products will have already been introduced to the core carton / corrugated manufacturers during stage 2. During stage 3 new plastic packaging products will be developed and introduced to the board and plastic packaging groups. A particular area of focus for bringing together new forms of board and plastic packaging will be packaging for fresh produce. A key element of stage 3 will be for businesses that have traditionally worked with polystyrene packaging to be assisted to switch to using PET. This will be achieved through a combination of these businesses participating in the DCBDP and being assisted by the PDTS. Through their participation in the IBDP the board and plastics packaging groups will have determined the extent to which they want to diversify further into glass and metal packaging. This will determine how, if at all, they participate in implementing developments in the glass and metal packaging areas of activity. It is anticipated that the main thrust for developing glass and metal packaging will be through FDI, but this may be given less emphasis if the board and glass packaging groups are found to be capable of developing these two areas of packaging. During stage 3 the 4 public enterprises should be privatised and modernisation processes started to be implemented. The way this will be progressed will have been decided during stage 2. During stage 2 there should also be a detailed review of the opportunity to establish a PET recycling facility, which be started to be implemented during stage 3 if the outcome is positive. Through the delivery of MDP1, the export of packaging into developed European consumer markets, will be continued to be implemented through the board and plastics packaging groups participating in the Internationalisation Programme. The objective will be to increase export sales through selling either direct to consumer product manufacturers, or into international packaging supply chains. Under stage 3 the position

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of Egypts board and plastics packaging groups should have developed to the point that they can promote out-sourcing FDI in Egypt as a low cost manufacturing location. Increased exports of board and plastics packaging will generate stronger pull and push effects than under the previous stages. Within the domestic packaging sector there are likely to be moves to establish multi-site manufacturing facilities. One of the main reasons for this development will be the availability of virgin paper and board from areas which are mainly agricultural. A further reason will be further increases in fresh produce exports, with particularly strong increases from Upper Egypt. The domestic board and plastics packaging groups will be expected to promote and sell their new integrated packaging capabilities and new products to domestic consumer product manufacturers. Assistance to implement such promotion and selling campaigns could be provided through the Internationalisation Programme. Under this approach Egypts packaging manufacturers will proactively introduce new forms of packaging to Egypts food processors, white goods and garment manufacturers. During stage 3 the original group of leading carton / corrugated board manufacturers (from stage 1) will have developed in to board and plastics packaging groups, but will continue to participate in the Internationalisation Programme. This programme will continue to have the additional participating businesses that joined during stage 2, with further additions during stage 3. During stage 3 there should be a further delivery of the Domestic Capabilities Development Programme, depending on demand. The delivery of stage 3 is planned to be from Q3 / 2005 to the end of Q4 / 2006.

6.5

Stage 4 Of PSDS

Up to this stage most of the activity under IDD2 will have related to board manufacturing. Under this stage the focus will switch to base plastics, with the implementation of the planned polypropylene manufacturing plant and the PET re-cycling facility, if the results of the study under stage 3 are positive. These projects, if implemented, should reduce input material costs of polypropylene and PET and should improve the price competitiveness of Egypts plastic packaging manufacturers. With the combination of: strengthening of domestic plastic packaging manufacturing capabilities, through such businesses participating in the DCDBP; new plastic product development; and the formation of internationally competitive board and plastic packaging groups the time will be right to start applying new packaging technologies. This could involve the integration of board and plastic packaging materials in new types of packaging products and systems. This could be progressed based on the participation of Egypts packaging machinery manufacturers in the DCDBP, innovations u sing the PDTS and the increasing international experience of the board and plastics packaging groups. By the time of starting stage 4 it will be clear the extent to which the board and plastics packaging groups have diversified into glass and metal packaging to become fully integrated packaging groups. Based on positive experiences of the international glass and metal packaging companies that have undertaken FDI in Egypt, they could be encouraged to start out-sourcing from their manufacturing facilities in Egypt, into their international supply chains.

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The implementation of MDPs1 and 2 will continue with the objective of further increasing exports in developed and developing countries. A new feature of the IBDP delivered under stage 4 will be the identification of strategic international partners / investors for the packaging groups. This will provide them with the strength to start implementing MDP3 to open-up the Gulf States market. The DCBDP should be continued to be implemented, but with an emphasis on developing capabilities to produce new types of packaging, work with new packaging technology and to start offering new Egyptian designed packaging systems. The delivery of stage 3 is planned to be from Q2 / 2006 to the end of Q4 / 2007.

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7
7.1

Development Activity Areas And Package


Development Activity Areas

Individual development activities were described in the last section, within each of the four stages to implementing the PSDS. It is necessary to group these individual activities into areas and into a single Development Activities Package (DAP) if there is to be successful co-ordination of the delivery of the activities. The last section stressed the importance of having integrated delivery to be able to move from one stage of the PSDS implementation to the next. Co-ordination is essential between the development activity areas, and between the individual development activities within each area, if real progress is to be achieved and the growth potential realised. Five development activity areas have been identified: 1. Remove constraints on development. 2. Strategic development projects. 3. Assessment of development opportunities. 4. FDI and international strategic alliances. 5. Business and market development programmes.

7.2

Actions Points Within A DAP

A sector development strategy requires the delivery of development activity to make it operational, by key players that have an involvement in the sector. Without the framework of a Development Activities Package (DAP), there is a danger that activities of key players conflict with each other to the extent that they cancel each other out, and Packaging Sector Development Strategy (PSDS)
Dev. Act. Area 1 Act. A
AP1 AP4 AP6 AP9 AP11 AP13 AP17 AP14 AP18 AP15 AP19 AP12 AP16 AP20 AP7 AP

Action Point

Dev. Act. Area 2 Act. A

Dev. Act. Area 3 Act. A


AP2

Dev. Act. Area 4. Act. A

Dev. Act. Area 5 Act. A


AP3

Packaging Sector Key Players


Carton / corrugated manufacturers Plastic packaging manufacturers

AP5

AP8 AP10

Glass packaging manufacturers New packaging groups FDI metal packaging manufacturer GOE Ministry A GOE Ministry B

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there is no net new added-value. The interactions between the development activities of a sector development strategy, and the players that need to deliver these activities, are Action Points. Successful strong activations of the IDDs will be generated through the successful implementation of many different action points, as indicated in the diagram on the previous page. Individual action points are usually grouped together into Action Plans , that relate to the delivery of the overall sector development strategy and to each of the development activity areas. The development activity areas of the DAP for Egypts Packaging Sector have already been indicate d above , and are described in greater detail within this section. Action plans for the implementation of the DAP and its five development activity areas are provided in section 10.

7.3

Design Of Implementation Mechanism

It is the way the delivery of each action point is managed and co-ordinated that determines the success of implementing any sector development strategy. It is our experience that action points will not be implemented, unless their delivery is built -into the design the sector development strategy. Either, very little will happen if implementation is left to individual businesses and parts of government, or if action points are implemented they will not be co-ordinated and may conflict with each other, as indicated above. Our recomme ndations for addressing this point are provided in section 9.

7.4

Structure Of DAP For PSDS

Each of the five development activity areas is described with examples provided of the types of development activities to be delivered under each area, and the o verall framework of the DAP. 7.5 Removing Constraints On Development

The action points to be progressed under this element of the PSDS relate to strengthening the activation of DD1: Removing the import tariffs on kraft liner. Removing the import tariffs on imported material inputs to manufacture plastic packaging. Addressing monopolistic practices in the pricing of polyethylene and polypropylene in the domestic market. Ensuring the manufacturers of plastic packaging can obtain their material inputs at the same prices that apply internationally.

7.6 Strategic Development Projects There are six strategic development projects: A. Addressing structural issues. B. Product Development and Technology Service.

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C. Domestic consumer products; D. Privatisation and modernisation; E. Communicating the PSDS; F. Reviewing and up-dating the PSDS.

Each of the above is described in turn.

7.6A Addressing Structural Issues


The most important structural issue is lack of a domestic source of virgin fibre which is holding-back the development of the board packaging sub-sector. A recommendation to have a detailed study of how this issue can be addressed most effectively was made in section 3. In this section there is also a detailed explanation of how the study should be set-up and the key points to be covered. In progressing the study as a strategic development project, care will have to be taken in covering the following points: Determining the extent to which the study should cover waste collection and recycling paper and board to be used in packaging. Determining the extent to which the study should cover sourcing virgin fibre for domestic manufacturing of all types of paper. As commercial projects start to be identified, liaising with businesses in the two Business Development Programmes to determine their level of interest in taking the projects forward. Liaising with those responsible for the delivery of the FDI And International Strategic Alliance Activities to assess international interest in taking the projects forward.

7.6B Product Development And Technology Service


The Product Development And Technology Service (PDATS) will support the technical up-grading of packaging companies in all packaging sub-sectors, but initially with in particula r focus on board and plastics packaging. It is emphasised that this activity will be delivered as a service and should not be confused with the Technology Centres initiative of the Ministry Of Foreign Trade And Industry. The role of the PSDS in this area of service activity should be to act as a catalyst in: Assessing and developing the service delivery capabilities of organisations and businesses that are involved in: packaging product development; innovations in materials; research and development; and technology transfer / applications. The objective should be to bring together these existing facilities and activities under a single umbrella for the Packaging Sector and to promote the availability of the services to packaging businesses. Through co-ordination with the delivery of the Business Development Programmes, identify the range of services that are required to support the technical up-grading of these businesses and to develop new packaging products.

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Identify gaps in the availability of services and determine the most effective way to fill the gaps. This could involve the development and introduction of new service, but these should be transferred out as commercial businesses as quickly as possible.

One of the first areas of activity that should be progressed under PDATS is the introduction of standards specifications to provide quality assurance and to allow for more accurate product specifications. Such specifications would also make purchasing easier and provide for a more efficie nt operation of the supply chain in the packaging sector. The range of activities in which PDATS could become involved are indicated in the following diagram: Test laboratory Supplies Specifications Shelf-life Quality Standards Specifications

Marketing Market Research Product Launch Promotions Purchasing New Materials Cost Savings

Packaging Technology Service

Manufacturing Processes Trials

Engineering Machine Development / Up-grading Logistics Planning And Development Trials

Each of the above needs to be assessed to determine the way PDATS should operate in the area of activity and to determine if other activities need to be added. The roles of the PDATS in relation to implementing the DSDS should include: Working as counterparts to any international experts who visit Egypt to work on overcoming the structural issues to ensure the expertise is absorbed domestically. Assisting domestic paper / board and carton / corrugated businesses to implement the recommendations of the virgin fibre study. Assisting with implementing the technical recommendations relating to improving the re-cycling supply chain.

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New product development activities, in particular in board and plastics. Supporting the conversion of plastics packaging businesses operating with polystyrene into working with PET. Acting as a depository for packaging materials that are obtained internationally to be used as demonstration items for either Egypts packaging manufacturers, or consumer product manufacturers. Identifying international developments in packaging technology and transferring these into Egypt.

7.6C Domestic Consumer Products


As the capabilities of packaging manufacturers are improved there should be a project to present the improvements to domestic consumer product manufacturers. The delivery of this project should support efforts to increase exports of consumer products produced within Egypt. The implementation of the project should be co-ordinated closely with any sector development strategies that are being prepared, or implemented, in the consumer products areas. As a sector development strategy is about to become available for Egypts Pharmaceutical Sector, this could provide a pilot area of consumer products for implementing a project. As this is effectively a promotion area of activity its implementation should be closely integrated with the Business And Marketing Development Programmes, see below.

7.6D Privatisation And Modernisation


This will involve the preparation to be offered for sale of: Moharrem Press Co,; National Paper Co.; Rakta Co; VERTA Co.

Progressing the privatisation of each of the above should be within the content and structure of the PSDS to take into account their: Role in implementing the recommendations of the study into the domestic sourcing and processing of virgin fibre. Improving the quality of recycle d paper and board for packaging. Overcoming technical issues that are restricting production levels below design capacities.

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Assessing the level of interest of indigenous packaging manufacturers in privatising and modernising all, or parts, of the above companies.

It should be noted that further public paper companies may be added to the above list based on the recommendations of the study on virgin fibre.

7.6E Communicating The PSDS


Although there have been packaging manufacturing representatives on the Packaging Sector Steering Committee, they account for only a small proportion of the total number of packaging businesses in Egypt. It is essential that the content of the PSDS is communicated, as quickly as possible, to businesses throughout the sector. This could be achieved through a series of seminars where the businesses receive a presentation on the content of the PSDS, have the opportunity to ask questions, and are encouraged to sign statements of commitment to participate in the DCBDP (see below). The timing of such communication is urgent for two reasons: The company reviews were undertaken between April and June, with it already being six months since the first group of businesses were interviewed. These businesses are already likely to be thinking that the exercise they participated in was yet another initiative that will not produce any positive results. The PSDS can only be implemented with the full support and involvement of privately -owned packaging businesses. If they become disillusioned now , this will be to the long-term detriment of achieving a successful implementation of the PSDS. With every day that passes the overall PSDS is becoming out-of-date, with the risk that changes either externally, or within Egypt could have implications for its content. The longer the delay in communicating the development strategy the greater the likelihood that some changes will be required.

It is strongly recommended that the communication pr ocess should start in early November 2004. Following the delivery of the seminar programme it is recommended that a quarterly newsletter should be prepared and circulated to all packaging businesses

7.6F Reviewing And Monitoring The PSDS


Monitoring implementation needs to be undertaken at three levels: The sector as a whole, including the external and internal environments to meet three requirements: indicate improvements in sector performance (and contributions to increased nationa l economic growth); checking if implementation is progressing as planned, see Overall PSDS Action Plan in section 10; and identifying if changes are required to the content of the PSDS. The activities of the various parts of the implementing the PSDS, based on the recommendations presented in section 8 and the Actions Plans in section 10. The trading performance of individual packaging businesses that are participating in either of the business development programmes. These improvements need to b e aggregated to provide the overall improvements in sector performance, see section 9. The way this will be monitored needs to be agreed from the start of implementation to

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ensure there are opening positions recorded for each of the participating businesses. Under this review area activity there is also the option to introduce a national benchmarking system for Egypts Packaging Sector , see the approach described in Appendix 1.

7.7 Assessment Of Development Opportunities


The development opportunities indicated below have been identified through the domestic review activity of the sector study. The list has been prepared based on the proposals indicated in the previous sections. It needs to be recognised that these opportunities will become quickly out-of-date and there is the need to continue the review activity to identify new opportunities. The most significant feature of this element of the PSDS is its role in assessing each of the development opportunities. The outcome of these assessments can be: The opportunity is not technically or commercially viable and should not be progressed further. The opportunity is premature, based on the current stage of development of Egypts Packaging Sector, but should be re-considered at a later date. The opportunity appears to be technically and commercially viable and is of potential considerable importance to the sector as a whole, or an individual sub-sector. On this basis , the opportunity should be classified as a strategic development project and transferred to this area of development activity. The opportunity needs to be implemented by an individual, or group of, packaging businesses, and should be introduced into the business and market development programmes, see next point.

The development opportunities that have been identified so far are: Improve waste collection this is presented as a development opportunity as further assessment is required to determine how this area of activity should be progressed. Aluminium foil, in particular for use in pharmaceutical packaging. Aseptic packaging. Convert existing manufacturers of polystyrene packaging to work with PET. The PET recycling project. Innovations in packaging for fresh horticultural produce. Capsules made from pharmaceutical grade gelatin. Squeezable plastic bottles. Lids, stoppers and caps as a general area of activity, with the requirement to identify more specific opportunities.

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Tamperproof packaging.

7.8 FDI And International Strategic Alliances At the time of preparing this report it is not clear to us how the FDI elements of each of the vertical sector studies will be taken forward as a horizontal development activity. In section 8 we describe how the delivery of the FDI and strategic alliance element of the PSDS can be inte grated in with the delivery of the other development activities. The action points under this package of development activity are: Investment partners for implementing the recommendations from the study of domestic sources of virgin fibre, in particular in the systems for collecting and transporting the raw material, and the processing facilities. Securing investors to purchase and modernise the four public enterprises that are in the board sub-sector: Moharrem Press Co.; National Paper Co.; Rakta Co.; and VERTA Co. Implementation of the planned propylene production project. Up-grading of existing glass manufacturing plants as indicated in the previous section. New glass manufacturing production capacity, in particular for the food sector. New metal packaging manufacturing capacity, in particular in tin cans. Aluminium foil, in particular as used in the pharmaceutical sector. Securing strategic partners, depending on the requirements of individual packaging businesses, with potential areas including: caps, tops, lids and closures; aseptic packaging; flexible packaging;

General (any packaging sub-sector) out-sourcing investment to supply into established supply chains outside Egypt. General investment to strengthen the range of packaging materials offered to domestic and regional consumer product manufacturers. Business And Market Development Programmes

7.9

The three market development programmes have already been described in the last section. Their inclusion into a business and market de velopment programmes package is based on the importance of relating the results of the market research to the wider business up-grading activity to be delivered to groups of, or individual, packaging businesses.

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The previous section indicated the need for two business development programmes: Internationalisation Business Development Programme (IBDP) that will take Egypts leading carton and corrugated manufacturers into European markets to activate DD3a. Participation in this programme will only be available to packaging businesses that can demonstrate that they are already internationally competitive and have spare production capacity. Through the company review activity of the sector study, see section 15, six packaging companies are identified to have product capability scores (pcss) of 9, which makes them eligible to participate in the IBDP. Three of these companies have structural issues that need to be overcome before they can start to increase their exports. It is proposed to start the delivery of the IBDP with the three carton / corrugated board manufacturers which have pcss of 9 and can start to increase their exports immediately, see Appendix 5. Domestic Capabilities Business Development Programme (DCBDP) that will improve the product capability scores, potentially of all of Egypts packaging manufacturing businesses that are not assessed to be already internationally competitive and are therefore not eligible to participate in the IBDP. Seven plastic packaging manufacturers have sig ned expressions of interest to participate in DCBDP.

7.9A IBDP
It needs to be recognised that such a programme does not exist in Egypt and our understanding is that it has not been implemented previously. Such programmes are available in Europe and have titles such as global companies programme. A key feature of these programmes is that the businesses are selected to participate based on their existing strengths and capabilities to rapidly move to the ir next stage of development. For businesses in Europe, this can result in them being assisted to develop out of manufacturing in their domestic market, to become global operators, with manufacturing facilities in a range of countries. Few Egyptian businesses have reached this stage of development and it is our view that European style global company programmes are not yet required in Egypt. Based on the conclusions of the packaging sector study it is recommended that the first of these programmes should be an Internationalisation Business Development Programme, where the objective is to accelerate the involvement of selected packaging businesses in target export markets. To be eligible to participate the businesses must have existing strong product capabilities. The approach used to assess such capabilities in packaging manufacturers are described in section 15.2, with the results for such manufacturers provided in section 15.3 through to 15.8. The conc lusion of the packaging company review activity is that there are three existing carton / corrugated manufacturers that have sufficiently strong existing product capabilities to participate in an IBDP. Initially, participation should be restricted to carton / corrugated manufacturers, but as the product capabilities of paper and board manufacturers and plastic packaging manufacturers are up-graded they should be eligible to participate. Production capacity, and some product quality, constraints have been identified in glass and metal packaging. Domestic manufacturers in these areas of activity should be eligible to participate once production capacities have been increased and the product quality issues have been resolved. The extent to which domestic glass and metal packaging businesses are

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accepted to participate in the programme should depend on their level of commitment to implementing the overall sector development strategy. The businesses should participate in the programme on an individual basis, with the content of their delivery programmes tailored to meet their specific requirements. It is important that the content of the IBDP should follow the planned development strategies for each of the participating businesses, which are recommended to be: Stage 1 carton / corrugated manufacturers either start to export to Europe, or increase their existing exports. During this stage these businesses should decide how to become directly involved in domestic sourcing and processing of virgin fibre and improving the collection of waste paper / board for re-cycling. Stage 2 implement the recommendations for processing the virgin fibre domestically, through either establishing new production facilities, or up-grading existing facilities, such as Rakta Co. During this stage the carton / corrugated manufacturers will become integrated board packaging businesses and further support should be delivered to increase export sales of board products into new European markets. Stage 3 integration of the up-graded plastic packaging manufacturers, through participating in the DCBDP (see below), with the board packaging businesses to achieve new integrated board and plastics packaging businesses. The IBDP should support the integration activities and increased export sales of the new production capabilities. Stage 4 will involve two parallel areas of business development activity: the further development of the board and plastics packaging businesses into glass and metal packaging, depending on the content of their respective development strategies; identification and securing the involvement of international strategic partners with the board and plastics packaging businesses to provide the required international strength to open-up new export markets in the Gulf.

Examples of possible areas of business development activity to be included within IBDP deliveries to individual packaging businesses are indicated in the table overleaf.

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Address technical issues relating to existing production activities. As the companies have scored highly on their product development capabilities, such areas should be highly specific and result in reaching internationally comparable product qualities where these do not already exist. Prepare a 3 5 year development strategy which indicates how each business will become increasingly internationalised. Preparing business / market / sales plans relating to implementing any of the other development activities and putting together funding packages as required. Export packaging products into Europe, with the starting-point of: identify the products to be offered; select target markets and customers; prepare a market entry plan; and implementing internal developments to make businesses market ready. Identify domestic sources of virgin fibre and the e stablishment of suitable processing facilities for such fibre. Enter into co-operation agreements with Egyptian plastics packaging manufacturers, and manufacturers of other types of packaging, to be able to offer integrated packaging solutions to international customers. Identify strategic alliance partners that will provide us with access to new packaging techniques and forms of packaging, that we can offer as new products to international and domestic customers. Explore how we can act as a catalyst to establish one of Egypts packaging groups described in the development strategy. Search for long-term development / investment partners, for example from South Africa, which could work with us to become a regional player in selling a range of packaging products. Management development to strengthen internal capabilities in any of the above areas of activity.

The above are provided only by way of examples as there should be maximum flexibility in how the support requirements are identified for, and delivered to, the individual participating packaging businesses. It needs to be recognised that the costs of delivering this programme will be significantly in excess of the current maximum limit of technical assistance value that can be delivered to each business receiving up-grading support. There is also the need for the individual businesses to receive support up to the end of 2007, which is beyond the time limit of IMC activity. Through the review activity we have identified three carton / corrugated manufacturers that have existing product capabilities to participate in the delivery of the Internationalisation Programme from the start of its availability. We have met with the three companies and all have agreed that they want to participate in the internationalisation programme. Statements of commitment are provided in Appendix 6.

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7.9B DCBDP
The proposed structure and content of this development programme is indicated in the table below. There will be nine elements to the delivery of the programme, with all participating businesses expected to complete all elements.
1. 2. Presenting sector development strategy role within, and implications of, the strategy. Owner / manager workshops average 2.5 days per module: a. b. c. d. e. f. g. h. i. managing improved business performance how to improve profitability management structure and capabilities required; management information system monitoring system to check the planned improvements in business performance are happening; financial control and planning knowing your costs and how to reduce; technology developments in plastic packaging product and production development new applications from advanced consumer markets; quality control systems avoiding waste and meeting customer requirements; production improvements changes to production practices and process; securing raw / input material supplies - group buying minimising your input costs; market and sales development maximising revenue; employee skill development how to improve productivity implementing improvements in quality and production.

3.

ISO certification (taking into account certification already obtained) implementing the procedures. Market research target markets to be selected during workshop delivery prepare sales development plan, including costs. Preparation of action / business plan implementation plan funding of improvements managing changes required to business managing the achievement of developments participation in implementing sector development strategy. Management development programme delivery based on identification of existing management structure and priority areas fro m the workshops. Visiting international exhibitions and international best practice plastic packaging companies. Management development programme delivery based on identification of existing management structure and priority areas from the workshops. Visiting international exhibitions and international best practice plastic packaging companies

4.

5.

6.

7. 8.

9.

Approach To Delivery Individual plastic packaging companies will participate in all of the five elements of the business development programme, including all eight workshops as a package. Participation in elements 1 4 will be on a group basis, whereas the preparation of the business plan will be individually.

It had been reported to us by the Technical Assistance Component of IMC that the majority of businesses that are coming forward to request business u p-grading services are focusing on ISO / HACCP and MIS. It is our view that, although these are important functions to be added into businesses, they will not on their own achieve the required

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improvements identified through this study. To achieve the level of business development required under the delivery of the DCBDP, the above seven elements should be more holistic and challenging in their delivery, with the businesses being developed across a wide range of management functions. Having received information on the way businesses are reacting to the Technical Assistance Component we re-visited the plastics businesses that participated in the company review activity, to obtain responses on how they position themselves internationally and domestically. The questions and the break-down of responses are provided in the table overleaf Against each of the questions in the table the businesses score themselves highly, but the results of our company review activity indicate there are significant variances in performance between businesses. The most significant difference is in product quality, where the question was open to an international comparison. All eight businesses ranked themselves either very good, or good, but on our product capability system they were scored 4 to 8, with an average of 5.8, which is significantly lower. The above results suggest that Egyptian plastic packaging businesses have an inflated view of their capabilities, in general. The results in the following two tables compare their claimed positions, with the results of their own international comparisons:
Business A , which claims good product quality and significantly higher productivity then other Egyptian businesses has never visited a plastics packaging facility outside Egypt. Business B , which claims very good product quality, it is a large scale producer, has levels of productivity higher than other Egyptian businesses, and a significantly better wastage rate, has never visited a plastic packaging facility outside Egypt. Business C , which has good product quality, but on the other 3 indicators claims to be the same as other Egyptian manufacturers, last visited a plastics packaging facility outside Egypt in 1976. This business claims that fully computerised systems used elsewhere cannot work in Egypt due to the weather and the environment.

The three businesses in the above group either have no direct international comparisons, or the comparison is from so long ago, that the conclusion is no longer relevant.

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is your own And Responses Plastic Packaging Businesses: Questionnaire
1.

September, 2004

What your own view of the product quality of your company (international comparison): Very Good 5 Good 3 Average 0 Poor 0 Bad Company Review Product Score 4 - 8

2.

What is your view on the scale of your production compared to other Egyptian manufacturers: Larger 6 Same 2 Smaller 0 Company Review 250 24,000 tonnes

3.

How does your level of productivity compare to other Egyptian manufacturers: Significantly Higher 2 Higher 3 Same 3 Lower 0 Significantly Company Review Lower 0 8.3 75.0 t/employee

4.

Compared to other Egyptian manufacturers how does your level of waste compare: Significantly Better 3 Better 2 Same 3 Worse 0 Significantly Worse 0 Company Review 3 15%

Business D, which claims very good product quality and is a large scale operator, last visited a plastic packaging facility in Germany in 1995. It accepts there are differences between the German facility and Egypt in productivity, product quality and management and these differences are relevant to their production activities in Egypt. Business E , which claims good product quality, is a large scale producer, has higher productivity than other Egyptian manufacturers, and significantly better levels of waste, visited production facilities in China and Germany in 1999. The business accepts there are differences between these facilities and their own. The most significant difference is the others have the same production on each machine, whereas in Egypt they have to continually change production to meet customer requirements. Business F , which claims to have very good product quality, is a large scale producer, has higher productivity and significantly better waste rate, visited a German plastics production facility in 2003 and noted it had the same machine. Business G, which claims very good product quality, is a large scale producer, and has significantly higher productivity, visited German production facilities in 1997 and noted the main differences are: R & D; quality policy; mentality of workers; documentation; supplies of input materials; pre-press; and speciality products. Business H, which claims very good product quality, is a large scale producer and has a better waste rate, visited Turkish production facilities between 1985 and 2001; noted their handling equipment is better and accepts the difference is relevant to their production activity in Egypt.

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The responses in the second group of businesses is interesting as at the same time as making inflated claims on their capabilities, most recognise differences which have relevance to their production activities in Egypt. The results suggest that although the differences are recognised, they are not registered as being important for their situation in the domestic market. In other words, as the plastic packaging manufacturers are producing for the domestic market, they are not having to compete with the international businesses where they can make comparisons, and therefore the differences are not important. Further research is required to determine if the above conclusion is correct. If it is correct the most significant implication is that Egyptian plastic packaging businesses are not good judges of the business up-grading requirements, in particular if they are to reorientate themselves to sell into export markets. It is our view that, with the background of the above , and IMCs experience in recruiting other plastics businesses; the availability of the PSDS has played a significant role in encouraging plastic packaging businesses to sign statements of commitment.

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Implementing PSDS

National Economic Context The national economic context for preparing the PSDS is described in Appendix 1. Delivering Sector Development Strategies Delivering any sector development strategy has the following elements: Delivering the development activities to provide the environment for entrepreneurial activity and to remove obstacles to business development. Implementing business development programmes that will support individual businesses to improve their trading performance. Achieving target improvements in the sectors macro level performance. Continuing the process of identifying development opportunities and constraints on realising development potential. Reviewing the content of the sector development strategy to ensure it is still relevant and determine if it needs to be changed, or up-dated. Co-ordinating all of the above to ensure the overall sector development strategy action plan is being implemented on time across of its tasks.

8.1 Implementation Mechanism


The PSDS requires a dedicated implementation mechanism to ensure that it is implemented in a co-ordinated manner. The key features of the implementation mechanism should be: Partnership between the public and private sectors, but with the private sector taking the leadership role, and the public sector supporting. Flexibility in determining priorities, designing programmes and delivering the support activity into individual businesses, without political interference. Challenging to the public sector to remove barriers to business development, but equally challenging to businesses to convert their development potential into increased turnover, higher profits, increased investment and job creation. Deal making between the Government Of Egypt that wants increased national economic growth and private business owners that can deliver the growth.

8.2 Private Sector Involvement


The implementation mechanism needs to be located in the private sector, run by the private sector, but with strong links into the public sector. For many years the type of implementation mechanism being proposed above would automatically be set-up within

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the public sector. To achieve real progress in implementing the PSDS it is imperative that the implementation mechanism is not set-up within the public sector. The reasons for making this statement are: the need to meet the four features of the implementation mechanism (see above), which cannot be achieved by a mechanism located in the public sector; the mechanism must include detailed knowledge of Egypts packaging sector private businesses, which is not available within the public sector; a mechanism for delivering development activities should have a relatively short life span, as it should work itself out of the need to exist. If established within the public sector it is likely to take-on a position of permanency which goes against the principles of delivering development activity.

8.3 Overall Structure


The proposed overall structure of the implementation mechanism is:

Contributions To Increased National Economic Growth

Improvements In Sector Performance

Monitoring Of Sector Performance

Packaging Sector Development Strategy (PSDS) Overall Action Plan Packaging Sector Development Activities Mechanism (PSDAM)

Continued Research, Review and Up-dating Monitoring Communications

Remove Development Constraints Action Plans

Sector Development Projects

Assessment of Development Opportunities

FDI And International Strategic Alliances

Business And Market Development Programmes

As already indicated the PSDS, provides the framework for delivering the development activities. The Packaging Sector Development Mechanism (PSDAM) is an output of the PSDS as it must be structured in the way that reflects the content of the PSDS. If the PSDS changes there may be the need to change the PSDAM. The PSDAM is therefore subservient to the PSDS and if it is not generating the required results the PSDS should

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have the flexibility to make fundamental changes to the way the development strategy is being implemented. It is the implementation of the development activities through the structure of the PSD S, by the PSDAM, that generates the improvements in sector performance, that in turn will stimulate contributions to increased national economic growth. The process of generating improvements within the sector and how these stimulate increased national economic growth needs to be monitored to check that the expected results are being delivered. In between the PSDS and the PSDAM is an overall Action Plan that specifies the progress that is to be made with each element of the PSDS, within agreed timescales and responsibilities. Also at this in-between level are core PSDAM functions including: Communicating the content of PSDS and progress with its implementation. Monitoring implementation of the overall Action Plan and the Actions Plans for delivering the elements of development activity. Undertaking continued research domestically and globally to review the sector and determine if any up-dates to the PSDS are required. This will include determining if there needs to be any changes to the overall Action Plan.

The delivery of each element of development activity should have its own implementation Action Plan.

8.4 Delivering Development Activities Package


The PSDAM will deliver the development activities package as follows: Remove Constraints On Development Work closely with the relevant parts of GoE to remove the constraints that are stopping Egypts Packaging Sector realising its full development potential. The removal of each constraint will have its own Action Plan and tasks allocated to the full range of organisations that need to be involved. Strategic Development Projects Managing the implementation of the six strategic development projects described in section 6 and doing likewise for any new development projects identified through changing, or up-dating the PSDS. An example of a strategic development project that may be added at a later date is skill development (vocational) training. This is not proposed as a strategic development project now, because as indicted in Appendix 3, it has not emerged as a significant issue from this sector review exercise. We anticipate, though, that it will become an increasingly important area of activity based on the delivery of the business development programmes and the initiative to process virgin fibre that is sourced domestically. Assessment Of Development Opportunities Assessment of each of the development opportunities to determine those that are sufficiently positive to be progressed either as strategic development projects, through FDI and strategic alliance activity, or with individual, or groups of , packaging businesses. FDI And International Strategic Alliances With the establishment of the new Ministry Of Investment there needs to be close integration between FDI activity in packaging and decisions within the Ministry relating to offering FDI support to individual investment

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projects. Equally, the Ministry Of Investment requires close contact with the packaging sector to ensure that individual FDI projects will add to improved sector performance. Business And Market Development Programmes Implementing the two business development programmes and the three stages to the market development programme described in the previous section.

8.5 Management Structure


The proposed organisational structure has the following levels of management activity, see diagram below : Funding To Implement PSDS and PSDAM PSDS Board Current PSDS Changed / Up-dated PSDS PSDAM Executive Team Overall Current PSDS Action Plan Changed / Up-dated PSDS Action Plan CEO Programme Manager(s) Marketing Expert Sector Specialists Researchers / Analysts Administration Continued Research, Review and Up-dating Monitoring Communications Reports to Board Recommend Changes / Updates to PSDS

Government Of Egypt

Packaging Sector Growth Agreement

Remove Development Constraints Sub-committee

Strategic Development Projects Sub-committee

Assessment Development Opportunities Sub-committee

FDI And Internat. Strategic Alliance Activity Sub-committee

Business And Marketing Development Programmes Sub-committee

Relevant Part Of GOE

Specific consultancy exercises by specialists to TORs prepared by PSDAM Executive

Ministry Of Investment

Contracted Delivery Of Programmes To Packaging Businesses

Board Of PSDS to oversee the implementation, review and up-dating of the PSDS. This Board should have full responsibility for delivering the content of the PSDS and determining if it should be changed, or up-dated. The Board should comprise a majority of representatives from the private packaging companies. The public sector representatives should include Ministry Of Foreign Trade And Industry and Ministry Of Investment. The Chairperson should be selected from the private business representatives. Packaging Sector Performance Agreement This will be an agreement between the Board o f PSDS and GOE on the target annual improvements in sector performance

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that will delivered to provide contributions to increase the national economic growth rate. The commitments to sector improvements will be made in exchange for GOE funding to implement the PSDS and the PSDAM, through the Board of PSDS. PSDAM Executive Team The implementation of the PSDAM requires its own Executive Team. The team should comprise the following: CEO to report to the Board, attend all Board meetings and to be respons ible for all reports submitted to the Board and implementing its decisions; Programme Manager(s) to implement the two Business Development Programmes, with the Market Development Programme covered below; Marketing, a marketing specialist will be required to manage: the three stages of the Market Development Programme; ongoing market research of the domestic market; specific research to support FDI initiatives; and to assess new development opportunities that are identified. This marketing position should also be responsible for implementing the communications area of activity to describe the content of PSDS and progress with its implementation to Egypts packaging businesses. International promotion of Egypts Packaging Sector may be introduced later, depending on progress with improving product capabilities throughout the sector. Sector Specialists which will be required to: support the FDI activity; progress the strategic development projects; and undertake the assessments of the development opportunities. The above diagram indicates there being Sector Specialists within the executive team and acting as consultants for the subcommittees. The balance between having Sector Specialists within the executive team and using short-term consultants should be determined between the PSDS Board and the PSDAM CEO; Researchers and Analysts will be required within the executive team to undertake the monitoring of implementing the PSDS and its individual development activities. They will also be required to support the various sub-committees to follow-up specific points raised during meetings. Administration will provide support to the PSDS Board and each of the subcommittees.

Sub-committees Each of the development activity packages should have its own sub-committee that will be responsible for overseeing the implementation of the activities and tasks allocated through the separate Action Plans, see section 9. Each sub-committee will comprise representatives of packaging businesses, representatives from relevant government ministries and agencies, such as the Ministry Of Agriculture in the strategic development projects relating to sourcing domestic virgin fibre. Each of the sub-committees should be allocated one of the members of the Executive Team.

8.6 Managing Development Activity Delivery


The delivery of each of the five development activities will be managed as follows:

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Remove Constraints On Development This element will be impleme nted by members of the PSDAM Executive Team, supported by Board members as required, and directly with the part of GOE that is responsible for the constraint that needs to be removed. The subcommittee should have the right to request key representatives of GOE to attend its meetings to receive explanations on the steps that are being undertaken to remove individual constraints. Progress, or the lack of it, with achieving the removal will be reported by the CEO to each Board meeting. Strategic Development Projects Due to the variety of different projects it is more difficult to describe how each will be implemented. The options are: the Executive Team; selected members of the sub-committee; public sector representatives; sector specialists; consultants.

The approach to implementation may be different for each strategic development project, with the selected approach for each being decided on the most effective way of achieving positive results in the shortest period of time. Whatever the approach is selected, it is recommended that the Executive Team should prepare a terms of reference for each implementation exercise, which indicates: the objective; present understanding; scope of activities; tasks to be undertaken; deliverables; reporting and timetable for completion. Assessment Of Development Oppor tunities Any part of the PSDAM structure should be able to propose new development opportunities to be pursued through the PSDAM. This sub-committee should: act as the depository for all new development opportunities; assess progress with those that are to be taken further; review the results of research and analysis of each opportunity; and determine how those that have positive conclusions are to be implemented. New development opportunities that have strategic significance should be submitted to the PSDS Board for consideration and a decision whether they fit-in with, or justify changes to, the PSDS. New FDI Activity This will be an interactive area of activity between the executive team and representatives of the Ministry Of Investment. The Ministry will require interaction with PSDAM to ensure that the packaging projects it is working on will support the overall development of Egypts Packaging Sector and fit-in with the content of the PSDS. The Ministry will also benefit from having access to the Executives market research results for the domestic and regional market and to the Sector Specialists, when dealing with individual FDI cases. The sub-committees role will be to assess overall progress in implementing the parts of the PSDS where FDI is required. It should be noted that members of the Executive Team are likely to obtain confidential knowledge on individual FDI cases that it should not be expected to divulge to either the: sub-committee; subcommittee members; PSDS Board; or individual Board members.

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The way this element will be implemented will to a significant extent be determined by the way the new Ministry Of Investment decides to manage its FDI responsibilities. Business And Market Development Programmes It is proposed that the Market Development Programme should be delivered from within the Executive Team, with intensive or specific market research requirements being met by contracting consultants. The output of this activity should be reported first to the sub-committee, before key results are submitted to the Board. The delivery of the two business development programmes should take into account the specific requirements of Egypts Packaging Sector and should be based on the content of the PSDS. The Executive Team should develop proposals on the structure, content and delivery of the two programmes. It is anticipated that the sub-committee will use consultants for the delivery of the programmes and on this basis the executive team should be responsible for: Writing terms of reference. Preparing short-lists of consultants to receive the terms of reference. Distributing the terms of reference and receiving proposals. Managing the appraisal of proposals with the sub-committee and reaching a selection decisio n. Contracting the selected consultancy. Managing the contracted consultants to deliver the required outputs within the specified period of time.

8.7 Action Plans


There should be two types of Action Plans: for the PSDS as a whole; delivering each development activity package.

Actions Plans for both types are provided in section 10. Each of the Action Plans should be approved by the PSDS Board. The responsibility for implementing the Overall PSDS Action Plan will be between the Board and the Executive Team. The responsibility for implementing the individual PSDS element Action Plans will be between the sub-committees and the Executive Team. The Board should have the authority to replace the whole, or parts of the Executive Team and any of the sub-committees if the Action Plans are not being implemented. Ultimately the Ministry Of Industry And Foreign Trade will have the right to cut-off funding and replace the PSDS Board if the required improvements in sector performance are not being delivered.

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8.8 Next Steps


Recruiting The Executive The members of the executive team should be selected based on their professionalism, experience of economic and business development, and understanding of Egypts Packaging Sector. All team members should be recruited from the private sector. Activating Implementation The next steps to activating the above implementation mechanism for it to become operational are: 1. Ministry of Foreign Trade and Industry to select the members of the PSDS Board. We recommend there should be some overlap with the Steering Committee for this study. 2. PSDS Board should be given professional assistance to convert the first years Action Plan into a first year budget to be requested to be met by GoE. 3. The PSDS Board needs to determine the level of performance improvements and contributions to an increase in the national economic growth rate that can be offered to GoE based on the implementation of the PSDS. 4. Negotiations between PSDS Board and the Ministry Of Industry And Foreign Trade to fina lise the Packaging Sector Performance Agreement and the funding package to implement the PSDS and PSDAM. 5. Recruitment of PSDAM Executive Team. 6. PSDS Board agrees membership of the sub-committees. Co-ordinated Approach As this PSDS has been prepared in parallel to development strategies for other sectors it is possible that similar implementation proposals have been presented for these sectors. If this is the case it should be noted that the structure of the PSDAM could be applied to cover a number of sectors. Meetings Although more frequent meetings may be required during the start-up period of the PSDAM it is proposed that the Board should meet quarterly and the sub-committees bi-monthly. Reporting The Executive Team should submit progress reports to each of the subcommittee meetings. More formal quarterly overall progress reports will be submitted to the Board by the Executive team. Formal sector performance reports should be submitted to the board on a six-monthly basis, whic h will include statements on improved sector performance and meeting the agreement to contribute to an increased national economic growth rate. At the end of each 12 month period there should be a thorough review of each ele ment of the PSDS and of the PSDAM implementation structure. This annual review should examine how the different parts of the implementation structure are integrated and coordinating their activities. The outcome of these annual reviews could produce significant changes in the structure, content and delivery of the PSDS if results are not meeting expectations. It is based on the outcome of these annual reviews that GoE could make fundamental changes to the PSDS, change its funding, or ultimately cancel the funding.

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Sector Performance Agreement And Funding Package

It is important to recognise that the content of this section provides preliminary proposals, both for the private businesses in Egypts Packaging Sector and the Government Of Egypt. The preparation of a Sector Performance Agreement and Funding Package will require detailed negotiations between the PSDS Board and government. The preparation of this sector provides a starting-point for these negotiations. 9.1 Improving Sector Performance The following are preliminary proposals for the improvements in sector performance that could be offered by the PSDS Board to the Government Of Egypt. They have been prepared up to the end of the third year of delivery to coincide with the Action Plans presented in the next sectio n and to provide overall targets. We have not attempted to break-down the overall targets into annual targets. Direct Trade Improvements increase in annual packaging exports of EGP 600 mn; reduction in annual packaging imports of input materials of EGP 50 mn; net trade balance improvement of EGP 650 mn.

Added-Value Gains increase in annual fresh horticultural produce exports of EGP 1 bn, with 30% of this increase representing packaging, there is an added- value gain of EGP 300 mn; increase in annual processed food exports of EGP 250 mn, with 20% of this increase representing packaging, there is an added- value gain of EGP 50 mn; increase in pharmaceutical exports of EGP 100 mn, with 20% of this increase representing packaging, there is an added-value gain of EGP 20 mn; total added-value gain of EGP 370 mn.

Total Trade Improvements And Added-Value Gains EGP 650 mn + EGP 370 mn = EGP 1.02 bn.

Job Creation creation of 1,000 new jobs relating to the initiative to source and process virgin fibre domestically.

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strategic partner value (not necessarily direct capital investment) of EGP 100 mn; indigenous packaging business up- grading investment of EGP 100 mn; total investment of EGP 700 mn.

9.2 Funding Package The funding package will comprise three main elements: 1. implementation of the PSDAM, including: strategic development projects; development opportunity assessments; three market development initiatives and technical assistance to support the sub-committees; 2. PSDS cost share contribution for implement ing the two business development programmes; 3. PSDS support for the Product Development And Technology Service (PDATS), including: cost share contribution for delivery of services and grants for innovation, technology and product development. The level of funding requirement will depend on the level of activity under each of the above, with first area of activity being front- loaded, whereas the other two areas will peak in the second and third years of delivery. A preliminary three year profile of funding required from the Government Of Egypt is: In EGP mns Activity 1st Year 2nd Year 3rd Year Total 1. PSDAM Implementation 5.0 4.0 3.5 12.5 2. Business development programmes 5.0 10.0 10.0 25.0 3. PDATS 2.5 5.0 10.0 17.5 Annual Total 12.5 19.0 23.5 55.0 9.3 Costs And Benefits On the basis of the above the Government Of Egypt would be asked to provide EGP 53 mn over 3 years in return for sector performance improvements of: trade improvements and added-value gains of EGP 1.02 bn; 1,000 new jobs; EGP 700 mn of new investment.

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10

Action Plan For Egypts Packaging Sector

Preparation And Use Of Action Plans The PSDS needs to be kept under regular review to determine if it needs to be changed to take into account changing circumstances. It should not be viewed as being a blueprint, a comprehensive plan, or a master plan. The key role of presenting this report is to get the development process kick-started for Egypts Packaging Sector. There should not be any concern if it is discovered that the PSDS needs to be changed, within its first year of delivery based on new knowledge and circumstances. It is better to accept the need to change the PSDS, than to slavishly pursue a strategy that has been overtaken by events. Changes to the PSDS are likely to require changes to the Action Plans and there should be sufficient flexibility to change them as required. We emphasise this point, as based on our experience of applying action plans in Egypt, there is a tendency for them to be accepted as comprehensive plans. Examples of areas of development where there are still unknowns in the implementation of the PSDS are: generating funding to implement the study to achieve domestic sourcing of virgin fibre; the steps that will be implemented to bring the domestic price of imported input materials for plastic packaging in -line with international prices; the number, size and experiences of businesses, and the types of packaging each represents, that will participate in the delivery of the two business development programmes, see section 5; the level of funding that will be made available to suppor t the implementation of the business and market development programmes, and an acceptance of the full range of business development activities to be addressed through delivering the programmes; the extent to which individual businesses successfully implement the new business management and development techniques learnt through participating in the two business development programmes; the priorities that will be applied to progressing the list of development opportunities, see section 5; the current status of the planned propylene project and the new glass manufacturing facility at 10th Ramadan City; the response of international packaging companies to undertaking FDI into Egypt, using Egypt as a hub for manufacturing packaging and out-sourcing from Egypt; acceptance of the recommendation to implement a Product Development And Technology Service, see section 5, and the level of funding that will be made available.

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It is due to the above unknowns, that there is a need for flexibility in agreeing the content of the Action Plans and in their implementation. Types Of Action Plans Based on the implementation structure indicated in the last section there are two types of Action Plans presented in this section: overall PSDS Action Plan; Action Plans for delivering each element of development activity.

All of the plans have been prepared to cover a 3 year period and are presented as individual timetables at the end of this section.

10.1 Action Plan - Overall PSDS Implementation


The starting-point is to select and appoint the PSDS Board, assist the Board to prepare a first year budget, and for the Board to offer 1st year sector performance targets to GOE. This will be followed by negotiations between the PSDS Board and MO FTI to finalise, an agreement for contributions to increase the national economic growth rate, from Egypts Packaging Sector during the first year of implementation, and on the funding package to be provided by GOE. The membership of the five sub-committees will be agreed between the Board and MOFTI, with the Ministry Of Investment involved in agreeing the membership of the New FDI Activity sub-committee. A key activity at the start of implementing the PSDAM will be the selection of the Executive Team. As indicated towards the end of the last section the selection may be undertaken by GOE if the implementation structure is to cover more than one sector. On the completion of the above tasks, the PSDAM will be operational. The Board and sub-committee meetings will be able to start and the Executive Team will meet the reporting requirements as indicated in the previous section. This will include the formal 6 monthly statements on sector performance and the annual reviews of delivering the elements of development activity and assessment of the PSDS. During the last quarter of the first year, and every year thereafter, a new budget will be prepared for implementing the PSDS and the PSDAM. Its content will be negotia ted between the PSDS Board and MOFTI (as the lead Ministry on behalf of GOE), before reaching agreement on contributions to national economic growth and a new funding package for the ne xt years implementation activities.

10.2 Action Plan - Removing Constraints On Development


The Action Plan starts with an initial reduction in some import tariffs which have already been announced. The first task has therefore already been partially completed. It should be noted that the objective is to achieve the complete removal of import tariffs on kraftliner produced from virgin fibre. The second main task under this development activity is to review plastic input prices, based on the findings presented in section 3 of this report. This exercise will take up to 5 months to complete, including the preparation of a report indicating the impact of the high prices. The report should present solutions for removing this constraint on realising the

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development potential of the plastics sub-sector. The report should be reviewed as a draft by the sub-committee for this element and before being presented to GOE for its reaction. Depending on the level of sensitivity of the findings and recommendations it may be decided that the report should be approved by the PSDS Board before being submitted to GoE. The reaction of GoE should be incorporated into a final report to enable this document to have the authority to be taken seriously by all parties to be involved in removing the pricing constraints. Based on the content of the final report, a detailed Action Plan will be prepared. It should be noted that removing the import tariffs on kraftliner, and reducing plastics input prices were the only cons traints that were identified that are specific to the Packaging Sector , through the review exercise. It should be noted that other sector specific constraints may be identified during implementation. As these are identified they should be addressed in the same way as described above for plastic input pricing. During the 3 year period there should be two annual reviews of import tariffs and taxes affecting Egypts Packaging Sector. These reviews should be part of the annual assessment process described above for the overall PSDS. The reviews will identify proposals to be submitted to GoE for further reductions in import tariffs and taxes, with clearly argued reasons for, and benefits to be realised from, implementing the reductions. The sequence of recommending, negotiating, finalising and implementing the reductions are indicated in the timetable for this element of the PSDS.

10.3 Action Plan - Strategic Development Projects


As already indicated in section 5 there will initially be 6 strategic de velopment projects, with the potential for more to be added as the PSDAM is implemented.

10.3A Action Plan - Structural Issues Virgin Fibre


The importance of overcoming this current structural issue is indicated in section 3 as being a key part of the first step. It should be noted that although there are other structural issues identified in the first diagram in section 3, it is only the issue of virgin fibre that has emerged as such for the implementation of the PSDS. The structural issues in the plastics sub-sector will be addressed through businesses participating in the DCBDP and using the Product Development and Technology Service. The structural issues in metal and glass packaging will be addressed though the FDI And International Strategic Alliance activities. Under the virgin fibre area of activity the first tasks are for the Executive Team to prepare a draft ToR for a major study, finalise the ToR with the sub-committee for the Strategic Development Projects, circulate the ToR and receive proposals. The selection of the winning proposal will be the responsibility of the sub-committee. The stages of the study are indicated in the timetable. It is anticipated that it will take 6 months to undertake the study with a further month required to review the findings and recommendations, prior to having a final report and Action Plan. The results of the study will need to be incorporated into the PSDS, which will probably require Board approval, and into the delivery of the IBDP. The latter is significant as it is the participants in this programme that should be given the first option in taking forward the recommendations and turning them into commercial projects.

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10.3B Action Plan - Product Development And Technology Service


Preliminary proposals for this service have been provided in section 5. These can only be preliminary as the Strategic Development Projects sub-committee needs to develop the proposals further into services that will be in demand by Egypts packaging businesses. This area of activity therefore starts with: a review of our proposals; identification of the core services to be made available during the 1st year; assessment of the current availability of service provision; and the identification of service delivery gaps. It is proposed that the core services should be tested with the participants in the IBDP and the DCBDP to determine their level of interest and willingness to pay. This should conclude with the sub-committee deciding how to address the service availability gaps. The options will be either to use, or recruit, personnel from within the Executive Team, or to use external experts who will probably operate as consultants. Service delivery should be tested during the last five months of the first year, with decisions reached on the future structure, content and approach to delivery through the annual review process at the end of the first year. The review should determine the new services to be added and how they are to be introduced. From the second year onwards one of the areas of activity should be to strengthen external service delivery and to support new developments that add to the services on offer.

10.3C Action Plan - Domestic Consumer Products


This area of activity was identified in section 5 to make maximum use, initially, of the developing capabilities of Egypts board packaging manufacturers amongst domestic consumer product manufacturers. The starting-point will be for the sub-committee to agree the approaches that are to be applied and the areas of packaging / consumer products that are to be targeted. The first years delivery should be viewed as being a pilot project until the most effective way of approaching and influencing the consumer product manufacturers is found. An Action Plan for the second year should be prepared following the review of the pilot project, through the annual review process.

10.3D Action Plan - Privatisation And Modernisation


It should be noted that this study is restricted to recommending the privatisation of the two paper and board manufacturers and the two corrugated manufacturers that are still in public ownership. There are other paper making public enterprises that will be covered by the virgin fibre study which may conclude that further privatisations are required to support the development of domestic virgin fibre supply. The privatisation process needs to coincide with the outputs of the virgin fibre study to avoid premature actions being taken that could damage the prospects of secur ing domestic supplies of virgin fibre paper and board. During the first year the four public enterprises covered in this report should be reviewed to identify their development potential. This may identify additional potential to that identified so far. The review exercise should result in the presentation of development and privatisation strategies for each of the companies, which indicate not only how each can be profitable, but also contribute to implementing the PSDS. Included within the development strategy for each company should be a costed modernisation plan. Following agreement on how the four companies should be developed, privatised and modernised the offer for sale

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documentation should be prepared, including Information Memorandum, pr omotion document, tender documents and a short-list of potential investors. The companies should be ready to be offered for sale by the third month of the second year, with an objective to be sold by the end of the second year.

10.3E Action Plan - Communications


In section 5 a series of seminars was proposed as the way of communicating the PSDS to businesses within the sector. The Executive Team need to agree with the Board the most effective way of briefing businesses about the content of the PSDS. The selected approach should be implemented from the fourth month to the end of the first year, with an objective that all packaging manufacturing businesses that are formally registered will know about the PSDS within this time period. An Action Plan for the second year will be prepared following the first year formal review.

10.3F Action Plan - Research And Monitoring


As already indicated under the Overall PSDS Action Plan the research and monitoring personnel will be responsible for presenting bi-monthly progress reports to the subcommittees, quarterly sector performance reports to the Board and annual PSDAM implementation reviews. In addition these personnel will provide ongoing support to: Development Opportunities sub-committee; Development Themes sub-committee; FDI Activity.

They will also deliver presentations to the sub-committees and participants in the IBDP and DCBDP on key findings. It is not possible now to provide detailed timetables for delivering these development activities.

10.4 Action Plan - Assessment Of Development Opportunities


The first task for the Assessment Development Opportunities sub-committee is to determine the most effective way for it to assess, prioritise and progress individual development opportunities. The starting-points are therefore for it to: set review criteria; prepare a database of opportunities; review the initial list of development opportunities against the criteria; and select the priority opportunities. The initial list of opportunities identified in the PSDS are indicated in the timetable for this element. Following the selection of the priority projects the sub-committee needs to decide how each is to proceed, with the options being: internally from within the Executive Team; externa lly through relevant consultant expertise; through the Product Development and Technology Service.

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If either of the last two options are to be used the sub-committee will have to request the Board to allocate the required funding. Based on the above being applied to all of the priority development opportunities a first year Action Plan can be agreed to be implemented from the sixth month of the first year. The Development Opportunities development activity should be continually open to receive, assess, prioritise and progress new opportunities from any other part of the PSDI. To ensure that the identification process operates effectively the sub-committee should set guidelines and procedures for ensuring it is made aware of all new opportunities. The new opportunities will be assessed and new priorities set at each of the sub-committees bi-monthly meetings. The way this element of the PSDS operates and sets priorities should be assessed as part of the formal annual reviews, which may also identify n ew development opportunities. A new annual Action Plan should be prepared at the start of each new 12 month period. It should be noted that as development opportunities are assessed positively they should either be passed on to either: the Strategic Development Projects; the FDI and International Strategic Alliance; or Business Development Programmes; sub-committees to decide how they should be implemented.

10.5 Action Plan - FDI And International Strategic Alliances


The Ministry Of Investment (MoI) will need to respond to the proposed timetable for this element. The first step will be to obtain more information on the glass investment that is planned for 10th of Ramadan City, as this project needs to be assessed against the content of the PSDS to check it will take the glass packaging sub-sector in the right direction. At the same time any other outstanding FDI projects relating to the Packaging Sector need to be identified and assessed. On the basis that the assessment of the planned glass investment is positive it should receive a period of intensive support to ensure it is implemented to support the second market development programme into regional countries. The next main area of activity under this element will be to support securing international strategic partners for the participants in the IBDP. At this stage in the delivery of this programme strategic partner requirements will relate to opening-up the European market in board, and later plastic, packaging. Into the second year of delivery new FDI opportunities may emerge based on PSDAM research activity. By the middle of the second year there should start to be results from market research of the regional market for metal and glass packaging. The results should be sufficiently strong by this time to start searching for FDI companies in these two packaging sub-sectors, with the aim of implementing a full promotion campaign from month 9. The objective should be to have a short-list of interested investors by the end of the second year and to have secured the investment by the middle of the third year. From the middle of the third year the strategic alliance requirements of the participants in the IBDP for entering the Gulf market should be known. This will be identified based on a combination of their participation in the programme and the results of the third area of market research. By the end of the third year the FDI activity to secure these new strategic alliance partners will still be in the process of being implemented.

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10.6 Action Plan - Business Development Programmes


Section 5 indicated that there will be two Business Development Programmes; the International Business Development Programme (IBDP) and the Domestic Capabilities Business Development Programme (DCBDP). It is important to note that the timetables presented for each of these programmes relate only the first delivery for each group of participants. We make this point as it is likely that the participants in both programmes will require further deliveries to build-upon the content of the first delivery. This will be particularly the case for those participating in the IBDP. These second, and possibly third deliveries are not included in the timetables. The starting-points of both programmes are: to recruit a Programme Manager; develop the detailed content of each programme; determine the number of participants for each delivery; decide the duration of each delivery (9 months has been used in the timetable); select a delivery option (IMP, existing business organisation, or from within the PSDAM); decide the participants cost share; split the delivery costs between PSDAM and the participant businesses; and prepare two delivery TORs; select the delivery organisation(s); undertake promotion to generate application from interested packaging businesses (progress during study reported in section 5); and select the participants, see Appendices 6 and 7 for initial statements of commitment. The first delivery of each programme is timetabled to start in the sixth month, though, an earlier start would be preferable if the start-up period can be shortened. As already indicated it has been assumed that each delivery will require 9 months, with completion in the second month of the first year. On this timetable there would be clear advantages of bringing forward the start to the third of fourth month of the first year to enable delivery to be completed within the first year and evaluate the results as part of the annual review process. In the timetable the content of the two programmes is review immediately following the first delivery, with changes to their content completed within one month. It is assumed that there will need to be a second round of issuing TORs and selecting the organisation(s) to deliver the pr ogrammes, but the time for this could be avoided if the original contract, issued during the first year, covers more than one delivery. Included in the activities leading-up to the second delivery should be a new promotion campaign to generate further applications from packaging businesses. Following the start of the second delivery, further deliveries should be based on demand, which if sufficiently high would result in third deliveries starting while the second deliveries are still being implemented, and so on. It is emphasised again that the timetable does not indicate follow-on deliveries of either programme for those that complete their first deliveries.

10.7 Action Plan - Marketing Development Programmes


The starting-point of this programme is the recruitment of a Marketing Expert, and other researchers (see Research and Monitoring activities described above under the Strategic Development Projects), to set-up the market research capability within PSDAM. The team will provide research support to the FDI and International Strategic Alliance activities, and will respond to research requests received from elsewhere within PSDAM.

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The first main area of market research activity, see section 3, is Eastern Europe and European supply chains, which is timetabled to take 10 months during the first year, to be completed by the end of the year. The results of this market research should be regularly presented to the participant businesses in the IBDP. During the second year market research activity will be focused on the regional market to support the FDI activity in the metal and glass packaging sub-sectors. The results should be regularly presented to the participating businesses in IBDP and to FDI personnel. During the third year the market research will be focused on the Gulf States, again with the results presented to the IBDP participants. Market research for participants in the DCBDP should be ongoing to meet the requirements of each delivery of the programme, but should not be as intensive as for the IBDP participants.

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10.1 Action Plan - Overall PSDS Implementation:


Activity / Task 1. Select PSDS Board 2. Prepare 1st year budget 3. Offer 1st year sector Performance 4. Board/NIFT 1st year Negotiations 5. PSDS/PSDAM 1st year budget 6. Sub-committee membership 7. Select Executive Team 8. PSDAM operational 9. Sub-committee meetings 10. Sector presentations/seminars 11. Board meetings 12. Progress reports 13. Sector performance reports 14. PSDI implementation review 15. PSDS annual assessment 16. Prepare 2nd year budget 17. Offer 2nd year sector performance 18. Board/MIFT negotiations 19. PSDS/PSDAM 2nd year budget 20. Prepare 3rd year budget 21. Offer 3rd year sector performance 22. Board/MIFT negotiations 23. PSDS/PSDAM 3rd year budget 1 st Year 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 All covered by next steps under section Implementing The Development Strategy

From fourth month Bi-monthly Communication activity Quarterly Quarterly Six monthly Annual Can be changed at any Board meeting, but must be formal annual review and report Repeat of 1st year activities, but complete before start of 2nd year.

Repeat of 1st and 2nd year activities, but complete before start of third year.

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Packaging Sector Development Strategy & Action Plan 10.2 Action Plan - Remove Constraints On Development:
Activity / Task 1 2 3 1. Initial reduction import tariffs 2. Review plastic input prices 3. Report impact plastic pricing 4. Action plan reduce plastic prices 5. Implement plastics Action Plan 6. Report impact of import tariffs 7. Board priorities tariff reductions 8. Board requests tariff Reductions 9. Action Plan for tariff reductions 10. Implement Action Plan 11. Report impact of taxes 12. Board priorities tax changes 13. Board requests tax changes 14. Action Plan for tax changes 15. Implement ActionPlan 16. Report impact of import tariffs 17. Board priorities tariff reductions 18. Board requests tariff reductions 19. Action Plan for tariff reductions 20. Implement Action Plan 21. Report impact of taxes 22. Board priorities tax changes 23. Board requests tax changes 24. Action Plan for tax changes 25. Implement Action Plan 26. Items from other parts of PSDI 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3

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2 nd Year 4 5 6 7 8 9 10 11 12 1 2

3 rd Year 3 4 5 6 7 8

Comments 9 10 11 12 GOE already implemented Executive Team Executive Team Sub-committee Through Sub-committee Executive Team through S/C Board decision Board decision Sub-committee / GOE Sub-committee / GOE Executive Team through S/C Board decision Board decision Sub-committee / GOE Sub-committee / GOE Executive Team through S/C Board decision Board decision Sub-committee / GOE Sub-committee / GOE Executive Team through S/C Board decision Board decision Sub-committee / GOE Sub-committee / GOE As required

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10.3 Action Plan - Strategic Development Projects: A. Structural Issues Virgin Fibre:
Activity / Task 1 2 3 1. Prepare ToR 2. Finalise ToR subcommittee 3. Circulate and receive proposals 4. Select winning bid 4. Undertake study: A. Technical study supply options B. Commercial study existing uses C. Assess existing technology D. Optimum mill size E. Select sourcing, annual supply F. Impact on board production G. Investment requirements H. Implementation Action Plan 5. Incorporate results into PSDS 6. Incorporate results into IBDP 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Executive Team Sub-committee approval Short-list pre-approved Sub-committee approval The steps included herein are only indicative to show how the study should progress to be completed by the 12th month. Business plans(s) prepared To be included in first annual review

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10.3 Action Plan - Strategic Development Projects: B. Product Development and Technology Service:
Activity / Task 1 2 3 1. Review existing facilities 2. Identify core services G. Assess availability services 4. Identify availability gaps 5. BDP participant require ments 6. Addressing availability gaps 7. Initial services offered A. Sourced externally B. From within PSDAM 8. Test services BDP participants 9. Review of services 10. Services to be added 11. Introduce new services 12. Develop external capabilities 13. Support external developments 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Sub-committee decides approach By Sub-committee Sub-committee decides approach Sub-committee accepts Test with participants Sub-committee agreement Each service area described How to be delivered Charges to users Reaction from participants Review part of full annual review. Repeat at end of 2nd year Ongoing

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10.3 Action Plan - Strategic Development Projects C. D. Domestic Consumer Products Privatisation And Modernisation
1 2 3 C. Domestic Consumer Products 1. Agree approach / targets 2. Design pilot project 3. Approach companies 4. Implement pilot project 5. Review pilot project 6. 2nd year Action Plan 7. Implement 2nd year Action Plan D. Privatisation And Modernisation 1. Reviews 4 co.s within PSDS 2. Prepared to be offered for sale 3. Role in virgin fibre initiative 3. Assess links into IBDP 4. Offer companies 5. Sale completions 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12

Activity / Task

Sub-committee to decide how the pilot project is to be structured, its content and its implementation Part of annual review Board agreement Repeat at end 2nd year

Determine development potn. Detailed understanding of Cos Determine roles before offered First option Cannot determine now how to be offered for sale

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10.3 Action Plan - Strategic Development Projects Development Activity : E. F. Communications Research And Monitoring:
1 2 3 E. Communications: 1. Determine approach 1st year 2. Implement approach 3. Review achievements 4. 2nd year Action Plan 5. Implement 2nd year Action Plan E. Research And Monitoring: 1. Progress reports 2. Sector performance report 3. PSDAM implementation review 4. Support to Strategic Dev. Projects S/C 5. Support to Dev. Opps. S/C 6. Support to FDI activity 7. Presentations to S/Cs 8. Presentations to BDP participants 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Sub-committee to propose to Board Part of annual review Approved by Board Repeat review end 3rd year

Activity / Task

Quarterly Six monthly Annual Requests for support and presentations. Priorities set by PSDPI CEO

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Packaging Sector Development Strategy & Action Plan 10.4 Action Plan - Assessment Of Development Opportunities:
Activity / Task 1 2 3 1. Set review criteria 2. Database of opportunities 3. Review development opps. A. Improve waste collection B. Introduce domestic virgin board C. Aluminium foil D. Aseptic packaging E. Convert polystyrene prod./ PET F. PET recycling G. Fresh produce innovations H. Pharmaceutical gelatine capsules I. Squeezable plastic bottles J. Lids, stoppers, caps K. Tamperproof packaging L. Others from start 3. Set priorities from above 4. How each priority to proceed 5. Funding requests submitted 6. Internal resources allocated 7. Tasks to Prod Dev Techno Serv. 7. 1st year Action Plan agreed 8. Identify development themes 9. Implement 1st year Action Plan 10. Receive proposals from PSDI 11. Links to pick-up proposals 12. Review new proposals 13. Set new priorities 14. Review procedures / progress 15. Change operations / priorities 16. New opps. from annual review 17. Prepare 2nd year Action Plan 18. Implement 2nd year Action Plan 1 st Year 4 5 6 7 8 9 10 11 12 1 2 3

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3 rd Year 3 4 5 6 7 8

Comments 9 10 11 12

These are the from the PSDS Report and provide a startingpoint for the selection of priorities. Further opportunities may be identified before the subcommittee has to apply the prioritisation exercise. All persons involved in the PSDI should be asked to make any further suggestions.

Sub-committee decision Board decision Agreement PSDI CEO Agreement of Dev. Themes S/C Sub-committee and Board To Development Theme S/C 7 month period Ongoing Ensure mechanisms effective During each S/C meeting As decided by sub-committee Part of 1st year review Other parts of PSDI involved. Final decisions by Board Repeat review at end 2nd year

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10.5 Action Plan - FDI And International Strategic Alliances


Activity / Task 1. Glass project 10th Ramadan 2. Assess project against PSDS 3. Other existing projects 3. Support glass project 4. Development strategies IBDP 5. Strategic alliance requirements 6. Search strategic partners 7. Assess options / prioritise 8. Secure strategic partners 9. Assess regional research results 10. Identify FDI requirements 11. Packaging group plans 12. Search FDI target companies 13. FDI promotion campaign 14. Company negotiations 15. FDI secured 16. Assess Gulf research results 17. Strategic alliance requirements 18. Search strategic partners 19. Assess options / priorities 20. Secure strategic partners 21. Respond to FDI dev. opps. 1 st Year 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Details on existing project Check project supports PSDS Identify projects not in PSDS If it supports PSDS, or change Identify content of strategies Of each IBDP participant If in strategic partner for European export sales in development strategies Metal / glass packaging Check their plans for region For metal / glass investments unless changed in PSDS

In current PSDS proposed strategic alliances with South African packaging companies Continued into 4th year As required

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10.6 Action Plan - Business Development Programmes


Activity / Task Business Development Programmes 1. Recruit Programme Manager 2. Detailed content IBDP 3. Detailed content DCBDP 4. No. participants each BDP 5. Duration / phasing each BDP 4. Select delivery option 5. Detailed delivery costs 6. Decide participant cost share 7. Split of costs PSDI/participants 8. Prepare IDBP delivery TOR 9. Prepare DCBDP delivery TOR 10. Issue two TORs 11. Select delivery of 1st IBDP 12. Select delivery of 2nd DCBDP 13. Pro motion for participants 14. Selection of participants 15. Delivery 1st IBDP 16. Delivery 1st DCBDP 17. BCBDP participant reviewed 18. Review content BDPs 19. Changes to content DBPs 20. Issue two TORs 2nd deliveries 21. Select delivery of 2nd IBDP 22. Select delivery of 2nd DCBDP 23. Promotion for participants 24. Selection of participants 25. Delivery 2nd IBDP 26. Delivery 2nd DCBDP 27. Accelerated delivery 1 st Year 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Executive Team Executive Team to S/C Executive Team to S/C Individuals or groups Sub-committee approval Sub-committee approval Sub-committee approval Sub-committee approval Sub-committee approval Participant % chare Executive Team S/C approval Executive Team S/C approval Sub-committee approval Sub-committee approval Executive Team Sub-committee approval Assume 9 month period Assume 9 month period By IBDP members With sub-committee Sub-committee approval Executive Team S/C approval Sub-committee approval Sub-committee approval Sub-committee approval Sub-committee approval Assume 9 month period Assume 9 month period Following start of 2nd deliveries of BDPs additional deliveries depending on demand

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10.7 Action Plan - Market Development Programmes


Activity / Task Market Development Programmes 1. Recruit Marketing Expert 2. Set-up market research capability 3. Support to FDI activity 4. Research requests within PSDI 5. Eastern Europe market research 6. European supply chain research 7. Research results into IBDP 8. Regional research (metal/glass) 9. Research results into IBDP 10. Research results into FDI 11. Gulf market research 12. Research results into UBDP 13. Research support to DCBDP 1 st Year 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 2 nd Year 4 5 6 7 8 9 10 11 12 1 2 3 rd Year 3 4 5 6 7 8 Comments 9 10 11 12 Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team Executive Team

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Part C Results And Conclusions Of Review Activity In The Global And Domestic Packaging Sectors

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11
11.1

Global Overview
Global Packaging Sector

The global packaging sector is estimated to have a value of $ 417 bn. Egypts packaging sector was estimated to have a value of EGP 8 bn in 2002, $ 1.6 bn. On a pro rata , per capita basis Egypts packaging sector should represent 1.1% of the global sector, but it is under half this level at 0.4%. The level of packaging consumption in a country (kgs per capita) provides an indication of the countrys stage of development. The most developed economies have consumption rates of packaging of 90 160 kg per capita (with European countries tending to be at the lower end of this scale and North American towards the top), but with increasing environmental awareness the rate of increase in consumption has peaked and may start to decline. Developing economy status equates with a significantly lower level of consumption of packaging, with an estimated rate in Egypt of 10 -12 kg per capita; an African average of 4 kg per capita; and a rate of 22 kg per capita in Saudi Arabia. The most developed countries / regions are experiencing slow-downs in the rate of increases in packaging consumption. The following table indicates that between 1999 and 2001, the Western European packaging market grew by 1.2%, North America by 0.8%, whereas the Japanese market fell by 8%. Rapid increases in the level of packaging consumption, is a sign of an economy that is in transition, out of developing country status. In the following table the rates of growth in the developed countries are either low, or negative. The rate of growth of packaging consumption has been highest in Eastern Europe at 23.8% between 1999 and 2001. This has been fuelled by a combination of rapid consumer expenditure growth within the region and the opening of manufacturing plants and out-sourcing from Western European consumer products retailers. In the rest of the world (excluding: Western and Eastern Europe; North America; and Japan), packaging consumption grew by 10.3% between 1999 and 2001, which is significantly higher than the developed countries, but less than half the rate of Eastern Europe. In GBP Country / Region 1999 2000 2001 % Of Global % Change Total 2001 1999-2001 W. Europe 76.0 76.5 76.9 27.5 +1.2 N. America 73.1 75.3 73.7 26.3 +0.8 Japan 43.6 41.4 40.1 14.3 -8.0 E. Europe 8.0 9.0 9.9 3.6 +23.8 Rest Of World 71.8 74.9 79.2 28.3 +10.3 Total 272.4 277.0 279.8 100.0 +2.7
Source: The Packaging Institute

With an export led growth strategy, and growth in the domestic economy, Egypts rate of consumption of packaging can be expected to be between 10 15% a year for the next decade. Global Market Paper And Board Packaging

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Jaakko Pyry Consulting provide global projections on the worlds paper and board consumption up to 2015. The break-down of world consumption of 325 mn tonnes in 2000, and projected annual growth rates from 2000 to 2015 are: Consumption In 2000 - % Split Rank Region % World 1 Western Europe 29.5 2 North America 22.0 3 China 12.5 4 Asia, excl China / Japan 11.5 5 Japan 10.0 6 Latin America 6.5 7 Eastern Europe 3.5 8 Africa 2.5 9 Oceania 2.0 Total 100.0 Annual Growth Rate % 2000 - 20015 Rank Region % Growth 1 Eastern Europe 4.6 2 China 4.4 3 Asia, excl China / Japan 3.9 4 Latin America 3.4 5 Africa 2.9 6 Oceania 1.6 7 Western Europe 1.5 8 Japan 0.8 9 North America 0.6 Average 2.2

Although Western Europe and North America account for over half of the consumption of paper and board in 2000, they are projected to have low annual growth rates of 1.5 and 0.6%, respectively. As will be seen later in this section many of the worlds leading packaging companies have already developed out of their established markets in Western Europe and North America into areas such as Eastern Europe and China. The regions with the highest growth rates in packaging consumption can be expected to take an increasing share of the world packaging market. This process of change will have parallel developments in each developing country: Increasing proportion of products sold in packaging to meet domestic regulations in the supply of foodstuffs. Initially this is likely to increase demand for foodstuffs in packaging such as metal and glass. Improvements in the food chain with refrigeration allowing for switch to more sophisticated forms of board and plastic packaging. The multi-national companies are usually strong drivers of this change. Increasing domestic household incomes to spend on consumer product purchases. Use of the country as a low cost manufacturing base to supply consumer products into developed countries.

The first two developments should have strong impacts on domestic packaging manufacturers. The third developments level of impact will depend on the extent to which the consumer products are manufactured within the domestic economy. This fourth development provides the most direct link into international packaging manufacturers as it is their existing international customers that will be involved in relocating their production to the low cost countries. These customers will expect the packaging manufacturers to provide the same level of supply service as in other countries where they have supply relationships. The position of Eastern Europe as a new market for packaging has happened through a combination of; the growth, and increasing sophistication, of its domestic consumer market creating demand for domestically consumed packaging; and manufacturing of

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consumer products to be supplied into Western Europe, where the packaging is exported with the product. Eastern Europe has attracted a lot of attention as a market for packaging based on this dual market activity. The dual capacity is also starting to happen in China, based on projections of strong growth in domestic consumer demand combined with continuing growth in the manufacture of consumer products for exports. In the case of China it is the former that will have a more significant impact on attracting FDI in packaging as this will create demand for more sophisticated forms of packaging. World FDI In Packaging From the perspective of world FDI in packaging the following points need to be taken into account: The extent to which world leaders in packaging will continue to open manufacturing plants in Eastern Europe, or to source from existing plants in Eastern and Western Europe. The packaging manufacturers need to assess how quickly the Eastern European market will start to reflect the packaging consumption characteristics of Western Europe. As the change from high to low growth happens the packaging manufacturers will have to look for markets with the same growth prospects that applied in the 1990s and early 2000s. The growing demand for consumer packaging from China, though, as already indicated it is growth in domestic consumer expenditure, in areas such as foodstuffs and pharmaceuticals, which is likely to have more of attraction, than continuing increases in exports consumer products, such as; garments, footwear electronics, toys and white goods, which do not require sophisticated packaging. The extent to which countries can compete with China to provide low cost locations to manufacture consumer products for world / regional / niche markets. The extent to which the production of sophisticated foodstuffs moves out of Europe into lower cost manufacturing locations, within easy reach of the mainstream European markets. Growth in demand for processed food products in developing countries and the types of packaging that will be required.

Eastern Europe Eastern Europe has two roles to play for Egypts packaging sector: demonstration of the attraction of FDI in packaging; export opportunities for Egypts packaging manufacturers as it is the worlds fastest growing market for packaging.

Attraction Of FDI The lessons that can be learnt from Eastern Europes success in attracting FDI in packaging are:

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strong growth in domestic consumer product consumption at the same time as preparing for EU membership. The latter is important as it forced the countries to operate to EU regulations on foodstuffs. This created strong combined pull effects (strong consumer demand) and push effects (increasingly sophisticated packaging) with the latter being more attractive than the former. The reason for the latter being more important is that it provided a competitive advantage to international packaging companies over the indigenous packaging manufacturers that did not have access to the more sophisticated packaging types; the role of these countries as low cost manufacturing locations attracted the customers of the international packaging manufacturers to either open their own consumer product factories , or to out-source. As it is their existing customers that made such a move it provided high le vels of confidence, and customer pressure, to follow. It was probably this effect that created the first interest in FDI in Eastern Europe as in many cases this was activated before the growth in domestic consumer markets.

The main FDI lesson that can be learnt is that opening a new in-country packaging manufacturing facility is more attractive if from the start it will be selling domestically / regionally to well-established international consumer product customers. Once the manufacturing facility is operating satisfactorily, meeting the requirements of established customers, it can start a second phase of development to meet the needs of indigenous consumer product manufacturers. It is at this second phase of development that the manufacturing facility can benefit most from up-turns in domestic consumer demand. Exporting Into Eastern Europe The same Jaakko Pyry Consulting research as referred to above provides useful information on the paper and board market in Eastern Europe. Their conclusion is that total consumption of paper and board in the Eastern European EU Member countries exceeds production capacity by 650,000 tonnes and this is due to grow to 950,000 tonnes by 2010. Only Slovakia is producing more paper and board than it is consuming. It needs to be recognised that there is very substantial excess production capacity of paper and board in the Eastern European countries that have not joined the EU. Although this capacity exists its production capabilities are weak. Exporters into the new EU member countries should avoid competing in low value packaging products as this is where these countries can compete with cheap products. Exporters should concentrate on paper and board packaging products that are higher added-value, where the manufacturers in the non-Member countries cannot meet the technical specifications, or the quality requirements.

The consumption of paper and board in the new EU Member countries is projected to grow by 397,000 tonnes between 2000 and 2010, with the break-down by country: Poland Czech Republic Hungary Baltic countries 225,000 tonnes 59,000 tonnes 49,000 tonnes 34,000 tonnes 56.7%; 14.9%; 12.3%; 8.6%;

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Slovakia

30,000 tonnes

7.6%.

Regional Export Performance 2002 Export performance, by country of the regions manufacturers of packaging are indicated in the table below. More detailed tables are provided in part G of this section. In USD mns Packaging Packaging Miscellaneous Total Made Made Packaging From From Plastics Wood 70.791 60.972 82.844 26.338 17.326 11.416 1.442 7.886 5.763 0.208 2.976 2.689 0.580 0.434 2.252 2.705 1.177 6.871 3.216 6.530 172.109 9.991 2.132 4.765 300.359 107.752 106.428 63.475 18.555 16.434 9.415 7.975 7.886 5.763 5.165 4.153 2.689 0.580 0.434

Cartons, Boxes And Cases 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Turkey Saudi Arabia Israel South Africa Iran UAE Jordan Morocco Bahrain Kuwait Egypt Tunisia Oman Qatar Lebanon 40.827 27.065 22.818 16.505

Sacks And Bags 9.761 6.508 0.766 11.970 1.229 0.253 7.973 7.975

Source: TradeMap 2002

Egypt is in 11th position, but is far behind the leaders. The best regional performers of packaging exports in 2002 were Turkey at $ 300.4 mn, Saudi Arabia at $ 107.8 mn, Israel at 106.4 mn and South Africa at $ 63.5 mn. The average packaging export performance of these countries is over 27 times higher than Egypts performance. Egypts packaging sector has developed as a domestic sector with its main focus on supplying domestic requirements. Its main international links are through imports of input materials, semi and final finished packaging. It has no global position as indicated by the detailed results for participation in world exports across a range of packaging products, presented in Appendix 1. Imports Imports of packaging decreased from EGP 1,127.7 mn in 1999 to 1,046.8 mn in 2002, but the 2002 figure may not include propylene that is now imported in to be processed at Egypts only polypropylene manufacturing facility. Balance Of Trade Based on figures from Egypts National Information Centre, the balance of trade improved from a negative balance of EGP 1,118.9 in 1999 to a negative balance of EGP 760.6 mn in 2002. Although the situation has improved there continues to be a

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significant negative balance. The main reason for the improvement in Egypts trade balance was exports from the opening of Egypts only polyethylene manufacturing facility. If the impact of this facility, which is effectively selling basic plastics, with minimum added-value, is excluded exports increased from only EGP 8.8 to 32.6 mn, between 1999 and 2002. Egypts export performance would have to be on par with the best in the region if the negative trade balance is to disappear. Regional Competitors The tables in Part G have been used to indicate the strongest packaging competitors to Egypt within the region. Strong competitors demonstrate a combination of; having world class positions in specif ic types of packaging; and being strong regionally across a wide range of packaging materials. With the application of these two criteria two countries Turkey and Saudi Arabia stand-out. Turkey and Saudi Arabia have the following world class positions: Country Type Of Packaging World Position 1st 4th 5th 14th World Sales In USD Mns 153.2 26.2 3.0 41.8 World Market Share 30.3 5.0 1.9 1.6

Turkey

Flexible intermediate bulk containers Sacks, bags of plastic strip Saudi Arabia Sacks, bags of jute Plastic stoppers, lids, caps, closures

The regional strength of the two countries is indicated by the number of packaging types in which they appear in the top 40 in the world. Turkey appears in 15, out of 17 categories, with Saudi Arabia appearing in 9 out the 17 categories. Regional Competitors To Beat Turkey is the current regional competitor to beat, but with Saudi Arabias advantages in plastics it can be expected that it will become an even stronger competitor and could takeover Turkeys lead role in the next 5 10 years. Although South Africa has to be recognised as a leading regional player it does not have a strong position in the regional packaging market.

Country Selection The above results have supported the Steering Committees sele ction of the four regional comparator countries to Egypt: Saudi Arabia; South Africa; Turkey and UAE, with these countries having the following respective regional positions: 2nd , 4th , 1st and 6th. It should be noted that in other parts of this report results are not provided for UAE as they were not available.

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11.2

International Companies

Leading World Companies The worlds top 10 packaging companies have combined revenues of $ 57.3 bn (14% of the world total). Rank 1 2 3 4 5 6 7 8 9 10 Source: Company Smurfit-Stone Container International Paper Crown Cork & Seal Tetra Pak Owens Illinois Toyo Seiken Alcoa Alcan Jefferson Smurfit Rexam Ernst & Young Country Of Origin USA USA USA Sweden USA Japan USA Canada Ireland UK World Packaging Total Sales Sales USD Mns USD Mns 8.796 8.796 7.625 28.180 7.289 7.289 6.726 6.726 5.552 5.552 5.500 6.085 4.500 22.936 4.100 9.148 3.607 4.179 3.600 4.212

The world leaders are split between those that have diversified into packaging from manufacturing input materials (Alcan, Alcoa and International Paper) and those that specialise only in packaging. It should be noted that each of the top 10 comp0anies are at least three times the size of Egypts total Packaging Sector. 1. Smurfit-Stone Container Corporation (SSCC) is headquartered in Chicago and is the industrys leading integrated manufacturer of paperboard and paper-based packaging. SSCC is the leading producer of containerboard (75% of its activity), including white top linerboard; corrugated conta iners; multiwall and speciality bags; and clay-coated recycled boxboard. SSCC is the worlds largest paper recycler, annually processing and selling more than 6.5 mn tons. In addition, SSCC is a leading producer of solid bleached sulphate, folding cartons, flexible packaging, labels, and point-of-sale displays. It has 260 manufacturing facilities in the US, Canada and Mexico. Over the past 5 years sales increased by 16.4%. Although SSCC has a strong North American focus, in 2003 it closed a number of operations in North America, with more to be closed in 2004, as part of a shifting large parts of its manufacturing base overseas. Its international development so far has included: a joint venture presence in China; a packaging solutions centre in Hong Kong; and a corrugated container plant in Indonesia. 2. International Paper (IP) is the largest global producer of bleached board for consumer packaging, one of the largest US manufacturers of industrial containerboard for corrugated packaging and the largest US converter of bleached board and a major converter of containerboard. The Company owns 26 pulp, paper and packaging mills, 88 converting and packaging plants, 25 wood products facilities and 7 speciality chemicals plants. IPs production facilities by country are: Printing Papers: Containerboard: US, Brazil, Canada, France, Poland, Russia, Scotland. US. France.

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Corrugated Container: Kraft Paper: Bleached Board Beverage packaging: Chemicals

October 2004

US, Canary Islands, Chile, China, France, Ireland, Italy, Spain, UK. US. US. US, Canada, China, Dominican Rep. Israel, Japan, Korea, Saudi Arabia, Taiwan, Venezuela. US, Finland, France, Norway, Sweden, UK.

3. Crown Cork And Seal (CCS) is split into three geographic businesses: Americas with the operation of 70 plants manufacturing: beverage, food and aerosol cans; speciality packaging; metal closures and caps; plastic closures, health and beauty care packaging. European, which includes the Middle East and Africa, with the operation of 99 plants manufacturing: beverage, food and aerosol cans; speciality packaging; metal closures and caps; high density polyethylene containers; plastic closures; health and beauty care packaging; can making equipment. Asia Pacific with 17 plants manufacturing: beverage, food and aerosol cans; plastic closures; and metal caps.

Amongst its leading packaging products it includes the following multi-national customers: Beverage cans to: Anheuser-Busch; Cadbury Schweppes; Coca Cola; Cott Beverages; Heineken; Interbrew; Pepsi Cola and Scottish Courage, with sales in 2003 of USD 2.4 bn. Food cans to: Bonduelle; Heinz; Mars; Menu Foods; Nestle; and premier Foods, with sales in 2003 of USD 2.1 bn. Aerosol cans to: CCL Industries; Colgate; Palmolive; Gilette; SC Johnson; and Unilever. Metal closures and sealing equipment solutions to: Abbott Laboratories; Heinz; Nestle; Novartis; and Unilever. Speciality packaging (mainly in Europe) to: Kraft Foods; Akzo Nobel; Bristol Myers; Teisseire; Nestle and United Biszcuits. Two points that should be noted in relation to CCS are; firstly, it is planning to open a new beverage can plant in Tunisia; and secondly, where it has board manufacturing plants in developing countries, which do not have local mills producing the required input materials, these are sourced from mills in nearby developed countries. 4. Tetrapak emphasises that it sells packaging systems for processing, packaging and distribution of food and liquid food. It has sales in 165 countries, based on: network of 58 marketing companies; 65 packaging material manufacturing plants; and 15 packaging assembly machinery factories. Its largest markets in 2003 were: China 11.3 bn packs;

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Germany Brazil

7.9 bn packs; 6.7 bn packs.

Its fastest growing markets during 2003 were: China Egypt Vietnam Columbia 40%; 40%; 40%; 38%.

It should be noted that all of its fastest growing markets are developing countries. During 2003 Tetrapak delivered 768 carton filling machines, with the most significant sales to China, Russia, Italy, Spain and the Gulf States. The company reported that its margins in packaging materials were under threat due to raw material cost increases and lower selling prices. 5. Owens Illinois (OI) is global manufacturer of glass and plastic packaging, which emphasises its total package supply capabilities. Its main products are glass (bottles and closures) and containers (blow and injection moulded), with the main consumer products being; beer, food, tea, juice, liquor, wine and pharmaceuticals. It has 140 manufacturing plants throughout the world. It has licensed glass container proprietary technology to 21 companies in 23 countries. It also has plastics technical assistance agreements with 30 companies in 15 countries. In Europe OI has glass manufacturing plants in 12 countries, with plastics manufacturing plants in 4 countries. In Eastern Europe it has manufacturing plants in Czech Republic, Estonia, Hungary and Poland, but no manufacturing plants in the MENA region. 6. Toyo Seikan is head quartered in Tokyo, with 16 manufacturing plants throughout Japan, where beverage cans, plastic bottles and caps, plastic film, cups and trays are produced. The break-down of sales in 2002 was:

Category Beverage packaging Food packaging Non-food packaging Canning and bottling machinery Others Total

USD mn 2,438 676 281 140 110 3,642

% Of Total 66.8 18.5 7.7 3.9 3.1 100.0

During 2002 sales fell by 4.2%, with the only growth area being PET bottles. 7. Alcoa is the worlds leading producer of primary aluminium, fabricated aluminium and alumina. Its brands include; Reynolds Wrap, Alcoa Wheels and Baco household

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wraps. It covers a range of sectors, in addition to packaging, including; aerospace, automotive, building and construction, and commercial transportation. Alcoa offers a range of packaging solutions: for consumer product manufacturers: closures and capping systems; containers; films and wraps; for the beverage sector it provides aluminium sheets from which 100 bn cans are produced annually; for food service outlets: bags; baking cups; containers; film; foil; lids; and wraps;

One Alcoas major customers is Nestl, which buys packaging for the following brands; Coffeemate, Lean Cuisine, Maggi, Nesquik and Purina, from a range of Alcoa subsidiaries including; Alcoa Alumina SA, Alcoa Closure Systems International, Alcoa Flexible Packaging, and Southern Graphic Systems. Maggi cubes which are manufactured in Egypt are packaged in foil sourced from an Alcoa manufacturing facility in Europe. In the US, Oreo, a subsidiary of Kraft Foods has recently launched a new plastic tray produced by Alcoa. The break-down of sales is: United States Europe Pacific Other Americas 61%; 22%; 10% 7%.

Alcoas presence in the Middle East is through Gulf Closures W.L.L., a joint venture between Alcoa Closure Systems International and the Bahraini investment company Al Zayani Investments W.L.L., which started in 1992. Located in Manama, Gulf Closures produces plastic closures for the Middle Easts beverage industry. An example of Alcoas range of involvement in packaging products is provided by its Packaging And Consumer Products Division, which accounts for USD 5.4 bn of sales and represents 25.1% of overall turnover. The packaging solutions are directed at: consumer, foodservice and flexible packaging products, including: aluminium foil; plastic wraps and bags; plastic beverage food closures; flexible and protective packaging products; design and prepress services; gravure and flexographic image carrier products; thermoformed plastic containers; and extruded plastic sheet and film. During 2003 Alcoa sold its 37% stake in Latasa, an aluminium can business, to Rexam (see company no. 10). It also sold its PET packaging business in Latin America to Amcor PET Packaging. In January 2004, Alcoa sold its packaging equipment manufacturing business to American Industrial Partners and to management. The proceeds of these sales were used to expand Alcoas presence in the Asian packaging market.

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8. Alcan a Canadian packaging company, which produces aluminium sheets for beverage cans, and flexible and speciality packaging for the food, pharmaceutical and personal care sectors, worldwide. It is one of the largest producers of flexible packaging in Europe and North America, converting film, foil and paper materials. It has production facilities in; Brazil, Canada, Chile, France, Germany, Indonesia, Ireland, Italy, Netherlands, Philippines, Puerto Rico, Spa in, Switzerland, Thailand, Turkey, UK and US. Alcan Group revenues in 2003 were split: packaging aluminium ingots beverage cans building and construction transportation electrical others 29%; 20%; 14%; 7%; 8%; 4%; 20%.

The break-down of 2003 packaging sales of USD 2.7 bn, were paper and board aluminium paperboard glass steel 45%; 35%; 13%; 5%; 2%.

In the region Alcan has a food packaging manufacturing facility in Turkey, based in Istanbul, which undertakes the following processes; blown film extrusion, co-extrusion, engraving, gravure, laminating, metalising and wax coating. Packaging is produced for; biscuits and cookies, confectionery, dried foods, gum and pet foods. In the Middle East Alcan has recently signed a Memorandum of Understanding with the Oman Oil Company and the Abu Dhabi Water and Electricity Authority for a 20% equity interest in the development of a proposed 330-kilotonne p/y aluminium smelter project in Sohar, Oman. The project will be based on Alcans most advanced version of its Pechiney AP30 technology. Alcan also has an option to acquire 60% of a planned second potline with an additional 330-kilotonne p/y capacity. Construction is due to commence in the second half of 2005, with first production by the end of 2007. An example of Alcans product innovation is the development of a new form of transparent toothpaste tube in collaboration with Mibelle AG Cosmetics of Switzerland. The new type of tube is made of Ceramis laminate, which is an Alcan trade mark.

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9. Jefferson Smurfit Group (JSG) is one of the largest European-based manufacturers of containerboard, corrugated containers and other paper based packaging products, with manufacturing facilities in Europe and Latin America. JSG claims to be the worlds leading producer of containerboard, corrugated cases, folding cartons and paper sacks. Its mills are highly integrated with much of the containerboard being converted internally. The companys operations are integrated backwards into the main raw and input materials. In addition to board types and sack kraft paper, the mills also produce non-packaging grades such as dcor base paper, newsprint, printing and writing paper. In March 2003 JSG completed the acquisition of Smurfit Stone Containers European packaging assets (see no. 1 above), which included; 3 paperboard mills, 20 converting facilities, and 5 re-cycling factories. Production capacities of these assets are 450,000 tonnes p/y of containerboard and boxboard and 675,000 tonnes p/y of corrugated. 10. Rexam claims to be one of the worlds top five consumer packaging groups and the worlds leading beverage can maker. Its manufacturing facilities span Europe, Asia and the Americas. It has three main areas of activity: aluminium and steel cans for global soft drinks and beer brands; glass and plastic bottles for global and regional beverage, food and pharmaceutical companies; plastic containers for dairy and food products, pharmaceuticals and beauty packaging sectors.

In 2003 beverage packaging accounted for 83% of sales, with the fastest growing markets being Russia, Austria and Turkey, three countries where Rexam has strong domestic presence. 60% of Rexams sales are to its 20 top customers, which include; Anheuser-Busch, BACI, Bacardi Martini, Baltika, Brygge rigruppen, Cadbury-Schweppes, Carlsberg, Coca-cola, Deep South, Este Lauder, Heineken, HGS Oetket Gruppe, Interbrew, LOral, LVMH, Pepsi, Red Bull, SABMiller Breweries, Unilver and Vin & Spirit. Growth trends in different types of packaging in different consumer product areas that are quoted by Rexam are:
Global Beverage Packaging 1997 02 Type % Change Non-refillable + 15.0% PET Non-refillable + 2.5% glass Cans + 2.1% Refillable PET / PEN Refillable glass Other Plastics + 0.4% - 2.0% - 2.5% Food Packaging Western Europe and USA 1998 - 02 Type % Change Rigid plastics + 3.9% Flexible packaging Paper-based containers Glass Metal Liquid cartons + 1.8% + 1.8% + 1.4% + 0.3% - 1.3% Global Pharmaceutical Packaging 2002 10 Type % Change Blister packs + 6.4% Plastic bottles Caps / closures Tubes Glass bottles / jars + 3.7% + 3.0% + 2.9% - 2.7%

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Source: Rexam Beverage Radar Source: Euromonitor

October 2004

Source: Freedonia

11.3 Leadi ng World Packaging Materials


The leading world packaging materials by rank are: Rank Material Type 1 2 3 4 5 6 7 8 9 Corrugated board Rigid / semi rigid plastics Films, foils and flexibles Carton (paper) board Metal containers Glass containers Sacks, bags and labels Caps and closures Others Total World Sales In USD Bns 80 74 60 42 40 25 24 14 58 417 % World Packaging 19.2 17.7 14.4 10.1 9.6 6.0 5.8 3.4 13.9 100.0

Sources: Ernst & Young / The Packaging Institute

Although corrugated board (used in corrugated boxes) is still the worlds leading individual packaging material it is being challenged by rigid / semi rigid plastics, which are expected to take-over the top position during this decade. Plastics, as an overall category (combining rigids / semi rigids and film, foils and flexibles) account for USD 134 bn in sales, representing 32.1% of the total market, which is higher than carton / corrugated board at USD 122 bn in sales, with 29.3% market share. Plastics have overtaken board as the worlds most popular packaging material by value. The emergence of leading world companies (see last Part of this section) needs to be viewed within the context of the life cycle of the packaging materials. Life-cycle diagrams are presented in the ma in report in section 3. Glass and metals are packaging materials that well past their peak periods of international activity. In international development a high level of consolidation of company ownership has already been achieved in these packaging materials as owners have used mergers and acquisitions to build-up market share and to achieve unit cost reductions. The same trend towards consolidation of ownership has been happening in corrugated board and carton board which are also packaging materia ls that have passed their peak period of development. The up-and-coming packaging material is plastics, which in the earlier table is represented in the rigid / semi-rigid, films, foils and flexibles and caps and closures areas of packaging, with world sales of USD 148 bn (35.5%). The international trends have been: consolidation of manufacturing capacity amongst smaller numbers of very large players, in particular in the traditional packaging materials of glass, metals, corrugated and carton board; key players have manufacturing facilities in many countries;

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key players operate across a number of packaging materials, providing them with the ability to offer integrated packaging solutions to their customers. The approach has been to establish group ownership structures, with a range of subsidiaries each specialising in a particular area of packaging, using a specific packaging material. The approach has not been to establish multi-product single companies; the groups have been built -up mainly through mergers and acquisitions, with less reliance on internal growth.

The key driver of these developments has been international market positioning, by building-up production capacity in the traditional product areas (low innovation), and achieving representation across a range of packaging types in the emerging area of plastics (high innovation). Base Plastics The worlds largest oil and chemical companies appear to be divesting their base plastics operations to concentrate on upstream operations, where there are higher margins. In the th FT, 6 August 2004 it was reported that Shell is in the process of putting its Basell polyolefins joint venture with BASF up for sale. Basell is the worlds biggest polypropylene company and Europes largest polyethylene producer. BP is reported to be preparing the same for its olefins and derivatives business, while Total is doing likewise with its chlorochemicals, intermediates and performance products. One of the most significant recent developments in this area of plastics has been the purchase of DSMs petrochemicals business by Sabic, the Saudi Arabian industrial group. The rapid expansion of Saudi Arabias base plastic manufacturing operations (see part D of this section), combined with the DSM acquisition have turned it into an international player in base plastics. It will be interesting to watch if Sabic, or another other Saudi Arabian group expresses interest in any of the base plastic operations that are put up for sale. A further key factor in determining the future of base plastics is the taken as a direct quote from the FT article Western groups face increasing competition from the Persian Gulf, where producers have access to natural gas. That gives them a $ 200 a tonne advantage over Europes oil-fed petrochemical crackers. The cheaper base plastics in the Gulf region could provide the basis of a growing plastics packaging sector in the region as a whole, if the plastics packaging manufacturers can gain access to cheap input materials. Flexibles The fastest growing and most dynamic area of packaging is flexibles and there is a need to keep abreast of developments in this packaging sub-sector for international packaging companies to remain competitive. Examples of recent developments are: ExxonMobil Chemical has launched Nexxstar stretch wrap, representing the first application of the new Nexxstar family of resins. PetroChina has signed a licensing agreement with Basell that will enable the company to use Basells Lupotech T process for its new low-density polyethylene plant.

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Petcore has announced that oriented polystyrene sleeves (OPS) are to be banned on PET bottles in Europe. Kodak has developed an anti-microbial film use in packaging medical products, such as needles. It is also developing other active packaging technologies, such as oxygen absorbers and bio-layers for food packaging. Cryovac is extending its oxygen scavenging film (OS Film) to provide stand-up pouch solutions for new areas, such as meat products. Dow has launched a new range of speciality propylene-ethylene copolymers under the Versify name. The plastomers and elastomers are designed to improve a number of qualities for flexible and rigid packaging producers. These include; optics, sealing and hot-tack performance, elasticity, flexibility and softness. Europackaging has introduced a range of packaging products using Natureworks PLA (polylactide) corn-based polymer material. Applications include twist wraps, plastic film wraps for foods, blister packs, and plastic windows in boxes. Alcoa has launched a new prototype label for PET bottles using a 50-micron PETG reverse-printed shrink sleeve. Hueck Folien GmbH & Co. KG has joined the United Flexibles GmbH, becoming the fourth member of the flexible packa ging alliance. United Flexibles is a joint venture, formed originally in 2000 by PKL Flexible Verpackungen (Germany), PAWAG Verpackungen (Austria) and Reuther Verpackungen (Germany and Poland) to provide synergies required to meet complex requirements of multi-national companies through combining their respective production capacities and product ranges. Crown Holdings has launched a new rectangular peelable lid for mackerel fillets. The lid is constructed of aluminium foil laminated with polypropyle ne film on the inside.

A key feature of all of the above new products is the research and development arms of the packaging manufacturer worked closely with their customers to ensure the product met their requirements. One way to keep abreast of developments in flexible packaging is to subscribe to a publication such as The Journal Of Plastics Packaging Technology, published by Pira International Linited. Plastics Recycling Internationally it is important to understand the different approaches that are used for plastics recycling. An example is with PET recycling, as the processes differ considerably between Europe and the US / Japan. Virtually all European recycling uses wet grinding, whereas in the US / Japan most use dry grinding. In Europe separation processes rely on the items to be removed floating to the surface. Under the US / Japanese approaches separation is easier through air flows; International Positioning

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A countrys international packaging position is determined by a combination of its: growth in its domestic market and market share from domestic production; participation in world exports; the range of packaging materials it produces in relation to the life-cycle of the materials; the involvement of world players operating from, or involved in the country.

World positioning in relation to domestic market growth for packaging was covered in the previous section, with much stronger growth indicated for developing, than developed economies. Regional country performance in wor ld packaging exports was also reported in the previous section, with the leading regional countries identified. In the remainder of this section comments are provided on the positioning of selected countries in relation to the packaging materials that are manufactured and their involvement with leading players in the world Packaging Sector. In the context of international positioning the following points need to be understood: a sign of strength in packaging is having the ability to import input materials, and through manufacturing to add-value to produce, and export, final packaging. The assessment of regional export performance in the previous section indicated countries with high export performance in packaging, where they do not have natural advantages from domestically sourced input materials. These are countries that have developed beyond relying of domestic access to material inputs to provide international competitive advantages, and have built-up such advantages based on packaging manufactur ing capabilities; having access to significant supplies of plastic input materials will provide these countries with competitive advantages in securing strong positions, both in international supply chains and in regional markets. Significant supplies means having the ability to produce beyond domestic consumption requirements and to support exports. These strengths are not only in relation to developing indigenous companies, but also in attracting FDI to secure positions in international supply chains and to achieve regional market positions; any country needs to view its packaging sector from perspective of outside-in, at the same time as applying an inside-out view. A danger in economic development is giving too much emphasis to the inside-out view. With increasing globalisation, and within sectors such as packaging significant globalisation already having been achieved, the outside-in view is as equally important, as the inside-out view. As world players jockey to achieve competitive positions in international supply chains and regional markets, a key determinant of success for individual countries is their involvement with these key players. Years of developing an indigenous manufacturer to achieve strong domestic and regional positions can be undermined if one of the key players opens a world class manufacturing facility in a neighbouring country. How a country interacts with and is perceived by the key international players in a sector, such as packaging, is crucial to be considered as a partner for future sectoral developments.

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11.4 Country Reviews


During the first Steering Committee meeting the five comparator countries were agreed to be: Saudi Arabia; South Africa; Turkey; UAE; and UK. The results presented in section 2 verifie d the selection of the regional countries, with UK being selected as the best practice country. We have not completed our reviews of individual countries and, as of now, we can only provide interim results for Saudi Arabia, South Africa, Turkey and the UK. We are experiencing difficulties in obtaining information on UAE, except for board. South Africa South Africa has managed to develop a world position for its Packaging Sector in spite of locational disadvantages and lack of an indigenous supply of wood pulp for paper and board making. Nampack, one of South Africas leading packaging companies was identified to be at the top of the league of international companies based on an independent survey of 100 worldwide packaging companies. In the late 1990s production over-capacity, coupled with the application of an internationalisation perspective triggered a series of consolidations within the domestic producers. Three companies now dominate South Africas Packaging Sector; Nampack, Sappi and Mondi, with all three having become world players. Mondi has been taken as an example. It was first integrated into Anglo-American Plc to provide the resources for the domestic restructuring and international development. Mondi purchased Kohler corrugate d packaging which had 15% domestic market share, but was also a top player in South Africas cartons, rigid plastics and flexible packaging areas of activity. It bought Consuls corrugated board business, with 6% market share and Consuls folding carton business to form a new packaging business, Mondipack. Nampack is the strongest of the three with its activities in South Africa covering corrugated board, plastics and glass. Sappi is currently investing in the regions first large-scale capability to pr oduce double coated paper in South Africa. It can be noted that although South Africa is a successful exporter of packaging it is not as strong as Turkey and Saudi Arabia. Its internationalisation strategy has been based on building-up rapid manufacturing positions in some of the worlds leading packaging markets. The strategy has been to leap-frog the stage of becoming a regional / world exporter from South Africa to becoming world players in a short period of time. Saudi Arabia Saudi Arabia claims to have attracted 72% of USD 2 bn of international packaging investments into the region with one of its strengths indicated to be access to raw materials from its world class chemical and petroleum industries. Plastics are increasingly being used as a replacement to the traditional wood and metal materials with per capita consumption of plastics growing by 800% since 1975. It is the largest market in the Arabian Peninsula for imported paper, including rolls for newsprint, kraftliner (corrugated boxes) and other packaging products.

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Up to now the growth in Saudi Arabias packaging sector has been fuelled mainly by growth in demand from domestic industries that apply the packaging to their final products. One of the main generators of growth has been the domestic food sector, where in 2002 packaged food sales reached USD 6.4 bn, with ready-to-eat meals share reaching 14.6%. Although Saudi Arabias packaging sector may have grown mainly on domestic demand, it was clear from the previous section that it has already achieved second position in regional exports of packaging. The following investments will support further developments of the sector, with it anticipated to become first the leading supplier of plastic packaging and thereafter to move into world player status. Examples of recent and current investments are: Eastern Petroleum Company (SHARQ) completed a turnkey project with Mitsubishi Heavy Industries to raise the capacity of its two low density polyethylene plants by 300,000 tonnes a year to a total capacity of 750,000 tonnes p/y. Chevron Phillips Chemical Company and the Saudi Industrial Investment Group have announced plans for a new project to be completed in 2006 which will bolster Saudi Arabias position as world leader in the production of benzene, ethyl benzene, styrene and propylene which are used in the production of a range of plastic packaging including transparent containers and film.

Saudi Arabia secured a the establishment of Tetra Paks first manufacturing facility in the region based on a USD 16 mn joint venture between Tetra Pak and Y.A. Al-Gosaibi. Ths unit has production capacity of 1 billion packaging units a year. Also incorporated into the overall production facility is a plastics unit that manufactures a range on aseptic packaging products. Saudi Arabias production capacity of board packaging, waste-based fluting and liner) has increased from 90,000 tonnes in 2001 to 350,000 tonnes in 2004. In a period of four years Saudi Arabia has taken-over Egypt is having the largest board manufacturing capacity in the region. In 2002 Middle East Paper opened a new 120,000 tonnes a year board machine in Jeddah, which represented the first involvement of this company in board manufacturing. Arab Paper is in the process of adding a second board machine with 120,000 tonnes a year capacity at its existing facility at Dammam, which will take Saudi Arabias overall production capacity up to 350,000 tonnes a year. With the completion of these investments Saudi Arabia will ha ve production capacity which is over 40% higher than Egypts. Whereas 74% of Saudi Arabias capacity will have been established in the last four years, only 24% of Egypts capacity falls into this category, with 27% being over 30 years old. Turkey The annual production of packaging in Turkey between 2000 and 2002 and the level of production capacity utilisation in 2002 is indicated in the table overleaf. In Tonnes Packaging Actual Production Production Production Category 2000 2001 2002 Capacity Capacity 2002 Utilisation 2002 Paper 107,000 73,489 80,000 136,820 58.5

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Carton board Corrugated board Plastics Flexible Metal: Tin Aluminium Glass Wooden Total 127,500 717,000 530,000 92,500 360,000 417,000 350,000 2,701,000 117,333 666,674 601,120 97,125 172,000 100,000 457,000 350,000 2,634,741 118,749 734,202 652,444 101,425 212,000 100,000 533,000 350,000 2,881,800 250,000 1,424,000 800,000 120,000 250,000 140,000 540,000 450,000 4,070,820

October 2004
74.5 51.5 81.6 84.5 84.8 71.4 98.7 77.8 70.8

One major producer has been converted to working with steel This capacity is only for beverages, fast foods and aerosol can packaging.

The break-down of domestic packaging consumption is: corrugated board plastics glass wood metal (aluminium and tin) carton board flexible paper 25%; 23%; 18%; 12%; 11%; 4%; 4%; 3%.

As can be seen from both of the above results board and plastics accounts for 52% of Turkeys packaging production activity, compared to 69% in Egypt, as reported to the first Steering Committee meeting. Turkeys Packaging Sector is mirroring the life-cycle diagram presented in section 4. Over the period 2000 01 the changes in the packaging categories were: decline of 13.3% in metal packaging; decline of 1.9% in paper and board packaging; no change in wooden packaging; growth of 9.6% in flexible packaging; growth of 23.1% in plastic packaging. The only packaging category to buck the life-cycle is glass, which achieved a 27.8% increase. Turkey is highly dependent on imports of paper and board as material inputs to the board manufacturers. In 2000 Turkey had a net negative trade balance of USD 754 mn in these products, with most imports coming from; Israel, Bulgaria, Azerbaijan, Georgia, Kazakhstan, Germany, Romania and UK. This demonstrates that Turkey has accepted the need to import these input materials to have a strong packaging sector, which can be compared to the situation in Egypt that has already been reported to the Steering Committee.

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Although there is a very tight situation in the availability of production capacity in glass, with all other packaging categories there is either reasonable or significant spare production capacity to support further increases in production. This compares to Egypt where there is also very tight glass production capacity, but also tight capacity in the production of paper and board to be manufactured into corrugated and carton board packaging. Turkey also has significant spare production capacity in the manufacture of corrugated board packaging which does not exist to the same extent as in Egypt. The future Turkeys Packaging Sector is viewed as being positive, in the context of its bid to join the EU. The value of packaging consumed per capita in Turkey is USD 40, compared to USD 340 in Germany. International companies that have set-up packaging manufacturing facilities in Turkey include: Tetra Pak in composite packaging; French Carnaud Metal Box in injection aluminium cans; German Berg Group in plastic closures; US Nacanco in aluminium cans for beverages; US Constar in PET bottles; Europes White-Cap in metal caps and lids for bottles and jars, with Sisecams subsidiary Rastas; US Union Camp in cardboard packaging, with Kav Ambalaj; Swedish SCA Packaging (see UK below) in cardboard packaging with Kaplamin.

UAE Up to 2003 UAE had only 35,000 tonnes of board manufacturing capacity, but through two recent initiatives this capacity will increase to 160,000 tonnes a year during 2004, due to: Gulf Paper having acquired and refurbished the Amir Paper Mill, with production due to have started by mid 2004; Union Paper Mill installing a second board machine with annual capacity of 160,000 tonnnes.

Gulf Implications The overall board production capacity of the seven GCC countries is due to increase from 195,000 tonnes a year in 2001 to 600,000 tonnes a year in 2004. This represents a very rapid increase in production capacity, with the countries starting the period at 103% of Egypts capacity, but finishing the period with 242%. This has three implications for Egypt:

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the higher quality of board (from recycled fibre) due to the more recent production facilities; the availability of excess production capacity to be sold in the region; the increased demand for recycled waste in the region as a whole. Although Egypt imports about 5% of its waste for recycling there is an issue over the extent to which further increases in board production can be sustained through domestically sourced waste.

The last point is of particular significance as all of the mill production capacity utilises waste products, with all virgin paper and board imported as a material input to the corrugated and carton board manufacturers. This is the situation that used to prevail in Egypt as already reported to the Steering Committee. UK The UK packaging sector is highly internationalised and demonstrates the impact of the consolidation activities indicated earlier in this section, by packaging material. In corrugated board the top 6 producers in the UK control 90% of the market, with the leading players being: DS Smith, UK owned, with 17 manufacturing facilities in the UK and manufacturing in five other countries, including Japan; Kappa Packaging UK Ltd Dutch owned; Linpac also market leader in plastic containers for chilled produce with 70 manufacturing locations around the world, including South africa, also in metal containers; Mondi Packaging UK now the market leader; SCA Packaging specialises in hygiene products; Smurfit (UK) USA owned.

In carton board the there is a lower level of consolidation than in corrugated board with the top 10 controlling 60% of the market, with the leading players being: Chesapeake Corporation USA owned; Mayer-Melnhof Packaging German owned and the worlds largest paper / board recycler; A & R Cartons (UK) Swedish owned; Stora Enso Finnish owned; MY Holdings owned by Malback of South Africa;

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CPC Packaging French owned.

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The UKs plastics sector is more fragmented than corrugated or carton board, with the top 3 players having only 14.6% market shares. The key players in plastics are: Nampack in HDPE and PET bottles; RPC also with manufacturing facilities in Belgium, France, Italy, Netherlands, Spain, Portugal and Hungary; Rexam (see from above 10th in the world) injection moulding; Huhtamaki Finnish owned; Pactiv USA owned; Linapc see corrugated board this is the UKs largest plastics recycler; Amcor Flexibles Europe headquartered in Australia, this is Europes largest flexible packaging converter; British Polyethylene Industries largest UK film extruder and second in flexible packaging, with 30 manufacturing plants in the UK and China; Lawson Mardon USA owned, part of Alcan, third in UK flexible packaging; Britton Group film extruder and flexible packaging converter.

11.5 International Sector Structure Drivers


The drivers behind the structural changes within the world packaging sector, described above, need to be understood to be able to determine how they apply to Egypt. The main drivers have been the customers of the packaging manufacturers and the customers of the final product. Both are requiring technical and organisational responses from the packaging manufacturers. Two further drivers are the move to many retailers and food manufacturers out-sourcing the packaging of their products and the need for the packaging manufacturers to be competitive in a continuously changing sector. The result of these d rivers has been three directions of development amongst leading packaging manufacturers: extension of manufacturing locations to cover the main countries in which their customers require supplied; acquisition of existing companies in different areas of p ackaging that enables the mother co. to offer integrated packaging solutions across a range of packaging materials; development of new forms of packaging to meet the changing requirements of the final consumer of the product, with the new packaging products being developed in close co-operation with leading customers..

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The above review of packaging manufacturers in the UK demonstrates the impact of the above international sector structure drivers. International Packaging Market Drivers Internationally, the leading packaging companies and their customers (food processors) are having to cope with a number of changes in the requirements of their final consumers. Examples of these changes are: single and smaller households, requiring smaller quantities of food products and therefore smaller packaging sizes; ageing population which supports the last point, but also has issues for the size and layout of the printed matter on the packaging; increasing influence of children in making purchase decisions on the food products they eat; increasing environmental awareness and the influence of pressure groups on the recyclability of packaging materials. An example of this is the development of cornbased polymer material indicated above, where it has the following processing advantages over other polymers: requires 30 50% less fossil fuel; reduced carbon dioxide emissions; with the products being fully compostable in commercial composting facilities; transportability of the product from: supermarket shelf, into supermarket trolley, onto check-out conveyor; into bags; back into trolley; into car boot; from car boot into home.

11.6 Conclusions On International Competitiveness


A domestic packaging sector is either integrated in with international developments in the worldwide Packaging Sector, or it operates in isolation from these developments. South Africas packaging sector is firmly integrated in with the developments; Saudi Arabias packaging sector is in the process of becoming integrated; whereas, Egypts packaging sector is operating in isolation. The reasons for Egypts Packaging Sector operating in isolation are: lack of strong demand from domestic manufacturing Egypt is not perceived as being an important market by the key players. This is to the extent that most of the key players are not even selling into market, with the most significant exception being Tetra Pak in wet dairy and juice products, but virtually all of its materials are imported; lack of raw materials that provides a reason to manufacture in Egypt. In fact, the materials do exist, but their use to support the development of an international packaging sector has not been set as a priority. Egypt is not perceived by the international players to be a location where packaging input materials can be sourced; up to now the lack of an international perspective within Egypts indigenous packaging sector.

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The result of the above is that Egypt does not feature on world packaging radar screen. South Africa has a completely different situation with not only Nampack recognised as a world leader, but its packaging companies have established strong positions in developed country markets, such as the UK. From the above assessment of the UK: Mondi is in top 6 in corrugated packaging; MY Holdings (Malback) is in top 10 in carton board; Nampack is in top 10 in plastics.

Saudi Arabia does not have any competitive advantage in the area of paper and board packaging manufacturing, with it being totally reliant on the import of wood based virgin fibres and paper. It is therefore in the same position as Egypt as of now, but it could be in a worse position if Egypt develops a domestic supply of virgin fibre. Without any competitive advantages Saudi Arabia (see previous section) has achieve d 21st position in the world with the exports of carton boxes and cases of corrugated paper or paperboard with 2002 sales of $ 27.1 mn; and 22nd position in the world with the exports of cartons, boxes and cases, folding of non-corrugated paper or board with 2002 sales of $ 23.4 mn. Egypt does not feature in the survey results as its level of exports are too low. During the same year Egypts comparable exports of corrugated and non-corrugated boxes and cartons was EGP 5.8 mn ($ 1.2 mn). Saudi Arabias export performance in this area of packaging was 42 times higher that Egypts performance. As of now, the comparable results for plastics are not available, as this is an area where Saudi Arabia has more of a competitive advantage over Egypt. International Perspective Based on the above we suggest the most significant competitiveness driver for Egypts packaging sector is how it is viewed within a national development context. There are two options on the role of the sector in the national economy; the first being as a supplier to other lead sectors, such as food and pharmaceuticals; the second as an industrial sector in its own right with an ability to develop exports of finished packaging. It is our that the second view should prevail, for the following reasons: if the first view is applied the rate of development of Egypts Packaging Sector will be dependent on the rate of development of sectors such as food and pharmaceuticals. The danger is that the rate of development in these sectors is slower than expected and Egypts Packaging Sector remains backward compared to its international competitors, in particular in relation to the current developments amongst its regional competitors. If this situation happens, Egypts regional competitors will be in a better position to benefit from developments in Egypts packaging market when this comes; if the second view is applied Egypts packaging sector will have to become internationally competitive in its own right. This will automatically result in it developing its capabilities to be able to support increased exports across all finished product sectors, not only food and pharmaceuticals;

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by becoming internationally competitive Egypts packaging businesses will also become more dynamic in the way they operate and develop market potential. As such, they could take a leading role in pushing Egypts food manufacturers to improve the quality of their packaging for domestic sales. Rather than relying on the Food Sector to pull through the Packaging Sector, there could be a dual strategy of having food pulling through packaging and packaging pushing food.

There is a further practical reason for applying the second view. With the looming removal of regional import tariffs, Egypts Packaging Sector will face strong competition from the more developed sectors in Saudi Arabia, Turkey and UAE, and South Africa if it targets the Egyptian market. Strengthening the ability of Egypts Packaging Sector to cope with increased competition should be a priority in itself, rather than waiting on Egypts Food and Pharmaceutical Sectors to pull-up its capabilities. Implications Of International Drivers The international structural and market drivers described above have little relevance now to the manufacture of packaging in Egypt if the packaging sector is to concentrate on supporting local industry and if this industry is to concentrate on selling domestically. As soon as either the packaging manufacturers, or their indigenous food processing customers, start to focus on exporting the drivers will become very important. The reason for this is that either the food processors, or the packaging manufacturers, or both, are having to compete with international companies that already understand and are having to react to these drivers. Key Issue A key issue for Egypts Packaging Sector is the extent to which it will have to participate in the structural changes and developments that have been happening in the international Packaging Sector. The point is not whether this is being demanded now by Egypts Food Sector, but whether it is required for Egypts Packaging Sector to become internationally competitive in its own right, and to support exports from Egypts Food Sector in the future. Key Conclusion The key conclusion of this review of international competitiveness in the worldwide Packaging Sector is that Egypts Packaging Sector is structured to meet the requirements of its domestic market. Injecting an ability to be internationally competitive is essential for the future of the sector and its ability to support export growth in other sectors. Implementing changes to the structure of Egypts Packaging Sector, that reflect international developments, is a pre-requisite to it becoming internationa lly competitive. Proposals Through merger and acquisition encourage the formation of three to five new packaging groups based in Egypt, with each covering a range of packaging materials. This process has already started with the position of the Shoaa Group in board packaging manufacturing and a range of printing activities. Unipack has also moved down this direction with its ownership of the Delta mill and its board manufacturing facility. This process needs to be accelerated in two directions; firstly, with the inclusion of the public enterprise companies, in particular the paper and board mills and the board packaging

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manufacturers; and secondly, stretch the scope of ownership across other areas of packaging, in particular plastics and flexibles. It needs to be recognised that if the strategic objective is restricted to meeting the requirements of Egypts food and pharmaceutical sectors, then, the need to pursue an accelerated period of further consolidation is not required. The impetus behind proposing such an approach is to rapidly improve the international competitiveness of Egypts Packaging Sector to be able to export in its own right and to face-up to increased competition from the regions leading packaging countries. By adopting the proposed approach Egypt would be following the strategy that has already been applied successfully by South Africa, where domestic consolidation is undertaken before internationalisation of the sector. With the geographic positioning of Egypt, it has greater potential to achieve export led growth and to attract FDI to work in partnership with Egypts existing packaging companies (to become groups).

11.7 Regional Packaging Export Performance - Type Of Packaging


The regional export performance results provide d above in Part A were a summary of the following more detailed results. All of the figures presented in the following tables are taken from TradeMap, relate to 2002 and are expressed in USD millions. To feature in the TradeMap results a country has to be in the top 40 exporting countries around the world.

Cartons, Boxes And Cases In cartons, boxes and cases (see table overleaf) only four
regional countries appear in the worlds top 40 exporting countries, with Saudi Arabia being the overall regiona l leader. It is only in the last four years that Saudi Arabia has taken over the top regional position from Turkey.

In USD mns
Corrugated Paper Or Board Value Pos. 27.065 21st 19.245 27th 13.371 34th 16.505 29th Non-Corrugated Paper Or Board Value Pos. 23.361 22nd 21.582 23rd 9.447 35th Total

Saudi Arabia Turkey Israel South Africa


Source: TradeMap

50.426 40.827 22.818 16.505

Sacks And Bags The table overleaf indicates there are fourteen regional countries within the worlds to 40 exporters of sacks and bags. The regional leaders are South Africa, Turkey, Morocco, Jordan, Saudi Arabia and Kuwait. Egypt is in 14th position. In USD mns Packing Of Total Goods Of Other Textile Materials

Paper 481930 + 481940

Jute Or Other Textile Bast Fibres

Other ManMade Textile Materials 630539

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630510 Value Pos. 0.271 32nd 0.130 41st 5th 16th 6th 37th
th

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630590 Value Pos. 0.433 21st 0.386 22nd

South Africa Turkey Morocco Jordan Saudi Arabia Kuwait Tunisia Oman Iran Israel Qatar Lebanon UAE Egypt

Value 11.266 8.821 7.975 7.973 3.029 5.763 3.711

Pos. 24th 21st 31st 15th 36th 21st 30th

Value 0.424

Pos. 27th 25th 13th 33rd 31st 35th

2.980 1.047 2.689 0.168

0.499 1.929 0.306 0.335

0.755 0.776 0.245

16th 15th 28th

8.081

13th

0.434 0.253

25 33rd 0.208

11.970 9.761 7.975 7.973 6.508 5.763 2.976 2.689 1.229 0.766 0.580 0.434 0.253 0.208

Source: TradeMap

Plastic Packaging Nine regional countries are in the world top 40 exporters of packaging made from plastics (see next table). Isreal is the lead regional exporter, but this is restricted to two areas of plastic packaging; sacks and bags, and conveyancing / packing o f goods. Turkey and Saudi Arabia are also substantial exporters of plastics packaging. Egypt is in eighth place, with the only export product being rafia sacks.

Stoppers, Lids, Caps And Other Closures 392350 Value Pos. Value Pos. Israel Turkey Saudi Arabia South Africa Iran UAE Bahrain Egypt Jordan 13.414 34th 18.181 24th 19.128 28th 41.844 14th 5.544 38th 34th

Carboys, Bottles, Flasks 392330

Sacks And Bags nes 392329 Value Pos. 22.106 21st 13.043 28th 8.677 6.774 9.279 34th 39th 33rd

Sacks, Bags, Packing Of Strip Material 630533 Value Pos. 26.153 4th

In USD mns Conveyance Or Packing Of Goods nes 392390 Value 60.738 Pos. 17th 31st

Total

12.117 10.552 9 2.137 31st 2.252 1.442 30th 37th


th

7.886

82.844 70.791 60.972 26.338 17.326 11.416 7.886 2.252 1.442

Source: TradeMap

Packaging Made From Wood The table overleaf indicates there are only three regional countries within the top 40 exporters of wooden packaging; Turkey, South Africa and Saudi Arabia.

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Turkey South Africa Saudi Arabia

Cases, Boxes, Crates Drums & Similar Packings 441510 Value Pos. 4.132 21st 2.115 31st

Casks, Barrels 441600

Value 0.143

Pos. 36th

In USD mns Pallets, Box Total Pallets And Other Load Boards 441520 Value Pos. 2.739 39th 6.871 4.272 29th 6.530 3.216 36th 3.216

Source: TradeMap

Miscellaneous Packaging There are six regional countries in the world top 40 exporters of miscella neous packaging, see table overleaf. The most significant performer, by a long margin, is Turkey with USD 172 mn exports of flexible intermediate bulk containers. Egypt also exports under the same category, but with only USD 2.7 mn of value. Apart from Turkey; Saudi Arabia, UAE and South Africa perform better than Egypt in miscellaneous packaging

Cans, Iron / Steel Cap < 50 Litres 731021

Containers, Packing nes Of Paper 481950 Value 11.725 Pos. 11th 32nd

Turkey Saudi Arabia UAE South Africa Egypt Tunisia


Source: TradeMap

Value 7.130 9.991 4.765

Pos. 24th 17th 28th

Flexible Intermediate Bulk Containers, Man-Made 630532 Value Pos. 153.254 1st

In USD mns Total

2.132

2.705 1.177

27th 37th

172.109 9.991 4.765 2.132 2.705 1.117

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12

Domestic Supply Chains

Use Of Supply Chains Supply chain diagrams have been used to structure a number of presentations to the Packaging Sector Steering Committee. We suggest they provide a useful tool for explain the strengths and weaknesses within Egypts packaging sector.

12.1

Application Of Supply Chains

The overall supply chain structure that has been used throughout the study is provided below, with examples of the types of materials and activities undertaken at each stage in the chain.
Selling product requirements and presentation

Packaging applications Raw materials Material inputs Added-value processing Final Product Tetrapak systems Filling and forming Distribution

Customer selection Unpacked to primary / secondary packaging

Wood pulp Recycled fibre Ethylene Propylene Silica sand Aluminium

Paper and board Polyethylene Polypropylene PET pre-resin

Cartonboard Corrugated board Polystyrene sheets Film Printing

Pallets Shrink wrapping Loading / offloading Movement to point of display

Glass / Aluminium / Metal packaging

Lids, stoppers, closures

Paper and board packaging can be used to explain the supply chain. The starting-point is either virgin of recycled fibres. The former is mainly used as wood pulp, but sources of non-wood fibre are being used around the world, see Appendix 8. The use of recycled fibre is well-established in most parts of the world and provides the most important source of fibre for countries that do not have abundant sources of cheap wood. The material inputs are the various grades of paper that are manufactured in paper and board mills, which are explained in section 13. It is our view that the way these international descriptions are applied in Egypt is confusing and could results in incorrect p roducts being supplied. The most significant of these issues relates to kraft liner, which internationally has to be manufactured from virgin fibre, whereas in Egypt the term is used to apply to liner that is manufactured from recycled fibre. The type of board that is produced at the material inputs stage and the selection of raw materials from which it is produced is determined by the final product application. Examples are:

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Corrugated board is used as secondary or tertiary packaging depending on the product. In the case of tinned foods the corrugated box is used for transporting the food products, but with many forms of snacks it is the corrugated box which is displayed to the customer. Cartonboard is used as secondary packaging and is usually either an important element of displaying the product, as with confectionery, or as the primary customer facing design, as in the case of powdered milk. Paper can be used as a primary packaging as in the case of cornflour, or other powders. In most international consumer markets any of the above which are in direct contact with food products must be made from virgin fibre. This is of particular importa nce with fresh produce, see sections 19 and 20. The issue indicated above relating to kraft liner is of p articular significance to corrugated board used to transport fresh produce as in Egypt virtually all such board is manufactured from recycled fibre. Kraft liner made from recycled fibre is not allowed to be used to transport many forms of fresh produce into Europe. Corrugated boxes are used to protect the internal products and to provide transport integrity to the consignment. If the box is too weak, or not designed to withstand external conditions, such as high humidity, it can collapse resulting in damage to its contents. For multi-national food companies the customer facing side of the cartonboard packaging is often where their brand is presented to their customers. For such companies achieving high quality finishes, including printing is essentia l. Their brands must be displayed the same throughout the world and small variations from the spec of the cartonboard can result in it being rejected. With most forms of paper and board packaging the printing is undertaken as an integral part of creating the final board product.

In plastics most raw materials are petro-chemical based, but use different production processes to reach to the base materials, such as ethylene and propylene. There are two main forms of plastic packaging; rigids and flexibles. The former relates to containers and bottles, with a wide range of films and blown plastics included under the latter.

At the time of the first Steering Committee meeting we had interviewed 24 businesses as indicated in the diagram overleaf; 11 packaging manufacturers at the added- value stage, and 13 food processors, where the packaging is applied to the final food product. In addition we had undertaken an overview of how final consumer products

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Packaging applications Raw materials Material inputs Added-value processing Final Product Distribution

Selling product requirements and presentation

Customer selection

11 businesses

13 businesses

are presented to customers internationally and how customers make their purchase decisions. At this early stage in the study, after 24 business interviews a series of issues were already emerging: The pressures that packaging companies are under to innovate in developed consumer markets, compared to the situation in Egypt. Problems with the availability, quality and cost of input materials to Egypts packaging manufacturers which are resulting in them being uncompetitive.

12.2 Influences On Packaging Supply Chain


The following diagram indicates the pressures (push effects) that packaging manufacturers are under internationally to innovate and develop new packaging materials, products and final product application systems.
Selling product requirements and presentation Customer selection

Packaging applications Raw materials Material inputs Added-value processing Final Product Distribution

Environmental regulations Food safety regulations Corporate governance

Transport to home Retailer influence on food and packaging manufacturers Innovations from input material manufacturers, added-value packaging manufacturers, through to packaging machinery manufacturers often on a joint venture basis Consumer influence on retailers Consumption application

Re-sealing re-use

Recycling

Collection

Disposal

Complete consumption

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The packaging is not only designed to contain or protect its contents, but most importantly to present the product to the customer. At this stage the packaging has become an integral part of the product, and through branding, may be the main influence on the customer in reaching a purchase decision. From the perspective of the customer the packaging also needs to take into account: the transport of the product from the pointof-sale to the customers home; the consumption application, for example how it is prepared for mixing or cooking; the re-sealing of the packaging and re-use of its contents; to the final consumption of the product. At the time of complete consumption there is also the issue of the disposal of the packaging, its collection and recycling back into an input material to be re-used into other packaging. Internationally, the above links are very strong due to the extent of dominance of the retail chains, both in their interpretation of customer requirements and indicating their own requirements. Considerable pressure is put down the packaging supply chain to innovate and develop new forms of packaging that meet the requirements of the retail chains and their consumers. The innovation covers: materia ls; production processes; packaging specifications; presentation of the product by retailers; the consumption of the product by consumers. From the perspective of the retailers and the consumers it does not matter from where the innovation comes in the p ackaging supply chain, as long as they can benefit from the innovation. Consumer Influences On Retailers The requirements of the consumers to maximise their satisfaction in consuming the food product as defined by: Ease of use. Re-sealability for repeated use. Life of the product in the home, or catering situation. Containerisation avoid spills. Minimising wastage. Cost of the product. Disposal of the packaging.

Retailer Influence On Food And Packaging Manufacturers The requirements of the reta iler to maximise their sales of the product as defined by: Handling of the product and shelf loading. Minimum specifications. Duration of shelf-life. Attractiveness.

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Product feel. Price. Protection until reaches point of consumption.

Regulatory Framework In addition to the customer retailer influences, there are also regulatory framework issues applying to either the packaging, or its contents. The EU regulations affecting packaging mainly relate to plastics and are summarised in APP8. The regulations relating to food and pharmaceutical safety are beyond the scope of this study. In addition to the regulatory framework there are also the corporate governance and practices of the consumer product manufacturers and the retailers. The significance of the above is the stronger the customer retailer manufacturer regulatory framework links, the greater will be the push effect on the packaging manufacturers to innovate. Situation In Egypt Structural Issues The current situation in Egypt is indicated in the following diagram:
Selling product requirements and presentat ion

Packaging applications Raw materials Material inputs Added-value processing Final Product Distribution

Customer selection

Weak retailer influence on food and packaging manufacturers Environmental regulations Food safety regulations Corporate governance Over-use of board from recycled fibre Recycling Main influence mnc food and pharmaceutical manufacturers Critical of quality of Egypts packaging products Supply shortages and quality problems with glass Cheaper to import printed film High domestic prices of polypropylene and polyethylene

Transport to home

Consumption application

Poor quality waste paper Collection

Weak customer influence on retailers

Re-sealing r-use

Disposal

Complete consumption

There is weak influence from customers on retailers and weak retailer influence on food and packaging manufacturers to innovate. Packaging manufacturers have complained that the majority of their customers are only concerned about price. It appears that the capabilities of Egypts packaging sector are greater than the requirements of their

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consumer product manufacturing customers. Some packaging manufacturers have attempted to convince their customers to switch to higher quality packaging, but without success. There is also a weak influence from the regulatory framework, where either equivalent regulations to Europe do not exist, or if they do exist are not implemented effectively. An example of regulations not being implemented is that the use of recycled polystyrene is not allowed in Egypt for packaging that will be in contact with food, but the practice continues in informal dairy products. The result of the above is that there is a weak push effect on Egypts packaging manufacturing sector. Within the area of packaging disposal, collection and recycling there is the problem of the quality of paper and board being adversely affected by coming into contact with other forms of rubbish. There needs to be an improvement in the collection of waste to improve the quality of the paper and board being manufactured from recycled fibre. As will be indicated later in this section there is also an important issue over the proportion of board that is produced from recycled fibre in Egypt. The level is much higher than most other countries and is an issue for food applications where internationally regulations require the board to be made from virgin fibre. The strongest push effect has been from the multi-national food and pharmaceutical companies (mncs), but they are having bad experiences in sourcing basic packaging products (printed cartonboard and printed film) from within Egypt. They are concerned about the lack of consistency in the quality of the packaging that is sourced domestically. This results in a lack of confidence in the ability of Egypts packaging sector to innovate to meet their requirements. We are aware of a number of a number of plastic packaging products that either the mncs currently use, or want to start to use, that they could source domestically if packaging manufacturing capabilities are improved. Key issues that were identified at during the first Steering Committee meeting were: Supply shortages and quality problems with glass packaging sourced domestically. The quality of the board made from recycled fibre sourced from the two public enterprise producers. The need to import input materials (for example kraft liner) where the board requires to be made from virgin fibre. It is becoming cheaper to import printed finished film from countries such as Jordan, Lebanon, Saudi Arabia, Syria and Turkey, than to source the product domestically. High domestic prices of plastic input materials (PET, polyethylene, polypropylene, polystyrene and PVC) compared to their international prices. This situation applies even with domestic producers of polyethylene and polypropylene.

Conclusions At the time of the first Steering Committee meeting there were two key conclusions: Egypts carton / corrugated board manufacturers have the capability to produce high quality products which can meet international standards. There are very weak push effects on these businesses f rom indigenous customers and the most significant requirements of most of their domestic customers is to produce cheap packaging.

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The reason for this is that most of their consumer product manufacturing customers only sell into the domestic market. There are structural issues of; product shortages, product quality and high input material prices, which are adversely affecting the competitiveness of Egypts packaging manufacturers.

It was agreed during the second Steering Committee meeting that the study of the domestic sector should develop in two directions: Cover glass, metal and plastic packaging manufacturers to determine if there are the same positive results over manufacturing capabilities. Move back down the supply chains of the four packaging materials (see last point) to assess the significance of the structural issues.

12.3

Trade In / Domestic Supply Of Packaging Input Materials

12.3A Aluminium
Aluminium cans are imported from Saudi Arabia and Turkey. This packaging product is not covered further in this report. Most of the beverage cans used in Egypt are made from steel as it is cheaper than aluminium. The main used of aluminium beverage cans is Al Ahram Beverages Co. as aluminium provides a better quality printing surface for the ir beer cans.

12.3B Aseptic Packaging


All aseptic packaging is imported into Egypt.

12.3C Board Supply Chain


Imports of board input materials during 2003 are indicated in the diagram overleaf:
Only domestic sourced fibre recycled Selling product requirements and presentation

Production capacity 263,000 tonnes

Production capacity 360,000 tonnes

Packaging applications Final Product Distribution

Raw materials
Paper and board

Material inputs
Fluting Kraft liner Test liner Board layers

Added-value processing
Carton / corrugated board

Customer selection

1,000 tonnes pulp

2,772 tonnes waste

13,203 tonnes Kraft liner and board

697 tonnes finished cartons

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There is significantly less production capacity at the paper and board stage in the supply chain, with most of these facilities operating at full capacity. There are low imports of virgin pulp and waste material. In other countries with no domestic source of virgin fibre about 45% of the inputs to the paper and board stage would be imported virgin fibre, usually as wood pulp. 88,000 tonnes of production capacity (33.5% of total) is within the public enterprise sector, with the two companies, National Paper Co. and Rakta Co. requiring significant modernisation to improve product quality. The main issue about the lower production capacity at the paper and board stage compared to carton and corrugated stage is that there is a lack of production capacity to process virgin fibre. The consequence of the last point is that most of Egypts board imports are in semiprocessed form (kraft liner and board layers), at 13,203 tonnes. There a further 697 tonnes of imports of finished board products. At the carton / corrugated board stage there is 360,000 tonnes of production capacity which is operating at 70% capacity utilisation. 90,000 tonnes of the production capacity (25% of the total) is within the public enterprise sector, at Moharrem Press Co. and Verta Co. Both of bthese companies require modernisation, with Verta requiring a significant up-grading of its production line. There are 40 small producers which represent about 40,000 tonnes of production capacity.

12.3D Glass Packaging


The main issue relating to glass inputs is in Egypts production capacity of soda ash, where the sole producer, Alexandria Sodium Carbonate has a domestic monopoly and remains a public enterprise. The issues relating to glass packaging manufacture are holding-back exports of food products that require glass bottles or jars. Projects to improve quality at Egypts four main glass manufacturers are described in the development strategy report. A recent development in this sector has been the sale of the Nasr Glass public enterprise to the family that previously owned Al Ahram Beverages Co. with the objective of modernising and up-grading the facility to meet the beer manufacturers requirements. The company has been re-named Misr Glass. The biggest quality problems in the glass sub-sector in Egypt are in bottles and jars. Egypt has a strength in the manufacture of ampoules for the pharmaceutical sector. The leading manufacturer is Advanced Pharmaceutical packaging Co., which: has modern production facilities; manufactures to Neutral Borosilicate Hydrolytic resistance glass of the highest industry standard; produces 330 million units a years; is operating at full capacity; and is considered to be a leader in its field in the Middle East. The company imports flint glass from Europe, but has plans to introduce a production line to overcome the import requirements. This company exports 6% of production. Over the last four years there has been a shortage of ampoules in the domestic market, due to Nasr Glass stopping production of this item 18 months before its sale. With the modernisation of the facilities now complete it is expected that ampoule production will start again soon to produce 125 million units a year. It is the view of the pharmaceutical companies that the domestic supply shortages will disappear when these modernised capacity starts supplying again. There are significant issues relating to glass production at National Company For Glass and Crystal and Arab Pharmaceutical Glass Co. At the former there is an imbalance

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between its high tech forming stage and the glass ovens. The technical issue relates to the 25% of recycled glass that is required by the ovens to operate costs effectively, with only 5% waste coming from the forming stage. The difference has to be purchased from waste recyclers who sell the glass in a dirt state, which has to be cleaned before being recycled. At the second company 40% of the glass has to be recycled due to quality problems on the production line. This company produces amber and transparent glass, with all of the former production being sold into the domestic pharmaceutical sector. There is excess production capacity on the transparent glass and the excess production is sold to food manufacturers. This is to their benefit as they are receiving medical standard glass for food applications. The second company also reported that it cannot source its soda ash requirements domestically and has to import 10,000 tonnes a year.

12.3E Metal Packaging


All tin is importe d and Egypts leading tin can manufacturer, Egyptian Canning Co. is operating at full capacity to meet domestic requirements. There are many other tin workshops around Egypt working on an informal basis. It should be noted that the easy lift lids used on beverage cans have to be imported. Domestic production of beverage cans is 400 million cans a year. A further tin manufacturer (Shersh Tin Factory) produces lids for jars and supplies companies such as Heinz and Lipton Egypt has one manufacturer of bottle tops to supply domestic market requirements, which previously operated as a public enterprise, SABI, and was privatised in 2000. Prior to privatisation production capacity was 220,000 caps per hour, based on two production lines. Since privatisation a new modern cap forming machine has been added with a capacity of 275,000 caps per hour, bringing overall capacity up to 500,000 caps per hour. Annual production capacity is now 3 billion caps, based on three shifts, but current production is only 900 million, with significant excess capacity. The main customer of this producer is Al Ahram Beverages Co. which takes half of the production. This company sources half of its bottle top requirements from the domestic manufacturer with the other half imported. It continues to import due to sealing problems with the locally purchased tops, which results in the contents being affected. Due to the cost of returned bottles it is cheaper to import the tops and avoid the problem. The bottle top manufacturer is in the process of developing a screw top in collaboration with Al Ahram Beverage Co. All of the screw tops used in Heinz tomato ketchup are imported. Coca Cola and Pepsi also manufacture bottle tops in Egypt, but only for their internal consumption. There have not been any adverse comments on the quality of metal packaging that is manufactured domestically.

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12.3F Polyethylene Supply Chain


Trade in polyethylene during 2003 is indicated in the following diagram:
Natural gas / ethylene Recycle polyethylene Exports 100,000 tonnes

Production capacity 225,000 tonnes

Domestic supply 125,000 tonnes

Selling product requirements and presentation

Packaging applications Final Product


Containers Fine and heavy duty films

Raw materials

Material inputs

Added-value processing

Distribution

Customer selection

High density PE Linear low density PE

Blow moulding Injection moulding Film Film printing

Chemicals

Low density PE

International license BP

Imports 94,341 tonnes

SIDPEC is Egypts only producer of polyethylene, using domestically sourced ethylene produced from natural gas. The facility has production capacity of 225,000 tonnes and is operating at full capacity. Its products are high density and linear low density polyethylene, with all low density polyethylene continuing to be imported. Last year 100,000 tonnes of production was exported with 125,000 sold in the domestic market. In addition there were 94,341 tonnes of imports. There is 203,000 tonnes of polyethylene production capacity, in production units of over 200 tonnes capacity, with last years production of 135,602 tonnes providing capacity utilisation of 66.8%. There are 50 businesses in this category, with an average size of the production units of 4,060 tonnes a year being relatively small by international standards. Most of these polyethylene businesses produce a range of plastics products, of which only some relate to packaging. It is therefore not possible to indicate the amount of production which is allocated to the packaging sector.

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12.3G Polypropylene Supply Chain


Trade in, and domestic production of, polypropylene during 2003 is indicated in the following diagram:
Recycled polypropylene Production capacity 144,000 tonnes Domestic supply 144,000 tonnes Selling product requirements and presentation

Packaging applications Final Product


Containers Rafia sacks Fine and heavy duty films

Raw materials

Material inputs

Added-value processing

Distribution

Customer selection

Homopolymer All propylene imported

Injection moulding Fibre Film Tape Film printing

Copolymer

International license

Imports 10,148 tonnes

Granules 22,496 tonnes

Sheets 406 tonnes

Oriental Petroleum Co. (OPC) is the only domestic producer of polypropylene, based on import of al of its propylene input material. The facility only produces homopolymers and all copolymers continue to be imported, with 10,148 tonnes brought into Egypt during 2003. OPC is part of the Oriental Group with 31,500 tonnes of production being used within the group to produce fibres for carpet manufacturing. Even with the OPC production facility there continued to be 22,496 tonnes of polypropylene granules imported during 2003, but this had been 99,237 tonnes in 1999. Imports of polypropylene sheets were 406 tonnes during 2003, down from 2,823 tonnes in 1999. There is 179,500 tonnes of polypropylene production capacity in Egypt in units with over 200 tonnes of production capacity a year. With 25 manufacturers producing 125,775 tonnes in 2003, capacity utilisation is 70.1%. The average size of the units at 7,180 is almost double the average size of the polyethylene units, but is still small by international standards. As with the polyethylene producers, each business manufactures a range of products, of which packaging is only one category.

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12.3H PET Supply Chain


Trade in, and domestic production of, polypropylene during 2003 is indicated in the diagram below:
Selling product requirements and presentation

Packaging applications Raw materials Material inputs Added-value processing Final Product Distribution Customer selection

Preresin

Bottles Containers Labels

Imports 11,005 tonnes Imports 11,430 tonnes

Sheets

Sheets 425 tonnes

Punnets Fresh Produce

There is no domestic producer of PET, with all of the material imported either as PET pellets, sheets for forming, or as finis hed products. Large bottlers may form their own PET bottles as part of their packaging process. Under this approach PET is imported as blocks or powder and fed direct into the bottle forming a filling machinery. Imports of this type of PET have increased from 6,911 tonnes in 1999 to 11,005 tonnes in 2003. Smaller bottlers buy-in completed bottles from PET manufacturers which import PET in pre-resin form. Under this approach the level of PET imports has increased from 9,952 tonnes in 1999 to 11,430 tonnes in 2003. It should be noted that unlike polyethylene and polypropylene there is no domestic recycling of PET, which is all exported to international recycling centres. There are 10 domestic PET manufacturers with production capacity over 500 tonnes a year, but there are many other small workshops. The production capacity of the 10 producers is 18,500 tonnes with production of 12,075 tonnes during 2003, presenting capacity utilisation of 65.3%. Egypts fresh produce exporters are a major user of PET punnets for export into Europe. PET is increasingly being specified as the only accepted plastic material to be in contact with sensitive fresh produce. There is only one producer of such packaging in Egypt that is operating at full capacity, but can only meet 5% of domestic demand. This situation has resulted in increasing quantities of imported PET containers.

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12.3I Polystyrene Supply Chain


Trade in, and domestic production of, polypropylene during 2003 is indicated in the diagram overle af.
Selling product requirements and presentation

Packaging applications Raw materials Material inputs Added-value processing Final Product Distribution Customer selection

Sheets

Form shaping

Imports 44,606 tonnes

All polystyrene input materials are imported in granular form. Polystyrene is Egypts traditional packaging material for fresh produce and is used significantly in the fast food sector. Although its use n i the latter is likely to continue it can be expected that its dominance in the fresh produce sector will disappear to be replaced by PET. The 44,606 tonnes of imports in 2003 was lower than the 50,493 tonnes imported in 1999. Imports of expansible polystyrene fell from 24,887 to 19,207 tonnes over the same period, with non-expansible polystyrene having constant imports of 25,606 tonnes in 1999 and 25,399 tonnes in 2003. It is difficult to provide production capacity figures as a significant proportion of the polystyrene activity is undertaken in workshops and small factories. There needs to be a national initiative to switch polystyrene manufacturers to work with PET.

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13

Domestic Board Packaging

13.1 Board Terms


To be able to explain the structural issues and constraints it will be helpful for the reader to have a basic understanding of the composition of different types of board. This is also important as we have become aware of possible differences between the use of the terms internationally, and in Egypt. This is important as internationally the terms imply certain quality standards which may not be applied in Egypt. By providing the following explanation we can test with the Steering Committee if there are differences in the application of terms. Corrugated Board Corrugated board consists of one or more sheets of fluted paper adhered to one, or more liner papers. A variety of boards are made using variations of:

Liner material. Fluting medium.

Liner Material There are three types of liner material:

Kraft (K) - comprises at least 80% of virgin chemical pulp fibre, and offers excellent strength and stiffness properties; Test (T) - is from first time recycled paper. Due to the recycling process its fibres are shorter than that of Kraft, therefore, it offers lower performance; Chip (C) is paper manufactured from uncontrolled recycled material. It therefore offers the lowest performance and varies considerably in performance. There are two types of fluting medium:

Fluting Medium

Semi-chemical (SC) made from 100% virgin fibre using a combination of chemical and mechanical pulping methods; Straw (s) or chip (c) made from 100% recycled uncontrolled waste.

Carton Board There are four types of carton board: SBS (solid bleached sulphate) or bleached Kraft - a board produced from virgin bleached chemical pulp throughout all plies. Such boards typically offer the best appearance and performance attributes; White Lined Chip - the top plies are produced from virgin bleached chemical pulp., with the middle and back plies produced from recycled pulp (chip) which is characteristically grey in colour;

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Duplex - the top ply is produced from bleached chemical pulps to provide excellent surface qualities. The middle and back plies are produced from mechanical pulp, which is a straw colour, to provide an economical source of stiffness Triplex - as white lined chip, but with an extra back liner, of either bleached chemical or mechanical pulp, to hide the recycled pulp.

13.2 Board Packaging Internationally Egypt falls into the category of countries with no, or little, availability of a domestic supply of wood pulp. This also applies to many countries in the MENA region, as well as countries such as the UK, which imports 59% of its material inputs for the manufacture of corrugated and carton board. Such countries rely on utilising recycled fibre to the greatest extent, but without compromising the quality of the board, or contravening international packaging standards. To achieve this situation it is necessary for such countries to mix the use of paper and board made from recycled material with board that is made from virgin fibre. The latter can either be imported in the form of pulp to be processed domestically in to virgin paper and board, or as virgin paper and board to be applied alongside the domestically sourced paper and board produced from recycled fibre. In any such country, there must be an appropriate mix between imported virgin material and domestically sourced recycled material. The above terms indicate the standards that are applied internationally in making-up corrugated boxes and carton board. One of our key findings is that up to 1999 a balance existed in Egypt between the use of virgin and recyc led fibre which appears to have been close to international standards. Since 1999 the balance has disappeared leaving much too heavy reliance on paper and board made from recycled material as the main material input in Egypts board production. The table below demonstrates this point: Paper and Board Material Inputs Pulp Waste and Scrap Other Paper Board Kraft Liner Total 1999 Import Volume In Tonnes 904 1,434 70,386 32,947 105,671 2003 Import Volume In Tonnes 1,000 2,772 10,328 2,875 16,975 % Change 1999 2003 + 10.6 +93.3 -85.3 -91.3 -83.9

The above indicates changes in the volumes of imported input materials into Egypts board production between 1999 and 2003. The level of imported virgin pulp remained virtually constant, but is low. The level of waste and scrap increased by 93.3%, but this would not help the situation as it would add to the amount of board made from recycled material. The two imported input products, other paper board and kraft liner, that are likely to be from virgin fibre and therefore could provide the balance with the recycled fibre, fell by 85.3% and 91.3%, respectively. From the above figures, it appears that in 1999 Egypt was importing significant quantities of virgin paper and board to be used in the layering of corrugated and carton board. The other alternative would have been to import pulp and to process this into virgin paper and board, within Egypt. This was probably not done as Egypt lacked the ability to turn such pulp into high quality paper and b oard that is required on outer surfaces. In 1999, it appears the need to import large quantities of virgin paper and board was accepted, but

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since there has been a switch of emphasis to maximise the use of recycled fibre in all forms of corrugated and carton board using fibre sourced domestically. It is clear from the above table that the level of the virgin pulp imports has remained low and there has been a very significant decline in the imports of virgin paper and board. This situation needs to be assessed against the background of: No virgin alternative to pulp being made available to Egypts board manufacturers. Growing demands from multi-national food processors operating in Egypt for virgin paper and board to be used in carton board that is produced domestically on their behalf. Growing requirements from fresh produce exporters for corrugated boxes that are constructed from liners and fluting made from virgin fibre.

There were therefore two opposing factors (decreasing availability of virgin board within Egypt and growing demand for packaging made from such board) that must have resulted in some part of the supply of domestic board having to change its practices. It appears that the consequence of the above was that indigenous food processors must have accepted carton and corrugated board that was made mainly, if not totally, from recycled fibre. If this is correct, Egypts regulations on the applications of board made from recycled material are not compatible with equivalent international standards. A specific example of different uses of packaging terms is with kraft liner. As indicated above internationally this term refers to material that has 80% (or more) content of virgin material. In Egypt the term is used to refer to material from 100% recycled fibre. The issue is even more fundamental as the quality of the waste material being recycled in Egypt is poor, as at its source it has been mixed with other forms of waste. Internationally, the quality of the recycled paper and board that is being produced in Egypt would be classified uncontrolled and is the lowest form of material inputs. Packaging manufacturers in developed economies would not accept using such material, except as fluting in low quality corrugated boxes.

13.3 Pressures For Change


There are the following pressures for change on the above situation: Growing domestic sales of food processors in Egypt with international ownership that are stipulating the use of virgin board in the ir carton and corrugated board. Growing sales outside Egypt of the same companies. Increased exports of Egypts fresh produce to Europe, using almost totally corrugated boxes, which must be made totally of virgin material. There are plans to double the le vel of these exports in 5 years. Planned increased exports of Egypts food processed products.

The combination of the above will significantly increase the demand for corrugated and carton boxes, made in Egypt, that are made totally, or partially from virgin material.

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13.4 Options To React To Changes


There are three options for reacting to the above situation: Increase the imports of virgin fibre (such as pulp) to be used in the manufacture of high quality virgin paper and board in Egypt. Implementing this option will require investment in high quality paper and board making equipment. Increase the imports of virgin paper and board to be combined with high quality recycled paper and board to form a combined board that meets international standards. Increase imports of finished corrugated and carton board.

The least attractive option to Egypts economy is the third as it minimises the level of added-value within Egypt. The most attractive option should be the first as it maximises the level of added-value within Egypt, but even under this option the virgin fibre (pulp) would have to be imported under the current situation. The most interesting option is that Egypt could develop an indigenous source of virgin fibre to avoid having to import pulp. There are already two sources of such supply: Rice straw is used by Rakta Co. in Alexandria to produce paper for books. Bagasse is used by the Edfu and Kena mills to produce writing paper.

In China rice straw is used to produce high quality board and in South Africa bagasse is used in the same way. Both countries have proven technology to convert their alternative sources of virgin fibre into high quality board. In Egypt neither are used to produce board. One short-term option would be to use part of the production capacity at Edfu and Kena to produce high quality board out of bagasse. If this is not acceptable there is a supply of 3 mn tonnes a year of rice straw in Egypt, of which only 130,000 tonnes a year is converted into paper by Rakta. The remaining 2.87 mn tonnes causes annual pollution problems as it is burned in the fields by farmers in the Delta. Utilising such material to produce high quality board would not only avoid increasing imports, but would also solve an environmental problem. In addition to Egypts two sources of virgin fibre mentioned above, there are also the possibilities of using banana trees and palm hearts, and possibly even water hyacinths.

13.5

Domestic Supply And Demand

There are two public enterprise and 10 private producers of paper and board that are used in the manufacture of corrugated and carton board. These companies have combined annual production capacity of 248,000 tonnes. The two public enterprises are National Co., which has the largest production capacity at 56,000 (22.6%) tonnes and Rakta Co. with a production capacity of 12,000 tonnes (4.8%). The private sector mills have the largest share of the production capacity at 72.6%. Both public enterprises have informed us that they use 15% virgin pulp, but this is not supported by the import figures which indicate only 1,000 tonnes of pulp was imported during 2003, which represents 1.5% of their combined production capacities. The largest private sector producer has capacity of

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75,000 tonnes a year, which is all dedic ated to producing kraft liner and fluting, but from recycled material. A Phd thesis reported to the last Steering Committee meeting calculated domestic demand for board at 214,000 tonnes in 1999. If growth in consumption of 12% is applied over the 5 year period, domestic demand will have grown by 25,680 tonnes to a current level of 239,680 tonnes. From our company interviews we have identified 5,450 of exports of board. Combining the export and domestic sales generates a supply requirement of 245,130 tonnes. As imports of finished board products in 2003 were 898 tonnes, domestic production must have been 244,232 tonnes. The current level of domestic production, at 244,232 tonnes is therefore very close to current production capacity of 248,000 tonnes, with only 3,768 tonnes of spare production capacity. A new mill has recently opened in Ain Suchkna which we are in the process of determining if it will be adding to the above production capacity. The tightness between supply and demand is supported by the results of our interview with National Co. which reported receiving orders of 70,000 tonnes, but being able to meet only 56,000 tonnes of these orders. A key conclusion is that there is very little spare production capacity to support an increase in demand from Egypts food processors and fresh produce exporters, or from other sectors such as white goods. This could act as a constraint on increasing the export performance of companies in these sectors. It needs to be emphasised that the above capacity constraint is at the stage of producing the material inputs for the board packaging manufacturers. As yet we do not know if the production capacity constraints apply to the packaging manufacturers.

13.6

Sourcing Material Inputs

We have already indicated how the level of imports of material inputs changed between 1999 and 2003. Changes in board finished products were: Paper and Board 1999 Import 2003 Import % Change 1999 Product Volume In Tonnes Volume In Tonnes 2003 Cartons and boxes 3,178 697 -78.1 Others 349 201 -42.4 Total 3,527 898 -74.5 There has been a significant fall in the imports of finished board products over the five year period. The current (2003) break-down of the sourcing of materials and final products into Egypts board sub-sector is: Domestically Sourced Inputs Pulp Waste and scrap Recycled Other paper and board Imported Inputs 1,000 2,772 228,227 10,328 Domestically Sourced Final Board Products Imported Final Board Products

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Kraft liner Total Inputs % split Total Final Products, incl exports % split 2,875 16,975 6.9 245,202 99.6

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228,227 93.1

898 0.4

From the above table 93.1% of the input materials used in corrugated and carton board are sourced domestically, but all of this is domestically soured recycled fibre. Only 6.9% of the board is made from virgin material, which can be compared with 49.4% in 1999, and 59% in the UK. A significant achievement for Egypt has been to reach 99.6% of its domestic demand for board bein g produced in Egypt, which demonstrates that Egypt is achieving a high level of added-value within its board sub-sector. A key element of the development strategy for the sector should be not to lose this high level of added-value. There are two key issues for the ability of Egypts board packaging sub-sector to support the exports of food processed and fresh products: Lack of spare production capacity amongst its paper and board manufacturers to increase domestic production. Even if production can be increased it will have to use a much higher proportion of virgin material, than has been the case over the last few years.

Above we have indicated the options for addressing the issue of increasing the level of virgin fibre, but in parallel there needs to be increases in domestic production capacity of packaging quality paper and board. If the two structural issues are not addressed through co-ordinated actions there is the danger that the requirements for increased sourcing of high quality board is met through increased imports of the finished product.

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14

Domestic Plastic Packaging

Introduction Packaging made from plastics is the fastest growing sub-sector, with such products replacing their glass and metal equivalents. The issues for this sub-sector are significantly different from the board sub-sector, but are equally important in determining how it can support increases in fresh and processed food exports. Key issues relate to the existence of monopolistic manufacturers and suppliers and their role in determining how their products can support increases in food exports. Practically, the issues relate to the decision-making processes within such manufacturers and suppliers on the availability of their production capacity for the plastics sub-sector and the quality of their inputs to final packaging. Plastics Covered The plastics that have been covered through the review activity are: Polystyrene. Polyethylene. Polypropylene. PET.

Historical Context Egypts plastic packaging manufacturers appear to have most experience in working with polystyrene as it is the material that has had wide availability within Egypt the longest. Internationally, though, polystyrene is a plastic that has been on the way out due to issues of its bio-degradability and also problems in meeting health standards when it is recycled. In sensitive areas, such as fresh produce, EU regulations prohibit the use of polystyrene and it has been replaced by PET. In the context of the last statement it should be recognised that polystyrene is still widely used in Egypt as the main packaging material for fresh produce, with a film cover. There is therefore a fundamental difference between the packaging practices of fresh produce for domestic supply within Egypt compared to export markets.

14.1

Polystyrene

All of the polystyrene used in packaging in Egypt is either imported in either a number of primary forms, or as sheets. The table overleaf indicates the level of imports in 1999 and 2003. Most of the imports are in expansible, or other than expansible primary form, representing 97.9% of all polystyrene imports. This means that the sheets of polystyrene are being almost totally being produced in Egypt. There has been growth in the imports of polystyrene granules and co-polymers, but from a low level. The volume of imports of expansible primary polystyrene fell by 22.8% between 1999 and 2003, but the volume of imports of other than expansible primary polystyrene remained constant.

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Volume In Volume In % Change Value In Value In % Change In Tonnes In Tonnes In In Volume EGP Mns EGP Mns Value 19991999 2003 1999-03 In 1999 In 2003 03 Granules 4.5 142 +3,056 0.3 0.7 +133.3 Co-polymer 586 644 +9.9 1.8 4.0 +122.2 Expansible in 24,877 19,207 -22.8 63.6 78.3 +23.1 primary form Other than 25,606 25,399 -0.1 66.8 120.5 +80.4 expansible in primary form Sheets 452 182 -59.7 3.0 3.5 +16.7 Total 51,526 45,574 -11.6 135.5 207.0 +52.8 Polystyrene is a material that can be worked with in relatively small scale operations and is suitable to the workshop approach to manufacturing. There is a considerable level of re-cycling of polystyrene used in low priced food products. This breaks Egypts food regulations. If Egypts food processors are to operate closer to international standards in their packaging it can be expected that there will be a switch between the polystyrene packaging to polyethylene and polypropylene. If the switch starts to occur at a faster rate than has been the case up to now the companies that are involved in polystyrene will have to turn to other materials to survive. We have already identified Robbini Plast which is in the process of changing from producing polystyrene to PET sheets. Such as switch makes commercial sense as products formed from PET sheets are likely to experience strong growth in Egypt.

14.2

Polyethylene

SIDPEC is the only producer of polyethylene in Egypt, starting production in 2000. It uses domestically sourced natural gas and ethylene, with 225,000 tonnes a year capacity. The project was originally established to export most of its production. The split is now 125,000 tonnes for the domestic market and 100,000 tonnes for export. Volume In Volume In % Change Value In Value In % Change In Tonnes In Tonnes In In Volume EGP Mns EGP Mns Value 19991999 2003 1999-03 In 1999 In 2003 03 Granules 92,022 65,819 -28.5 227.6 235.1 +3.3 Liquid pastes 71,943 15,587 -78.3 150.6 55.7 -63.0 Joint polymers 30,996 6,967 -77.5 89.0 36.3 -59.2 Other polymers 6,329 5,968 -5.7 19.5 27.7 +42.0 Total 201,290 94,341 -53.1 486.7 354.8 -27.1 The price charged by SIDPEC in the domestic market is about EGP 7,000 per tonne, which can be compared to an international price of USD 950. At the official exchange rate of 6.16 the EGP equivalent of the international price is EGP 5,852, with 10% import duty the domestic price would increase to EGP 6,437. In its export markets SIDPEC is selling at 10% below the international price. The price differential of EGP 5,320 in export sales and EGP 6,364 in the domestic market is the classic monopolistic pricing behaviour. The result is that domestic consumers of polyethylene are paying about 20% more for their polyethylene than their international counterparts.

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The following table demonstrates the development of domestic demand and supply: Tonnes 2002 2003 71,714 65,819 30,581 15,587 8,355 6,966 5,958 5,968 116,608 94,340 98,182 125,000 214,790 219,340

Granules Liquids / pastes Joint polymers Other polymers Total imports SIDPEC domestic sales Total domestic demand

1999 92,022 71,943 30,996 6,329 201,290 201,290

2000 45,845 60,707 27,349 3,775 91,831 113,959 205,790

2001 149,570 11,394 9,226 4,815 175,005 35,285 210,290

Imports of polyethylene were at their lowest in 2000 at 91,831 tonnes. The following year they increased to 175,005 tonnes as SIDPEC concentrated its sales in export markets. During 2003 imports fell back to 94,340 tonnes (43% of domestic demand), which is lower than the 45% in 2000. The question has to be asked why Egypts packaging manufacturers and their food processing customers are paying more for their polyethylene than their international competitors. The increased costs will be an issue for increasing the cost of exported food products that use polyethylene packaging.

14.3

Polypropylene

A similar situation exists in polypropylene where a single producer, the Oriental Petroleum Company (OPC), based in Suez started producing two years ago. It produces only homopolymer, with all copolymer consumed in Egypt is still imported. A significant difference between this facility and SIDPEC is that all of the propylene is imported. The OPC facility has annual capacity of 144,000 tonnes of PP pellets, with all of this quantity being sold in the domestic market. The company is owned by one of the key players in Egypts carpet weaving sector and a proportion of the output is used to produce PP fibres which are used by this company. The other two main applications of the pellets are in the production of PP film and tape (woven into Rafia sacks), but up to now it has not been possible for us to identify the split of the overall production capacity between the three applications. The changes in the imports of polypropylene are indicated in the table overleaf. There has been a significant decrease in the imports of PP granules from 99,237 to 22,496 tonnes. Imports of polypropylene sheets fell by 19%, but the co-polymers and other polymers have both experienced growth, with particularly fast growth in the co-polymers. If the level of annual imports are assessed the link to the opening of OPC is obvious, with imports of 111,992 tonnes of granules in 2001, falling to 25,336 tonnes in 2002; the year the OPC facility started operating.

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Volume In Volume In % Change Value In Value In % Change In Tonnes In Tonnes In In Volume EGP Mns EGP Mns Value 19991999 2003 1999-03 In 1999 In 2003 03 Granules 99,237 22,496 -77.3 202.0 89.2 -55.8 Co-polymers 791 10,148 +1,183 1.6 48.5 +2,931 Sheets 4,686 3,784 -19.2 26.0 35.6 +36.9 Other polymers 1,253 1,962 +56.6 3.9 8.8 +125.6 Total 105,967 38,390 -63.8 233.5 182.1 -22.0 Before the OPC facility became operational Egypt imported virtually all of its polypropylene from Saudi Arabia. During the first year of competition OPC raised a anti-dumping case against the Saudi Arabian company that was upheld and Egypt imposed an additional 15% import duty on the existing 10% rate. This has made imports of polypropylene from Saudi Arabia uncompetitive. The same situation on pricing exists as with SIDPEC. OPC charges about EGP 7,000 per tonne to its customers, against an international price of USD 950 per tonne, which equates with a domestic price of about EGP 5,852. If the 25% import tariff is applied to the international price the price in Egypt will be EGP 7,315. OPCs price of EGP 7,000 represents classic monopolistic pricing behaviour, in particular as we have been informed that Egypts film manufacturers have to buy their polypropylene from OPC. As with polyethylene the price being paid by domestic users of polypropylene are about 20% higher than their international competitors. This will have the same negative impact on the price competitiveness of Egypts food processed products. It should be noted that internationally the prices per tonne of polyethylene and polypropylene are about the same. Under normal competitive pressures it would be expected that SIDPEC and OPC would under-cut each other to increase market share. This is not happening and an inflated price of about EGP 7,000 per tonne is being applied by both companies.

14.4

PET

It should be noted that a different situation applies in PET as there is no domestic producer. The table overleaf indicates imported volumes of PET blocks and powder increased by 59% between 1999 and 2003, which will have been largely driven by the use of this material in bottles for water and edible oil. The other form in which PET is imported into Egypt is as sheets which are moulded into usable products. The decline in the imports of the PET sheets since 1999, can be expected to be reversed based on its link with the exports of fresh produce.

Blocks and powder Sheets Total

Volume In Volume In % Change Value In Value In % Change In Tonnes In Tonnes In In Volume EGP Mns EGP Mns Value 19991999 2003 1999-03 In 1999 In 2003 03 6,911 11,005 +59.2 16.8 57.0 +239.3 3,031 9,942 425 11,430 -86.0 +15.0 20.3 37.1 3.7 60.7 -81.8 +63.6

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14.5

Film And Film Printing

There are three printers of film in Egypt that use rotogravure printing technique. All three companies are owned by the same private holding company, which raises similar monopolistic issues as with the supply of polyethylene and polypropylene material inputs. Our interview programme has identified issues relating to the quality of the film manufactured in Egypt and the quality of printing. As indicated in section 1 we recommend such performance, quality and operational issues should be considered by the Steering Committee after responding to the above structural issues.

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15
15.1

Company Review Results


Introduction

Background The results of our company reviews of Egyptian packaging companies are based on the responses given to the questionnaire that was included as Appendix 1 in our Inception Report submitted to the first Packaging Sector Steering Committee meeting. As we did not receive any comments on the questionnaire it was applied as presented in the Appendix. The purpose of presenting these results is not to indicate the detailed operating performance of individual companies in Egypts packaging sector. This can only be undertaken through detailed company assessments, with this area of activity being undertaken through the Technical Assistance and Business Resource Centre components of the IMC. The objective of this study has been to cover Egypts Packaging Sector to prepare the sector development strategy and action plans as presented in Part B of this report. The main purpose of presenting these results is to identify strengths and weaknesses at the company level that are relevant to the performance of the sector as whole. Performance Indicators The questionnaires included open and closed questions, with the role of the former to assist with the identification of sector issues. Many of these have already been reported to the Steering Committee and the remaining will be described in our final report. This report concentrates on the response to the closed questions. The following have been selected to provide the performance indictors for this report on companies in Egypts packaging sector: 1. Product capabilities. 2. Production levels and production capacity utilisation. 3. Productivity. 4. Average age of machines. 5. Waste rate. 6. Split of sales between domestic and export markets. 7. Split of sourcing of input materials between sourced domestically and imported.

Selection Of Product Areas

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Four products areas of Egypts Packaging Sector were selected with the Steering Committee to obtain company results against the above seven performance indicators: Board packaging. Plastics packaging. Glass packaging. Tin can packaging.

Within each of the above we have applied the supply chain structures that are presented in section 12. For board and plastics packaging the review results are split into material inputs and added-value processing. This is not applied in the glass and tin can packaging areas as there is a single stage to the production process. Within the board packaging area we present separate results for the paper and board manufacturers, representing the input materials, and the carton and corrugated board manufacturers, representing added-value processing. Within the plastics packaging area we present summary results for the two producers of the polyethylene and polypropylene input materials. The added-value processors are split into: film producers and printers (where printing is undertaken at the same facility); container manufacturers; and film printers. International Comparisons For the board packaging product area we present both domestic and international comparisons. This is the only product area where both approaches are applied. Section Structure The section is structured by first covering each of the four product areas in the order indicated above. In addition we present the results for two areas of food processing: dairy and fruit juice; and edible oil, with the section finishing-up by covering some pharmaceutical companies. Under the first four product areas it is the manufacturing of the packaging materials that was reviewed, whereas with the food processing and pharmaceutical companies the review activity concentrated on the packaging of the manufactured final product. Under the second group the review activity covered the application of the packaging, and not its manufacture, except if any stages of completing the packaging are achieved through its application system. In both the four packaging product areas and the three packaging application areas the same results have been obtained for each company and the results are presented to the same format. The product capability score is presented first, followed by performance indicators, one to five, with results and conclusions presented on these areas of company performance. The company results against the sixth and seventh performance indictors

are presented after the key results and conclusions as their outcomes are relate to the results for the first set of performance indicators..

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For the board product area we not only present the r esults of the reviews between domestic manufacturers, but we also provide an international comparison. The way this has been structured is described below, with the comparator countries being the same as was used for the International Development Drivers in section 4. The structure of this section is indicated in the following table, with the number of companies with review results indicated for each category: SubOverall Title section 15.3 15.3A Board Packaging Paper and Board Added-value Carton and Corrugated Board Manufacture and printing International Comparisons Plastic Packaging Material Inputs Polyethylene and Polypropylene Added-value processing Film Manufacture and Printing Added-value Processing Plastic Containers Film Printing 2 3 4 3 4 2 4 5 4 5 6 Company Category Number Of Companies with Review Results

15.3B 15.4 15.4A 15.4B 15.4C

15.4D 15.5 Glass Packaging 15.6 Metal (Tin Can) 15.7 Processed Foods 15.7A Dairy and Fruit Juice 15.7B Edible Oil 15.8 Pharmaceuticals These two companies were not covered by full reviews. Companies Interviewed

In total we have reviewed 79 companies, which are named in Appendix 5 to the same structure as indicated in the last paragraph. Some of these companies were interviewed with the primary purpose of identifying issues relating to the sector. For these companies we did not obtain answers to the closed questions and therefore we do not have performance results to present for them. This section covers a total of 42 companies where we obtained a full set of responses to the performa nce indicators described above. We have disguised the identity of the companies when presenting the performance results by categorising them; Company A, Company B, Company C and so on. It should be noted that companies are allocated the same A, B, C.. position throughout the tables and therefore it is possible to compare the results by company across the indicators. Capabilities Our review activity has concentrated on assessing the product capabilities of the companies reviewed, we have not attempted to assess their production capabilities. We make this point as product capabilities indicate the ability of each company to produce a

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high quality product (whether it is an input material to another stage in the supply chain, or a finished packaging item). Assessing production capability is significantly more wide-ranging involving areas such as: management; condition of the production equipment; maintenance programmes; production planning; machine setting; and pr oduction downtime. It is possible to obtain a taste of such capabilities by comparing a companys overall product capability score, with its: actual level of production; production capacity utilisation rate; and its labour productivity. The approach that we have used to calculate the product capability scores for each company is described in sub-section 15.2. Benchmarking Development Activity Establishing a system for providing longer-term benchmarking results across companies in Egypts Packaging Sector , as a whole , is one of the development activities recommended in section 7. One of the points that should be considered through this development theme is introducing a benchmarking system for Egypts packaging sector as a whole where companies provide regular results across an agreed set of performance indicators. The introduction of such a system would provide an appropriate time to decide if the performance of individual companies can be indicated by name.

15.2

Assessment Of Product Capabilities

Product Capability Elements There are four elements to our assessment of company manufacturing product capabilities: Existence of internal testing laboratory for material inputs and product outputs, the range of equipment and its condition (question 28 in the questionnaire). Existence and appropriate application of a quality assurance programme and product quality assessment procedures (combination of question 25 on product inspection control system and question 26 on quality control system). Application of industry norms (internationally accepted) on manufacturing processes (combination of question 22 on production system, question 23 on the age of the machinery and question 24 on the waste ratio). Implementation of an effective training system, as measured by the frequency of the training (question 33).

Score The product capability score is allocated based on the responses within the questionnaire and the visual impression of the consultant. We accept there is a degree of subjectivity to allocating the scores, but this is inevitable with this type of review activity. The reader should not focus on the score of individual companies on their own, but should focus on

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the differences between companies in the same pro. There are two purposes to applying the scoring system: Identify gaps between Egyptian companies (the domestic situation). With board packaging, where it has been possible to provide international comparisons; the gaps between the results for Egyptian companies and the results for companies in other countries, indicate competitive advantages (if the Egyptian company performance is better) or competitive disadvantages (if the Egyptian company performance is worse).

The product capability score for each company is indicated as a number on the scale 1 to 10, where a low number indicates poor product capability and a high score strong product capability. Under each category of results the product capability score is presented first, before the results to the seven performance indicators.

15.3

Board Packaging Company Results

15.3A Domestic Results


Material Inputs - Paper And Board Production Product Capability Score
Score Company A 6 Company B 3 Company Company C D 7 6 Company E 9 Average 6.2 Tonnes p/y Total

Production
Company A 12,000 Company B 12,000 Company C 27,000 Company D 56,000 Company E 60,000

Current annualised 167,000 production Original design 18,000 18,000 27,000 70,000 60,000 193,000 capacity % capacity 66 66 100 80 100 86.5 utilisation If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Production in tonnes per employee Company A 48 Company B 25 Company Company C D 116 56 Company E 150 Average 79

Average Age Of Machinery


Years Company A 25 Company B 30 Company C 22 Company D 30 Company E 15 Average 24.4

Waste
% waste from Company A 12 Company Company B C 15 20 Company D 18 Company E 5 Average 14

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Key Results Paper and Board Production Company E stands-out as having the best performance across all of the indicators. It is the only company that: achieves a 9 product capability score; has the highest production level and is achieving 100% production capacity utilisation; achieves the highest productivity rate at 150 tonnes per employee; has the lowest average age of the machinery at 15 years; and performs best in terms of waste rates at 5%. None of the other paper and board manufacturers get near to matching this performance. Company C is next best performing: but with a lower product capability score of 7; significantly lower production at 27,000 tonnes; it is also operating at 100% production capacity utilisation; but, it does not perform so well in terms of productivity at 116 tonnes per employee; and has the worst performance in waste rate at 20%. There are some similarities between Companies A and D: they have the same product capability score; they have similar production capacity utilisation at 66 and 80%; their productivity levels are 48 and 56 tonnes per employee; and the average age of their equipment is 25 and 30 years, respectively. There are also significant differences, though, in: production levels (12,000 and 56,000 tonnes); production capacities (18,000 and 70,000 tonnes); and in waste rates 12% and 18%. Company B stands-out as its performance on many of the indicators is so much worse than the others: product capability score of 3; equal worse production capacity utilisation of 66%; productivity per employee of 25 tonnes; and it has the equal oldest machinery at 30 years. The only indicator where it performs better than some of the other manufacturers is a waste rate of 15%. It also needs to be recognised that the combination of low productivity, high waste rates and machinery that is on average 24 years old will all result in operating inefficiencies and inflated operating costs. Conclusion Paper And Board Production It is important to note that the five companies represent almost 70% of Egypts production of paper and board for packaging, with the results therefore being significant for the sub-sector as a whole. There are significant variations between the results of the five companies, with little consistency in performance within the sub-sector. In previous presentations and reports to the Packaging Sector Steering Committee we have emphasised the extent of the structural issues within this sub-sector and how they are affecting its performance. It is now evident from the above that addressing the structural issues on their own will not be sufficient and there is also a requirement for significant facility modernisation and business up-grading. The role of the public enterprise sector in this sub-sector has to be recognised. Two of the companies, National Paper Co. and Rakta are still public enterprises and Simo was a public enterprise. It is also important to recognise that paper and board facilities that are being established now around the world have a minimum size of 50,000 tonnes p/y and many are much larger. Three of the facilities are significantly smaller than this current minimum size.

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Domestic / Export Sales


% domestic % exports Company A 100 Company B 100 Company C 88 12 Company D 100 Company E 90 10 Average 95.6 4.4

Only Companies C and E are involved in exporting, with levels of 12 and 10%, respectively. Input Material Sourcing
% domestic source % imported Company A 100 Company B 90 10 Company C 100 Company D 80 20 Company E 90 10 Average 92 8

The levels of imported input materials are low at between 10 20%, which is low for a country with no domestic supply of virgin fibre. Two of the companies do not have any imported input materials. Added-Value Processing Carton / Corrugated Board Manufacturing And Printing Product Capability Score
Score Company A 1 Company B 2 Company C 5 Company D 9 Company E 9 Company Average F 9 5.8 Tonnes p/y Company Total F 60,000 133,360

Production
Company A 200 Company B 360 Company C 800 Company D 36,000 Company E 36,000

Current annualised production Original 550 480 1,330 45,000 48,000 70,000 165,360 design capacity % capacity 36 75 60 80 75 86 68.7 utilisation If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Production in tonnes per employee Company A 10 Company B 8 Company C 8 Company D 103 Company E 131 Company F 200 Average 77

Average Age Of Machinery


Years Company A 15 Company B 5 Company C 13 Company D 5 Company E 9 Company F 9 Average 9.3

Waste
Company Company Company Company Company Company Average

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A 15 B 10 C 20 D 10 E 15

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F 9

% waste from production

13.2

Key Results - Carton / Corrugated Board Manufacturing And Printing The results for the carton and corrugated board manufacturers fall into two groups as indicated in the following summary table: Average Small Companies (A, B and C) 2.7 57 8.7 11 15.0 Average Large Companies (D, E and F) 9.0 80 144.7 7.7 11.3

Product capability score % capacity utilisation Productivity Average age of machinery % waste from production

There are significant differences in the performance of the two groups of companies, with the smaller companies have worse results under each indicator than the larger companies. Within the group of smaller companies there are significant differences in the average age of the machinery with the most modern facilities at Company B, being 5 years old. The machinery at Companies A and B is 15 and 13 years old, respectively. The company with the modern machinery achieves better performance than its other two group members in: production capacity utilisation 75%, compared to 36 and 60%; and in the waste rate, 10% compared to 15 and 20%, but it has a low product capability score (2) and its productivity level is equal lowest. Productivity is eighteen times higher amongst the larger group of companies, than at this modern small manufacturer. Within the group of larger companies all three achieve product capability scores of 9. Company D also has more modern facilities than the other two, being 5 years old, compared to 9 years at Companies E and F. Being larger companies, and with a smaller gaps in machinery age, the difference makes little difference with performance against the other indicators. Company D achieves the following results against its group members: Production capacity utilisation of 80%; second place against Company E which achieves 86%. Productivity of 103 tonnes per employee; second place against Company E which achieves 200 tonnes per employee. Waste rate of 10%; second place against Company E which achieves 9%.

Within the group of smaller companies the age of the machinery is a significant determinant of performance, but this is not repeated amongst the group of larger companies. The much lower product capability scores achieved by the smaller companies, compared to the larger companies must affect their ability to produce carton and corrugated board to a consistently high quality.

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A similarity of both the paper and board manufacturers and the carton and corrugated manufacturers is that under each category one company achieves the best results against all of the indicators. There are therefore best practice companies in each category. An international comparison of the above results, provided later in this section, indicate the extent to which Egypts best practice manufacturers are internationally competitive. Conclusions - Carton / Corrugated Board Manufacturing And Printing The results for the large carton and corrugated board manufacturers are clearly much better than for the small manufacturers, though, the difference in the level of waste is much lower than for the other indicators. Based on the results for the small manufacturers it is clear that they cannot meet the requirements to support the implementation of the sector development strategy by exporting their products. We have concluded that the implementation of the development strategy for the board sector will have to rely on working closely with the large manufacturers. There is 31,000 tonnes of spare production capacity amongst the large manufacturers covered by this review to support the export led development strategy. Domestic / Export Sales
% domestic % exports Company A 100 Company B 100 Company C 95 5 Company D 100 Company E 77 23 Company F 95 5 Average 94.5 5.5

Three of the companies have no export sales with the highest level achieved by Company E at 23%. The other two exporters achieve only 5% of their sales through exports. These results support the points made during the third Packaging Sector Steering Committee meeting about Egypts export performance in board packaging. Company E has achieved the best exporting experience and a next step should be to learn from its exporting experience to benefit the sub-sector as a whole. Input Material Sourcing
% domestic source % imported Company A 100 Company B 100 Company C 100 Company D 45 55 Company E 80 20 Company F 50 50 Average 79.2 20.8

The small manufacturers source all of their input materials domestically, which means they must be using only paper and board manufactured from recycled fibre. The large manufacturers import between 20% and 55% of their material inputs. This will be generated by the need to use virgin liner and fluting in the manufacture of corrugated board for exporting fresh produce and virgin outside layer carton board.

15.3B International Comparisons


Basis Of Comparison It is important to note that the comparison is between the performance of the best companies in each of the countries. The comparison is not between the countries as a whole, or between the averages in the countries. The countries were selecte d by the first

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Packaging Sector Steering Committee, but UAE has been excluded due to the difficulty in obtaining information. Material Inputs - Paper And Board Production Product Capability Score
UK Score 10 South Africa 10 Turkey 9 Saudi Arabia 9 Egypt 9 Tonnes p/y Egypt

Production
UK South Africa 150,000 Turkey Saudi Arabia 50,000

Current average 100,000 60,000 60,000 production t/yr Original design 100,000 150,000 60,000 50,000 60,000 capacity % capacity 100 100 100 100 100 utilisation If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated. Excludes new facilities that have already, or are planned to open during 2004

Productivity
UK Production in tonnes per employee 400 South Africa 300 Turkey 90 Saudi Arabia 90 Egypt 150

Average Age Of Machinery


UK Years 10 South Africa 10 Turkey 15 Saudi Arabia 5 Egypt 15

Waste
UK % waste from production 10 South Africa 10 Turkey 15 Saudi Arabia 10 Egypt 5

Results - Paper And Board Production All have high product capability scores, with the only difference being that the companies in the UK and South Africa score 10, compared to 9 in Turkey, Saudi Arabia and Egypt. The difference is due to the degree of sophistication of the product quality control systems. Egypts best is significantly smaller than the best production facilities in the UK and South Africa, but is on par with the size in Turkey and Saudi Arabia. Production facilities are operating at full capacity in all five countries.

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Productivity per employee is also significantly higher in the UK and South Africa compared to the other countries. Egypts best performs better than the best in Turkey and Saudi Arabia. Egypts best has the highest average age of machinery, but the result is the same for Turkey. This is likely to be due to the relatively high percentage of production capacity that is still under public ownership in both countries. The best in Egypt is operating to a wastage rate that is half the averages for the UK and South Africa, which demonstrates good performance on this indictor. Conclusions - Paper And Board Production Egypts best paper and board manufacturer compares favourably to its competitors in Turkey, Saudi Arabia and South Africa . It has worse performance compared to the UK and South Africa, but this is also the situation with Turkey and Saudi Arabia. Egypts best can compete on equal terms to the best in Turkey and Saudi Arabia, but on some indicators performs lower than its competitors in the UK and South Africa.

Domestic / Export Sales


UK % domestic % exports 45 55 South Africa 40 60 Turkey 75 25 Saudi Arabia 80 20 Egypt 90 10

Percentage exports for the best companies in the UK and South Africa are much higher than in the other three countries. Egypts best has the worst export performance of all of the countries. Input Material Sourcing
UK % domestic source % imported 40 60 South Africa 95 5 Turkey 80 20 Saudi Arabia 20 80 Egypt 90 10

Levels of imports for the UK reflect the lack of indigenous raw material (except recycled fibre). South Africa is rich in raw materials as is Turkey. Saudi Arabia and Egypt are in the same situation with a lack of raw materials, but their levels of imports are the complete opposite, with the former at 80%, and the latter at 10%. Added-Value Processing Carton / Corrugated Board Manufacturing And Printing Product Capability Score
UK Score 10 South Africa 10 Turkey 9 Saudi Arabia 9 Best of Egypt 9 Tonnes p/y Egypt 60,000

Production
UK Current average 60,000 South Africa 60,000 Turkey 50,000 Saudi Arabia 50,000

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production t/yr Original design 60,000 60,000 60,000 50,000 70,000 capacity % capacity 100 100 83 100 86 utilisation If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated. Excludes new facilities that have already, or are planned to open during 2004

Productivity
UK Production in tonnes per employee 400 South Africa 300 Turkey 90 Saudi Arabia 90 Egypt 200

Average Age Of Machinery


UK Years 15 South Africa 10 Turkey 15 Saudi Arabia 5 Egypt 9

Waste
UK % waste from production 10 South Africa 10 Turkey 15 Saudi Arabia 10 Egypt 9

Results Carton / Corrugated Board Manufacturing And Printing As with the paper and board manufacturers the differences in product capability scores is due to the degree of sophistication of the product quality control systems. Egypts best has the largest design capacity and achieves the same level of production as in the UK and South Africa. It has higher design capacity and production levels than the best in Turkey and Saudi Arabia. Production capacity utilisation is lower in Turkey and Egypts best than in the other three countries which are operating at full capacity. As with paper and board manufacturing Egypts best performs better than the best in Turkey and Saudi Arabia in productivity, but is lower than the UK and South Africa. The average age of the machinery is low in Egypts best compared to the best in the UK, South Africa and Turkey, with only Saudi Arabia having more modern machinery. As with paper and board manufacturing Egypts best has the lowest level of waste across all five countries. Conclusions Carton / Corrugated Board Manufacturing And Printing Egypts best compares favourably with the best in the other four countries, except in production capacity utilisation and productivity. On the latter its performance, though, is significantly better than the best in Turkey and Saudi Arabia. Domestic / Export Sales
UK South Turkey Saudi Egypt

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Africa 50 50 Arabia 80 20

October 2004

% domestic % exports

40 60

70 30

95 5

As with paper and board manufacturing Egypts best has the worst exporting performance. Input Material Sourcing
UK % domestic source % imported 60 40 South Africa 80 20 Turkey 90 10 Saudi Arabia 80 20 Egypt 50 50

In input materials Egypt has the highest level of imports. This is due to the low level of imports at the paper and board manufacturing stage (see earlier results) with Egypt importing more of the virgin material as semi-finished products than is the case in the other countries.

15.4

Plastic Packaging Company Results

15.4A Material Inputs Polyethylene And Polypropylene


There are only two domestic manufacturers of base plastic material inputs, producing polyethylene and polypropylene. Both of the facilities are modern with the processing plant being four years old for the polyethylene and three years old for the polypropylene. The technology for polyethylene was purchased from BP Amoco, with the technology for polypropylene from Union Carbide. Being modern plants, using international technology there is no reason for not operating to international nor ms on all performance indicators. Both companies have strong product capabilities. The main issue relating to this part of the supply chain for plastics packaging are the structural issues relating to monopolistic pricing, which have been described in previous reports.

15.4B Added-Value Processing Film Manufacture And Printing


It should be noted that our main purpose in reviewing film companies was to review the manufacturing of the film. Some film manufacturers also have facilities to print the film and although these facilities are included within the results presented below they are incidental to our focus on the packaging product. Companies that are dedicated to printing film are covered as a separate category later in this section. Product Capability Score
Score Company A 4 Company B 5 Company C 5 Average 4.7 Tonnes p/y Total

Production
Company A 2,000 Company B 7,500 Company C 24,000

Current annualised 33,500 production Original design capacity 2,600 10,750 30,000 43,350 % capacity utilisation 77 70 80 77.3 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

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Productivity
Production in tonnes per employee Company A 29.4 Company B 75.0 Company C 75.0 Average 59.8

Average Age Of Machinery


Years Company A 17 Company B 7 Company C 11 Average 11.7

Waste
% waste from production Company A 15 Company B 5 Company C 7 Average 9

Key Results Film Manufacture And Printing A key result from the above is the relatively low product capability scores across all three companies, with the highest score being 5. Production capacity utilisation rates are similar across the three companies ranging between 70 and 80%. Across the other indicators the companies split into two groups: Company A, which has the oldest machinery with an average age of 17 years and has; the lowest productivity at 29.4 tonnes per employee, and the highest wastage rate at 15%; Companies B and C, which have machinery that is 7 and 11 years old, respectively; equal productivity at 75 tonnes per employee, and low wastage rates between 5 and 7%.

This could be interpreted that the problem is with the age of the machinery, but as indicated in the following conclusion this is not necessarily the case. Conclusions Film Manufacture And Printing The above results indicate that there is a product capability issue with Egypts manufacturers of plastic film; at least within the companies that were covered by the review activity. Revie ws of additional companies will be required to determine if the issue applies to this sub-sector as a whole, or merely reflects the characteristics of the companies that were selected. The conclusion supports the views expressed to us by Egypts food and pharmaceutical companies that use film in their packaging, that there are problems with product quality. It is important to recognise that the low product capability scores are due to the companies not having supporting facilities, systems and training to be able to produce a high quality finished product. The low scoring does not necessarily indicate that there are problems with the machines themselves. An example of the nature of this key issue is whether the required improvements in quality assurance and systems can be achieved

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using the existing machinery. If they cannot, this indicates a requirement for machinery modernisation; if they can, the first step should be to implement the systems, as it will only be after they are implemented that conclusions can be drawn as to whether the age of the machinery is causing product quality problems. Domestic / Export Sales
% domestic % exports Company A 95 5 Company B 40 60 Company C 70 30 Average 68.3 31.7

Input Material Sourcing


% domestic source % imported Company A 20 80 Company B 10 90 Company C 20 80 Average 16.7 83.3

The level of export sales ranges between 5 60%, with the highest level achieved by Company B, which has the most modern manufacturing equipment. The level of imported input materials ranges between 80 and 90%. imports is due to: Egypt not having a domestic source of co-polymers. Issues relating to the pricing of domestically-sourced base plastics (see report to the third Packaging Steering Committee meeting) which results in it often being cheaper to import these materials. Some film types are not produced in Egypt. The quality of the film that is being produced (see product capability scores), with some customers specifying that specific types of film must be imported to be printed in Egypt, even though the product is available domestically. This high level of

15.4C Added-Value Processing Plastic Containers


Product Capability Score
Score Company A 5 Company B 6 Company C 7 Company D 5 Average 5.8

Production

Tonnes p/y Company Company Company Company Total A B C D Current annualised production 600 3,000 3,200 3,600 10,400 Original design capacity 2,400 4,300 3,500 5,500 15,700 % capacity utilisation 25 70 91 65 66.2 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Company A Company B Company C Company D Average

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Production in tonnes per employee 10.0 29.7 50.8

October 2004
60.0 37.6

Average Age Of Machinery


Years Company A 8 Company B 10 Company C 4 Company D 5 Average 6.8

Waste
% waste from production Company A 7 Company B 5 Company C 7 Company D 6 Average 6.25

Results Plastic Containers The product capability scores are higher for the container than the film manufacturers, with the spread being narrow, between scores of 5 and 7. There are significant differences though in: the levels of production capacity utilisation, ranging between a low of 25 to 91%; and productivity levels, with a low of 10 tonnes per employee and a high of 60 tonnes per employee. The average age of the machinery is close across the four companies ranging between 4 and 10 years, with the same applying to the waste rate with a low of 5% and a high of 7%. Conclusions Plastic Containers This is the group of companies with the closest set of results in scale of production and average age of machinery. Neither of these indicators explain the significant differences in either production capacity utilisation or productivity. Based on the above results, it appears that with these container manufacturing companies, the explanation for the differences lies in the way the companies are being managed. Domestic / Export Sales
% domestic % exports Company A 100 Company B 90 10 Company C 80 20 Company D 100 Average 92.5 7.5

The highest level of export sales performance is at Company C, with 20%, but two of the companies have no export sales. Input Material Sourcing
% domestic source % imported Company A 50 50 Company B 50 50 Company C 100 Company D 100 Average 25 75

Two of the companies are importing all of their input materials, which can be explained by them working in PET and polystyrene, where there is no domestic manufacturer of these materials. The other two companies each import 50% of their input materials.

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15.4D Added-Value Processing Film Printing


Product Capability Score Company A 5 Company B 8 Company C 8 Average 7

Score

Production
Company A 250 Company B 3,600 Company C 4,200

Tonnes p/y Total

Current annualised 8,050 production Original design capacity 600 4,000 4,500 9,100 % capacity utilisation 42 90 93 88.5 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Production in tonnes per employee Company A 8.3 Company B 25.7 Company C 9.3 Average 17.2

Average Age Of Machinery


Years Company A 15 Company B 15 Company C 10 Average 13.3

Waste
% waste from production Company A 4 Company B 4 Company C 3 Average 3.7

Key Results Film Printing Company A has average product capability scoring 5, with the other two companies having relatively strong product capabilities, both scoring 8s. Company A, with the lowest product capability score also has the lowest production capacity utilisation and productivity levels. With the two companies scoring product capability 8s their levels of production capacity utilisation are high and very close at 90 and 93%. This is more than double the leve l achieved by Company A. Although the similarities are strong between Companies B and C on the product capability and production indicators, they have significantly different levels of productivity at 25.7 and 9.3 tonnes per employee. Differences in the age of the machinery does not explain the gaps in productivity performance, as Company B, with the higher productivity has the older machinery. All three companies have low levels of wastage between 3 and 4%. Conclusions Film Printing

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As with plastic containers there is no clear explanation for the differences in performance between the three companies and we reach the same conclusion that they are due to internal management practices.

Domestic / Export Sales


% domestic % exports Company A 100 Company B 90 10 Company C 90 10 Average 93.3 6.7

Two of the companies are exporting, but this represents only 10% of their sales in both cases. Input Material Sourcing
% domestic source % imported Company A 30 70 Company B 50 50 Company C 20 80 Average 33.3 66.7

The level of imported input materials is over 50% for all three companies, ranging between 50 and 80%. These high levels of imports will be due to the need to import printing inks.

15.5

Glass Packaging Company Results


Company A 7 Company B 8 Company C 7 Company D 9 Average 7.8

Product Capability Score


Score

Production

Tonnes p/y Company Company Company Company Total A B C D Current annualised production 38,000 42,000 44,000 47,500 171,500 Original design capacity 46,500 44,000 44,000 47,500 182,000 % capacity utilisation 82 95 100 100 94.2 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Production in tonnes per employee Company A 63.3 Company B 105.0 Company C 97.8 Company D 125.0 Average 97.8

Average Age Of Machinery


Years Company A 15 Company B 15 Company C 20 Company D 25 Average 18.8

Waste
Company A Company B Company C Company D Average

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% waste from production 20 5 8 10

October 2004
10.8

Key Results Glass Packaging The product capability scores for each of the companies are relatively high ranging between 7 and 9. The production levels of the four companies are also close ranging between 38,000 and 47,500 tonnes. Production capacity utilisation is 100% at two of the companies and 82 and 95% at the other two companies (high production capacity utilisation is a feature of glass-making plants, due to the continuous production process. There is a much wider spread in productivity results than in production capacity utilisation, with the former ranging between a low of 63.3 to a high of 125.0 tonnes per employee. This is not related to the age of the machinery as the higher performing company has machinery that is on average 10 years older than the company with the low productivity level. The explanation is probably that Company A is producing a smaller, more delicate range of glass products than Company D. Waste rates range between a low of 5% to a high of 20%. not relate to any of the other indicators. Conclusions Glass Packaging Egypts glass-making sub-sector has already been identified by us to have structural problems in meeting the quantity and quality requirements of its customers. The main reason for this is the average age of the machinery, in particular the ovens, which require to be replaced on average every nine years. The average age of machinery indicator demonstrates that an oven renewal programme is required throughout this sub-sector. Domestic / Export Sales
% domestic % exports Company A 80 20 Company B 100 Company C 95 5 Company D 100 Average 93.8 6.2

These level of wastage does

Only two of the companies are exporting, with them achieving export performance of 20 and 5%, respectively. Input Material Sourcing
% domestic source % imported Company A 85 15 Company B 80 20 Company C 95 5 Company D 85 15 Average 86.2 13.8

The level of imported input materials ranges between 5 and 20%.

15.6

Metal Packaging (Tin Can Manufacturers) Company Results


Company A 7 Company B 9 Average 8

Product Capability Score


Score

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Production

Tonnes p/y Company Company Total A B Current annualised production 7,000 40,000 47,000 Original design capacity 7,000 40,000 47,000 % capacity utilisation 100 100 100 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity
Production in tonnes per employee Company A 116.7 Company B 307.7 Average 212.2

Average Age Of Machinery


Years Company A 20 Company B 4 Average 12

Waste
% waste from production Company A 10 Company B 7 Average 8.5

Key Results - Metal Packaging (Tin Can Manufacturers) The two companies achieve relatively high product capability scores of 7 and 9. There is a significant difference between their production scales of 7,000 and 40,000 tonnes, but both companies are achieving 100% production capacity utilisation. Productivity is almost three times higher at Company B, than at Company A. This could be due to the difference in the age of the machinery with Company As machinery being five times older than Company B. This could also explain the higher wastage rate at Company A. Company B has a higher level of specialisation, producing the same product for a number of major customers. Company A, on the other hand, has a much wider range of products. Conclusions - Metal Packaging (Tin Can Manufacturers) Company B appears to have the basis of being internationally competitive. There needs to be a modernisation and expansion programme implemented at Company A for it to start to move towards being internationally competitive. Domestic / Export Sales
% domestic % exports Company A 90 10 Company B 75 25 Average 82.5 17.5

The impact of the conclusion is evident from recent exporting performance, with the more modern Company B achieving 25% export sales (10,000 tonnes p/y), compared to Company As 10% (700 tonnes p/y).

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Input Material Sourcing


% domestic source % imported Company A 100 Company B 100 Average -

The level of imports is 100% at both companies as there is no domestic source of tin.

15.7

Processed Foods Company Results

15.7A Packaging Applications Dairy And Fruit Juice


Packaged Product Capability Score
Score Company A 9 Company B 9 Company C 7 Company D 9 Average 8.5

Production

Tonnes p/y Company Company Company Company Total A B C D Current annualised production 15,600 68,400 250,000 350,000 684,000 Original design capacity 21,000 76,000 330,000 437,500 864,500 % capacity utilisation 74 90 76 80 80 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Packaging Productivity
Production in tonnes per employee Company A 31.1 Company B 136.8 Company C 166.7 Company D 233.3 Average 142.0

Average Age Of Packaging Machinery


Years Company A 5 Company B 5 Company C 6 Company D 4 Average 5

Waste From Packaging Operations


% waste from production Company A 4 Company Company B C 7 3 Company D 7 Average 5.25

Results - Packaging Applications Dairy And Fruit Juice All of the companies have strong product capabilities, with all scoring 9, except Company C, which scores 7. There is a clear correlation between productivity and production scale. The smallest company (Company A) with 15,600 tonnes p/y has the lowest level of productivity at 31.1 tonnes per employee. The level of productivity increases through the size range of manufacturers to reach 233.3 tonnes per employee at the Company D, which is the largest manufacturer.

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Levels of production capacity utilisation are relatively high across all four manufacturers, ranging from a low of 74% at Company A to a high of 90% at Company B. The level of production capacity utilisation is not related to scale of production as Company C has a level which is close to Company A, and Company D is below Company B. In an area such as dairy and fruit juice products the products are differentiated mainly through marketing campaigns. The differences in production capacity utilisation may reflect varying levels of success with the implementation of such campaigns. The average age of the machinery is low ranging between four and six years across all four companies. With all four companies having modern machinery there should not be the significant differences in productivity as indicated above. The lowest level of waste (3%) is recorded by Company C, which has the oldest manufacturing equipment and a relatively low leve l of production capacity utilisation. The highest levels of waste are recorded at Companies B and D which have the highest levels of production capacity utilisation. Conclusions - Packaging Applications Dairy And Fruit Juice The high packaged product capability scores are likely to be due to the use of Tetra Pak packaging systems. There is a clear link between scale of production and productivity levels, but no such link exists on the waste rate. Domestic / Export Sales
% domestic % exports Company A 93 7 Company B 90 10 Company C 97 3 Company D 100 Average 95 5

There appears to be an inverse relationship between scale of production and exporting performance, with the two smallest manufacturers having the highest export performance. The largest producer does not have any exports. The difference between the four companies is not significant with the highest level of exports being 10%. Exporting performance is likely to be related to the market development strategy of each company. It appears that Company D could have a marketing strategy to use its production capacity to maximise domestic market share. As the market becomes increasingly dominated by a few large producers, the smaller players will have to look more to export markets to survive.

15.7B Packaging Applications Edible Oil


A feature of the edible oil companies covered by the review activity is that Companies D and E purchase the PET at the pre-resin stage, with the bottles being formed as part of the process of filling the m with oil. Companies A, B and C purchased finished bottles to be filled. Packaged Product Capability Score
Score Company A 2 Company Company B C 2 5 Company D 9 Company E 8 Average 5.2 Tonnes p/y

Production

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Company A 600 Company B 1,200 Company C 12,000 Company D 53,000

October 2004
Company E 98,000 Total

Current annualised 164,800 production Original design 600 1,200 12,000 79,000 98,000 190,800 capacity % capacity 100 100 100 67 100 93.4 utilisation If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Packaging Productivity
Production in tonnes per employee Company A 40 Company B 40 Company Company C D 300 75 Company E 280 Average 147

Average Age Of Packaging Machinery


Years Company A 6 Company B 6 Company C 7 Company D 4 Company E 4 Average 5.4

Waste From Packaging Operations


% waste from production Company A 10 Company Company B C 10 9 Company D 7 Company E 7 Average 8.6

Results - Packaging Applications Edible Oil There is a significant range in the product capability score of the edible oil companies, from 2 to 9. There is a strong correlation between scale of operations and the other indicators. The following table demonstrates this point, with the application of three scale range; small (under 1,500 tonnes p/y), medium (1,500 to 50,000 tonnes p/y) and large (above 50,000 tonnes p/y. Small 2 100 40 6 10 Medium 5 100 300 7 9 Large 8.5 84 178 4 7

Product capability score Capacity utilisation % Productivity per employee Average age of machinery Waste %

Although the correlations are strong under: product capability score; average age of machinery; and waste the relationship is not so strong under production capacity utilisation and productivity per employee. The reason for this are the results for Company D, which although it falls into the large category has low production capacity utilisation at 67% and low productivity at 75 tonnes per employee. It appears that there are production issues at Company D which need to be overcome for its two areas of low performance. Conclusions - Packaging Applications Edible Oil

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For the edible oil companies, apart from Company D, which appears to be a special case, there is a strong link between their scale of production and their product capability scores, and operating performance in terms of productivity and waste. Domestic / Export Sales
% domestic % exports Company A 100 Company B 100 Company C 100 Company D 66 34 Company E 98 2 Average 92.8 7.2

15.8

Pharmaceuticals Company Resul ts

Packaging Applications Packaged Product Capability Score


Score Company A 9 Company B 9 Company C 9 Company D 7 Average 8.5

Packaging Production

Tonnes p/y Company Company Company Company Total A B C D Current annualised production 42 50 65 103 260 Original design capacity 50 70 72 137 329 % capacity utilisation 84 71 90 75 79 If there has been an expansion of the original design capacity, it is the new increased capacity which is indicated.

Productivity Of Packaging
Production in tonnes per employee Company A 0.08 Company B 0.05 Company C 0.09 Company D 0.26 Average 0.12

Average Age Of Packaging Machinery


Years Company A 8 Company B 8 Company C 13 Company D 13 Average 10.5

Waste From Packaging Operations


% waste from production Company A 2 Company Company B C 3 2 Company D 5 Average 3

Results - Pharmaceutical Products All four pharmaceutical companies have high product capability scores, with three achieving 9s and only Company D being below this level, scoring 7. Packaging production capacity utilisation levels range between 71 and 90%, but the level at each individual company does not relate to either the scale of production or the age of the machinery. The lowest leve l of production capacity utilisation (71%) is at Company B, which has machinery which is 8 years old. The highest level of production capacity utilisation (90%) is achieved at Company C which has machinery with an average age of 13 years.

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Company D has a significantly higher level of productivity at 0.26 tonnes per employee than the other three manufacturers, which average 0.07 tonnes per employee. Company D, though, has the highest level of waste at 5%, compared to an average of 2.3% at the other three companies. Conclusions - Pharmaceutical Products As pharmaceuticals is one of the most internationalised sectors in Egypts manufacturing economy it is not surprising that there are not significant differences in the results between the companies. It is much more important for all pharmaceutical companies to be operating to be operating to international standards than is the case in other manufacturing sectors. Domestic / Export Sales
% domestic % exports Company A 95 5 Company B 96 4 Company C 97 3 Company D 60 40 Average 87 13

Only Company D is a significant exporter, achieving 40% of sales. The other three companies are all exporters, but average only 4% of their sales. The company that is exporting the most has: the lowest product capability score; a comparably low level of product capacity utilisation; the highest level of waste; the equally oldest average age of its machines; but, the highest level of productivity. Further review activity is required to determine if this company is being pushed into export sales, by its younger and smaller competitors, that have stronger product capabilities and can react more quickly to changes in the domestic market. An important issue from the above results is that the three companies that have the highest product capability scores achieve the lowest exporting performance, whereas the company with the lowest product capability score achieves the best exporting performance.

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16
16.1

EU Regulations
Introduction

It is important to point-out that EU / EC regulations are only introduced when existing Member State national legislation impairs the functioning of the Single Market. The Commission does not legislate on matters which are already satisfactorily covered by combined national legislations. Any exporter wishing to enter EU markets must familiarise themselves with the national regulations of individual member states, as well as EU / EC regulations. Having made this point it also needs to be recognised that national regulations tend to have precedence in less sensitive packaging / product areas. In the most sensitive areas, such as foodstuffs, EU / EC regulations usually take precedence over national regulations due to the heightened concerns over food safety and consumer protection. It should be noted that there is no simple approach to understanding EU / EC regulations relating to packaging, or consumer products sold in packaging. The reasons for a lack simplicity are: Each Member State has its own range of regulations that may be in the process of being altered to fit with EU / EC regulations. The regulations of individual Member States will prevail where there are no EU / EC regulations that cover the same area of activity. EU / EC regulations will prevail over Member States regula tions from when the former is fully activated across all members. This point is important as although regulations may have been passed, a time period may be allowed for all Member States to comply with the regulations. Regulations may be passed by either the Council of Ministers (EU), or the European Commission (EC). Proposals may be drafted for either decision-making body on new regulations. Such proposals will be presented for consultation purposes which can take years, before final decisions are made on an agreed approach. Even when agreement has been reached the regulation will have to wait to be ratified before it can be implemented. Regulations that have been implemented for many years may be changed by either amendments that are directly targeted at the regulation, or by new regulations that cover the territory of the original regulation.

Not only does the above situation provide a complicated background, but it needs to be understood that many of the regulations do not make categoric statements on what is / is not accepted. In many cases it is up to the seller of the products into the EU to determine if they are complying with the regulations. In these cases the regulation needs to be interpreted in relation to the specific circumstances of the product, and its packaging. It is not possible for us, or anybody, to provide a comprehensive review of EU / EC regulations as the answer depends to a significant extent on the circumstances of the party

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that requires an answer. Our role can only be to provide guidance on the main areas of legislation and how interested parties can obtain their own answers to questions. All exporters into the EU are advised to verify if a Member State follows EU provisions, as Member States are allowed to authorise, on a provisional basis, the use of certain substances not listed in the specific directives. They may also restrict, or temporarily prohibit, the use of certain materials authorised by the specific directives, for reasons of national public health. The review of EU regulations has focused on food stuffs and fresh produce as this is the area which has greatest relevance to the objective of increasing Egypts exports into Europe. Two approaches are used to presenting EU regulations: Under sub-section 16.2 the main regulations are listed with a summary provided of there implications for packaging. Under sub-section 16.3 the content of each regulation is described in greater detail.

16.2

Summary Of EU Regulations Relating To Packaging

The following structure is used to provide the summary: Materials in contact with foodstuffs. Container contents. Labelling. Packaging waste management.

Materials in Contact with Foodstuffs Regulation 89/109/EEC


Description Outlines the common rules for materials that come into contact with foodstuffs and provides for specific directives that refer to lists of authorized substances, conditions of use, migration limits and purity standards. Covers all materials in their finished state not just packaging materials, but also forks, cups, processing machines transportation pipes and containers. The aim of the Directive is to protect human health and safeguard the purity of the foodstuffs. Determines the symbol that may accompany materials and articles intended to come into contact with foodstuffs. Sets out what is defined as plastic does not include regenerated cellulose film, elastomers and rubber, paper and paperboard where modified or not by the addition of plastics, ion-exchange resins, silicones. Does not apply to materials and articles composed of two layers, one of more of which does not consist exclusively of plastics, even if the one intended to come into direct contact with foodstuffs does consist exclusively of plastics.

80/590/EEC 2002/72/EC

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Establis hes the global migration limit for all plastic materials and articles and a positive list of authorized monomers and other starting substances with restrictions on their use where applicable.

2002/72/EC

Sets out what is defined as plastic does not include regenerated cellulose film, elastomers and rubber, paper and paperboard where modified or not by the addition of plastics, ion-exchange resins, silicones. Does not apply to materials and articles composed of two layers, one of more of which does not consist exclusively of plastics, even if the one intended to come into direct contact with foodstuffs does consist exclusively of plastics. Establishes the global migration limit for all plastic materials and articles and a positive list of authorized mo nomers and other starting substances with restrictions on their use where applicable. Concerns the presence of vinyl chloride monomer in, and possible migration from, materials and articles prepared with vinyl chloride polymers or copolymers that come into contact with food stuffs. Maximum quantities of vinyl chloride monomer levels are laid out which cannot be exceeded. (one milligram per kilogram) Concerns the use of certain epoxy derivatives in materials and articles intended to come into contact with foodstuffs and sets out limitations on substance emissions. Lays down the Community method of analysis for the official control of the vinyl chloride monomer level in materials and articles which are intended to come into contact with foodstuffs. This Directive lays down the Community method of analysis for the determination of the vinyl chloride monomer level in materials and articles which are intended to come into contact with foodstuffs. Sets out limits and methods for lead and cadmium determinations in materials and articles manufactured from ceramics Provides the basic rules for overall and specific migration testing. Sets out a list of substances that can be used in the manufacture of regenerated cellulose films and also the conditions governing their use. The printed side must not come into contact with foodstuffs. Varnished or unvarnished regenerated cellulose film is not classified as plastics. The second Directive bans the marketing and use of regenerated cellulose film intended to come into contact with foodstuffs that does not comply with 93/10/EEC.

78/142/EEC

2002/16/EC

80/766/EEC & 81/432/EEC

84/500/EEC 82/711/EEC & 85/572/EEC 93/10/EEC & 93/111/EC

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Container Contents Regulation 76/211/EEC

October 2004

80/232/EEC

Description All pre-packages must bear an indication of the weight or volume of the product inside, a mark or inscription identifying the packer or the importer and a small e, at least 3 mm high, in the same area as the weight marking indicating that this Directive has been adhered to. Establishes container sizes for butter, fresh cheeses, salt, sugar, breakfast cereals, pasta, rice, dried fruits and vegetables, coffee, frozen fruits and vegetables, fish fillets, fish fingers, ice-cream, preserved fruits and vegetables and products sold in metal containers

Labelling Regulation 2003/89/EC


Description Contains rulings concerning the consumers right to be informed as to the ingredients of foodstuffs on product labels. It is an amendment of Directive 2000/13/EC and caters more for consumers who have allergies and intolerances by providing them with more comprehensive information on the composition of foodstuffs. Makes the provision that by the 25th November 2004 EU laws will be enacted to permit the sale of products that comply with this Directive and that from 25th November 2005 sales of products that do not comply will be prohibited. Relates to nutrition labelling for foodstuffs concerning information requirements and units of expression. Sets out the main rules on the labeling, presentation and advertising of foodstuffs marketed in the EU.

90/496/EEC 2000/13/EC

Packaging Waste Management Regulation 94/62/EC 97/129/EC


Description Concerned with promoting the collection, reuse and recovering (including recycling) of packaging and packaging waste To facilitate collection, reuse, and recovery including recycling, an identification system for packaging has been drawn up and is laid out in this Directive. Its use is voluntary.

16.3

Key EU Food Packaging Regulations

Categories Directives can be divided into 3 categories: Framework Directive 89/109/EEC which is applicable to all materials and articles and their required inertness when in contact with foodstuffs. Specific Directives which are applicable to a group of materials and articles.

The most important area of legislation relates to materials that come into contact with foodstuffs and the majority of Directives relate to plastics as this is the most significant growth area in packaging. Metals and alloys, glass, paper and board food contact

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materials and articles are not yet regulated at EU level by specific directives; therefore, the general provisions of the Framework Directive 89/109/EEC apply. The following diagram indicates the directives that contain the key regulations, with the most important implications for packaging described under each directive. The first directive to be described is the framework directive already indicated which provides the regulations for all types of packaging that is in contact with foodstuffs, unless there is a specific, or individual directive covering the type of packaging.

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The same structure is used to describe the content of the directives, as was used for the summary under part B. Materials in Contact with Foodstuffs Council Directive 89/109/EEC specifies the common rules for materials that come into contact with foodstuffs and provides for the adoption of specific directives including lists of authorized substances, conditions of use, migration limits, purity standards. To date, specific directives have been developed for vinyl chloride, plastics, regenerated cellulose film, ceramics and the use of certain epoxy derivatives in plastic materials, surface coatings and adhesives. In the case of ceramics, migration limits have been established for two of their constituents, namely lead and cadmium. Materials must bear an indication "for food use", which can be replaced by the specific symbol designed in Council Directive 80/590/EEC, see below. The legislation enacted relating to materials and articles intended to come into contact with foodstuffs has two principal goals: Removal of technical barriers to trade. Protection of the health of consumers following increased concern about the possibility of harmful substances entering food from packaging and other contact methods (particularly concerning plastic materials)

Framework Directive 89/109/EEC This applies to all materials, in their finished state, which come into contact with foodstuffs. It does not include covering, or coating substances such as, the substances covering cheese rinds, prepared meat products or fruit which may be consumed together with the foodstuffs. The Directive does not just include packaging materials but also; forks, cups, processing machines, transportation pipes and containers. The aim of the Directive is to protect human health and safeguard the purity of the foodstuffs. It stipulates that substances used in the manufacture of packaging materials must be of good technical quality. In the case of a multi-layer structure, for example paper / aluminium / plastics / food, the Directive applies to all layers whether in direct, or indirect contact with the foodstuffs.
Article 2 Materials and articles must be manufactured in compliance with good manufacturing practice so that, under their normal or foreseeable conditions of use, they do not transfer their constituents to foodstuffs in quantities, which could: 1. Endanger human health 2. Bring about an unacceptable change in the composition of the foodstuffs or a deterioration in the organoleptic characteristics thereof.

Specific Directives These relate specifically to the following materials: Plastics, including varnish and coatings (2002/72/EC with seven amendments).

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PVC articles (78/142/EEC; 80/766/EEC; 81/432/EEC ). Regenerated cellulose (93/10/EEC). Elastomer and rubber (93/11/EEC). Ceramics (84/500/EEC).

October 2004

These specific directives relate to: Positive list of substances. Purity standards. Special conditions of use. Specific migration limits (SML). Overall migration limit (OML). Basic rules for checking compliance.

Council Directive 80/590/EEC This Directive determines the symbol that may accompany materials and articles intended to come into contact with foodstuffs.

2002/72/EC Directive Relating To Monomers And Additives According to this Directive, companies using chemical depolymerisation technologies should ensure that their processes do not result in any impurities in the finished resin that would pose a health or safety concern, and that the finished article meets the overall migration limit and any specific migration or residual quantity limitations for the monomers and additives set forth in the Plastics Directive. Similarly, the monomer and oligomers resulting from chemical re-cycling are not treated differently from monomers manufactured by chemical synthesis. It sets out a list of additives and substances that are currently accepted but this list is not conclusive and other substances which may not be included remain regulated by national laws pending a decision at Community level.

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The Directive sets out what is defined as plastic does not include regenerated cellulose film, elastomers and rubber, paper and paperboard where modified or not by the addition of plastics, ion-exchange resins, silicones. The Directive does not apply to materials and articles composed of two layers, one of more of which does not consist exclusively of plastics, even if the one intended to come into direct contact with foodstuffs does consist exclusive ly of plastics. Article 2 Plastic materials and articles shall not transfer their constituents to foodstuffs in quantities exceeding 10 milligrams per square decimeter of surface area of material or article (mg/dm) (overall migration limit). However, this limit shall be 60 milligrams of the constituents released per kilogram of foodstuff (mg/kg) in the following cases: 1. Articles which are containers, are comparable to containers, or which can be filled, with a capacity of not less than 500 millilitres (ml) and not more than 10 litres. 2. Articles which can be filled and for which it is impracticable to estimate the surface area in contact with foodstuffs. 3. Caps, gaskets, stoppers or similar devices for sealing.

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PROCEDURE FOR COMPLYING WITH THE PROVISIONS OF DIRECTIVE 2002/72/EC ON PLASTIC MATERIALS AND ARTICLES IN CONTACT WITH FOODSTUFFS START

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Is the material/article made exclusively of plastic?

Is the m/a composed of one layer only?

N
Apply Directive 93/10/EEC

N
Is each layer (2 or more) exclusively composed of plastic?

Is the m/a coated (<50mg/dm2) or uncoated regenerated cellulose film?

N
Specific Directive to be established

N
Stop at Article 1.4 General Provisions

Is the m/a elastomer, natural or synthetic rubber, paper, paperboard with plastic, surface coating (incl. RCF >50mg/dm2), waxes, ion-exchange resin or silicones

Is m/a made with substances from list A or B?

N
Is m/a made of substance in synoptic document?

Provisions of Article 4 of Directive 89/109/EC and/or application required

N
Has m/a been tested for migration according to Directive 82/711? Carry out tests

Is global migr. Lim it inferior to the spec.migr. limits SML?

Apply Article 8 and label

m/a complying

N
Is substance concentration in FP too low to reach spec. migr. Limits?

Apply Article 8 and label

m/a complying

N
Is the specific migration result lower than restriction?

Apply Article 8 and label

m/a complying

N
Can determination of concentration in FP ensure compliance with SML by application of math models?

Apply Article 8 and label

m/a complying

N
Material / article not complying

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Directive 78/142/EEC Relating to Vinyl Chloride Monomer Levels This Directive concerns the presence of vinyl chloride monomer in, and possible migration from, materials and articles prepared with vinyl chloride polymers or copolymers that come into contact with food stuffs. Maximum quantities of vinyl chloride monomer levels are laid-out which cannot be exceeded, (one milligram per kilogram). Directive 80/766/EEC Relating to Method of Analysis of VCM Levels Commission Directive of 8 July 1980 laying-down the Community method of analysis for the official control of vinyl chloride monomer levels in materials and articles which are intended to come into contact with foodstuffs. Directive 81/432/EEC Relating to Method of Analysis of Vinyl Chloride Levels Commission Directive of 29 April 1981 indicating the Community method of analysis for the official control of vinyl chloride released by materials and articles into foodstuffs. This Directive lays-down the Community method of analysis for determining the quantity of vinyl chloride released by materials and articles into foodstuffs Directives 82/711/EEC Relating to Rules for Testing Migration This Directive indicates the basic rules necessary for testing migration of the constituents of plastic materials and articles and Council Directive 85/572/EEC establishes the list of simulants to be used in migration tests. Directive 2002/16/EC Relating to BADGE, BFDGE and NOGE This Directive applies to plastic, adhesive or surface coated materials and articles which are manufactured with or contain one or more of the following : 2, 2-bis (4-hydroxyphenyl)propane bis (2,3-epoxypropyl) ether (BADGE) and some of its derivatives. Bis(hydroxyphenyl)methane bis (2,3-epoxypropyl) ethers (BFDGE), and some of their derivatives. Other novolac glycidyl ethers (NOGE) and some of their derivatives.

It sets out maximum limits of substance emissions and rules that materials containing BADGE and BFDGE may only be used until 31st December 2004. Regenerated Cellulose Film in Contact with Foodstuffs Directive (93/10/EEC) relates to materials and articles made of regenerated cellulose film intended to come into contact with foodstuffs. It sets out a list of substances that can be used in the manufacture of regenerated cellulose films and also the conditions governing their use. The printed side of the regenerated cellulose films must not be allowed to come into contact with foodstuffs. The Directive is up-dated by 93/111/EC

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which amends only the date from which the trade in, and use of, products not complying with Directive 93/10/EEC are prohibited. For marketing purposes (with the exception of retail sales), materials and articles of regenerated cellulose film that are intended to come into contact with foodstuffs must be accompanied by a written declaration certifying that they comply with the Framework Directive 89/109/EC (see above). Container Contents And Sizes The maximum tolerable error between the actual content and the quantity indicated on the label, and reference methods to check this, are fixed in Council Directive 76/211/EEC, as amended. A small "e" of at least 3 mm on the label guarantees that the actual content corresponds to the quantity indicated. The size of the figures indicating the quantity of produce inside the packaging depends on the nominal quantity, with the following categories: Nominal quantity greater than 1000 g or 100 cl - at least 6 mm high. Greater than 200 g/20 cl, but less than 1000 g/100 cl - at least 4 mm. Greater than 50 g/5 cl but less than 200 g/20 cl - at least 3 mm. Less than 50 g/2 cl: 2 mm.

The size is followed by the unit of measurement. Council Directive 80/232/EEC establishes container sizes for butter, fresh cheeses, salt, sugar, breakfast cereals, pasta, rice, dried fruits and vegetables, coffee, frozen fruits and vegetables, fish fillets, fish fingers, ice-cream, preserved fruits and vegetables and products sold in metal containers. Requirements set out in these directives are not a prerequisite for marketing a foodstuff. However, if these requirements are satisfied, free movement throughout the EU is guaranteed. Labelling Directive 2000/13/EC contains the main rules on the labeling, presentation and advertising of foodstuffs marketed in the EU. It applies not only to foodstuffs intended for sale to the ultimate consumer, but also for supply to restaurants, hospitals and other mass caterers. Specific labeling provisions for genetically modified foods and for novel foods have been established in Council Regulation 1139/98, Commission Regulation 50/2000, European Parliament and Council Regulation 258/97. Labels must contain the following compulsory information: Name of the entity under which the product is sold. List of ingredients, in descending order of weight. Shelf-life of the product. Any special storage conditions, or conditions of use.

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Name and address of manufacturer, packager or vendor established within the EC. Place of origin. Instructions for use.

The Directive lists the categories of additives which must be designated by the name of their category followed by their specific name or EEC number. Examples of categorie s include: colour, preservative, thickener, flavour enhancer, sweetener and raising agent. The label must be in a language easily understood by consumers, which in practice is usually the official language of the member state. Multi-language labelling is also allowed. Directive 90/496/EEC Nutrition labelling is not mandatory in the EU unless a nutrition claim is made on the label, or in advertising messages. Nutrition labelling means any information on the label that relates to energy value and to the following nutrients: protein, carbohydrate, fat, fibre, sodium, vitamins and minerals present in significant amounts. Where nutritional labelling is provided, the information to be given should consist of either Group 1 or Group 2 in the following order: Group 1: - the energy value; - the amount of protein, carbohydrate and fat. - the energy value; - the amount of protein, carbohydrate, sugar, fat, saturates, fibre and sodium.

Group 2:

The energy value and proportion of nutrients must be expressed in specific units per 100 grams or per 100 millilitres. Information on vitamins and minerals must be expressed as a percentage of the recommended daily allowance. (RDA) The information on the label must be presented in tabular form with the numbers aligned or if space does not permit, in linear form in a language easily understood by the purchaser. Packaging Waste Management Council Directive 94/62/EC indicates Member States are required to take measures to prevent the formation of packaging waste and must introduce systems for re-use, recovery and re-cycling of packaging materials. Commission Decision 2001/524/EC relates to the publication of references for certain EN standards in the Official Journal which do not fully meet the essential requirements of Directive 94/62/EC. To facilitate collection, reuse and recovery including re-cycling, an identification system for packaging has been drawn-up (Commission Decision 97/129/EC) . Its use is currently voluntary. 94/62/EC Packaging and Packaging Waste Directive This Directive is broadly concerned with promoting the collection, re-use and recovering (including re-cycling) of packaging and packaging waste. It includes essential requirements for packaging manufacturers that cover:

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1. Minimising packaging volume and weight in line with safety, hygiene and product/consumer acceptance. 2. Designing packaging to permit its re-use and / or recovery and to minimise the impact of packaging waste on the environment. 3. Manufacturing packaging to minimise the presence of hazardous substances in emissions, ash or leachate when packaging waste is incinerated or landfilled. There are also limits on the concentration levels of lead, cadmium, mercury and hexavalent chromium which packaging can contain.

16.4

Further Information

Further information about regulations concerning packaging materials in contact with foodstuffs can be found at the following web site addresses:
Site Address http://www.cbi.nl/accessguide/

Description Useful site for exporters to the European Union on all matters relating to legislative and marketing requirements. Official European Union web site which provides direct access to a multitude of information concerning trading with Member states For online purchase of: EU food law: A practical guide Edited by Kaarin Goodburn, Secretary General, Chilled Food Association, London, UK Lists the EC Directives concerned with materials and articles in contact with foodstuffs Contains an overview of and access to an EU proposal prepared in November 2003 for new rules relating to active and intelligent packaging Contains general and country specific information and

http://europa.eu.int/index_en.htm

http://www.woodhead-publishing.com

http://europa.eu.int/comm/food/fs/sfp/food_contact/legi_ref_en.pdf

http://europa.eu.int/scadplus/leg/en/lvb/l21082a.htm

http://www.packaginglaw.com/index_fcn.cfm?id=32

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September, 2004 articles relating to EU food packaging legislation. Contains a downloadable PDF version of the enclosed document Food Contact Materials Practical Guide

http://cpf.jrc.it/webpack/

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17
17.1

E-Commerce In Packaging
Role Of Internet

No development strategy for any sector in Egyptian business should exclude the importance of the explosion in electronic commerce in recent years and the opportunities it provides in opening up export markets. Since its introduction in the 1970s, the Internet has consolidated itself as a powerful business tool resulting in the creation of a truly global village which has changed the way we communicate forever. The Internet, as a medium for communication and transaction is becoming a more important component in the development o f consumer and business-to-business marketing strategies. It has resulted in the dismantling of trade barriers and has enabled businesses to reach markets directly, fast and economically. The table below illustrates clearly the fast evolution of the Internet as a means of communication from 1995, till now. In less than 10 years alone the number of global users has increased by almost 5,000% from 16 million users to 785 million in 2004.
DATE December, 1995 December, 1996 December, 1997 December, 1998 December, 1999 December, 2000 August, 2001 September, 2002 December, 2003 June, 2004 NUMBER O F USERS 16 millions 36 millions 70 millions 147 millions 248 millions 451 millions 513 millions 587 millions 719 millions 785 millions % WORLD POPULATION 0.4 % 0.9 % 1.7 % 3.6 % 4.1 % 7.4 % 8.6 % 9.4 % 11.1 % 12.2 % IDC IDC IDC C.I. Almanac Nua Ltd. Nua Ltd. Nua Ltd. Internet World Stats Internet World Stats Internet World Stats INFORMATION SOURCE

Population ( 2004 Est.) Egypt 70,832,400

Internet Users Dec/2000 450,000

Internet Users, Latest Data May 31, 2004 2,700,000

Use Growth (2000-2004) 500.0 %

% Population (Penetration) 3.8 %

(%) of Users 22.0 %

Source: InternetWorldStats.com

As can be seen from the table above table, internet access in Egypt continues to become more widespread with an increase of 500% in the past four years. Currently an estimated 75% of Internet use in Egypt is accounted for by businesses 1 but with ongoing Government initiatives such as the Free Internet Model introduced in January 2002 in conjunction with Telecom Egypt, internet usage is expected to increase across the board of homes and schools as well as businesses. According to the World Bank, internet access supported by the growing use of mobile phones as a major link to the internet is expected to rise at a faster rate in developing countries than industrialised countries over the next 10 years.

Ministry of Communications and Infor mation Technology

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17.2

Trading Through The Internet

From a global perspective the Internets most important function was and remains communication, but it is increasingly being used to generate sales and facilitate on-line transactions. According to the UNCTAD 2 electronic commerce is expected to account for as much as 25% of world trade by 2005. Changing consumer tastes and requirements in developed consumer markets have resulted, not only in increased demand for innovation, but also demand for convenience regarding the product itself, how it is packaged and also the purchasing environment in which it is made available. Increasingly busy lifestyles, have meant less time for shopping and thus the concept of home-shopping has become a reality. Instead of going to the shops, negotiating with parking and experiencing customer queues, consumers can now buy what they want at the click of a button. Examples of product areas where ecommerce is most applied are: Mail order and home shopping delivery (from home appliances to supermarket items). Fast food. Home electronic equipment: PCs and hardware and their software accessories, sound systems, videos and television sets. Fresh food.

One of the most well known e-shops is Amazon.com who sell a variety of consumer goods from books and CDs to clothes and electronic devices. An online credit card payment facility and an efficient delivery service have contributed to its tremendous success. It offers added-value services such as keeping records of purchase history and making recommendations to consumers based on previous orders. Such changes in how products are purchased, provide growth opportunities for packaging materials manufacturers, particularly those operating in the areas of carton / corrugated board and plastics. Items purchased on-line require more packaging than if purchased by the customer directly in a physical store environment.

17.3

B2B Applications

As well as consumers taking advantage of the internet for their purchasing requirements business-to-business (B2B) applications are gain ing power and there is significant potential for e-commerce to further enhance business processes. E-commerce reduces retail transaction costs and can eliminate intermediaries involved in marketing and distribution. It can also reduce the cost of communic ation between geographically distant partners and lower the cost of locating new strategic partners. The increased use of online auctions can reduce the price of inputs by allowing transparency and facilitating competitive bidding thus improving the efficiency of procurement systems. Because procurement in Egypt and other developing countries
2

United Nations Conference on Trade and Development 1999

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tends to be cumbersome, time consuming and labour intensive, the potential gains from transferring procurement systems online may be more significant than the gains that might be achieved in more industrialised countries.

17.4

CPFR

An important advancement in e-commerce is the introduction of CPFR (Collaborative, Planning, Forecasting and Replenishment). This is a relatively new business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of customer demand. It links sales and marketing best practices, to supply chain planning and execution processes, to increase availability while reducing inventory, transportation and logistics costs. Since 1998 over 300 companies have implemented the practice in the sectors of retail, white goods, apparel and consumer packaged goods. 3 The Internet allows increased connectivity between organisations and affords them the opportunity to use their combined strengths and resources to satisfy the final consumer, as well as their own corporate objectives.

17.5

On-line Auctions

Consumer goods companies such as Nestle and Coca Cola employ Packaging Procurement Managers who increasingly use on-line auctions, where suppliers bid against each other, as a way of driving down packaging costs. Such auctions are suitable for certain standardised packaging where there is little differentiation between suppliers. The purchasing procedure itself has not changed - e-procurement simply speeds -up the process of finding a larger base of qualified suppliers. One of the worlds leading providers of on-line auctions and e-procurement services is ChemConnect which generates transactions worth about $8 bn a year in chemicals and plastic resins for packaging. 4 Other prolific e-procurement service providers that cater for the packaging industry include ICG Commerce, PaperLoop, Polymersite.com and B2BPKG. Using on-line procurement services reduces transportation costs and access to foreign markets is made much easier. Egypts biggest problem, in exploiting e-commerce and taking part in on-line auctions, may be impeded by a perceived lack of credibility in its products and distribution networks, in international markets. Purchasers need to have confidence in listed suppliers. This could be overcome through a dual strategy being adopted by the Government Of Egypt: Supporting the implementation of the overall packaging sector development strategy, see separate report, as this will provide the required pull effects to improve packaging quality and capabilities. Improving the quality of telecommunication and transportation services, and incorporating information technology in a clear strategy for improving Egypts trade position on the global stage.

www.cpfr.org VICS Voluntary Inter-industry Commerce Standards 4 Packaging Magazine UK, 26th June 2003, www.packagingmagazine.co.uk Development Options Limited 207

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A significant advance in Egypts commitment to the development of its technological efficiency was the passing into legislation in of Law 15/2004 which is concerned with the acceptance of digital signatures in business and the establishment of the Information Technology Industry Development Authority (ITIDA). The primary objective of the ITIDA is to set and control standards for digital signature use in Egyptian business, to promote the application of electronic transactions and to participate in the development of information and communications technology. Due to Egypts low penetration of internet access and mainly cash based economy, the opportunities for e-commerce dwell more outside, than inside the country. Access to international markets is easier than ever and a wealth of information on products, markets and customers is just a click away through such sites as: www.packagingnetwork.com sourcing site for the packaging industry, contains access to buyers and sellers of packaging materials as well as up to date information on the industry itself; www.packexpo.com international packaging directory with a database of more than 6,000 international packaging suppliers, allows browsers to request online quotations and browse company catalogues and product listings; www.webpackaging.com portal site for consumer packaging products with supplier listings, industry developments and information, also includes links to packaging associations, trade fairs and industry news sources.

In order for Egyptian packaging businesses to truly exploit the opportunities that the Internet provides there needs to be increased social and professional awareness of the importance of electronic commerce as well as including a commitment to e-marketing in strategic marketing objectives. Most of the companies in Egypt, that have a presence on the Internet, do not actively seek sales opportunities on-line and simply host a static web page as an advertisement that they exist. Like most marketing activity carried-out here, it is passive rather than reactive. Marketing communications need to b e interactive and direct and Egypt has not embraced this concept yet.

17.6

Egypts Marketing Strategy

In many areas of industrial activity Egypt has competitive advantages which are based on its raw materials. Examples of this are; cotton, flax, ceramics and marble. To generate maximum added-value in these areas of competitive advantage Egypts manufacturers have to gain access to high income consumers who are willing to pay high prices for quality products. If Egyptian manufacturers can gain access to such consumers, then, niche marketing strategies become a viable approach to increasing sales volumes and values. Without such direct access Egypts manufacturers are likely to be condemned to using its high quality natural resources, to produce commodity products, that will be sold into mass markets, through sales channels that are highly price sensitive. Using traditional approaches to niche market entry and development, such as opening retail outlets in high income residential areas is extremely expensive. Developing sales through the Internet is a less expensive option, but to be successful there will have to be a highly developed packaging and distribution sector located in Egypt.

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18

Review Of Packaging Designers

18.1 Briefing Process


Except with mncs and large indigenous companies, there is generally no formalised briefing process when dealing with a graphic designer or printer. Briefing is usually delivered verbally and either conducted over the telephone or through a meeting between the owner / chairman of the agency and the owner / chairman of the client company. The client will have an idea what they are looking for and will expect the agency to interpret their requirements relying heavily on their expertise to understand what they want without a definitive brief. Within this approach very little is confirmed in writing. There should be define d briefing procedures to be followed between client and agency which clearly outline what is required of the agency. Such procedures should always be flexible but should provide direction to the agency to avoid ambiguity and misinterpretation of what is required. A Creative Brief is like a road map it gets you to where you want to go quickly. An inadequate brief may result in the agenc y going in the wrong direction. A good Creative Brief represents a checklist of questions that need to be answered jointly by the client and the agency. Each new project will raise new questions and so it should always be flexible. When manufacturing companies decide they do not have time to write a Creative Brief they should remember that working from verbal input alone results in waste d time and money. Examples of questions that should be contained in a Creative Brief: Background / Overview (of market, product). Objective and purpose of communication. What do we want to say to our audience? What are the supporting rational and emotional reasons for our audience to believe what we are saying? Target audience: who are we talking to? Important details / mandatory inclusions e.g. logo, company contact details, nutritional panel, language requirements etc. What do we need and when do we need it? Deadlines need to be established for each stage of the production process from conception to delivery. Do we have all supporting information, e.g. examples of previous packaging, other promotional materials, examples of competitor packaging and promotional materials, books for reference.

Keep the Creative Brief as short as possible . It does not have to be lengthy to include all relevant information.

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18.2 Quality Control


Spelling mistakes are often found on the packaging of Egyptian manufacturing businesses and one of the principal reasons for this is the assumption that the client has proof-read copy when they may not have. Most spelling mistakes occur when the copy is not in Arabic and can be attributed mostly to lack of proficiency in the chosen language. Words are spelt phonetically and there appears to be no procedure followed to ensure the accuracy of copy. Agencies do not take responsibility for proof-reading copy and while internationally it is always the clients ultimate responsibility the agency should be more vigilant in checking copy. If a client is producing packaging in a la nguage that they are not totally familiar with, it is essential that they engage the services of a translator to ensure copy accuracy. Before artwork is being sent to print it should be signed off by both the agency and the client, with the clients signature as final approval.

18.3 Market Research


On the client side the owner / chairman is usually the decision-maker when it comes to design selection and designs will be chosen based on personal taste rather than for any reasons relating to marketing conditions, or consumer behaviour. Market research should be undertaken through data collection, connecting sessions and consumer surveys. Packaging designs should be presented to audience samples before final decisions are made, with a panel of product customers being assembled through an in-store promotion and asked to provide comments. When introducing new packaging, several designs could be posted onto a web site where panel members could select the one each prefers. In the case of an Egyptian company exporting to a European market, they may need the services of an in-country research company that can carry out direct research on their behalf. The most important piece of research that should be carried-out is to define the target market in terms of its personality, buying behaviour and requirements. It is important also to consider the packaging trends in the target market and the formats and designs used by competitors. It is not enough to simply like a design instinctively and select it on that basis. Research is vital because so many customer purchase decisions are based on the packaging, rather than the product in the packaging. The design of the packaging plays a particularly important role for brands with low advertising support, where customers are making impulse purchase decisions. Market research should provide answers to the following questions: Do you have an in novative design for the packaging that will grab the consumers' attention on a cluttered retail shelf, given the short time span spent shopping for each category? Will the packaging support growing brand awareness, consideration or sales by inducing brand switching or reinforcing brand commitment at point of sale?

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18.4 Designer Involvement


In most cases communication between the agency and the client takes place solely between the most senior managers in both organisations. Designers are not involved in the briefing process and rarely have direct client contact. While it is important to streamline the communic ation process between the agency and the client, it is essential also that the designers have some form of direct client relationship as this will result in a clearer understanding of the clients requirements.

18.5 Human Resource Development (HRD)


Within the design agencies training, if given, is barely adequate and there is a general lack of commitment to human resource development in terms of up-skilling or performance appraisal. Employees are given a salary and that is the extent of the commitment that the agency makes to their career and skill development. The primary reason for this is fear that if resources are spent on upgrading skill sets that the employees will seek better opportunities elsewhere. If agenc ies invested more in the ir staff, and made them feel valued, they would be less likely to want to move. Agenc ies need business up-grading in the area of HRD and to be willing to invest in their staff to create a superior workforce. They should create a documented and systematic hiring process to ensure that the best possible staff are hired. Management must provide the necessary direction to its staff to align employee interests with the organisations goals and desired outcomes. Regular feedback to employees is essential to ensure that staff are fully aware of what is expected of them and an effective reward and recognition system should be developed. Ongoing training, education and staff development should form a key part of a agencys HRD policy. In packaging, designers and pr inters must be highly educated and abreast of market developments to respond effectively to client requirements.

18.6 Innovation And Creativity


While graduates from art school have the technical expertise to operate design software, they often lack the creative edge to produce designs that would be considered comparable to international standards of innovation and creativity. Factors in this situation are: the emphasis on innovation and creativity during their education; the working environment within most agencies, where most apply tried and tested formats are followed; and where creative staff are severely under-valued. The main reason for this inherent lack of imagination is the creative boundaries within which most designers must operate. A further factor is that clients, due to their lack of marketing awareness, often prefer to imitate the competition or amend existing packaging, rather produce a design that is eye catching and innovative. There is a need to expose Egypts designers to international markets through training programmes, continuous learning and up-skilling. Designers should spend a couple of weeks per year working in an international design agency to gain experience of the process from an international perspective. Clients also need to be more educated in marketing for them to realise its importance in exporting and improved sales. They need to realise that packaging is an investment, and a key factor in determining customers purchasing decisions. Generally, marketing in Egypt means advertising and this perception needs to change.

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18.7 Locally Produced Packaging Materials


Apart from the real quality issues, that are covered elsewhere in this report, there is a perception amongst the agencies that locally sourced packaging materials are of poorer quality than imported products. Even if it costs more to import materials many companies prefer to do this because they can be assured of consistent quality. A common view of agencies is that Egyptian packaging manufacturing companies have a tendency to cut corners in production and do not have fully effective quality control systems.

18.8 Printing Equipment


Many printing houses are using equipment that requires replacement or up-grading, but many companies cannot afford to invest in this area. This area will be covered in greater detail in the Printing Sector Study.

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Part D Fresh Horticultural Produce

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19 Preliminary Fresh Horticultural Produce Sector Development Strategy


19.1 Fresh Horticultural Produce In Context
At the time of preparing this report there has not been a sector study commissioned to cover Egypts Fresh Horticultural Produce Sector. The development strategies that have been submitted to IMC on other industrial sectors have been prepared based on the outcome of in-depth global and domestic overviews. Our coverage of Egypts Fresh Horticultural Produce Sector has been based on a request from the Steering Committee as it is an area of significant demand for domestically produced packaging. It is emphasised that covering this sector was not required under the ToR for the overall study and the results in this, and the next section, are provided as an additional output of the overall study. Although we have undertaken some dedicated domestic review activity to prepare this Part D of the overall report, we have not undertaken dedicated global review activity and our proposals in this area are based on DOLs existing experience of this international market. If a sector study is contracted to cover Egypts Fresh Horticultural Products Sector this should result in refining and developing the contents of this part of the overall report. This introduction is provided to explain that the recommendations contained herein, represent a Preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS), and further in-depth review activity is required before preparing a final FHPSDS.

19.2 Basis Selecti ng Fresh Horticultural Produce


There are three overall reasons for having selected Egypts Fresh Horticultural Produce sector to provide demonstration effects for Egypts Packaging Sector: Section 4 described the weak activation of IDD1 strong domestic or export demand for consumer products produced domestically and how this has been holding-back growth in Egypts Packaging Sector. This section indicated the need to activate IDD3a strong export performance of packaging as a product as a way of getting around this situation. Egypts Fresh Horticultural Produce Sector is an area of the economy that can lead this increase in exports due to the relatively short product cycle between planting and harvesting. In many of the manufactured consumer product areas there are structural issues that need to be overcome before exports performance can be increased significantly. A stronger application of Egypts existing regulations relating to packaging for fresh horticultural produce will generate a push effect to improve the quality of packaging, see section 4. There is a direct rela tionship between the quality of the packaging and the ability of Egypts fresh horticultural produce growers to be able to export. Specific examples from this report on areas of overlap are: Fresh produce exports being rejected at European port of entry due to the packaging not meeting EU regulations.

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The lack of packaging product standards in Egypt for growers to have confidence that the packaging they purchase will meet the product protection and containment requirements. The costs incurred by Egypts exporters of fresh produce consignments fail to meet either EU regulations, or customer specifications, which applies equally to the packaging as to the produce. The significant loss of food with the domestic market and for export supply due to inefficiencies within domestic supply chains. The most significant issue reported under this part of the report is the cold chain, where the application of appropriate packaging is as important as rapid chilling, refrigerated transport and cold storage. The application of the full range of EU regulations relating to packaging, see section

Egypts Fresh Horticultural Produce Sector provides a good example of the range of issues that will have to be addressed in establishing stronger relationships between Egypts packaging manufacturers and the manufacturers of consumer products, see section 7.6C.

19.3 International Development Drivers (IDDs)


The IDDs for the fresh horticultural produce sector are indicated in the following table. They are split into dr ivers that assist in establishing a base position for any country and the drivers that enable a country to develop from this base position. Having a strong base position is necessary, but not sufficient, to have a strong exporting performance of fresh horticultural produce.

Ref. IDD1a IDD1b IDD2a IDD2b IDD3a IDD3b IDD4

International Development Drivers


Establishing A Base Position: Utilising growing conditions to harvest high quality produce at costs below competitors. Maximising the opportunity to sell when market prices are high. Supply chains operating to meet market requirements in timely quantities, with high quality produce at competitive prices. Efficient and cost effective operation of in-country supply chains. Developing From The Base Position Understanding, willingness and acceptance to meet international market requirements. Direct links to international buyers (in-country and close to retailer) to maximise prices Net prices received by growers compared to other crops.

19.4 Base Position IDDs


IDD1a. - Utilising growing conditions to harvest high quality produce at costs below competitors. Having good growing conditions is not enough to be an IDD. The most significant issue is to use these conditions to grow high qua lity produce and to make available this produce

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at costs to international supply chains and buyers that are lower than competitors. This IDD deals with the supply side with the need to keep all costs as low as possible up to the point of the produce bein g delivered to the customer. This should not necessarily result in the low costs being passed-on as low prices. The requirement for low costs are related to: The need for flexibility in prices to be applied to the customer, with the ability, when required, to reduce prices to either break into new markets, or increase market share in established markets. Maximise profits throughout the supply chain, with each part of the chain achieving rates of return that encourage continuous investment in improving the chains facilities and efficiency and expanding the quantities that can be handled on a seasonal basis.

It is accepted that there is a potential conflict between activating this development driver and IDD4, see below, which needs to be kept under review to avoid actual conflicts emerging that will damage the development of the sector. IDD1b. - Maximising the opportunity to sell when market prices are high. Any country has traditional harvesting periods. These periods need to be matched with prevailing and historic prices in international fresh produce markets to identify when the highest prices can be obtained. There can also be initiatives to stretch harvest periods to meet market timings when high prices are available. IDD1b is important as competitive advantages that are available under IDD1a can be lost if the produce is introduced to international markets, when prices are low. IDD2a. - Supply chains operating to meet market requirements in timely quantities, with high quality produce, at competitive prices. This is a basic development driver as without the existence of a supply chain IDD1a and IDD1b cannot be activated, except for the domestic market. The supply chain must be able to meet export market requirements, which relate to: Operating to EUREGAP and HACCP. Using appropriate packaging. Meeting the specifications of individua l customers. Maximising shelf-life of the produce.

Activating this development driver is based on having a high level of confidence that when buyers from the target export countries inspect the supply chain they are impressed with the facilities. The attitude to activating this development driver should not be to meet minimum standards, but to be world class in the standard of the facilities and to anticipate new requirements over the next decade. IDD2b. - Efficient and cost effective operation of in-country supply chains.

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This IDD is closely related to IDD2a, but focuses on the operation of the supply chain, whereas the former deals with the existence of procedures and facilities. Activating this development driver requires a holistic approach to managing a countrys fresh produce supply chain, taking into account all of the stages, including: the supply of seeds; ground preparation; planting; growing; harvesting; sorting; supply of packaging; packing; rapid chilling; cold storage prior to transportation; reefer container transport to air or sea port; in-country transit arrangements to final destination; loading facilities; and freight time to port of unloading. Any inefficiencies, or high costs, in any stage of the above can adversely affect the activation of DD1a and DD1b. A country can have excellent supply chain facilities under IDD2a, but if they are inefficiently managed, or are too expensive to operate, the activation of IDD2a will have been to no benefit. A key feature of IDD2b is the ability to apply a national perspective for the fresh produce sector as a whole, including all stages of the supply chain. This requires all parties involved in every stage in the supply chain accepting there is a national Fresh Horticultural Produce Sector Development Strategy (FHPSDS) for the sector as a whole, and each party being willing to accept their role as contributing to the successful implementation of the strategy. In this context it should be recognised that this report presents only a preliminary FHPSDS.

19.5 Develop From Base Position IDDs


DD3a. - Understanding, willingness and acceptance to meet international market requirements. This development driver relates to the level of understanding within every stage of the supply chain of the requirements of international customers. Each stage in the supply chain needs to understand its role in meeting (and surpassing wherever possible) the minimum requirements. There needs to be complete willingness to operate at all times to these minimum requirements and an acceptance that the objective of all parties in the sector is to beat the se requirements with every consignment that is sent to an international customer. Activating this development driver requires a high level of confidence that each stage of the supply chain will operate consistently to the same high standards and there will be zero tolerance of any sub-standard produce reaching international customers. Activating this development driver is based on building a strong international reputation for the quality of the fresh produce that is supplied from Egypt and the quality of service in meeting customer requirements. DD3b. - Direct links to international buyers (in importing country and close to retailer) to maximise prices. This development driver is required to reap the benefits of IDD2a, IDD2b and IDD3a as investing in high quality supply chains is only worthwhile if high prices are achieved for the produce. The most effective way of achieving consistently high prices is to have direct access to buyers in the importing countries, where the buyer is as close as possible to the retailer or corporate customer (catering, hotels). Activating this development driver requires in -depth understanding of the markets in the importing countries to know price fluctuations and where demand pressures are increasing. The successful activation of this development driver requires close co-ordination with IDD1b to ensure the produce is ready when market conditions are favourable and requires a strong activation of IDD2a

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and IDD2b to ensure the produce hits the importing markets at the right time. Achieving this development driver also supports achieving IDD4. IDD4. - Net prices received by growers compared to other crops. This development driver deals with long-term management of domestic demand for utilising land in Egypt that can be used to grow a range of high value agricultural crops. Farmers make decisions on the crops they will grow based on the highest net return received during the previous season, or based on the crops they think will give the highest net return during the coming season. This situation can be complicated by subsidies if some crops are supported more than others. The issue for any specific crop (fresh produce, cotton and rice) is the expectations of farmers on which crop will provide the highest net return taking into account crop rotation requirements. These expectations have to be managed to avoid significant swings in the supply quantities between harvests. Such swings in supply have to be avoided to be able to build-up the reputation of any national crops in international markets. This is particularly the case with fresh produce, where it is not possible to establish stock reserves to cover periods of low supply. Within any international agricultural sector the larger the growers the greater the potential for them to enter into long-term growing / supply contracts. Smaller growers are more likely to be fickle in reaching short-term decisions and to switch more frequently between crops depending on which will provide the highest profit. In a country such as Egypt, which has excellent growing conditions, but also a large traditional agricultural sector there, is a need to achieve greater stability amongst small and medium growers to take more responsibility for securing the quantities required to support international market development activities. The small and medium growers need to be convinced of the benefits of specialising in growing a limited number of crops to achieve consistently high quality. The most important issue for the growers is that if they agree to specialise, they will not lose-out from retaining the flexibility of short-term switching between crops. For such an approach to work the growers need to be treated fairly by the other stages in the supply chains to international customers. Achieving this requires groups of small and medium growers to collaborate to have the strength to manage more of the supply chains to their own advantage. It has already been accepted that activating IDD4 has the potential to conflict with activating IDD1a. Managing this potential conflict can be achieved through having strong grower organisations that operate to the best interests of their grower members, while at the same time achieving the acceptance of these organisations of the need for longer-term market development. Other ways of achieving the same result can be to activate IDD1b and to grow specialist products that achieve premium prices. It should be noted that the activation of this type of IDD is covered by the Pharmaceutical Sector Development Strategy (PhSDS) in relation to the phyto pharmaceuticals subsector. We were informed that entering into annual supply contracts with the growers of the raw materials is not a current issue. It should be noted that the context in which the above issues under IDD4 are raised relate to: Increasing the volume of agricultural output across a number of product areas at the same time, which will put increasing pressure on the ability to support annual target increases in exports.

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At the same time as meeting export targe ts, being able to meet domestic requirements for supply Egypts population with food (fresh and processed) of the required quality and price.

The above issues can be addressed through effective planning of national supply, early identification of potentia l conflicts and management of the agreed priorities.

19.6

Weak Activations Of Fresh Horticultural Produce IDDs

The diagram overleaf indicates the activation of the International Development Drivers (IDDS) in Egypts Fresh Horticultural Produce Sector. The red colour indicates there are weak activations across all of the IDDs, but with varying degrees of weakness as indicated by the shading.

19.6A - IDD1a And IDD1b


Although Egypt has excellent growing conditions and can supply the European market when it is unable to supply itself, it has failed up to now to grasp the opportunity to meet market demand. Egypt already exports thousands of tonnes of produce, but a significant proportion of the volume is bulk crops such as potatoes, onions (mainly dehydrated) and garlic. The weak activation of these development drivers has resulted in other countries, in particular; Caribbean, South American, Sub-Saharan Africa and Australasia to establish strong market supply positions in Europe. The relatively late entry of Egypt to meet its full fresh produce export potential means it will have to take market share away from existing suppliers. This should be recognised as being a significant market development issue within the context that Europes population growth is stagnant, and in many countries is declining, with increasing proportions of elderly persons. The consequence of the above is a stagnant European market (by volume) for fresh produce, with market development strategies having to take this situation into account, alongside increasing expectations amongst many developing countries that they will increase their sales of fresh produce into Europe. Egypts Fresh Produce Sector requires a national market development strategy to take market share away from existing suppliers into the European market, with the strategy taking into account differences in market structure and supplier positions between countries. Egypt does have competitive advantages due to market proximity and having the largest growing area of any country with similar proximity. A key issue is how to use this competitive advantage to most effective use and the extent to which niche marketing strategies may be appropriate with specific products in individual markets. For Egypt to reach its full market potential there has to be a clear plan for where the additional produce will be sourced from domestic growers. It is mainly the corporate farm groups that provide the current export supply, but there needs to be realism on the extent to which these large growers can further increase supply. It appears to be increasingly accepted that small and medium growers will have to provide a significant proportion of the increase in export supply. This raises a serious issue that most of these growers have no experience of selling into international markets. Organising the small and medium growers into operations that can supply the required quality of produce into high quality supply chains is a very significant challenge. The challenge also applies to the large corporate growers where the emphasis on quality throughout the supply chain is as equally important, but where compliance has not always been consistent.

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Egypts Activation Of Fresh Horticultural Produce IDDs Ref. International Development Drivers
Establishing A Base Position: Utilising growing conditions to harvest high quality produce at costs below competitors. Maximising the opportunity to sell when market prices are high. Supply chains operating to meet market requirements in timely quantities, with high quality produce at competitive prices. Efficient and cost effective operation of in-country supply chains.

Activation Of IDD

IDD1a

Competitors allowed to capture the European market from weaker position..

IDD1b IDD2a

IDD2b

Lack of dedicated air cargo flights. Lack of modern / operating facilities in traditional growing areas. Independence of growers. Lack of availability of reefer containers. Lack of rapid chilling facilities. Importing packaging input materials and PET containers. Packaging manufacturing concentrated in Cairo and Alex. Regions.

IDD3a

IDD3b

IDD4

Developing From The Base Position Understanding, willingness and acceptance to meet international market requirements. Direct links to international buyers (incountry and close to retailer) to maximise prices Net prices received by growers compared to other crops.

General lack of acceptance of the need to chill produce. New EUREGAP regulations - new Egyptian growers / exporters . Over-reliance on intermediaries. Low market penetration compared to IDD 1 strengths. This year area planted with rice up / cotton down Too many middle -men

Linked to activating IDD1a and IDD1b is the need to keep the domestic market supplied to meet domestic consumption requirements. Egypt has a high level of wastage of fresh produce between harvest and human consumption. Reasons for this are: Lack of use of cold chain for domestic produce, including at retail outlets. Use of cheap polystyrene and plastic film packaging which results in the produce sweating more rapidly than would be the case in European supermarkets, with a much shor ter produce shelf -life in Egypt. Emphasis on cheap prices results in little scope for adding-value through applying higher quality packaging, or refrigeration.

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Bulk purchasing by households wit h high levels of wasted produce. Tradition of putting more food on the table than will be consumed.

If Egypt is to meet its full export potential, with increasing proportions of the domestic harvests being dedicated to export markets, the greater will be the pressure on the domestic supply of fresh produce for domestic consumption. It is recommended that this issue should be accepted as being an integral part of the final FHPSDS and this should take into account the domestic supply requirements of other sectors, such as Processed Foods, Phyto Pharmaceuticals, Tanneries and Textiles, and other sectors as they are covered by sector development strategies.

19.6B - IDD2a And IDD2b


The weaknesses that are affecting the activation of IDD2a and IDD2b are: Although many of the corporate farms have invested in supply chain infrastructure these facilities tend to be concentrated in the areas where land has been reclaimed. As indicated above there is a growing realisation that the increase in exports will have to be supplied by the small and medium growers that are located in the traditional growing areas in the Delta and Upper Egypt. These areas have been growing for the domestic market where there are no requirements for supply chains to be activated. Although there are at least 15 large packaging and cold store facilities in these traditional areas, they all stopped operating and have not been used for 10 years, or more. There are plans to bring these facilities back into operation, but investment is required to up-grade each of the facilities. The Union Of Producers and Exporters Of Horticultural Produce (UPEHC) has plans to establish three pilot initiatives in Abees, Ismailia and Nubariya and should be supported in implementing these projects. There is an issue as to whether the provision of modern sorting / packing / chilling / cold store facilities can be categorised as industrial development and therefore could receive assistance under industrial modernisation. One of the most important IDDs to be activated in relation to export markets for fresh produce is the need for rapid chilling to remove field heat as quickly as possible. This is a crucial issue for large European fresh produce customers, such as supermarkets, as the faster the field heat is removed the longer the shelf-life of the produce. Within Egypt there needs to be improved understanding of the difference between cold storage and rapid chilling. The former is used to keep the temperature of fresh produce within its recommended cold range (different ranges for different types of produce), but cannot take the produce down to the required temperature. The rapid removal of field heat requires significantly more powerful chilling capacity than is normally available in cold storage. There appears to be a lack of appreciation of the need for a three stage process of: rapid chilling; cold storage prior to shipment; and transport to customer in refrigerated conditions. There needs to be an intensive training programme for even the corporate growers on the need for the three stage process. There is a particular issue of applying rapid chilling to the small and medium growers for the following reasons:

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The quantities grown are relatively small and for any one crop can be scattered over a large area. The distance from the field to the nearest sorting, packing, chilling, cold store facility. The relative lack of existing facilities and those that exist may not be capable of meet the requirements to undertake rapid chilling. The hotter temperatures in Upper Egypt will require the chilling to be applied faster than in other parts of Egypt.

Egypts growers need to recognise that even crops that are harvested in the cooler months of November to March still require rapid chilling to remove the field heat. Even in temperate climates in Northern Europe produce that grows in ambient temperatures of 15 - 25C still requires rapid chilling to maximise shelf-life. Independence of the corporate growers, with each having invested in their own on-site supply chain facilities to sort, pack, chill (if applied), and cold store the produce prior to being transported off-site in reefer containers. This needs to be examined to check this is the most efficient and cost effective approach. A number of the corporate growers are members of HEIA, which has taken the initiative to establish a cold store at Cairo International Airport. Although this facility has been operational for over one year it is our understanding that it has a relatively low level of usage, based on comments that it is too expensive. It is our view that one of the reasons for lack of co-operation between the corporate growers, is that many of the farms are part of multi-activity groups with interests in industry, tourism and banking. We suggest it is these other activities which result in the groups being more introverted than equivalent growers in other countries. If the large farms were run more as specialised growing units, they could be more open to co-operation. We have concluded there is the need for a national supply chain strategy to be prepared and implemented which will require much closer co-operation between all players in Egypts fresh produce supply chains. The lack of dedicated air cargo flights for fresh produce raises two issues: The need to transport the produce, often long distances to Cairo International Airport. Waiting time at Cairo International Airport if a scheduled flight is delayed, or if there is an overload of waiting cargo.

In the main grape growing area in South Africa there is a dedicated runway for international cargo flights delivering fresh produce (mainly grapes) to Europe. The lack of availability of reefer containers at Egypts main sea ports is a significant headache for exporters of fresh produce as the produce can be ready to be shipped, but it is discovered too late there are no available reefer containers. This issue requires to be examined in greater detail through a separate logistics study that is also recommended in the Packaging Sector Development Strategy (PSDS).

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Most of the sensitive fresh produce has to be exported in corrugated boxes which, at a minimum, have had the layer that faces the fresh produce made from virgin fibre. Currently there is no source of virgin fibre in Egypt and it is all imported as kraft liner. 95% of the PET punnets that are used to hold the fresh produce are imported. Egypts plastic packaging sub-sector has been slow to react to the increasing requirements for PET containers. With import duties and sales tax added to the cost of importing, the result is relatively expensive packaging compared to Egypts competitors. Most of Egypts packaging manufacturing businesses are concentrated in the Cairo region (including, 6th Of October City and 10th Of Ramadan City) and the Alexandria region (Borg El-Arab City), to be close to their consumer product manufacturing customers. These locations suite the corporate farms that are concentrated on the reclaimed lands surrounding the Delta. As the sourcing of fresh produce for export moves into Upper Egypt it will be found that long distances to transport packaging puts up its cost. In Turkeys main fresh produce growing area, Anatolia, there is a concentration of packaging manufacturing businesses to meet the sectors packaging requirements.

19.6C - IDD3a And IDD3b


The weaknesses that are affecting the activation of DD3a and DD3b are: There is a general lack of acceptance of the need to rapid chill produce amongst Egypts fresh produce growers. Overcoming this situation is key to breaking into Europes largest supermarket chains to become regular suppliers. The new EUREGAP regulations need to be understood in depth to ensure the produce grown in Egypt is fully compliant and is not rejected at point of entry. One of the most significant requirements is traceability of the produce, its supply chain and its growing conditions. We are aware that UPEHC has initiated a traceability information technology project for its members. It has to be recognised that there are two parallel issues relating to regulations. Not only are the regulations becoming more stringent, but many of the growers that will be new to exporting will have never had to operate under such conditions previously. As, at the same time there could be many thousands of new growers, there is a significant organisational challenge to ensure that all existing and new growers are compliant. Apart from a limited number of large corporate growers, there is existing overreliance on using intermediaries to achieve export sales. This has the downside of little direct understanding, amongst Egypts growers and supply chain players, of how international markets operate and a lack of direct contact with the main buyers. We suggest that this lack of direct market experience and contact, that is a significant contributory factor in the general lack of acceptance of the need to rapid chill the fresh produce (see above). We suggest that the use of export intermediaries is one of the reasons that Egypt has achieved relatively low European market penetration compared to its DD1 strengths. The need for a national market development strategy has been indicated above and this should indicate how Egypts growers and supply chain players are to achieve direct contact with major buyers in Europe. If there is to be a niche market element

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to the overall market development strategy, there will be an additional need to identify growers and buyers in these smaller market segments.

19.6D - IDD4
The FHPSDS needs to recognise that the small and medium growers have other alternatives to growing fresh produce. This situation also applies to cotton, where there is also a national initiative to increase the quantity of raw cotton that is available for export. An example of this, is that during the 2004 growing season farmers have reduced the area planted to grow cotton and increased the area planted to grow rice. As already indicated above, there needs to be a more co-ordinated approach to obtaining long-term commitments from farmers to specialise in growing horticultural produce, and other crops such as cotton and rice if export development opportunities across a range of sectors are to be achieved at the same time. The existence of too many middle-men reduces the level of net profits that are available to be distributed to the growers and the players in the supply chain. As already indicated there needs to be reasonable rates of return received by each stage of the supply chain to ensure they invest in the required facilities and are capable of meeting quality standards. UPEHC provides an example of the type of organisational structure that can result in direct exporting on behalf of small and medium growers of fresh produce.

19.7 Preliminary Fresh Horticultural Produce Sector Development Strategy (FHPSDS) The diagram overleaf, indicates the proposed preliminary Fresh Horticultural Produce Development Strategy (FHPSDS) for strengthening the activation of the development drivers. Many of the parts of the development strategy have multiple impacts on the development drivers which results in the diagram looking rather complicated. The preliminary content of the FHPSDS is: Adjusting planting and harvesting programmes in Egypt to provide supply at peak European prices, by country, combined with encouraging the use of longer-term growing contracts between exporters and growers, will activate IDD1b and IDD4. Provide support groups to work with small and medium growers to activate IDD1a. This activity is already being undertaken by UPEHC, but the resources that are made available to this organisation need to be reviewed to check it has the ability to perform its full range of tasks. This should include local delivery groups to be close to the growers and for them to feel confident about its organisational capabilities. There may be a requirement for institutional capacity building within the UPEHC organisation. This is suggested based on the challenging role it will have to undertake, as described above. UPEHC, and organisations such as HEIA need to encourage the use of longer-term growing contracts with the small and medium farmers. This is likely to require an organisation such as UPEHC splitting itself into two areas of activity: Representing its grower members and ensuring they get a fair deal.

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Egypts Activation Of Fresh Horticultural Produce IDDs Ref. International Development Drivers
Establishing A Base Position: Utilising growing conditions to harvest high quality produce at costs below competitors. Maximising the opportunity to sell when market prices are high.

Activation Of IDD

IDD1a

IDD1b

IDD2a Supply chains operating to


meet market requirements in timely quantities, with high quality produce at competitive prices. Efficient and cost effective operation of in-country supply chains. Developing From The Base Position Understanding, willingness and acceptance to meet international market requirements. Direct links to international buyers (in-country and close to retailer) to maximise prices Net prices received by growers compared to other crops.

IDD2b

Adjust planting and harvesting with peak European prices by country. Encourage use of longer-term gr owing contracts. Support groups working with SM growers. Corporate farms and support groups working together. Integrated market development initiatives. Develop exporting capability inside / alongside groups Identification of / investment in gaps in supply / cold chains. Improve co-ordination between elements in the chain. Corrugated and plastic packaging closer to growers.

IDD3a

IDD3b

Regional demonstration projects of best practice throughout the chain growing to point of exit. Market research on buying chains / customers by country.

IDD4

Adjust planting and harvesting with peak European prices by country. Encourage use of longer-term growing contracts.

Commercial operations to open-up export markets and to oversee the management of Egypts supply chain. It may require these two activities to be split as the former would relate mainly to small and medium growers, whereas the latter relates to all growers, regardless of their size.

There is the need for early co-ordinated activity to establish a commercial mechanism that will implement the market development strategy (when this is prepared) to openup export markets. It is emphasised that the need for co-ordinated activity is to kick-start higher levels of exporting activity. As soon as possible after the process has been started the emphasis should be switched to supporting the establishment of new commercial market development groups that continue the longer-term realisation

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of market development opportunities to increase export sales. The reason for making this proposal is that having a single commercial entity can be useful at the start of an initiative to keep all parties co-ordinated, but as quickly as possible it should explode into a series of dynamic sales development companies. The key issue here is to avoid over-reliance on a single organisation to undertake the activation of IDD3a and IDD3b. A strong implementation mechanism will be required at the start of implementing a final FHPSDS due to the need to both kick-start the market development initiatives and to achieve improved co-ordination between players in, and improvements of facilities within, the overall fresh produce supply chain. There also needs to be improved integration between the large corporate and small / medium growers, at a local level, to ensure a stronger activation of IDD1a and IDD2b. The need for such integration has already been described above within the context of improving the supply chain facilities, efficiency and cost effectiveness and to meet the objective of surpassing minimum customer requirements. A strong implementation mechanism will be required, from the start of implementation, to bring the various interested parties together to work to implement the FHPSDS. The implementation mechanism will work on the market development area of activity to strengthen the activation of IDD3b, and on the supply chain area of activity to strengthen the activation of DD2b and IDD1a. A specific element of the FHPSDS is required to identify the requirement for investment to fill gaps in the overall fresh produce supply chain. This will strengthen the activation of IDD2a to ensure the supply chains exist to support the overall objective to significantly increase the level of fresh produce exports. There needs to be a specific element of FHPSDS which establishes closer working relationships between the manufactures of corrugated and plastic packaging and the fresh produce growers to address the issue of local ava ilability of packaging materials. This area of activity is described in the Packaging Sector Development Strategy and could be initiated through the implementation mechanism that is established for this sector. Achieving progress in this area of activity will assist with strengthening the activation of IDD2b. A programme of regional demonstration projects of best practice throughout the chain, up the point of the fresh produce leaving Egypt, need to be implemented to activate IDD3a. These demonstration projects need to overcome the current lack of understanding of the need for rapid chilling of the produce and can be used to indicate the EUREGAP requirements. A key element of the FHPSDS should be in-depth market research on European buying chains and customers, by country. Initially, this could be undertaken by the mechanism that co-ordinates overall implementation, with the market research to be continued by the new commercial market development groups, as described above. This market research capability will activate IDD3b, IDD1b and IDD4.

19.8 Next Steps


The most important next step is to undertake a more detailed sector study to prepare a full FHPSDS. It needs to be recognised that this report approaches the sector from the perspective of strengthening the activation of the development drivers. Although, this is

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an important feature of any sector development strategy, it is only half of the requirement. The other half, that still needs to be undertaken, is to undertake global and domestic overviews to provide the detailed content of the FHPSDS under the following development activity areas: 1. Removing the constraints on the development of the sector as a whole. 2. New FDI and strategic alliance activity to introduce new investment projects into Egypt. 3. Progressing and implementing sector strategic development themes, such as relating to the supply chain as described in this preliminary report. 4. Assessment of sector development opportunities and determining how they are to be implemented in the results are positive. 5. Designing and implementing business and market development programmes. In this context the market development area of activity is covered in this preliminary report, but further work is required on business development programmes.

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20

Fresh Horticultural Produce Results And Conclusions

20.1 Current Situation


Egypt has clear competitive advantages as it has the largest fertile area, with a mild subtropical climate, in closest proximity to the EU market. This not only provides logistical supply advantages, but more importantly market timing advantages with Egypt able to supply fresh produce when the competition is either the Caribbean and South America (longer distance), or Europe based greenhouses (high production costs). This provides Egypts growers with the advantage of being able to achieve high prices for export quality produce. There is nothing new in international trade, except new technology. Egyptian new potatoes already have high market recognition within Europe and almost have the status of being an international brand. This does not seem to be appreciated in Egypt, that its produce through unplanned marketing has achieved a status that could provide premium prices. Our latest market intelligence is that the three largest importers of Egyptian new potatoes into Germany are co-operating to maintain high prices for the 2004/05 harvest. It is the import agents, not the growers who will benefit from this situation.

20.2 Role Of Europes Supermarket Chains


The European horticultural fresh produce market has changed dramatically since the unplanned market development and positioning of Egyptian new potatoes. Now the core market is dominated by a small number of very large supermarket chains, which set the trends in purchasing. Any grower, or growing country with the objective of selling into the EU has to view these supermarket chains as their customer. This should apply whether selling to them directly, or through wholesale markets. Understanding the requirements of the supermarket chains is key to selling fresh produce in the EU. Unfortunately recent history is not encouraging in meeting the requirements of the supermarket chains. Egypts history of short-term trading has resulted in many European buyers having had bad experiences of sourcing fresh produce from Egypt. The mentality seems to be to have been to get a quick sale and forget about longer term customer relationships. The image of Egypts new potatoes was damaged almost to an irretrievable extent by sending shipments of bad potatoes (brown spot).

20.3 Strategic Objective


The strategic objective is to increase Egypts exports of agricultural produce from a current annual level of EGP 4 bn to EGP 6 bn in 2007. Achieving this objective must be based on establishing long-term customer relationships, which in turn requires growers to consistently meet customer requirements. This will require a fundamental change in the thinking and approach of Egypts growers and sellers of horticultural produce.

20.4 Changing Attitudes


There may be a presumption that changes in attitudes are required more amongst the medium and small growers, rather than the larger corporate growers. This is not the case, as of now few medium and smaller growers have attempted to enter the export market. The poor reputation is associated with a period when most of the exporting has been

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undertaken by the larger growers. Short-term trading mentality runs deep in the Egyptian business psyche, even amongst big business players. The most fundamental requirement for change, is for the growers and their agents to start thinking that their most important objective is to meet the requirements of their EU customer, with every consignment that is sent. This does not mean being able to meet only some specification requirements, with compromises on the others, or having some deliveries late. There will be no room for compromises, or unfulfilled commitments.

20.5 Understanding Market Requirements


The starting-point to a significant increase in Egypts horticultural exports is for all parts of the indigenous supply chain to fully understand EU market requirements and to instil a strong sense of mutual dependence in achieving a common objective. The areas where these requirements are essential are: In selecting only export grade produce to meet export sales. Rapid chilling to remove field heat, while at the same time minimising humidity (produce weight) loss. Understanding the strong relationship between retained field heat and the rate at which the produce deteriorates to becoming unsellable. Placing the harvested produce in appropriate packaging to achieve a combination of: air flow to allow for rapid chilling; containment to keep the produce together at all stages of handling. This applies equally for individual portions as well as bulk transportation; protection from being damaged through external contacts; presentation to attract the eye of the consumer; transportation to the home of the end consumer.

The recent and current approach of growers of horticultural produce has been to concentrate too much on growing the produce, at the expense of understanding the market. As already indicated one of Egypts competitive advantages is to be able to supply the EU market when prices are at their peak. This advantage will only become reality if growers and their agents sell at market rates and do not allow themselves to accept down-balled prices to get a sale. Unfortunately, it appears that in many situations Egyptian growers (and possibly their agents, depending on where their allegiances lie) are not sufficiently aware of market conditions to achieve the best going market prices. The outcome of this lack of market understanding and information is that some other party makes a higher margin than is usually expected from the Egyptian side. The irony of the current approach in relation to export markets is that the consequence is the same as if the growers are selling into the domestic market. The main difference is that in the domestic market it is real price pressure that forces the sellers to be highly price sensitive, whereas in the export market it is self-inflicted attitudes that result in the

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same concentration on price. The consequences of this self-inflicted attitude can destroy the EU market potential that exists to be taken. The most significant danger is that the price sensitivity of Egyptian exporters of fresh produce will result in them trying to cut corners in the supply cha in and damage their relationships with customers. A selfdestruct mechanism seems to exist relating to the achievement of increased fresh horticultural exports, that needs to be de-fused before real progress can be made. It is essential that in paralle l to improving the quality of produce and its delivery to consumer, market attitudes are changed to become more proactive in applying the benefits of competitive advantages.

20.6 Packaging In Context


Improving packaging is only one of a series of activities that need to be delivered in a coordinated basis to support increases in the level of horticultural exports. The other equally important areas are: Rapid chilling, with no disruption of the cold chain. Packaging facilities to meet all of the customer requirements (own label packaging, bar codes, traceability, certification). Cold stores for holding the produce. Refrigerated transport. Efficient in -county logistics, freight forwarding and port handling.

Improving the quality of packaging for Egypts fresh horticultural produce will not have the desired impact unless the other areas are improved at the same time. It is important to recognise that there are very considerable manufacturing activities behind the operation of a supply chain of fresh horticultural produce, with this being particularly the case in hot climates such as Egypt. Getting the supply chain right in Egypt will not only provide selling opportunities for Egypts manufacturing sector, but being recognised to get it right will open-up export markets for the manufacturers of such equipment.

20.7 Development Partners


One of the advantages of the fresh horticultural produce area of activity (compared to other sectors) is the existence of potential Development Partners to achieve increases in exports to the EU. Preliminary results indicate three potential partners: Union Of Producers and Exporters of Horticultural Crops (UPEHC), which represents 15,000 small and medium growers. Its objectives are to improve the export competitiveness of Egypts horticultural produce, especially among its small growers and / or exporters, to up-grade their ability to export to demanding international markets, and thereby increase their incomes. Also, to strengthen institutional and managerial capacity in the horticultural sector through improvements and development of human, and physical infrastructure. UPHEC has set a target to increase the area dedicated to horticultural exports from 65,000 acres to 1,000,000

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acres in 7 years. It has estimated the capital requirement of achieving this objective is $ 85 mn, at a rate of $ 12 per acre. Horticultural Exporters Improvement Association (HEIA), a group of about 300 prominent growers and exporters of agricultural crops (horticultural and cut flowers), supported technically and financially by USAID. The Egyptian Cold Store Association (ACSA), which is a relatively new organisation with about 30 members, with business interests in the operation of Egypts cold chain to supply international buyers.

The main achievement of HEIA has been the establishment of a cold store facility at Cairo International Airport. This has been an important step in improving the air freight of fresh produce from Egypt we were recently informed that export agents to the UK had to cover the produce with bedding quilts to attempt to stop the sun raising their temperature before being air freighted. UPEHC is in the process of establishing three pilot projects: Abees (near Alexandria), with UK involvement; Ismailia, with German involvement; Nubariya, with Italian involvement.

Each of these projects is allocated to an existing packhouse / coldstore to prepare the produce for export. In most cases the facilities are at least 10 years old and need upgrading to meet the required standards. In the case of the Abees project there is an estimated cost of EUR 1 mn to up-grade the facilities. The projects are pilots to find the most effective working relationship between the growers under UPHEC and the international buyer(s). The current favoured approach is for UPHEC to enter into a joint venture with an international buyer from the country which is providing the EU involvement. Under the joint venture relationship UPHEC will be responsible for managing the growing of the produce to the required quality and specifications and for its delivery to the packhouse / coldstore. The joint venture partner will be responsible for: the final product selection; chilling; packing; coldstore holding; sale of the produce (usually against a pre agreed planting and harvesting programme); and logistics of delivery to customer. The current approach with the pilot projects is to generate funding through the debt swap programme. Based on the lessons learnt from the pilot projects the approach will be extended to cover other parts of Egypt where medium and small farmers represent the main growing activity.

20.8 Packaging Issues


The key packaging issues that have been identified so far can be summarised as follows: The lack of an indigenous supply of wood, results wooden pallets used domestically being made from imported wood, or imported completed. This results in pallets being more expensive than in most other countries exporting fresh horticultural produce. Based on contact with EU buyers it appears they would accept plastic

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pallets, as long as they can be melted-down after a couple of journeys to be remoulded into pallets. We are currently assessing there is a current, or planned production capability for plastic pallets in Egypt. Most of the flat card / board and moulded card produced in Egypt is made from recycled material. EU regulations prevent the use of such material when it is in contact with food. The consequence of the last point is a likely high reliance on the use of plastics in the short to medium-term until card and board is manufactured from a virgin material. The most significant issue, though, appears to be a lack of dedicated initiatives to address packaging issues from technical innovative and market development perspectives. In South Africa the leading (recognised to be of world class standard) packaging company, Mondi, has worked closely with South African growers and EU buyers to develop new plastic crates which allow grapes to be picked, chilled, loaded onto a dedicated plane and flown to the UK within 24 hours of being picked. There is a lack of this type of dynamic initiative in Egypt, which supports the emphasis that was placed on developing proposals for a Packaging Technologist as described in the first Steering Committee meeting. Although the availability of reefer containers may be viewed to be more of a logistics than packaging issue, there is still a strong link with packaging in determining if the produce is to be bulk wrapped to be sea freighted in reefer containers, or air freighted to fit into plane fuselages. The difficulties experienced in sourcing reefer containers in Egypt could result in more fresh horticultural produce being air freighted than is required. This is an issue as air freighting produce is double the cost of sea freight at about $ 1.00 per kilo, compared to $ 0.50 for sea freight. An advantage of the former is delivery time is less than 2 days, compared to, often over 10 days for sea freight. Linked to the la st point is the overall effectiveness of the cold chain in Egypt, with endemic problems in training operational personnel, preventative maintenance and quick repairs response when technical problems occur. ALEB have indicated to us that these issues apply to HEIAs new facility at Cairo International Airport. The key issue is that unless there is effective operation of the cold chain to provide cold temperature storage and transport environments, there is little point in investing in improved packaging that assists with maintaining the produce at a low temperature. The opening of Egypts first polyethylene production facility in the last couple of years provides the basis of developing new plastic materials to support a significant increase in fresh horticultural exports. As previously indicated there appears to be a lack of initiative to use this new found strength in polyethylene products to design new packaging to support the development of fresh horticultural exports. A more detailed explanation of this point is provided in the separate Packaging Sector Progress Statement.

20.9 Market Development Strategy


Having an overall marketing strategy for the exports of fresh horticultural produce is important as the development of packaging must be directed at meeting customer requirements. As already indicated these requirements will be indicated by EU supermarket chains. Understanding these requirements is key to ensuring packaging for

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fresh horticultural produce develops in the right direction. From a market development perspective these is a dilemma here, as going direct to the supermarket chains to ask fundamental questions over packaging will be viewed as a sign of weakness which may adversely affect purchasing decisions. In the short to m edium-term a more effective approach could be to learn about packaging requirements and to develop new packaging initiatives through market intermediaries. This is the approach that is being proposed by UPEHC. The accession of the 10 new Member States to the EU provides a significant market opportunity for Egypts fresh horticultural produce, for the following reasons: The markets are likely to be relatively under-developed compared to the existing member countries, but should also experience rapid economic growth and growth in household purchasing power. This should result in rapid growth of fresh horticultural produce during the annual periods when produce cannot be grown domestically. Egypt has proximity advantages to these markets compared to other growing areas that can supply during the periods when domestic supply is not possible. The other growing areas are likely to direct their reefer containers to main ports in the west of the EU, with long onward journeys to supply the accession countries. The green corridor for Egypts produce up through Italy and the Balkan countries into the eastern area of the EU has already been identified.

From a market development perspective the real potential of the accession countries is for Egypt to develop its own brands and to sell direct to customer. This will provide greater potential to achieve higher prices based on market positioning to the customer. A three stage market development strategy is proposed for Egypts fresh horticultural produce export sales into the EU: 1. Learn about and implement the effective operation of the supply chain to customer by selling through intermediaries to supermarket chains in the western EU area. A key element of this learning process should be to understand packaging requirements and to find solutions within Egypt that fit with the current stage of development of the indigenous packaging sector. 2. Develop new brands for Egypts fresh horticultural produce and establish supply chains into the eastern EU countries, based on direct selling to customer (no intermediary involvement). 3. Use the brands that have been developed successfully in the eastern part of the EU to break into the western countries through opening-up direct selling to supermarket chains.

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Part E Appendices

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Appendix 1 Preparation Of Sector Development Strategies

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Background

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The purpose of this Appendix is to explain how development strategies contribute to achieving increases in national economic growth, through improving the trading performance of individual businesses within each sector. This section provides a context for the content of the Packaging Sector Development Strategy (PSDS), as described in the main part of this report. Development Activity The term development activity is used throughout this section. It refers to the delivery of an integrated approach to realising development potential in either economic sectors, or geographic areas. In Egypt the current approach is to focus on manufacturing sectors. The integrated approach covers the delivery of a number of policy instruments, such as: trade development; competitiveness; up-grading of individual businesses; technology transfer; strategic alliances; FDI; privatisation; modernisation; and reducing bureaucracy that de lays business activities. The main part of this report describes the recommended development activity that should be delivered in Egypts Packaging Sector. Development Activity Concepts The submission of this PSDS is based on six concepts relating to the preparation of sector development strategies: 1. Undertaking sector review activity to: identify international trends; compare sector competitiveness in Egypt against selected countries; assess domestic capabilities to compete; and to identify development opportunities. 2. Presenting sector development strategies that provide a framework for delivering development activity to meet the objective of improving sector performance. The sector development strategies should also indicate the types of development activity that are required and the mix in which they should be delivered. 3. Establishing a link between improving the trading performance of individual manufacturing businesses at the micro-level, and increasing the national economic growth rate at the macro-level. 4. Introducing private business leadership in setting priorities for delivering the development activity and ensuring individual businesses participate in, and benefit from, the delivery. 5. Using partnerships between the private business and public sectors to overcome constraints on realising sector development potential. 6. Having a dedicated delivery mechanism for implementing the sector development strategies and the associated development activity. Each of the above concepts are explained in greater deta il in this Appendix. A Sector Development Strategy, such as the PSDS, can be presented and implemented on its own, independent of other sectors. The more of these development strategies that are being implemented the greater the need for an overall national framework to: learn

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lessons from each delivery; co-ordinate the realisation of development potential between sectors (for example packaging and food); co-ordinate the delivery of development activities between sectors; and achie ve cost effectiveness in delivering the activities. European Experience There is considerable European experience in designing effective individual development activities and in establishing the coordinating mechanisms that operate at sector, geographic area, or national levels. In comparing the European experience to Egypts current situation two points are important: The way private business and public sector partnerships operate in Europe have evolved and developed over 25 years, with the relationship becoming increasingly sophisticated. The basis of this is increasing trust, using the learning process and acceptance of each others strengths. As Egypt is only at the start of this process it may find that the European approaches from the 1980s are more appropriate than latest approaches, to take into account differences in stages of development. Some of the European countries that are recognised as being at the forefront of delivering development activity, such as Ireland and Scotland, started with national development mechanisms, which determined the national frameworks, in which sector, and area, development strategies are prepared and implemented. Egypt is currently applying a more bottom-up approach of starting with individual sector development strategies.

Change Of Approach The basis of our recommendations is that private businesses should take responsibility for the performance of their individual businesses and the sectors in which they operate. This represents a fundamental change of approach from that was applied under the previous government and represents a move towards approaches that apply in most developed economies, hence the European comparison. Under the new approach the governments role should be restricted to activities, such as: managing the macro-level economy; applying fiscal policies; setting statutory regulations and standards where required; and providing the framework within which private business can flourish. The over-riding message should be; that the public sector exists to provide the conditions under which private business can demonstrate their ability to compete in the domestic and world markets, and be successful. The new approach is fundamentally different from the previous approach, which relied on: government making decisions on behalf of the private business sector; directing sectors and businesses on how they should develop; and business owners operating under a system of being favoured to be allowed to act. Purpose One of our objectives in preparing this report has been to demonstrate how the new approach can be applied to greatest effect and benefit within Egypts Packaging Sector. On this basis, the whole of this report can be viewed as being a pilot exercise to indicate how the new bottom-up approach can work in practice to deliver results; faster, more cost effectively and with wider benefits than was previously the case.

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Process Of Change

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As the government has made the first step by changing itself, there is the need for the private bus iness sector also to change and take-on increased levels of responsibility, that are required to fill the gap that emerges through the contraction of the sphere of influence of the public sector. With no change in the way private business sector operates, there will be a vacuum, and the level of national economic growth is more likely to worsen, than improve. On the other hand, the faster and stronger the process of introducing private business leadership into delivering development activity, the greater will be the benefits to the national economy (fourth concept above). Private Business Leadership And Support An issue for implementing the process of change is that most private business owners and managers are not used to taking-on responsibilities for the performance of the sectors in which their businesses operate. Those that do have such experience may be associated with the previous government regime, and if they take-on leadership roles, there is the danger that the majority of the businesses feel that little is being changed. It is essential to bring private business leadership new blood into filling the vacuum, but the downside of this is a lack of experience in taking-on the wider responsibilities, and how they should be delivered. This situation requires the introduction of new working relationships between the public and private sectors that enables both to operate to their respective strengths. Partnership The starting-point of the new working relationship is partnership (fifth concept above) between the private and public sectors to achieve common objectives. In this report the common focus is on realising the full development potential of Egypts Packaging Sector. It is important to recognise that a key feature of implementing a process of change through a partnership should be to accept it will be a learning process; with each side learning from other, based on their respective strengths and abilities to deliver improved sector performance. Implementation Mechanisms There i s therefore the need for implementation mechanisms (sixth concept above) that allow for partnership working relationships to be formalised and operate, and for private business leaders to manage the delivery of development activity to achieve improvements in the performance of their respective sectors. On the same basis as the need to inject new blood into the process of change, there is the need to have new mechanisms in which the business leaders will have the belief that they can make a difference. If existing organisations are used there is likely to be a view that they will operate as previously and nothing will change. The new business leaders have to feel that they have the greatest opportunity to successfully fill the vacuum left by the contraction of the sphere of influence of the public sector. This requires them to be empowered to fill their new role. In this context it needs to be appreciated that the business owners, or managers, who are willing to play sector leadership roles will be exposing themselves to criticism from other businesses in the sector, if the sector development strategy is not working. To gain the commitment of private business owners / managers, who can act as sector development

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leaders, they must have a high level of confidence that the implementation mechanism will operate effectively to deliver results. They also need to be supported by highly professional and experienced personnel who will mentor Egypts private sector business leaders on how they should operate at the sector level and to advise on sector strategy decisions. Strategic Vertical And Horizontal Dimensions The PSDS is one of a number of vertical development strategies that focus on separate manufacturing sectors. Each of these development strategies should indicate how to improve the sectors performance of the sector, from within, by recommending a dynamic framework for delivering development activities to realise identified development opportunities. Separately, a number of horizontal development strategies are being prepared that cut across a number, and possibly all, of the manufacturing sectors, and vertical development strategies to support their implementation. National Industrial Policy The planned National Industrial Policy for Egypt represents the combination of the vertical and horizontal development strategies. A key reason for preparing this section of the report is to indicate how a vertical development strategy, for Egypts Packaging Sector, can contribute to shaping, and when prepared operate within, a National Industrial Policy. Policy Objective We understand that a key national economic policy objective is to achieve annual economic growth of 6%+. From the perspective of the national economic policy-makers there needs to be understanding as to how each manufacturing sector will contribute to achieving the national growth objective (third concept above). Key elements in developing such understanding are: The contributions will come from the improved trading performance of individual manufacturing businesses, within the sector. It is the aggregated net improvement in the trading performance of all businesses within a sector that generate positive contributions to increase the national economic growth rate. The need to avoid the potential danger that, increased business activity within a sector merely activates increased competition between businesses within domestic markets, without any net benefit being delivered. One of the most important roles of a sector development strategy is to focus the delivery of development activity on areas where maximum net benefits will be generated. These areas are identified from the review activity that forms the basis of the sector development strategy (first concept above), but need to be kept continually up-to-date as domestic and global changes are likely to require changes in strategic focus.

Unless the need to achieve an increase in the n ational economic growth rate is built-in from the start of implementing a sector develo pment strategy, there is danger that the

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increased activity that is stimulated at the micro-level does not have the required net positive contributions at the macro-level. Delivering The Policy Objective There are four areas of activity for delivering the national policy objective: 1. There are other options to manufacturing sectors, such as geographic areas, for delivering development activity between the macro and micro levels. 2. Sector development strategies provide an entry point into the national economy where private business and public sector partnerships can operate effectively, without getting in the way of their respective main responsibilities; being the macro-level for the public sector; and the micro-level for the private business sector. 3. In countries that started with national development mechanisms the initial entry point is the delivery of overall development activity, with sub-entry points being the implementation of development strategies for individual sectors. 4. Having sector performance agreements between the private businesses and the public sector provides a way of establishing a link between improvements at the micro-level and increasing the national economic growth rate. Under this approach the agreement will specify annual targets for improving sector performance across a number of economic indicators, such as; trade balance, job creation and investment. In the context of the above it should be noted that this report emphasises the role of the sector performance agreements, as sector development strategies have already been selected as the point of entry. If a national approach is being implemented such agreements are likely to operate at a higher level. Overall Steps In Sector Development Process The diagram overleaf indicates the main steps in the sector development process, with each of the steps explained below. Step1 - Contributions To Increase National Economic Growth Rate The objective has already been indicated to achieve a national economic growth rate of 6+%. Each of the Sector Development Strategies (SDSs) should indicate how they will contribute to achieving this objective. Step 2 - Sector Performance Agreement For each sector, where a development strategy is to be implemented, there should be a Sector Perfor mance Agreement (see above). The most direct ways in which the contributions to increased national economic growth are generated are: improvements in the trade balance; net job creation; and capital investment, with more indirect contributions from: bringing used existing assets back into productive use; increasing production capacity utilisation throughout the sector; and payment of corporate taxes.

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Overall Steps In Sector Development Process


Contributions To Increased National Economic Growth Rate rate Sector Performance Agreement

Sector Development Strategy International Sector Development Drivers Level Of Activation In Egypt Compared To Other Countries Strong Activations In Egypt Competitive Advantages Weak Activations In Egypt Competitive Disadvantages

Application of horizontal strategies

Sector Development Activity Mechanism

Impact on other sectors

Aggregate net improvements in business trading performance Interactions with public sector to provide positive environment for sector business development Interactions with businesses throughout the sector implement development activity and to overcome development and performance gaps Deliver 5 Main Development Activity Areas As A Single Package

Removing constraints on development

Strategic Development Projects

Assessment Of Development Opportunities

FDI And International Strategic Alliances

Business And Marketing Development Programmes

Positive impact on manufacturing businesses to improve their trading performance

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The main points proposed to be in the Packaging Sector Performance Agreement are indicated in the following table:
Direct Trade Improvements: increase in annual packaging exports of EGP 600 mn; reduction in annual packaging imports of input materials of EGP 50 mn; net trade balance improvement of EGP 650 mn. Added-Value Gains: increase in annual fresh horticultural produce exports of EGP 1 bn, with 30% of this increase representing packaging, there is an added-value gain of EGP 300 mn; increase in annual processed food exports of EGP 250 mn, with 20% of this increase representing packaging, there is an added-value gain of EGP 50 mn; increase in pharmaceutical exports of EGP 100 mn, with 20% of this increase representing packaging, there is an added-value gain of EGP 20 mn; total added-value gain of EGP 370 mn. Total Trade Improvements And Added-Value Gains: EGP 650 mn + EGP 370 mn = EGP 1.02 bn. Job Creation creation of 1,000 new jobs relating to the initiative to source and process virgin fibre domestically. Investment FDI of EGP 500 mn; strategic partner value (not necessarily direct capital investment) of EGP 100 mn; indigenous packaging business up-grading investment of EGP 100 mn; total investment of EGP 700 mn .

Step 3 - Sector Development Strategy (SDS) main points:

Each SDS should cover the following

The results of the global review activity and the international comparisons, including international trends and main competitors. Market dynamics should be identified and Egypts position within the leading markets indicated. The results of the domestic review, in particular the benchmarking exercises to compare the capabilities of Egypts manufacturing businesses against best practice from other countries. The domestic review activity should also identify the level of development potential and constraints on the realisation of this potential. The SDS should indicate the actions that are required to realise the development potential by the domestic manufacturers and where FDI will be more appropriate. The stages of implementation should be indicated alongwith the links between subsectors.

The role of the SDS is to provide an overall strategic framework for achieving improved sector performance, by indicating the main areas in which new developments can be achieved. Step 4 - International Development Drivers (DDs) The international development drivers are identified through global review activity, as they apply to all countries. The DDs for Egypts Packaging S ector are indicated in section 4 of this report, which also indicates Egypts international positioning against the international DDs.

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Step 5 - Level Of Activation In Egypt In any country strong activations of the DDs provide international sector competitive advantages, whereas weaknesses indicate areas of competitive disadvantages. Weaknesses in the activation of the international DDs within Egypt have been identified through the domestic review activity and are presented in section 4. Internationally, weaknesses fall under one of the following categories: Based on inherent domestic advantages the level of activation should be strong, not weak and therefore should be considered to be a priority to realise the sectors competitive advantages. In Egypts Packaging Sector the availability of high quality sand provides an example of an inherent competitive advantage. The activation is currently weak due to either constraints on development or structural issues within the sector. If these could be overcome a weakness could be turned into a strength. In Egypts Packaging Sector the high domestic prices of input materials to manufacture plastic packaging is an example of this category of weak activation. Areas of inherent weakness, which will be difficult to overcome. An example of this category of weakness, and how it can be overcome is the lack of indigenous forests to make paper from wood fibre, with the alternative to use domestic sources of bagassse and rice straw.

The delivery of development activity should concentrate on the first and second categories and find ways of getting around the third categor y. Step 6 - Sector Development Activities Delivery Mechanism An important role of any SDS is the crossroads role it can play to provide the link between the vertical and horizontal development strategies, and to ensure each sector makes positive contributions to the development of other sectors, where this is possible. In this context, it is significant to note that at the start of the study, the view was that Egypts Packaging Sector would only play a horizontal role, supporting the development other sectors (for example, food and pharmaceutical sectors). Although it now has its own vertical SDS, it can still play important horizontal development roles which may be lost unless they are progressed thr ough sector development activities mechanism. The most effective way for government to interact with private businesses is through supporting the establishment of development activity mechanisms to achieve the implementation of SDSs. This is because private businesses, operating on their own, are not capable of acting at a sector strategic level. Governments fund the implementation of such mechanisms, in return for an agreement, with private businesses in each sector, on the level of improvement in sector performance that will be delivered on an annual basis. The formalisation of this deal is through a Sector Performance Agreement (see above), which will include a budget of annual funding to be provided by government. Step 7 Main Elements Of Development Activity The strengthening of the activation the development drivers is achieved through the delivery of the development activities that are identified in the SDS. These are grouped together into five main elements of development activity for ease of management and involvement of private businesses (see above diagram), which are described below.

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Removing Constraints On Development Within each sector there will be constraints on development, which relate to government policies, interventions, procedures and the application of the fiscal regime which are constraining the activation of development drivers. These are the development barriers that either take the form of national barriers, which should be addressed through the horizontal strategies of the national industrial policy; or, the barriers can be specific to the sector, which should be addressed through the sector development strategy. Within Egypts Packaging Sector the level of import duties on kraftliner produced from virgin fibre (since partially addressed) and high domestic input prices of plastics have been identified as development barriers on input materials entering the board and plastic packaging manufacturers. Strategic Development Projects Represent either strategic development opportunities for the sector (see next element), or are structural issues that need to be overcome to release development potential. Under either case the project will have been subjected to a preliminary assessment, where the results are sufficiently positive, to justify assessing the projects viability in greater detail. In Egypts Packaging Sector, an example of a strategic development project, is the domestic sourcing of virgin fibre from the agricultural sector, in the form of bagasse and rice straw, to produce paper and board that can be used in the manufacture of carton and corrugated board from such fibre. International regulations specify that board must be made from virgin fibre if it is contact with food. Many international food manufacturers also specify external layers of board packaging to be produced from virgin fibre to meet their internal requirements for product feel and print quality. The current lack of a domestic source of virgin fibre to supply Egypts Packaging Sector is a key structural issue as all of this material is imported in a semi-processed state (Kraftliner). The objective to increase exports of fresh horticultural produce will suck-in increased imports unless the domestic sourcing issue is addressed. The Steering Committee for the Packaging Sector Study agreed that this issue should be addressed as a development opportunity during the study and the results of the research activity are presented in the separate Appendices Report. The results of the research were suffic iently positive for this structural issue to be accepted as a Strategic Development Project. A more detailed study of this project is required to determine how the virgin fibre is to be sourced and processed commercially into board and paper. This study will determine whether the investments and business projects that need to be undertaken should be implemented through FDI, or international strategic alliances (see fourth element); or through existing domestic businesses development activities (see fifth element). Assessment Of Development Opportunities Each sector study should identify a series of development opportunities from the global and domestic review activities. The Packaging Sector Study has identified a list of such opportunities that are presented in this report. Each of these opportunities needs to be assessed to determine if they are sufficiently viable to be taken further towards implementation. Each development opportunity that is to be progressed will fall under one of the following categories, with examples provided from the Packaging Sector Study: Allocated to the strategic development projects element, with the collection of waste paper being a possible such project which requires further preliminary assessment to determine if it should become such a project.

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Progressed under the FDI, or international strategic alliance, element as the technology associated with the opportunity is only available internationally. The example from the Packaging Sector Study is the recycling of PET which is based on recent technology. Progressed under the business and market development programmes, with the conversion of existing manufacturers of polystyrene packaging to working with PET provides an example from the Packaging Sector Study.

FDI And International Strategic Alliances This area of development activity involves the attraction of international: investment; licensed products; market access; expertise, technology and management skills to business opportunities, existing projects, or existing businesses, that are found to require international involvement. The delivery of this area of development activity will have to be co-ordinated closely with the Ministry Of Investment. Examples of this type of activity from the Packaging Sector Development Strategy are FDI in glass and metal packaging. Business And Market Development Programmes This is the most important element of delivering development activity, as it is this element where there is most direct contact with businesses. It is the delivery of these programmes that will determine the level of positive impact on the trading performance of individual manufacturing businesses. If the delivery is: of high quality; meets the requirements of individual businesses; is within the framework of the sector development strategies; and achieves net sector-wide net improvements in trading performance, there will be improvements in sector performance. It is through this delivery that there can be most positive impact on achieving the overall objective of increasing the national economic growth rate. Development activity being progressed under each of the other four elements needs to be integrated into the delivery of the business development programmes to ensure individual businesses are aware of how they are to be implemented. The key issue under this development activity is identifying and defining the requirements of individual manufacturing businesses. If this is not undertaken effectively the content of the business and market development programmes will not meet the requirements. In this context it needs to be recognised that sector development strategies must involve taking the sectors into new territory if they are to have the level of economic impact that is required. Delivering the content of sector development strategies will require individual manufacturing businesses to change and develop to move into the new territories successfully. It is essential that the delivery of the business and market development programmes can challenge manufacturing businesses to think and act in new ways that support the implementation of the sector development strategies. This requires the assessment of the requirements of individual manufacturing businesses to be within the context of the sector development strategy, rather than within the ir current situations. If the assessments of their requirements are based on current situations, very little will change and there will be low levels of improvements in sector performance. The delivery of the business and market development programmes need to be within the context of the development and performance gaps that are identified to exist within each sector. The significance of these gaps are described next, before indicating the business and market development programmes that are recommended for Egypts Packaging Sector.

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Development And Performance Gaps

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One of purposes of sector studies is to identify the existence of development and performance gaps between indigenous Egyptian businesses, and their international competitors. A development gap relates to the current stage of business development (across a wide range of business development criteria) of an indigenous Egyptian business compared to, either its direct regional competitors, or best practice international companies. One of the most important features of business development internationally is that it is a continuous process, with up-grading being implemented all of the time. One of the key contributions, that any sector study can make to increasing the national economic growth rate, is to identify businesses that are already internationally competitive. The extent to which such businesses exist, at the start of implementing any sector development strategy, will determine the availability of businesses to act as a vanguard group to strengthen export performance. The current stage of overall business development in any sector can make or break the implementation of any sector development strategy. If the current stage of development is low there will need to be significant business up-grading delivered before they can be accepted to be truly internationally competitive businesses. A key danger in this area of activity is not to identify the extent of the gap effectively; or not to be sufficiently rigorous in determining the level of improvement in individual businesses that is required. It is always difficult to tell businesses that they are not as advanced in their stage of development as they diagnose themselves, but if this is not undertaken rigorously it will be found during the implementation of the sector development strategy that the businesses are not capable of responding to the strategic development opportunities. One development gap that applies to many of Egypts vertical sectors is export experience, where regional competitors and best practice international companies are likely to have considerably more experience than the indigenous Egyptian businesses. Other development gaps include: Production gaps where indigenous Egyptian companies do not maintain their production facilities to the required standards; machines have not been up-graded; or machinery is not operated to its full capability, or capacity. Product gaps, where the product manufactured in Egypt is inferior compared to the products that are available internationally. The reasons for the existence of product gaps include: lack of investment in new product development; lack of knowledge of new technology to be applied to the product, or new input materials that enhance the products performance; lack of appreciation of how products have developed internationally; or pressures from domestic customers to keep product prices low. Marketing, where gaps in capabilities to undertake market research will result in reliance on middle agents to generate domestic and export sales; and lack of understanding of branding results in a strong reliance on price competitiveness in influencing customer purchase decisions. Access to technology, through either domestic R & D, or i nternational agreements, (reverse engineering does not result in technology application).

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Scale of business units, where the scale of individual business units is too small to be able to overcome the above gaps. Diversified groups, where individual business units are part of group structures and management is too stretched to dedicate sufficient attention to overcome the development gaps in the individual businesses.

Performance gaps relate to the way a business is managed compared to its regional competitors, or international best practice. These gaps can exist regardless as to the existence of development gaps. An indigenous Egyptian business that is at the same stage of business development as its regional competitors, may still have a performance gap if the way the Egyptian business is managed results in lower operating performance. If the existence of developme nt and performance gaps are not identified before the delivery of the business development programmes there is the danger that the up-grading becomes superficial, with the changes and developments not being sufficient to improve the international competitiveness of individua l businesses.

In the context of the above, it should be noted that the role of the sector studies is restricted to identifying the extent to which generic gaps exist, based on the sample of businesses reviewed. The most effective way for the development and performance gaps to be identified, at the level of individual businesses, is through the application of diagnostic assessments that are designed based on the generic results of each sector study, in particular in relation to strengthening the activation of the development drivers. Benchmarking As most sector development strategies are likely to have a strong export development component, benchmarking can indicate the existence of development and performance gaps between businesses in Egypt and in the countries which are to be targeted to achieve increased export sales. The results will indicate the extent of any gaps that need to be bridged. The danger of this approach is to assume that it is the indigenous businesses within each of the target export countries that will be the main competitors. Such an approach will under-estimate the extent of the development and performance gaps if it is discovered, later, that the main competitors are international businesses from leading developed countries, which are also selling into the target countries. There is also a danger of using benchmarking averages as it disguises the importance of best practice and market leaders. If the benchmarking is based on averages the best performance of indigenous businesses, will be average. Within any average comparison there will be a range of results between high and low. Inc luding the low results will reduce the average result, but these businesses may themselves be struggling to survive in their domestic markets, with the high performers taking their market share. Under such circumstances using averages will under-estimate the strength of the competition. Through the Packaging Sector study we have used international best practice to provide the benchmarking results and we have concentrated this approach on the product area which provides the most significant exporting opportunity in the short-term. In this product area we have benchmarked the best in Egypt against the best in the countries that were selected to provide the comparisons. If the best in Egypt compares favourably with the best in other countries this business can be assessed to be truly internationally

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competitive. Such businesses should be capable of winning export sales in any market. If the best in Egypt has worse benchmark results this indicates the need for business upgrading before the business can be truly internationally competitive. The second element of the above approach is to use the best in Egypt as the benchmark comparator (leader) for the rest of the businesses in the product area. Businesses that have lower benchmarking results require business up-grading to reach its current stage of development. If the lead business requires to up-grade itself to become truly internationally competitive, its progress towards this goal will set new standards for all of the businesses participating in a benchmarking exercise. Business Development Programmes The company review activity in Egypts Packaging Sector indicate the packaging manufacturers, by product area, with sufficiently strong product capabilities to be classified as being already internationally competitive. Across the four product areas the results were: Three board packaging manufacturing businesses achieved the classification. No plastic packaging manufacturers achieved sufficiently high scores to achieve the classification and all of the businesses reviewed require business up-grading. In glass packaging one manufacturer achieved the score to achieve the classification, but the sub-sector as a whole does not have spare production capacity. The same situation exists in metal (tin can) packaging as in glass packaging.

Based on the results of the company review activity two types of business development programmes have been identified for Egypts Packaging Sector: Internationalisation Business Development Programme (IBDP) , where the emphasis will be on supporting individual packaging businesses that are already internationally competitive to realise their full potential in international markets. Domestic Capabilities Business Development Programme (DCBDP) , where the emphasis will be on up-grading the product capabilities of businesses across a wide range of business management activities. The ultimate objective of this business upgrading will be to lift the product capabilities of these businesses to the level where the businesses can be accepted into the category of being internationally competitive against best practice manufacturers. It is important to recognise that not all businesses that participate in the DCBDP will reach the required grade to be classified as being internationally competitive. The businesses that do not reach this grade within the duration of delivering the programme will have two options that can be pursued in parallel: Apply an international market entry strategy that involves exporting into selected less demanding markets. Continue to improve product capabilities, either on its own, or with further programme support to reach the required standards to be accepted as an internationally competitive business at a later date.

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The process of internationalising individual Egyptian businesses has implications for other indigenous Egyptian businesses in the same sector, that are currently focusing on the domestic market. The requirement for up-grading of domestically oriented companies is to: Fill the domestic supply gaps that will emerge with some of the companies in the sector increasingly switching their sales, from the domestic, to export markets. Improve the efficiency and effectiveness (including costs) of the operation of domestic supply chains. Prepare themselves, through participating in domestic capability up-grading, to be in the next group of businesses that are to be internationalised.

If the two types of business development programmes are not implemented in parallel the dangers can be summarised as follows: If the IBDP is implemented, without a DCBDP, the domestic supply gaps will be filled through imports and there will be a shortage of businesses that reach the internationally competitive standards to be able to sustain continued increases in export sales. If a DCBDP is implemented, without an IBDP, the process of internationalisation will take too long, and in the case of Egypts Packaging Sector the crucial first step of developing international markets, increasing board and plastic packaging sales into European markets, will not happen as strongly as required to activate the pull and push effects on the international development drivers.

Achieving a sustainable increased national economic growth rate is dependent on the successful implementation of both the DCBDP and IBDP, in parallel, to overcome the development and performance gaps, and once these have been addressed to realise full international market potential. Government Involvement Across the five elements of development activity GoE should be requested to undertake the following roles: Leading the first element to remove constraints on development. Participating enthusiastically in progressing the strategic development projects. Progressing FDI and international strategic alliance cases in co-operation with the sector development activity delivery co-ordinating mechanism described above.

Direct GoE involvement is not required in either the development opportunities, or business and market development programme elements, but providing funding to make both elements operational will be required.

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Appendix 2 Steering Committee Members

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No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Name Afify Slim Gamal Ghali Samir El Sayyad Magdy G. Farag Ahmed Hamza Khaled Hamza Maged Khalifa Abdel Malek Asfoury Mona Abou Table Salwa El Ghrib Youssri El Tinawy Nour El Dien Mohamed Mahmoued Abdel Moneim Sayed Safwan Thabet Jean-Louis-Chaumell Manar Sidky Ashraf Darwish Hamdy El Kobesy Mahmoud Medany Rashad Tawfik Emil Boustany Nevine Habib Ayman Abu Hadid

Company Commercial Representatives office Packaging consultant Packaging consultant Alexandria plastic center Cello pack Cello pack Csplc Epda Faculty of Applied Arts Faculty of Applied Arts Food Chamber Gega Holw El Sham Juhayna Nestle Nestle Packline Printing Chamber Rusys Tamopress Unipaknile Unipaknile UPEHC

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Appendix 3 Response To Additional Points Raised By Steering Committee

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Education And Training

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As a subject this has a low profile in both this report and the Appendices Report, except in the area of packaging design, see APP10. The reason for this is that few issues have been reported to us during the review activity and therefore it does not feature in the PSDS. This situation prevails as: there are more significant areas that are holding-back the development of Egypts Packaging Sector. As these areas start to be resolved issues relating to education and training will become more prominent; the packaging businesses that achieve high product capability scores, see APP6, already have well-established internal training systems and currently these meet their requirements for on-the-job training. One of the contributory factors for a packaging business achieving a low middle product capability score (under 8) is due to the lack of an internal training system. As indicated in section 6, of this report many of these businesses have an inflated opinion of their product capa bilities and do not see the need for overall business up-grading, unless this is described to them in detail. One of the consequences of this situation is that these businesses do not perceive the need for enhanced training delivery; part 2i of the Domestic Capabilities Business Development Programme, see section 6, relates directly to assisting packaging businesses to apply improved techniques for the identification of employee skill development training requirements. The delivery of the programme includes a senior manager workshop of 2.5 days duration titled Employee skill development how to improve productivity implementing improvements in quality and production.

It is planned that the participation of packaging businesses in the Domestic Capabilities Business Development Programme will result in an increased demand for management development and employee skill development training. How this is to be delivered, the capabilities of the various training organisations, and the relevance of the content of the existing training courses, can only be effectively assessed against the background of an enhanced level of acceptance of the need for training. Logistics And Retailing We have applied sector supply chains to describe how Egypts Packaging Sector is structured and operates. In these supply chains (see APP3) we include the distribution of consumer products and their display in retail outlets, to be purchased by consumers. Our purpose in doing this has been to indicate the weakness of pressures for change and development within Egypts Packaging Sector from these parts of the supply chain. This is significant, as in developed consumer markets the logistics and retail sectors provide key pressure points on packaging companies to innovate and develop their product ranges. During one of the Steering Committee meetings questions were raised about the operation of Egypts distribution network, and the role of the packaging sector in its operation. This requires a better understanding of the links between packaging, logistics and retailing for the future development of Egypts Packaging Sector, but from the start of the study the focus was on consumer product packaging. This focus was presented to, and accepted by, the first Steering Committee meeting. The initial reason for applying this focus was

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the plan that the Packaging Sector Study should support the separate Food Sector Study. Although this reason became less important due to this other study not continuing, it is still a fundamental conclusion of this study that the greatest potential for added-value, improved sector performance and contributions to improved national economic growth will come from focussing on the consumer packaging area of activity. A further reason for the focus on consumer packaging is that the operation of supply chains up to this point that are more under the control, or influence of packaging businesses, than the later stages of logistics and retailing. In developed consumer markets it is the distribution businesses, retailers and consumers that are pressurising the packaging companies to change and develop. The weakness in this link in Egypt should be viewed as a lack of development within the distribution, retailing and consumer sectors, rather than be ing the fault of packaging businesses. As one Chairman of a mnc manufacturing in Egypt stated it will take a brave person to invest in Egypts distribution sector. Packaging For Handling We accept that packaging plays an important role in the efficient operation of Egypts distribution system, by providing secondary and tertiary packaging that can be transported effectively and efficiently to the point of sale of its contents. We have covered this area of activity through the study by focusing on board packaging, which currently provides the main material for such packaging. We are aware that there are issues over the domestic availability, and cost of wood, to produce wooden pallets, and the high cost of domestically produced plastic alternatives. We are also aware that a Danish company is exploring the introduction of recyclable / returnable plastic boxes for shipping food products into European markets. It is our view that such issues are outside the scope of this study as they relate to Egypts logistics sector, which we have already explained was not the main area of focus of this study. The danger of attempting to identify and address such issues through a study of Egypts packaging sector is that they are covered partially, with the real issues not being identified. The above situation also applies to shipping of packaging exports where issues have been raised with us relating to costs of sea freight, time for delivery and the need for transhipment of containers. It is our view that such logistic issues relating to exports should be addressed as through horizontal initiatives, and not on a sector-by-sector basis. Fresh Produce And Cold Chain The area of Egypts cold chain where we have the greatest experience is fresh horticultural produce. During the second Steering Committee meeting we were asked to cover this area of activity as an add-on to our study of the packaging sector. A report indicating the Development Drivers, identifying their activation weaknesses and presenting a preliminary Fresh Produce Sector Development Strategy (FPSDS) is presented in Appendix 4. The last Steering Committee meeting raised the issue of how to improve the cold chain system in Egypt. We are able to address this point within the context of the Fresh Horticultural Produce Sector, see Appendix 4, but not for other sub-sectors, such as dairy, meat, or fish.

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For the Fresh Horticultural Produce Sector, the most significant issue is the continued lack of appreciation of the need to rapidly chill produce to sell into European markets, and for the domestic market. This is not an issue of the operation of the cold chain, per se, which has been strengthened considerably over recent years. Rapid chilling relates to the need to remove field heat, as quickly as possible after the produce is harvested, and to reach required shipment temperatures (depends on product type, for example, 4C for green beans) within a matter of 2 3 hours, to maximise shelf-life. Rapid chilling requires significant chilling capacity to remove heat, whereas most of Egypts cold chain has been set-up to maintain cold temperatures once the produce is already chilled. In this context there is a significant difference between refrigerated facilities (cold stores) and refrigerated transport (trucks and reefer containers), and rapid chilling facilities. We are aware of an initiative to introduce a mobile rapid chilling unit to Egypt which should be followed-up as it would address the main issue in the cold chain. The last Steering Committee meeting also raises the issue of applying plastic film to fresh produce. The report in Appendix 4 indicates that the combined use of polystyrene trays and plastic film is a significant issues for Egypts horticultural and retail sectors as the produce sweats in this type of packaging and has a short shelf -life. For transporting fresh produce the most important issue is allowing cool air to circulate effectively around the consignment after core temperature has been reduced to the required level. For Egypts retail sector the most important issues relate to lack of any rapid chilling, refrigerated transport, or chill cabinets in store to present the produce. Without any improvements in these areas changes to the type of film being used will have minimal impact. Progressing Additional Areas It is not possible for any sector study to cover all areas of activity, otherwise there will never be a final report. In section 8 we present the Packaging Sector Development Activities Mechanism (PSDAM) which indicates how the PSDS should be implemented. If our recommendations are implemented there will a structure for progressing the above additional areas, and other areas as they are identified. We recommend the above four areas should be taken-up by the PSDAM to determine how they should be addressed.

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Appendix 4

Company Review Questionnaire

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1. Name Of Company: 2. Visit Date: 3. Address 4. Phone No. 5. E-mail 6. Fax No. 7. Initial Contact: 8. Manager Interviewed: 9. Company Description (ownership / establishment date / location):

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10. Products:

11. Production Level (monthly / annual):

Production Process Data

12. Nature Of The Product: liquid: solid: gas: powder: grains: others:

13. Type Of Material Used For Packing paper: cartons: plastic film: metal: glass: others:

14. Source Of Supply Of Packing Material (by type of material): imported: domestic: average quantity imported monthly / annually (by type of material): average quantity soured domestically monthly / annually (by type of material):

15. Description and specification of the packing materials:

16. Reasons for using this type of packaging raw materials:

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17. Printing method: offset: flexo: rotgravura; silkscreen: digital:

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18. Is the packing material produced to be applied by others, or is it used as final product packaging internally: Only produces packaging to be applied by others: The activity includes final product packaging 19. Are there any plans for developing the supply of locally sourced materials: Yes If yes, describe: No

20. Describe the level of competition in the domestic markets where your products are sold:

21. Indicate the difference in unit price between products that are exported when using either input items sourced domestically, or imported:

22. Systems used in production: manual semi-automatic fully automatic 23. Describe the types of machinery used in the production process, their age and countries of origin. With the age of the machinery indicate: less than 5 years old 5 - 10 years old 10 - 15 years old 15 - 20 years old 20 25 years old over 20 years old

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24. Waste ratio in the packaging process: 0.07 0.1 0.2 0.3 0.4 0.5 to 0.1 to 0.2 to 0.3 to 0.4 to 0.5 to 0.6

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25. Is there a product inspection control system: Yes If yes, describe: No

26. Is there quality control system: Yes No

27. Describe the type of product standards used and recipes:

28. Describe the laboratory facilities used by quality control activity:

29. Describe plans / proposals for developing the quality control system:

30. Indicate the final form of packaging for the product:

31. Provide a production flow chart:

32. Describe any constraints or regulations that are constraining your activities:

33. Indicate the frequency of employee training: periodic random only for new employees 34. Indicate the taxes that are applied to your products

Comment on the impact of taxes on your trading activity / competitiveness:

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35. Describe plans / proposals for developing your production / packaging process: Significant modernisation of production / packaging process: Yes No Application of more modern techniques to the existing production / packaging process: Yes No

Selective up-grading of existing production / packaging line: Yes No

36. Describe the most modern systems that are currently available in: materials; techniques / technology: equipment: information:

37. Name and describe each of the packaging materials used:

Indicate the advantages of using each of these materials:

Indicate the disadvantages of using each of these materials:

38. Indicate the ratio between the cost of the packaging and the cost of producing the final product:

39. Indicate your actual (average) level of production output for sales in the domestic market (monthly / annually):

What is the level of production activity that is allocated to exports

40. Indicate the production design capacity output for your facilities (monthly / annually):

41. Describe the obstacles to increasing your level of production and sales:

42. Describe the potential export markets for your products:

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Appendix 5 Packaging Companies Reviewed

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Packaging Sector Development Strategy & Action Plan Board Packaging Material Inputs Paper And Board Production 1. Delta Co; 2. EMAK; 3. National Paper Co.; 4. Rakta Co.; 5. Simo Co.

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Added-Value Processing Carton / Corrugated Board Manufacturing And Printing 6. Agha Pack; 7. Fine Pack / Egypack; 8. El Nile Co. For Carton; 9. Flashpack Egypt; 10. Packline For Industrial Development; 11. Unipack El Nile. Plastic Packaging Material Inputs Base Plastics 12. Oriental Petroleum Co.: 13. SIDPEC. Added-Value Processing Film Production, Printing And Bags 14. Jambo Misr Factory For Plastic Industry; 15. Modern Packaging Company; 16. Sofiplast; 17. Technopack. Added-Value Processing Bottles and Containers 18. Cairo For Packing Material / Cairo Pal;

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Packaging Sector Development Strategy & Action Plan 19. ECAP (polyethylene and PET); 20. Hamad Mousa; 21. Minas Plast (polyethylene and PET); 22. Robbini Plast. Added-Value Processing Printing 23. International Company For Printing And Packing Material; 24. Modern Packaging Co.; 25. Porta For Packing Printing; 26. Rotographia Misr. Glass Packaging 27. Advanced Pharmaceutical Packaging; 28. Arabian Pharmaceutical Glass; 29. Middle East Glass; 30. Misr Glass Co.; 31. National Glass. Tin Can Packaging 32. Egyptian Can Co.; 33. Shersh Tin Factory. Research Organisations 34. Egyptian Society For Industry & Development; 35. Plastics Development Centre. Processed Foods Edible Oil Packaging Applications 36. Amigob; 37. Alfa Egypt For Industrial Investment;

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38. Dopera For Oils Co.; 39. Integrated Oil Industry Co.; 40. Markeed For Oils Co.; 41. Wadi El Melook For Oils Co. Dairy Products / Fruit Juices Packaging Applications 42. Domty For Dairy Products; 43. El-Masreen; 44. Greenland; 45. Juhayna; 46. Tiba For Food Industry; Other Food Products Packaging Applications 47. Egyptian Canning Co. (olives in jars); 48. El Enany For Tea (tea); 49. French Company For Food Industry (confectionery); 50. Helu El-Sham Company For Confectionery Industry (powdered preservatives and sweeteners); Fresh Produce 51. Agrofood Co.; 52. Agrotech Co. Modern Agriculture; 53. Center Egyptian De Legumes Et De Fruit (CELF); 54. Delta; 55. El Aguizy International Co.; 56. Egyptian Co. For International Trade (Belco); 57. Empress Import and Export; 58. ETA Export, Import and Trading;

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Packaging Sector Development Strategy & Action Plan 59. Modern Agriculture Co. (PICO); 60. Technogreen Group.

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Multi-national Food Companies


61. Ahram Beverage Co. (Heineken); 62. Cadbury Adams; 63. Heinz; 64. Nestle; Pharmaceutical Companies 65. Atos; 66. Amoun Pharmaceutical Co.; 67. Aventis Pharma; 68. Bristol Myers & Squibb (BMS); 69. Egyptian Company For Natural Oils; 70. Memphis Pharma; 71. Nile Company For Pharmaceuticals and Chemicals; 72. Pf izer. Packaging Designers 73. Graphia Advertising Agency; 74. Hani Mahfouz Design; 75. Lion Group International; 76. Tamo Press. Packaging Machinery Manufacturers 77. Espack; 78. Pyramid; 79. HI-TEK.

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Appendix 6 Statements Of Commitment Internationalisation Business Development Programme

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Appendix 7 Statements Of Commitment Domestic Capabilities Development Up-grading Programme

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Appendix 8
Board Raw Materials

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Background

One of the major issues facing the Egypts packaging board manufacturers is the lack of indigenous raw material (papermaking pulp). This means that all of the virgin fibre has to be imported at a high cost, mainly as kraft liner, rather than as pulp. There is no domestic source of wood based materials for paper making and at present the only home grown material is recycled fibre, not always of good quality. However, in Egypt there are a number of potential indigenous non-wood raw materials, in particular: rice straw, bagasse and abaca. Of these rice straw and bagasse are of most interest as these are already used in Egypt for papermaking: Rice straw is used for printings and writings but only 130,000 tonnes out of a possible 3,000,000 tonnes. Bagasse is used for printings and writings (500,000 tonnes) and for fuel (1,250,000 tonnes), making 1,750,000 tonnes in total.

The availability of Abaca is not known and may be too small to be commercially viable.

Global Paper Making

The pulp and paper industry is one of the largest industrial sectors in the world. Annual world production in 2000 was 323.3 million tons, an increase of 8.2 million tons or 2.6% from the previous year. While the USA is the largest producer with 85.5 million tons, China is third in the world at 30.9 million tons annually (using mostly non wood fibres). World paper and board consumption is estimated to grow to 420 million tons by 2010 which will place even more pressure on supplies of wood based pulps. Forecasts indicate that the largest consumer will be North America, reaching 118 million annual tons by 2010. Western Europe will be second with 95 million tons and China third with 62 million tons. It is projected that China will consume 80 million tons by 2015. Per capita consumption shows the US at 332 kg/year, China 28 kg/year, with the world average being 54 kg/year. The consumption of paper in China is however, growing at a rate of 7% per year. While a major producer China is also the second largest world net importer at 5.4 million tons annually. It is also the largest user of non-wood materials. Currently there are about 5,000 paper enterprises in China most of which use wheat straw, rice straw and waste paper as main materia ls. In Chinese pulp, the proportion of wood pulp is less than 10%, non-wood pulp 47%, waste paper 40% and other pulp 3%. The significance of this for Egypt is that the Chinese paper industry, representing the worlds third largest paper producer, has been built on the back of its usage of straw as a raw material, using typically small volume, low technology production units averaging 4,000 6,500 tons per enterprise.

C
Straw

Main Non-wood Fibres

Cereal crop straw is the worlds leading non-wood fibre, representing 47% of global nonwood production. Wheat, rye, barley, oats, and rice offer a large straw supply and

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supplemental income for farmers in the production of paper. China and India are leading recyclers. Straw has good printing qualities despite its short fibre length, which resembles hardwoods more than pines. Drawbacks include high silica content, low cellulose, weak fibres, and high transport costs compared to value. Straw pulps are always mixed with other fibres. Straw as paper pulp competes with straw as a feedstock in other industries, e.g., straw-bale houses, agri-boards, feed supplements, compost, "log" pellets, and chemicals manufacturing. Farmers cannot harvest all their straw without risking lowered soil fertility or erosion, however in regions where straw is burned to clear the fields, the straw pulp alternative both increases income and lowers greenhouse gas emissions. New genetic short-stemmed wheat varieties have hurt the market for straw pulps and agriboard. Of the common non-wood fibres, cereal straws are the most widely available and the most widely used in the production of pulp and paper. Typically, cereal straw pulp is produced in integrated pulp and paper mills, and softwood Kraft or sulphite pulp is added to provide the strength requirements to the paper. However, specialty non-wood pulp may be used instead of softwood Kraft or sulphite pulp, thus producing a 100% non-wood paper. The possible combinations are endless and can be adjusted to meet market requirements. Furthermore, it is possible to add small quantities (up to 20 - 30%) of cereal straw pulp to primarily wood pulp -based papers without impairing paper properties or paper machine runnability. This provides wood-based mills, which are located in areas which are hardwood deficient, but have available cereal straw resources, with the option of addingon a straw pulping line to supplement their fibre requirements. Bagasse Bagasse is the crushed stalks of sugarcane after the sugar has been extracted. Sugarcane is a grass with high fibre yield, but its short fibres (closer to hardwoods or eucalyptus), combined with high lignin and silica content, increase pulping costs. India, Mexico, Indonesia, Thailand, Colombia, Brazil, Argentina, Turkey and South Africa all use bagasse for pulp production because of its fine newsprint qualities. 45% of all Mexican pulp comes from bagasse. Bagasse accounts for 12% of world production of non-wood fibers. In the 1950s, the US led the world in designing the tools for bagasse pulping; now, Cuba is the leader. The Cuba-9 Experimental Centre studies the application of high-yield bagasse to smallscale pulp mills. The Cubans search for maximum efficiency: a more energy-efficient sugar mill that uses surplus bagasse for fuel; a pulp/paper mill with a low-cost pulping process; animal feed from "waste," and other by-products. Bagasse-based paper pulp competes with other uses such as hardboard and insulation board. Since sugarcane waste is also used for a fuel at sugar mills, a balance must be struck between energy and pulp. In India, sugar mills must be linked to paper mills by law which, at times, stimulates imports of coal to compensate for fuel losses.

Use Of Straw

The table overleaf provides some uses for cereal straw pulps in papermaking for packaging.

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Straw Pulp and Long Fibre Virgin Wood pulp Type of Paper
Bristol boards Corrugating medium Lightweight MG wrapping

Straw (%)
90 100 90 50 60

Long Fiber Pulp (%)


0 10 10 40 50

Quality
excellent excellent good

Straw Pulp and Wastepaper (2) Type of Paper


Chipboard Coarse wrapping Corrugating medium Folder Test liner

Straw (%)
50 80 50 60 70 80 50 70 50 60

Wastepaper (%)
20 50 40 50 20 30 30 50 40 50

Quality
good acceptable good acceptable acceptable

Straw makes excellent paper. Straw fibres are similar to hardwood fibres, and straw pulp can be used in most papers as a substitute for hardwood pulp. As the table shows traditional straw paper products include corrugating medium (fluting) and test liner for corrugated boxboard from unbleached straw pulp. Silica Content The main obstacle to the use of straw in Egypt is the high concentration of silica in the plant ste m. Wheat straw contains 4 - 10% silica as small crystals embedded in the straw. Other cereals, such as barley, oat and rye straw have 1 - 6% silica. Rice straw has the highest silica content of 9 - 14%. It has been indicated that Egypts rice straw has higher levels of silica than rice straw. This is not correct as it is rice straw in general that experiences the high silica content issue. The silica dissolves during cooking to produce pulp, and it is contained in the used cooking liquor (black liquor). Black liquor contains inorganic material used as the cooking chemical, and both inorganic and organic material removed from the fibre raw material (wood or non-wood) during cooking. Chemical Recovery All modern pulp mills include: a chemical recovery process which treats the black liquor to recover the pulping chemicals; the use of organic non-cellulose material (up to 50% of the original material before cooking) to generate energy for the pulp mill; and recycling of process water. The problem with rice straw is that its high silica content causes many problems in the chemical recovery process such as scaling (coating equipment with a glass like substance). This reduces the efficiency of some equipment, can plug it and the increased viscosity makes it difficult, (under some conditions impossible), to pump the black liquor at some parts of the recovery process. These problems make chemical recovery difficult, less efficient and more costly as compared to recovery for black liquor from wood. If the silica content of the cereal straw is not too high (less than 5 - 6%) it is

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possible to include a modified wood-based recovery system, but at higher capital and operating costs. Because of the experience at Rakta Co., with silica in black liquor, it is a common belief in Egypt that use of rice straw is impossible. However the installation at Rakta dates back to the 1960s with rebuilds in the 1970s and 1980s. Since then there have been various developments in technologies for pulping of straw and solving problems with silica, such as: A process known as NACO pulping process developed by M/S Nardy of Italy uses oxygen along with alkali. Thus prepared, pre-bleached pulp brightness is 20 points higher than that of the Kraft pulp and is easily bleached with one stage peroxide or ozone bleaching. NACO pulping, in contrast to the conventional Kraft pulping does not use sulphur, or its compounds. Hence, it is a non-sulphur and non-chlorine pulping and bleaching process. This process uses NaCO3 , Oxygen and NaOH in a specialised and patented digester called a Turbopulper. Delignification is through reaction with oxygen in a NaCO3 solution with NaOH acting as an activation and makeup chemical. The Turbopulper has a perforated plate and rotor arrangement in the base that selects cooked fibre out of the reactor. Typically two turbo pulpers are used in series operating at 6-7 bar pressure, pulp consistency of 8%. Because oxygen is the delignifying agent the pulp has a high brightness (50% ISO) and is easily bleached by one stage of peroxide to 80% ISO, or ozone to 90% ISO. Chemical recovery is similar to that in soda chemical recovery but requires a support fuel. Green liquor from the recovery plant contains silica that is removed by treating the liquor with lime. No Caustisisation is required as the system is dependent of NaCO3, not NaOH. A more full report is provided as part G of this section. Chempolis OY (Finland) and Natural Pulping (Germany) are developing pulping processes using formic acid as a cooking age nt or solvent. Cooking is done at atmospheric, or slightly elevated pressures at 80 to 95 oC. Since cooking is in an acidic medium, silica does not dissolve into the black liquor, circumventing the usual problems associated with silica in non-wood pulping. Chemical recovery is simply achieved by distillation with no need for chemical make-up, as formic acid is generated during cooking. The process yields pulp of superior brightness and strength than equivalent kraft pulps. A more detailed report is attached is provided as part H to this section. Black liquor treatment methods by Granit S.A. Switzerland are a Lignin Precipitation System and Wet Oxidation. As a first step black liquor is treated with acids to precipitate the lignin that is then sold as a commodity. This system does not offer chemical recovery, or process steam, but this is compensated for by the sale of the lignin. Unfortunately, the effluent liquor COD is only reduced by about 50% and still contains the cooking elements. Wet Oxidation involves the reaction of the black liquor, with oxygen or air, in the liquid phase at high temperature and pressure. Process steam is generated and cooking chemicals are recovered after filtering and recaustisising the effluent liquor. No evaporation is required prior to wet oxidation thus eliminating the problem of silica scale formation on evaporators. A more full report is provided as part I to this section. Modern pulp and paper technology also envisages to reduce the consumption of fossil fuel for energy generation and thus to reduce pollution and environmental imbalances. New pulping technology uses 0.5 tonne of steam per tonne of pulp compared to 2

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tonnes in earlier processes. In this context black liquor gasification is another development. Under this process black liquor from the pulp mill is concentrated and then combusted in a recovery furnace. The heat generated in the furnace is used to produce steam and electricity for the operation of the mill. Thus, a modern pulp mill can be operated without any external source of energy and a pollution free paper plant becomes a possibility. A case study for a Chinese paper mill is provided as part J to this section. Like in many other biological processes, application of biological agents is expected to be an integral part of the paper industry in the future. In fact developments in biopulping and bio-bleaching have become quite rapid and will probably replace all known paper technologies in the pulp and paper making industries, making the processes completely environmentally friendly. Biopulping which uses enzymes has already been tried in laboratory as well as in pilot plant tests. Enzymes belonging to Vermispora class decomposes the lignin compound in wood, bamboo and grass, thereby makes the pulping easier, with less use of chemicals and energy. Biobleaching with enzymes has already been practiced with success. Not only does it reduce pollution, but also increases the brightness level. A more detailed report is provided as part K to this section. Clextral (France) has developed tin-screw, or Bivis, extruders for digesting, washing and developing fibre properties. The Bivis machine has two matching and co-rotating screws that intermesh with each other. The screw shafts are splined so that various screw configurations can be mounted at different parts of the screw. In this way it is possible to have various effects in a single process. The screw housing splits on the horizontal plane and can be fitted with port for introduction, or extraction of gasses and liquids. In a Bivis used for cooking, the cooking liquor and steam can be introduced close to the fibre feed side, and black liquor can be extracted close to the discharge side. During cooking mechanical energy is applied to the pulp at the same time as chemical energy resulting in a partially refined pulp. In pulp washing applications a number of counter current wash stages are possible as the wash liquor can be injected and extracted a number of times along the length of the screws. A more detailed description is provided as part L of this section. Further Research Institute contacts are provided as part M of this section.

Transport A further concern is transport of the straw to the pulp mill. The answer to this is to build mini-mills at the site of the straw supply. Many of the mills in China are fed by farmers within a 20 mile radius. The mills in Egypt will need to be sited close to the source of virgin fibre.

Use Of Bagasse

Of the common non-wood fibres, bagasse pulp mills are typically among the largest nonwood mills which have been built. This is because large volumes of bagasse are available in one location - the sugar mill. Typically, bagasse pulp is produced in integrated pulp and paper mills, and softwood kraft or sulfite pulp is added to provide the strength requirements to the paper. However, specialty non-wood pulp may be used instead of softwood kraft or sulfite pulp thus producing a 100% non-wood paper. The possible combinations are endless and can be adjusted to meet market requirements.

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Furthermore, it is possible to add small quantities (up to 20 - 30%) of bagasse pulp to primarily wood pulp -based papers without impairing paper properties or paper machine runnability. This provides wood-based mills which are hardwood deficient but located within a region with available bagasse resources with the option of adding-on a straw pulping line to supplement their fiber requirements. The following table provides some uses for bagasse pulps in paperma king for packaging.

Bagasse Pulp and Long Fiber Virgin Woodpulp Type of Paper


Bristol boards "B" grade wrapping papers Corrugating medium Lightweight M G wrapping Linerboard Test liner

Bagasse (%)
100 60 - 70 90 65 - 75 60 - 70 75 - 85

Long Fiber Pulp (%)


0 30 - 40 10 25 - 35 30 - 40 15 - 25

Quality
excellent acceptable excellent good acceptable good

Bagasse is used in South Africa for fluting medium and in Turkey for t est liner. As mentioned before use of bagasse in Egypt is 500,000 tonnes for printings and writings. The remainder is used for fuel as it is cheaper than local fuel oil. However if legislation forces the use of virgin fibre in Egyptian packaging then the cost of this will make the use of bagasse for paper packaging rather than as fuel very attractive.

Conclusions

Non-wood fibres can be easily and quickly grown and make paper of excellent quality, but development of technology for handling them has been retarded by the industrys focus on wood pulping technologies and conservative attitudes towards new concepts. Equipment manufacturers seem reluctant to invest in development of machinery technology to handle non-woods especially in countries where wood papermaking is the backbone the economy. Lack of success with most non-wood initiatives was attributed to attempting to apply wood pulping technology to non-woods, resulting in poor pulp quality due to incorrect handling. This is particularly true for digestion and refining which tended to produce over-cooked and over-refined pulps, as the energy required for nonwoods is generally lower than for wood processing. Lack of industry financial and management support for non-wood initiatives has also been lacking despite strong technical proof of the potential of non-wood fibres. However, there are many non-wood based paper mills already producing the full spectrum of paper grades. There are also a number of initiatives worldwide that are actively advancing the cause of non-wood paper making. Non-wood fibre is gaining acceptance as a cost effective, quality competitive, and environmentally friendly alternative to wood. The main initiatives come where there is active support from Government combined with an awareness of up-to-date technology and a willingness of the population to cooperate.

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The NACO Process Paper By A. Panda

Introduction The paper industry has been dealing with environmental issues since the last 3 decades. As environmental concerns were mostly related to the production plants, their effects were reflected in the vicinity of the mill. Permit systems and emission limits ere used by the State Authorities to control pollution close to the mill, i.e. problems were considered to be local. The rate of the paper industry is now linked with the major global environment. Issues, which were considered local, have today acquired a global dimension. Issues raised by green movements have attracted wide interest and attention of the general public. Forests biodiversity, water, energy and solid waste are real local as well as global issues. Global Scenario Of Pulping Raw Materials According to FAO, although forest cover will be stable at the global level during the period between 2010 2020, the stabilised forest cover will be less than the present level. In FAOs vision, natural forest cover will diminish in the Asia pacific region and the largest loss will be in the South East Asia. Population pressure, private interest in felling trees in natural forests, poverty and corruption all go against forest protection. In the developing countries, the biggest pressure on natural forest will come from agricultural expansion and from clearing the forests to increase water yields from catchment areas. The pulp and paper industrys dependence on virgin wood pulp needs to be reduced by the use of recycled fibres (RCF) as well as non-wood fibres and annual plants in forest poor countries. According to estimation of Jaakko Poyry on globa1 fibre demand, the increase in RCF and non-wood fibres together will be 681 million m3 wood equivalent in 2010 Against a figure of 396 million in 1994 indicating a rise of 72% against a corresponding rise of 29% in pulp wood (1 & Fig. 1). Both RCF and non-wood fibres share equally in this increase. In a forest-poor country like India, where 80% of the population still depends on Agriculture, utilisation of agro residues plays a significant role in the national economy. It is therefore not surprising that nearly 40% of Indias paper and board production are from agro-residue raw materials. India has to build non-wood pulp plants in spite of several technological limitations associated with Non-wood pulp & paper making. Non-wood pulp plants particularly straw based plants will continue to be small scale production due to underdeveloped infrastructure, lack of financing and raw material procurement logistics. The goal of the paper industry is to reduce the impact of its production activities on the environment and ecology. In order to achieve the above goal of the industry it is necessary to

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Increase the use of agro residues and annual plants as raw materials. Increase the volume of waste paper recycling. Develop environmentally friendly pulping and bleaching technologies for agro residues, annual plants and waste paper recycling.

Chemical Pulping Methods The alkaline sulphate pulping process has dominated the pulp and paper industry for the last several decades. For pulping of agro residues alkaline soda process is also popular. In an integrated chemical bleached pulp and paper mill, nearly 80% of pollution load originates from the pulp mill. (pulping and bleaching). Increased awareness of the ecological effects of the bleaching process has forced the industry to replace traditional chlorine compounds with oxygen, hydrogen peroxide or ozone. A prerequisite for closing the bleach plant and thus achieve the ultimate aim of the effluent free mill is to go for TCF (totally chlorine free) bleaching. In order to reduce the level of pollution generated in the bleach plant it is desirable to obtain a pulp with a low lignin content. Methods of Low Kappa Pulping Various methods to achieve low kappa pulping (low lignin) are: Modified continuous cooking (MCC): Alkali charge is split between concurrent inpregnation zone and counter-current cooking zone. Low temperature in cooking zone results in milder cooking. Extended Modified continuous cooking (EMCC) Isothermal cooking (ITC) This has the same temperature level throughout the digester including Hi-heat zone, 10C lower temperature than in MCC. Reduced steam consumption, lower demand of M.P. steam and hence more electrical power generation in a captive power plant. This results in higher pulp viscosity and strength and improved bleach response. For hardwood pulp, achievable kappa number is 12 14. Low Solid Pulping Lower concentration of dissolved organics in the bulk phase of delignification and minimum concentration of dissolved lignin at the end of the cook by multiple extraction, split white liquor additions and split washer filtrate addition. This results in improved digester movement, improved digester washing and decreased brown stock carry over. All the above methods have been used for large wood based mills.

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Oxygen Delignification

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In order to reduce the lignin content of the unbleached pulp entering the bleached plant one way is to use oxygen in the so called oxygen delignification (OD) step between the brown stock washer and the bleach plant The advantages of a OD stage are: Lower demand of bleaching chemicals. Shorter bleaching sequence to achieve a higher level of brightness. Lower effluent load (COD, Colour and AOX)

Medium consistency (M.C) oxygen de-lignifications technology has been fully commercially exploited particularly in the Nordic Countries (97% of the Kraft mill bleach plants in Sweden and 50% in Finland). The corresponding figures are 25% in Canada and 21% in U.S.A in 1994. Today more than 50% of worlds production of bleached chemical pulp is pr ocessed with oxygen delignification. The degree of lignin removal in a single OD stage is limited to 50%. One can of course achieve up to 70% in a two stage MC process of delignification (Kemijarvi mill, Veitsiluoto, Finland). First stage is a rapid bulk delignification and the 2 nd stage a slow or residual delignification. With a view to close the bleach plant (recirculation of filtrate), it is necessary to reduce the lignin content of incoming pulp to the bleach plant. It also reduce the chlorine based bleach chemicals in ECF bleaching. Alkali Oxygen Pulping Process Technology Strong emphasis is being placed on processes which do not use Sulphur or Chlorine containing chemicals. Elimination of Sulphur reduces emissions of odorous gases, while elimination of chlorine permits recycling of bleach plant effluent into the chemical recovery cycle. We also know that use of oxygen is gaining ground for use in the intermediate delignification stage (OD) as well as in the alkali extraction stage. Can we use oxygen as a delignifying chemical at the pulping stage? As is known, oxygen is less selective in delignification and less soluble in water than say chlorine. In an alkaline medium oxygen reacts with lignin under certain conditions. NACO Process One variant of alkali oxygen pulping is the NaCo Process. Delignification takes place by reacting the pulp with oxygen in a sodium carbonate solution with a small percentage of caustic soda as the activation and make-up chemical. The reaction takes place in a patented pressurised reactor called the turbo-pulper. The important stages in NaCo pulping are: Pretreatment Stage Delignification stage Bleaching stage

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Pretreatment Stage Cut and dry de-dusted straw after separation of stones and other heavy impurities in a stone separator is fed to a hydra pulper where 1 2% of alkali are added and defibered at a consistency of 5% followed by further separation of heavy impurities such as stones, sand, metals etc. The pretreatment removes: 30% of parenchyma cells and small fiber debris with no paper making value. 80% of sodium chloride and other water solubles. 50% of silica in straw

Delignification Stage Delignification takes place in two stages in two turbo pulpers placed in series. The first turbo pulper operates at 6 - 7 bar pressure and 140C and a consistency of 8%. There is an agitator for intimate contact of oxygen with the fibres. A perforated plate at the bottom of the pulper allows selective fibre treatment. The pulper is indirectly heated (Fig. 2) To increase homogeneity and selectivity of pulping, a second turbo-pulper receives the partially delignified fibres from the first turbo pulper. The bottom screen of this pulper (3 - 6 mm holes) serves as a coarse screening of the pulp. The turbo pulper is the heart of the NaCo process. It generates intimate fiber to oxygen contact. It also gives a selective treatment of the fibres. Longer fibres over the perforated plate on the bottom of the pulper remain longer in the turbo pulper. The delignified pulp has a kappa no. of 15 and a brightness of around 48 - 50% ISO in the unbleached stage. The vapour from the blow tank is cooled down by water. The warm water (70 75%C) is used in brown stock washing and also in straw pretreatment stage. The pulp is washed in filters in 2 stages, screened and cleaned as usual. Fig.3. shows a block diagram of straw pulping by NACO process. Due to oxygen delignification, the unbleached pulp is nearly shive free and clean. The total unbleached pulp yield is 48 50% and brightness of unble ached pulp is 50% ISO. The pulp is washed in a twin wire horizontal belt filter. The bleach response of any pulp is not only determined by its kappa number (lignin content) but also by the pulping process. The oxygen delignified pulp is easily bleached. Thus one stage peroxide given a brightness of 80% ISO. The bleaching sequence is thus shortened. For higher brightness, say 90 ISO, one can use Ozone. The peroxide bleaching is carried out at high consistency and under pressure with or without oxygen in a single or two stage operation.

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A few typical results of pulp brightness are: Bleaching of straw Unbleached pulp One stage Hypo One stage peroxide Peroxide Oxygen (pressurised) Brightness, % (ISO) 48 - 50 70 - 74 Above 76 Above 80

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Some sheet properties of a bleached straw pulp of 80% brightness with one stage peroxide are given below: Peroxide Bleached NaCo Wheat Straw Pulp - Functional Properties Freeness, SR Substance, gsm Breaking length, m Double Fold Burst Index, kpa.sq.m/g Tear Index, m N Sq.m/g Bulk, C.C./g Brightness, % ISO Chemical Recovery In The NACO Process The dilute black liquor has a solid content of 8 10% and the organic and inorganic ratio of the solid is 1:1. The concentration of NACO black liquor is carried out by using falling filling LTV multiple effect evaporators. Incineration of black liquor is carried out in a conventional chemical recovery boiler to generate high pressure steam and to recover the alkali. The calorific value of NaCo black liquor of straw pulp is 2000 kcal/kg against a figure of 3000 for soda black liquor. To burn this black liquor, one needs continuous supply of support fuel gas or oil. Low Viscosity of Black Liquor One peculiar property of NaCo black liquor is its low viscosity even at high concentration. A comparison of viscosity of NaCo pulped wheat straw black liquor and that of a soda pulp wheat straw black liquor shows the vast difference (figure 4) The viscosity related rheological properties as well as the inorganic composition of the black liquor determines its scaling tendency. One could concentrate NaCo black liquor to a much higher level of solids than for soda or kraft liquor. One can eliminate also the direct contact evaporators thereby improving heat recovery in the boiler. Desilication Of Green Liquor The smelt which is mainly sodium carbonate contains a small amount of silica. To avoid build-up of silica the green liquor is subjected to a desilication process by treatment with lime. Calcium silicate is formed which settles down and any separated by sedimentation and washed and dewatered in a filter press. The silica sludge amounts to 100 kg bone dry per tonne of unbleached pulp. This is about one tenth of a soda or kraft recovery system lime sludge 41 80 5460 60 3.13 4.9 1.54 80

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As mentioned earlier the cooking liquor is primarily sodium carbonate and hence there is no need for a causticisation step in the recovery plant. As there is no chlorine or alkali extraction stage in the bleaching of NaCo pulp, the effluent quality is quite good (low COD & colour and nil AOX), it is easily treated by conventional effluent treatment processes. Commercially successful NaCo pulping systems are in operation for manufacture of wheat straw pulp, bleached linter pulp as well as recycled secondary fibres (RCF). A plant in Italy produces bleached linter pulp with 90% ISO brightness. This pulp is used for dissolving grade pulp and for security paper making. There is also plant in operation for processing RCF. NaCo pulping of RCF generates an aseptic effect in tissues and paper and board used for food packaging. Conclusions NACO pulping process satisfies all the credentials of an environmentally and ecofriendly process as follows: No suiphure and hence no emission of malodorous gases. No chlor ine or chlorine compounds, in bleaching. Hence no danger of chioroorganics. Totally chlorine free pulp, preferred by market. Due to chloridefree filtrates, closed cycle concept can be introduced. Hence reduced water consumption. Easy bleachability of NACO pulp and higher initial brightness of unbleached pulp. Specfree pulp with acceptable strength. Lower black liquor viscosity and hence higher concentration level of black liquor can be achieved. Lower solid waste generation because of absence of causticisation of green liquor. Can be adopted to various raw materials, non-wood and recycled fibres. Adaptable to smaller mill sizes. Ozone stage can be easily incorporated.

References 1. 2. James A Mc Nutt & Jan Rennel , PPI, Jan. 97. Franco Nardi, Canadian Patent 1177609 (1984)

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U.S. Patent 4,612 , 088 (1986) Italian Patent 1209352 (1989) 3. 4. 5. 6. 7. 8.

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De Ruvo A., Farnstrand D.A., Hagen N. and Haglund N., Tappi 69 (6), 1986. Nguyen X.T., U.S. Patent 5,147, 503 (1992). Panda A IPPTA Seminar, Nagpur (1987). Franco Nardi, Paperex 1993, New Delhi Panda A UNDO Report (1989) Panda A. UNEP Workshop Proceedings for Cleaner production of Pulp & paper Mills, Hyderabad (1997).

The Chempolis Process

Based on paper prepared by: Rousu Pasi*, Rousu Pivi**, Anttila Juha** *Chempolis Oy, Kiviharjuntie 11, FIN-90220 OULU; email: pasi.rousu@chempolis.com **University of Oulu, Department of Process and Environmental Engineering, P.O.Box 4300, FIN-90014 UNIVERSITY OF OULU Abstract The paper discusses the essential issues to be taken into consideration when non-wood fibres and crop residues are used in the pulp and paper industry. The focus is on the physical and chemical properties of the raw materials and their relationship with an environmentally friendly concept of pulp and paper production. The analysis of these properties show that the inadequate management of silicon and other inorganic compounds is the main reason for unsustainable operation of current non wood mills. The paper includes a case study, witch presents an optimal process solution, the Chempolis process. for production of bleached chemical pulp and paper from non-wood raw materials. The chemistry and structure of the Chempolis process as well as certain properties relevant to pulp and paper qualities are described. The, delignification in the Chempolis process is based on formic acid, which makes it possible to circumvent the problems of conventional technologies and to fully exploit the benefits of nonwood pulping. Key words : non-wood, crop residues, formic acid, chemical pulp, silicon, Chempolis process Introduction Non wood fibres are generally used in pulp and paper industry in countries with a shortage of wood, such as China and India [1]. In these countries, the growth rate of paper consumption is also fast [2]. In the western countries, large areas have been left uncultivated due to the overproduction of food (see [3]). These fields could be utilized for nonfood production, i.e. the cultivation of different non wood plants for energy, chemicals or fibre production [4]. These plants include short-fibre plants, such as elephant

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grass, giant reed and reed canary grass, and long fibre plants, such as hemp, sisal, kenaf, jute and flax. In Scandinavia, for example, domestic non wood materials could be used instead of hardwoods, which are nowadays imported in large quantities [5]. Utilization of non wood fibres is an ethically sound way to produce pulp and paper compared to the clear cutting of rain forests or primeval forests. Reforestation may partly repair these ravages, but it cannot replace the extinct animal and plant species [6]. Even though the utilisation of non wood fibres in pulp and paper production has major benefits, the production of non wood pulp is problematic. Unfortunately, the most common non wood pulping technology, the alkaline process, has caused serious environmental problems. During the delignification process, the silicon of the raw material dissolves into the cooking liquor, and this has led to difficulties in the recovery of cooking chemicals. So far, the costs of alkali and silicon recovery have been high. Thus, small agro-mills have been operating without a recovery unit, since the installation of full recovery would, in most cases, make the operation unprofitable. The failure in non-wood pulping stands at grass root level. The ignorance or incomplete understanding of the nature of non-wood raw materials and relationships involved has caused the problems of non wood pulping. The sections below discuss about these features and the significance and necessity of these relationships. These sections also show that the problems of non wood pulping may be best avoided by applying formic as delignification chemical. Basic Features Of Non-wood Materials The variety of non-wood materials provides an outstanding raw material source for pulp and further papermaking. In comparison to wood several benefits can be found. For example non-wood materials are rabidly growing, while their availability is voluminous and wide. Also most of them are secondary products form agriculture. The wide range in fibre length and diameters enables also many diversified pulp and paper products. In many cases the cellulose-weighted price is clearly favourable compared to wood. Physical Properties Low bulk density, short fibre dimensions and high content of fines are the most important physical features for the main non wood raw materials [1,7]. The low bulk density affects the logistics of non wood raw materials [1]. This has generally restricted the sizes of the mills to be considerably smaller than wood-based mills. Improved technology of raw material handling may solve this problem. For example, the bulk density of reed canary grass, phalaris arundinacea, may be increased from 60-80 kg/rn3 to 115-165 kg/rn3 by exploiting cylindrical baling presses and to 190 kg/rn3 by applying square baling presses [8]. This would make the amount of cellulose handled comparable to wood. In many western countries, such equipment is already available, which means that these countries also have the highest potential for industrial non wood raw material handling. However, in many countries such equipment is neither available nor affordable, although these countries could supply large amounts non wood raw material as agricultural residue. Thus, logistics will continue to restrict the size of non wood mills even in the future. The large amount of fines and the short fibre length affect especially the drainage properties of pulp. Apart from the operation of the pulp mill itself, these properties also affect dewatering in the paper machine. Due to the wide range of different nonwood species and their different physical properties, substantial differences in dewatering behaviour may arise. [9,10] Chemical Properties The chemical composition of non wood materials varies,

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depending on the non wood species and the local conditions, such as soil and climate [11,12]. Non wood materials generally have higher silicon, nutrient, and hemicellulose contents than wood [13]. By pre-treatment of the raw material, part of the leaves and nonfibrous materials may be removed, which has a positive influence on the ash content and the pulp and paper properties. The chemical composition of the material, however, still remains different from wood. In delignification, lignin and a part of hemicelluloses degrade and dissolve into cooking liquor. Therefore, in alkaline wood pulping the dissolved material contains almost exclusively organic components. However, in alkaline nonwood pulping the dissolved material contains additionally considerable amounts of silicates. This complicates crucially the recovery of cooking chemicals, as discussed below. Behavior Of Non-wood Fibres Relating To Technical, Economical and Environmental Issues The key prerequisite for sustainable utilisation of natural resources is the understanding of the potential of nonwood fibres and their special qualities compared to wood-based raw materials. The specific physical and chemical characteristics of nonwood fibres have an essential role in the technical aspects involved, whereas the technical issues are related to the economic, environmental and ethical contexts and vice versa. Technical Issues Conventionally, the problems related to non wood pulping have been solved, as far as possible, by developing the alkaline process further. However, the key issue for sustainable pulp production should be to design a concept in which the problems could be avoided in advance. Due to economic reasons, the implementation of alkali recovery has not been possible in small non wood mills. In bigger mills, the recovery of alkali has not been successful because the dissolution of silicon into cooking liquor has resulted in scaling problems in liquor evaporation. In principle, this problem may be solved by separating the silicon from the liquor. However, in practice liquors are simply discharged into the waterways. The separation of silicon would further raise the recovery costs, while separation still remains incomplete and the problems would be only partly solved. Generally, alkaline non wood puips contain considerable amount of hemi cellulose while the fibres are short. This impairs the dewatering properties in different unit processes, the adhesive forces in the paper machine and paper quality. To avoid these problems, the hemi cellulose content of the pulp should be controlled. However, when using the alkaline technology, the hemi cellulose content of the pulp cannot be easily controlled without losses in the quality of the pulp. Non wood raw materials contain a notable amount of metal ions, including K, Ca, Mn, Cu, and Fe [14]. When the pulp is bleached without chlorine chemicals, the transition elements form radicals, which react unselectively with the pulp [15], causing a loss of yield and strength properties. Furthermore, bleaching is accompanied by the formation of oxalic acid. Calcium reacts with oxalic acid into calcium oxalate, which deposits easily. This impedes effluent-free operation of the bleaching plant [16]. In non wood pulps these have not yet been key issues due to chlorine-based bleaching and low brightness levels. In conclusion, the unsuccessful management of inorganic compounds of non wood materials has resulted in major technical problems. These problems could be avoided by applying acidic delignification conditions, e.g. formic acid delignification.

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Economical And Environmental Issues The recovery problems caused by the dissolved silicon are commonly solved by omitting the recovery of cooking chemicals. The insufficient recovery and the consequent loss of dissolved organic material have led to serious environmental loads on waterways. In wood pulping, the energy needed by the mill is produced by combusting the dissolved organic material. In non wood pulping, the dissolved material is lost along with the discharge, and the energy is commonly produced by combusting coal. This has increased oxides of sulphur, carbon dioxide and soot emissions into the environment. Thus, the discharge of cooking liquor increases, apart from the environmental load, the consumption of both energy and chemicals. Due to environmental reasons, bleaching should be carried out without chlorine chemicals (= TCF bleaching). However, in alkaline processes this is not viable due to the presence of inorganic compounds. This has impeded the recovery of bleaching liquors, and bleaching liquors are therefore also often discharged into the environment. This has further increased the load on waterways. The recovery problems caused by the dissolved silicon may be, at least partly, solved by separating the silicon from the liquor. This clearly increases the investment and operating costs, and small non wood mills cannot afford to invest in the recovery of cooking liquor. It is therefore even le ss possible that they would be able to invest in the separation of silicon. It has been proposed that the recovery of cooking chemicals and the separation of silicon might be feasible if the capacity of the mill were high enough to make the investment profitable even in view of the complicated recovery. However, logistical constraints commonly reduce the size of the mill to be far below the critical size. Thus, no such mill has yet been constructed. As described above, the chemical and physical propertie s of non woods differ significantly from those of woods. This has severely affected, and will continue to affect, the non wood pulping technology and, further, the environmental, economic and ethical issues of non wood pulp production. Because the traditional alkaline wood pulping has been successful and because non wood pulping has generally gained (so far) relatively little attention, very few novel ideas have been presented to solve the complex problems of non wood pulping. As the technical problems, the economical and and environmental problems of non wood pulping could be solved, for example, by formic acid delignification. Determination Of Processing Conditions Delignification The chapters above showed that the current alkaline non wood pulping technology inherently involves overwhelming problems, which are very difficult to solve. Thus, it seems easier to develop an entirely new process than to modify the traditional processes in order to make the future pulp mills fulfill the increasingly strict environmental regulations. Therefore, during the past few decades, many alternative pulping methods have been introduced all over the world. However, the majority of these methods have been developed for wood-based raw materials. Among the most promising alternative methods have been the organosolv methods. These solvent-based processes utilise organic solvents, such as acids or alcohols, as cooking chemicals. Many of them, however, also use inorganic compounds. The understanding of the special properties of non wood materials results in several boundary conditions and special features in non wood pulping compared to wood pulping. When designing the new process, a structurally simple, small-size pulp mill with full

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recovery of chemicals should be the ultimate goal. To achieve this target, the most essential factor in the design is the selection of suitable delignification conditions. This includes the choice of chemicals and the setting of both temperature and retention time to feasible levels, while simultaneously considering bleachability, recovery, machinery, etc. Therefore, several physico-chemical phenomena should be controlled in a single process unit. In the case of a non wood pulp mill, this means that, during delignification, the dissolution of silicon should be prevented. Moreover, some of the hemicellulose should be concurrently hydrolysed to improve the drainage properties of the pulp after delignification and to prevent fragility of the paper products. Furthermore, the utilization of TCF technology presumes simultaneous removal of nutrients from the pulp. In many of the suggested processes, silicon is separated from the alkaline cooking liquor by acidic precipitation [17]. On the other hand, in the process of dissolving pulp, acidic prehydrolysis is used to hydrolyse hemicellulose before alkaline cooking [18]. In some technologies, nutrients are removed from the pulp before TCF bleaching by acidic treatment [19]. These modifications of the alkaline processes suggest that delignification should als o be carried out in acidic conditions, because it would then be possible to combine the suggested pre- and post-treatments with delignification. There are many possibilities to select an optimal acid-based delignification chemical. It can be either a mineral or an organic acid or a mixture of these, or any of these alternatives mixed with other solvents. Experiences of mineral acids, such as H2S04 , HCl, HNO3, or sulphites have shown that their recovery is difficult. They also affect too strongly the cellulose fibres, which impairs the properties of the pulp. Therefore, all the sulphite mills in Finland, for example, have been shut down. The utilization of sulphur and nitrogen compounds would also create emissions and even acid rain, unless they were filtered and washed from flue gases. Furthermore, inorganic residues in the cooking liquor may restrict the further processing of the dissolved organic material. Commonly, the dissolved material is combusted. If the liquor contains chlorides from HC1, for example , and potassium dissolved from the raw material, combustion would have serious corrosive effects. Thus, it may be concluded that the utilisation of inorganic acids as delignification compounds is generally not feasible. The exclusion of inorganic compounds strongly limits the feasible alternatives in solvent selection. According to the literature, the following four alternatives seem most promising: Auto-catalysed ethanol pulping (ALCELL) [20] acetic acid pulping combined with minor amounts of formic acid (FORMACELL) [21] peroxyformic acid pulping (MILOX) [22] formic acid pulping (CHEMPOLIS) [23]

Development of these processes has involved extensive experimental work. The processes resemble each other in many ways. Firstly, the most severe problems of alkaline and mineral acid processes can be avoided in each process. Secondly, delignification is based on acid-catalysed fragmentation of lignin and hemicellulose. Thirdly, recovery is based on thermal separations and distillation. However, when the processes are studied more closely, significant differences arise. Due to these differences, the Chempolis process is the only one, which have survived up to the present. The other processes have remained in laboratory scale or their development has been discontinued. In the Alcell process, delignification is carried out in ethanol-water solution at high temperatures (almost 200 C). This results in the formation of several degradation products, including acetic acid, formic acid and furfural. The formation of acids is utilised

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by applying them as catalysts in delignification. However, to avoid their accumulation and the consequent disturbance of delignification, their concentrations in the pulping liquors should remain low. Thus, the degradation products must be separated from water and ethanol. This separation essentially involves distillation. However, separation is difficult and expensive because the concentrations of the degradation products are low and because they form azeotropes with water. Apart from pulp quality, the recovery of the solvent is the critical issue in organosolv pulping. The separation of the solvent from the degradation products is an essential part of recovery. Clearly, separation becomes easier if the solvent is one of the degradation products. This is the advantage of acetic acid pulping processes. The formation of aliphatic carboxylic acids has also been observed in conventional alkaline pulping [24]. However, this formation cannot be utilised because the acids react directly to the corresponding alkali salts, which causes consumption of alkali and slows down delignification. Acetic acid is a feasible solvent for lignin, and acetic acid may hence act in delignification both as a catalyst and as a solvent. Then, no additional solvent, e.g. ethanol, is needed, which simplifies the recovery. Furthermore, the use of acetic acid slightly lowers the required delignification temperature and pressure. Acetic acid delignification may be enhanced by adding some amounts of formic acid (Formacell process), because formic acid is a stronger acid than acetic acid. This lowers the operation temperature and pressure. Although the temperatures and pressures are lower in the Formacell than the Alcell process, for example the risk of backflow is still obvious and the feeding of raw material, especially non woods, is complicated. Moreover, acetic and formic acids react with lignocelluloses during delignification into corresponding esters [25]. This causes substantial losses of both acetic and formic acid if the y are not recovered. Similarly to acetic acid, formic acid is also formed during the acidic processing of lignocelluloses. This is clearly a further advantage of formic acid pulping processes. When formic acid is used as the delignification chemical, the operation temperature and pressure can be kept clearly lower than in ethanol or acetic acid pulping. Early applications of formic acid as a pulping chemical involved operating in atmospheric conditions. However, this results in a very slow delignification rate. In the first improvements, hydrogen peroxide was used as an additional chemical to enhance delignification [26]. By using two-stage cooking, the amount of peroxide was reduced [27]. The consumption of peroxide could be further reduced by splitting the cooking into three different stages (Milox process) [22]. Similar types of delignification has been carried out by applying a very high liquor-to-raw material ratio [28,29]. However, this leads to increments in both the investment and the operating costs, whereas no significant advantage is achieved. If the conditions are inadequate, delignification is insufficient and bleaching approaches cooking [30]. If excessively high cooking temperatures [31] are used, formic acid starts to decompose, causing losses of formic acid. These drawbacks of formic acid pulping methods may be avoided by applying mildly pressurized conditions. Bleaching Conditions The main effluent flow in modern chemical pulping of wood is generated in bleaching. The situation has improved thanks to the environmentally more friendly chemicals, such as oxygen, ozone, hydrogen peroxide and peracetic acid. These chemicals have replaced elementary chloride and partly chlorine dioxide. In principle, this replacement should enable full recovery of bleaching effluents. However, very few mills have a totally effluent-free bleach plant [32,33], because only very few mills operate with a TCF (Totally Chlorine Free) sequence, due to the higher operating costs and the poorer quality of pulp [32-34]. The formation of oxygen radicals from the reaction between oxygen-based chemicals and the transition metals of pulp are the main reason for the poorer pulp quality [15].

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The closure of the bleach plant is also difficult in the case of a TCF-based sequence. Firstly, the formation of calcium and barium oxalate causes deposition problems. Secondly, the combustion of the bleaching residue together with the cooking liquor may distort the balance of the delignification chemicals. In non wood-based mills, the situation is even worse. Because of their poor bleachability, non wood pulps cannot be satisfactorily bleached without chlorine chemicals [35-37]. In addition, the inorganic compounds of pulp hinder selective bleaching. Furthermore, the large amount of calcium results in the formation of calcium silicate and calcium oxalate. Thus, effluent-free bleaching will obviously be difficult to achieve in traditional non wood mills. TCF-bleaching and, further, the effluent free bleaching of non wood pulps could be achieve d if the brown stock would not contain calcium, barium or transition metals. This kind of stock can be produced by using acidic organosolv methods, e.g. formic acid delignification. Case Study - The Chempolis Process State-Of-The -Art Formic acid and the development work in its application in chemical pulping has strong basis in Finland. The industrial production of formic acid was started in Oulu twenty years ago. Since then extensive research and development work have been done. The first milestone was the movement from laboratory scale to pilot scale cooking in the beginning of 90s. The recovery operations were constructed 1992, which verified the feasibility of solvent recovery. This process was know as Milox or peroxyformic acid process. The work was carried out in the Finnish pulp and paper research institute (KCL), in Kemira Corporation and in many universities. The second milestone was the establishment of Chempolis Oy on the basis of earlier work in 1994 by MBOacquisition from Kemira and KCL. The work of Chempolis has focused on the process development for nonwood materials. The work has included voluminous amount of laboratory and pilot scale experiments as well as computational simulation of the developed technology. Beside the experimental operation in the modified plant in Oulu, remarkable work have been carried out together with the university of Oulu as well as different machine suppliers, engineering consultants, design institutes and customers. The third milestone in the history of formic acid pulping was in the late of 1999 when the first letters of intends and later the licence agreement were signed to build the full scale non wood mills based on the Finnish Chempolis technology. Experimental Verification Many boundary conditions are related also to formic acid based pulping technology. To avoid inefficient delignification consumption of hydrogen peroxide, expansion of recovery and decomposition of formic acid delignification with formic acid should be carried out at slightly elevated temperatures with a conventional liquor-to-straw ratio without adding hydrogen peroxide. These are the conditions that are applied at the delignification stage of the Chempolis process. As described above, during delignification as many phenomena as possible should be controlledly operated in a single unit process. Experiments in the development of Chempolis process have shown that all the desired phenomena may be controlled at a single delignification stage. Apart from efficient delignification, these phenomena imply

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dissolution of nutrients and controlled hydrolysis of hernicellulose, while silicon remains insoluble. Table 1 below shows the concentrations of inorganic compounds of screened wheat straw brown stock pulp and original raw material. The results indicate that, during delignification, the alkaline soluble silicon remains in stock, which can be seen as an increased proportion of silicon, while the acid-soluble nutrients dissolve into cooking liquor. Therefore, the difficulties implicit in the inorganic compounds of the raw material are avoided by utilising formic acid-based delignification. Table 1. The concentrations of inorganic compounds in wheat straw and in corresponding pulp. Wheat straw Raw material Brown stock Mn [ppm] 20.2 2.03 Mg [ppm] 701 36.9 Ca [ppm] 2280 16.7 K [ppm] 10400 35.9 Si [%] 3.37 6.51

The insolubility of silicon is further verified in Fig.5, in which the behaviour on formic acid based spent liquor is presented. For example 66% dry solid content is achieved with viscosity of about 0,25 Pas at temperature of 95C, which verifies the easy processing spent of liquors from Chempolis process. Fig.6 show the kappa number as a function of the xylan content for wheat straw puips. The curves denoted by the symbols A, B, etc. represent different delignification conditions. As indicated by the figures, puips with different xylan contents can be achieved at a fixed kappa number and vice versa. This enables adjustment of the pulp properties in view of bleaching as well as the paper product itself.

Fig. 4 viscosity of wheat straw spent liquor

Fig.5. Xylan content versus kappa number of wheat straw pulp samples

Bleached short-fibre pulps are seldom utilized as such in papermaking. They are usually mixed with long-fibre puips , which improves the strength and runnability of the pulp. However, short-fibre pulp is very important in papermaking. It makes the paper smooth and opaque and is an excellent printing base. Some Bleached short-fibre pulps are seldom utilized as such in papermaking. They are usually mixed with long-fibre pulps, which improves the strength and runnability of the pulp. However, short-fibre pulp is very important in papermaking. It makes the paper smooth and opaque and is an excellent printing base. Some properties of pilot scale papermaking trials are listed in Table 2. The trials were made at 1100-1380 m/min speeds.

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Table 2. Summary of runnability tests in high-speed paper machine. Paper furnish contains 50% reed canary grass pulp and 50% pine pulp. Reference contains 50% birch and 50% pine pulp.
Properties Reed 50% Pine 50% 1100 27 58.1 14.9 45.7 527 300 992 1.43 82.7 44.4 39.0 9.0 295 59.1 Birch 50% / Pine 50% Reference 1100 22 18.2 15.0 44.3 695 398 689 1.39 79.6 37.9 51.1 8.6 320 61.3 Speed trials Reed 5 0% / Pine50% 1200 1320 1380

Speed, rn/mm SR Fines<0.200mm,% Filler content, % Dry solid after wire, % Dry solid after press. section, % Coarseness, top side, mI/mm wire side Porosity, mI/mn Bulk, cm2 /g Opacity, % Light scatt.coeff., m2 /kg Tensile index, MD, Nm/g Tear index, CD, mNm2 /g Scott bond, J/m2 Weight, g/m2

15.6 20.8 46.1 477 243 1050

14.9 21.9 44.4 529 255

16.1 23.4 44.6 566 266 961 82.0 42.0 9.2 57.9

82.5 39.8 9.8 56.1 43.4 9.2 61.8

Table 2 shows that high-grade paper may be produced from non wood pulp in a highspeed paper machine. As indicated by the dry solid contents, the dewatering properties of reed-containing paper are fully comparable to wood. This contradicts the earlier belief that a high content of hemicellulose and fines in nonwood puips would result in poor runnability in paper machine. Furthermore, the opacity. coarseness and bulk of reedcontaining paper are better than the corresponding properties of merely wood-containing paper. These features enhance printing properties, which further underlines the feasibility of utilisation of pulp produced by Chempolis process in non-wood based paper production. Summary The large varieties of non-wood raw materials provide an outstanding source for pulp and papermaking. The key elements in the design of sustainable pulp production from nonwood materials include strict consideration of the chemical properties of the raw material i.e. the silicon, hemicellulose and nutrients. New efficient process technology has a crucial role to enable economical and environmental friendly operation at small scale. This inevitably implies simultaneous control of the silicon, hemicellulose and nutrients during delignification. Chemical pulping of non-wood raw materials should take place in acidic delignification media. In the most optimal case delignification is carried out in media, which consists of the degradation products of the processed raw material. According to the literature and experimental verification it seems that the most beneficial delignification conditions are achieved when formic acidic -based conditions are used in mildly pressurised conditions. These are the conditions, which are used in the Chempolis process. The process is the result of two decades of intensive experimental and computational work carried out in Finland.

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1347. [17] Ibrahim, H., 1988. Silica is no longer a problem in the recovery of heat and chemicals from nonwood plant fibers black liquor, vol. 2. In: International Nonwood Fiber Pulping and Papermaking Conference, 11-14 July 1988, Beijing, P.R. China. CTAPI, pp. 877-889. [18] Kordsachia, 0., Patt, R. and Sixta, H., 1999. Cellulose isolation from different raw materials. Paper, 53(2): 96-108. [19] Bouchard, J., Nugent, H.M. and Berry, R.M., 1994. A comparison between acid treatment and chelation prior to hydrogen peroxide bleaching of kraft pulps. In: 1994 International Pulp Bleaching Conference, 13-16 June, Vancouver, Canada. TAPPI Press, Atlanta, pp. 33-39. [20] WO, 9315261. Lora, J.H., Katzen, R., Cronlund, M., Wu, C.F., Gopal, G., Winner, S.R., Leblanc, R., Raskin, M.N. and Agar, R.C. (publ. 1993.08.05.) [21] DE, 4228171. Schoene, M. and Nimz, H.H.H. (pub!. 1994.03.02.) [22] Fl, 74750. Laamanen, L., Sundquist, J., Wartiovaara, I., Kau!iomki, S. & Poppius, K.,(publ. 1986.09.23). [23] Fl, 103899. Rousu, E., Rousu, P. and Rousu, P. (publ. 1996.11.06.) [24] Aln, R., 2000. Basic chemistry of wood delignification. In: P. Stenius (Ed.), Papermaking Science and Technology 3. Forest Products Chemistry. Fapet Oy, Helsinki, Finland, pp. 73. [25] Saake, B., Lehnen, R., Lummitsch, S. and Nimz, H.H., 1995. Production of dissolving and paper grade puips by the formace!l process, vol. 2. In: The 8th International Symposium on Wood and Pulping Chemistry (8th INWFPPC), 6-9 June 1995,Helsinki, Finland. Gummerus Kirjapaino Oy, Jyvaskyla, pp. 237-242. [26] SU, 761647. Reznikov, V.M. and Zi!berglejt, M.A. (pub!. 1980.09.07). [27] SU, 821614. Reznikov, V.M., Yukhnovich, Z.K. and Zilberglejt, M.A.. (pub!. 198 1.04.15). [28] FR, 2770543. Delmas, M. and Avignon, 0. (publ. 1999.05.07.). [29] DE, 19516151. Sieg!e, S. (pub!. 1996.11.07.). [30] WO, A, 0012810. Johansson, A., Sipi!a, K. and Leminen, A. (pub!. 2000.03.09.). [31] CA, 1300324. Arnoldy, P. and Petrus, L. (pub!. 1992.02.27.). [32] Pekkanen, M. and Kaila, J., 1997. Closing the Water Cycle of Pulp Mills by Evaporating Bleaching and Debarking Effluents. In: Proc. TAPPI Minimum Effluent Mills Symposium, 23-24 October 1997, San Francisco, CA, USA. TAPPI Press, Atlanta, pp. 163-17 1. [33] Pikka, 0., Vesala, R., Vi!pponen, A., Dahllf, H., GermgArd, U., Norden, S., Bokstrm, M., Steffes, F. & Gullishen, J., 2000. Bleaching app!ications. In: J. Gullichen and C.-J. Fogelholm (Editors), Papermaking Science and Technology 6A. Forest Products Chemistry. Fapet Oy, Helsinki, Finland, pp. A664-A665. [34] Seisto, A., Poppius-Lev!in, K. and Fuhrmann, A., 1998. Correlations Between Chemical, Fibre and Paper Properties of TCF and ECF Bleached Kraft Puips, vol. 1. In: 1998 International Pulp Bleaching Conference (IPBC 98), 1-5 June 1998, Helsinki, Finland. Gummerus Kirjapaino Oy, Jyvaskyla, pp 175-183. [35] Mir, M., Roncero, M.B., Tones, A.L., Colom, J.F. and Vidal, T., 2000. Comparison of TCF and ECF sequences on wheat straw pulp. In: Proc. Sixth European Workshop on Lignocel!ulosics and Pulp (EWLP 2000). Advances in Lignocellulosics Chemistry Towards High Quality Processes and Products, 3-6 September 2000, Bordeaux, France. Universite Bordeaux, Bordeaux, France, pp. 473- 476. [36] Pan, G.X. and Leary, G.J., 2000. Hydrogen Peroxide Bleaching of Agro-Based Fibers Bleachability and Improvement, vol. 1. In: Proc. Fourth International Nonwood Fibre Pulping and Papermaking Conference, 18-21 September 2000, Jinan, Shandong Province, P.R. China. CTAPI, pp. 268-275. [37] Wane, G., Bruhn, T., B!om, C. and Hua, Z., 2000. Improved Bleaching of Straw

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Pulp, vol. 1. In: Proc. Fourth International Nonwood Fibre Pulping and Papermaking Conference, 18-21 September 2000, Jinan, Shandong Province, P.R. China. CTAPI, pp. 289-302.

Process from Granit S.A.

Jairo H. Lora
Granit S. A. 7 Camby Chase, Media, PA 19063, USA jhlora@aol.com Abstract Interest on non-wood fibres as sources of pulp has increased in recent time, but the lack of techno-economically feasible processes to handle the spent black liquors has prevented more widespread use and has caused many mill closures for environmental reasons. In this paper technologies for processing black liquor are discussed: conventional alkali recovery, alkali recovery with desilication, lignin recovery, and wet oxidation. The conventional alkali recovery system was developed and optimized for wood pulping and faces severe operational and economical hurdles when applied to non-woods. The need for desilication as an add-on to conventional alkali recovery only increases the cost and complexity of a system already beyond the reach of the small non-wood pulp mill. Lignin recovery and wet oxidation are novel alternatives that address technical and economical concerns and that can be tailored according to project requirements. Lignin recovery (which made its industrial debut in 2000) offers the opportunity of turning an effluent into a value added product, while wet oxidation is more energy efficient and is largely immune to the silica problems of the conventional system. Introduction Non-wood fibers were the first material ever used by mankind for paper production, and played a dominant role until about one hundred years ago. They remain an important fibre source for many types of papers in certain developing countries (noticeably China and India) and for specialty grades in developed countries. Non-wood fibre pulp mills are normally small in capacity, Since the feedstock is bulky, difficult to storage, and normally is not available all year around. Technology developed for much larger wood pulping operations may not be economically feasible when pulping non-woods. This is particula rly true in the area of processing the black liquor to recover energy and pulping chemicals. In the case of wood this is done using a very capitalintensive process. To be economic such a process requires a scale of operation well beyond the average non-wood pulp mill. Interest on non-wood fibres as sources of pulp has increased in recent time. Such feedstocks are expected to play an important role in improving the sustainability of the pulp and paper industry1, thus permitting a more rational utilisation of forest resources. Non-wood fibres are easy to pulp with sulphur-free soda cooking. The puips obtained can be used for a variety of paper grades, including printing, writing, packaging, tissue, and specialties. Non-woods can make an increasingly important contribution to the fibre supply in countries experiencing growth in their paper demand but lacking adequate forest resources, such as China and India. Using non-wood fibres for pulp and paper production could offer an outlet for agricultural residues, now that burning them in the fields is a subject of strict environmental restrictions. Furthermore, growing annual crops

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exclusively as sources of fibres could provide an alternative, non-food use for the land in those countries that have agricultural surpluses. If non-wood fibres pulping is to contribute to make the pulp and paper industry more sustainable, to reduce pollution from burning agricultural residues in the fields, and to provide non-food uses for the land, there is a need to address the handling of the black liquors with technology compatible with small scale operation that is economically feasible and environmentally sound. In this paper we discuss options available to process non-wood spent liquors. Conventional Recovery The conventional recovery system developed for wood black liquors is schematically shown in Figure 1. When this system is adapted for soda cooking, the black liquor is concentrated in multiple effect evaporators and then is burned in a recovery boiler where steam and a stream of inorganic materials (smelt) are generated. The smelt (mostly sodium carbonate) is dissolved to form the green liquor, from which impurities are removed by decantation or filtration. Causticizing with lime converts the sodium carbonate in the green liquor to sodium hydroxide - the active cooking chemical - and calcium carbonate. The latter is calcined in a kiln to regenerate lime in a closed cycle.

Figure 1. Soda pulping and conventional alkali recovery As mentioned above, such a recovery system is fairly capital intensive and is suitable only for relatively large-scale operations. To complicate things further, non-wood fibres usually contain high levels of silica, which is dissolved during pulping and becomes a constituent of the black liquor. In a conventional alkaline chemical recovery system the presence of silica leads to a dramatic increase of viscosity during liquor concentration and to severe scaling in the evaporators where the silica precipitates. Furthermore, the recovered white liquor is contaminated with silica, which accumulates in the system, causing further plugging and scaling. 2 Non-wood fibre mills that have recovery systems generally discharge either spent cook liquor or other streams (such as the lime mud) in order to purge silica and maintain its concentration at manageable levels.

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Desilication Processes

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Silica removal from the liquor circuit has been proposed as a remedy to prevent the build up of this compound and the resulting damaging effects. The approaches proposed essentially rely on carbonation with carbon dioxide (from flue gas, for example) to form insoluble calcium silicate either in the black liquor or in the green liquor. Carbonation of the black liquor has been studied for many years principally in India, where it has advanced to the pilot level some time ago. Reportedly, the process is difficult to control to reliably produce filterable silica without lignin co-precipitation, which reduces the caloric value of the liquor.2 Carbonation of the green liquor is practiced at the Tamil Nadu mill in India, which is the largest bagasse pulp mill in the world. This process however does not entirely solve the silica problems in evaporators and recovery boiler, and also has an increased cost since some of the sodium hydroxide already present in the green liquor is converted to carbonate, which rises lime requirements for causticizing.(Figure 2)

Figure 2. LPS process In any event, de-silication processes add additional complexity and cost to an already capital-intensive recovery system, and therefore cannot be considered the optimal solution that could make non-wood pulping more widely practiced. Novel Alternatives Granit SA has developed two alternative processing options for non-woods black liquors: Lignin precipitation and wet oxidation. While the lignin precipitation alternative takes a radical departure from conventional processing and controls pollution by recovering a value-added product, the wet oxidation approach can be seen as an improved direct replacement of the conventional alkali recovery process described above. Both alternatives are suitable not only as treatment process for the entirety of the black liquor from a small mill, but also as bottleneck removal mechanisms for relatively large nonwood pulp mills that have a recovery process and want to incrementally increase their pulp output.

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Lignin Precipitation System (LPS)

September, 2004

The LPS process (Figure 3) creates an additional revenue stream from an effluent, effectively increasing the economic yield of the mill. In the LPS process the pH of the black liquor is reduced to precipitate the lignin. The resulting slurry is conditioned in a maturation step, and is then filtered and washed in a belt filter. The lignin cake obtained is dried to generate a high-purity lignin powder at about 5 % moisture.4 Removal of the lignin, reduces the Chemical Oxygen Demand (COD) of the liquor by about 50% . The LPS technology was industrially implemented for the first time at the pulp mill of Papeteries du Lman in Thonon, France in 2000. (See Figure 3). At that location, the entire black liquor generated during flax pulping is fed to the Granit lignin recovery unit; the lignin recovered is marketed, while the remaining filtrate is processed in a biological treatment plant to meet existing regulations. Following the successful installation of a lignin recovery unit in France, Granit is now working intensively in several countries towards the implementation of additional lignin recovery projects. We expect to announce the next lignin recovery installation in the immediate future. What makes the use of the LPS process attractive is the possibility to obtain a high purity product with exciting markets. The properties of the lignin obtained at the plant in Thonon, France, are presented in Table 1. Table 1. Typical Properties Of Industrially Produced Flax Lignin Elemental composition Materials other than lignin (on dry matter) Functional groups Slurry pH Particle size Molecular weight Thermal behavior Bulk density Solubility characteristics C 60%, H 7%, 0 32%, N 0.7% Ash <0.5%, Hemicelluloses <1.5%, Protein 4.5% Carboxyl 8-10%, Phenolic 2.31%, Aliphatic OH 3.7%, Methoxyl 13 % 3-4 80% below 200 microns MN 1000, Mw 3000 Tg 130 C, Thermoplastic flow starting at 150oC 0.45 g/cm3 Very low water solubility Soluble in aqueous alkali, 2-methoxyethanol, furfuryl alcohol, 90/10 acetone/water Limited solubility in aqueous methanol and ethanol

The product obtained in Thonon is being used industrially and also for market development purposes. Lignins obtained from non-wood fibres by the LPS process are suitable for three main market segments: 1. Competition with commercially available sulfur-containing lignins. Sulfur containing lignins from wood pulping are mainly used as industrial dispersants and binders. Sulfur-free non-wood lignins show competitive performance in some applications such as concrete additives, and can be modified to yield high-purity dispersants, well suited for high-price markets. 2. Sustainable replacement to products currently derived from non-renewables. Lignin is

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a renewable polymeric aromatic product. The high purity, lack of sulphur, chemical functionality and other characteristics of the soda non-wood lignins, offer a new portfolio of opportunities to add value. Such opportunities are not normally available to sulphur-containing lignins. Sulphur-free soda lignins can be used as partial replacement for phenolic resins in applications such as molding compounds, foundry core binders, friction materials, wood binders, fiberglass insulation binders, etc. Lignin can also be used as component of other products that are traditionally nonrenewables, such as epoxies and urethanes. The potential of sulphur-free, high purity lignins to play a pivotal role in efforts to develop sustainable, renewable products, has been recognized by companies such as IBM and ICI, which have developed ligninbased products for items as diverse as computer boards and isocyanate binders5 6 3. Unique applications. The specialty applications rely on the unique properties of Granit lignin, such as bioactivity, antioxidant characteristics, slow biodegradability, photoreactivity, hydrophobicity, etc. Applications in this area include anti-microbial products, paper strengthening additives, animal feed enhancers, controlled release agro-chemicals, grease additives, cosmetics, polymer pigments, and seed coatings, among others. One example of a unique application is the current commercial use of lignin produced in our plant in France as the active ingredient in Bioc lin, a biodispersant recently introduced in Central Europe for control of slime in paper machine water circuits. Wet Oxidation

In wet oxidation a stream is reacted in liquid phase with oxygen at high temperature and pressure to exothermically degrade the organic components, thus recovering energy while eliminating pollution. Wet oxidation of dilute black liquor, can be used as a replacement for the most capital- intensive sections of the conventional alkali recovery system: the evaporators and the recove ry boiler. Alternatively, the filtrate obtained after lignin recovery in the LPS process can be treated by wet oxidation. In either case, the heat generated in the exothermic reaction is recovered as process steam. After oxidation a mineral residue can be separated, which contains the noprocess elements, including 70-90% of the silica present in the black liquor. Once silica and other non-process elements are removed by filtration, the liquor is recausticized with lime to regenerate sodium hydroxide for reuse in the pulping area. The calcium carbonate obtained in recausticizing is low in silica content and may be calcined in a kiln to regenerate lime and continue the cycle.7 The soda recovery process based on wet oxidation is known as the SRS process.(Figure 3), overleaf.
The use of wet oxidation as the core of the SRS recovery system results in significant advantages over the conventional recovery technology based on liquor evaporation and combustion in a recovery boiler8. Wet oxidation based systems (even when lignin is recovered beforehand) are much more energy efficient than recovery boiler based technology. Relative to the conventional alkali recovery process, wet oxidation generates 120% more steam if lignin is not recovered. When lignin is recovered, the amount of steam available from the wet oxidation unit decreases, due to the lower heating value of the resulting wet oxidation feed and the energy requirements for lignin drying. In spite of this, the system still generates about 30% more steam than the conventional recovery process. 9, 10

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Figure 3

The SRS process

In addition to efficient energy recovery, the SRS process can also generate important co-products. Since oxygen is used (rather than air) the flue gases contain high-pressure carbon dioxide at a minimum purity of 89%. This stream can be potentially recovered as a marketable product. Also, the process conditions used during wet oxidation can be adjusted so that significant quantities of sodium acetate are produced, which also could be marketed as such, or be used to produce other chemicals. Since wet oxidation does not require evaporation, the problems of scaling in evaporators that plague conventional alkali recovery process are absent. Furthermore, the filtration of the green liquor pr ovides a convenient built-in step for efficient silica removal from the cycle. Typical results obtained in the lab when processing sugar cane bagasse black liquor are shown in Table 2. As can be seen, a COD reduction of 92% was obtained. The steam generation in this case is of 2.5 3.0 net metric tons of steam per metric ton of COD in the black liquor, which more than doubles what could be obtained from a conventional evaporation + recovery boiler system. Table 2. Effect of Wet Oxidation on Black Liquor Characteristics of black liquor pH % total solids (wt/wt) COD,g/L Characteristics of oxidized stream pH COD, g/L Bagasse

12.7 10.5 101.3 7.4 8.4

There is ample industrial experience with large-scale wet oxidation systems, through the sludge wet oxidation plant in Orbe, Switzerland (designed, built, and started-up by Granit) and through its cooperation with Cimo (Monthey, Switzerland), who has three large wet oxidation units running on industrial chemical effluents. The company is now trying to identify the best opportunity for the first industrial implementation of its wet

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oxidation technology for processing pulping effluents. Conclusions

September, 2004

The conventional alkaline recovery system was developed for wood and has evolved and undergone optimization with the sole objective of meeting the requirements of the wood pulping industry. It is therefore natural to find that the application of this recovery technology to non-wood liquors encounters serious operational and economical hurdles. Attempts to adapt the conventional recovery process to non-wood liquors (as when using de-silication) only increase the cost and complexity of a recovery system already beyond the reach of the small non-wood pulp mill. Lignin recovery and wet oxidation are novel alternatives that address technical and economical concerns and that can be tailored according to project requirements. Lignin recovery is already an industrial reality, and we continue working towards the first implementation of our wet oxidation process for treatin g pulping effluents. References 1. Sonnenfeld, D. A;, Logging v Recycling: Problems in the Industrial Ecology of Pulp Manufacture in SouthEast Asia, Greener Management International, Issue 22, pp. 108-122, Summer 1998. 2. Proceedings of the International Seminar & Workshop on Desilication, United Nations Industrial Development Organization, 1991. 3. Rao, V., Personal Communication (2000) 4. Abcherli, A., and Doppenberg, F., PCT WO 98/429 12 (1998). 5. Shaw, J. M. et al. Big Blue Goes Green, Printed Circuit Fabric ation, Volume 19, No. 11, pp. 38-44, November 1996. 6. Phanopoulos, C. and Vanden Ecker, J. Process for binding lignocellulosic material PCT WO 96/32444 (1996). 7. Gordon, 0., Planner, E., and Doppenberg, F. Production of pulp by the sodaanthraquinone process (SAP) with recovery of the cooking chemicals US Patent 5595628 (1997). 8. Abcherli, A., Doppenberg, F., and Lora, J. H., Chemical Recovery from Non-wood Fiber Black Liquors by Lignin Precipitation and Wet Oxidation Tappi Pulping Conference Proceedings, Volume 1, page 5, Tappi Press, Atlanta (1999). 9. Lora, J. H., Abcherli, A., Doppenberg, F., Escudero, E., Straw Pulping without

Emission Problems Presented at the Conference on New Opportunities on Fibre Raw Materials for Paper and Board Production, Centre of Competence for Paper and Board, Arnhem, The Netherlands (2000) Lora, J. H., Abcherli, A., Doppenberg, F. Debottlenecking the Recovery System of Soda Pulp Mills by Lignin Recovery and Wet Oxidation Application to Non-wood Fibers Black Liquors, Tappi Pulping Conference Proceedings, Tappi Press Atlanta (2000)

Mill Case Study

This case study was performed at Shanghai Xin Hua Paper Mill, 3520 Yi Xian Road, Bao Shan District, Shanghai 200940, P.R.China. The case study illustrates modifications to change some characteristics of straw pulping black liquor in order to meet the requirement for alkaline recovery. Cleaner Production Principle

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Recovery, reuse and recycle . Cleaner Production Application

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Process and Waste Information Long-term practice reveals that applying conventional wood pulping alkaline recovery systems to treat that of straw pulp is unsuitable. Wheat (as well as rice) straw pulping black liquor is characterized by high silica content and high viscosity, which causes evaporation problems , as well as low heat value which calls for much more supplementary heat energy. Moreover, as a result of high silica content of the liquor, impermeability on the ignite char bed of the furnace bottom arises more easily, and the ash build-up phenomenon on the heated surface is severe. According to the statistics in 1990, the annual commercial caustic soda consumption of the Chinese pulp and paper industry reached 1,200,000 tons and only 350,000 tons were recovered. Lots of commercial NaOH was consumed by numerous small and straw pulp mills. The key problems which hamper the regular alkali recovery of straw black liquor are : High silica content of the black liquor, which causes scale problems, not only in the evaporators, but also in the washing wires. High viscosity of the black liquor, especially the concentrated liquor (TS>40%), which hampers the further concentration of the liquor to desired concentration (>50%). High silica content of the liquor results in difficulties in the recovery furnace (lower volumetric isot- % thermal expansivity V.I.E.) as well as the recovery of lime. In the Chinese paper industry, long-term alkali recovery rate of straw pulp waste liquor in most mills is about 50-55%. Few of them reached 60% or more. The report of Xin Hua Paper Mill represents the experiences of efforts made by the industry. Original Manufacturing Process wheat straw: NaOH 17%; Pentosan of the B.L.10.15%; SiO 2 in TS 1.86%; Viscosity Pa.S of B.L. 0.72 rice straw: NaOH 11%; Pentosan of the B.L. 10.55%; SiO2 in TS 3,57%; Viscosity Pa.S of B.L. 2.07 Black liquor extraction: no consistency adjusting device; lower extraction rate and concentration of the liquor. Evaporation: long-tube rising film evaporators, serious scaling problem. Furnace: flying ash and ash build-up problems. Scale of Operation: 50 t/d straw (wheat straw takes main part) alkaline pulping waste liquor recovery system. Cooking conditions

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NaOH Wheat straw Rice straw 13% 7%

Na2SO 3 3% 3%

Pe ntosan B.L. 7.44% 8.55%

of

the

SiO2 in TS Pa.s 1.19% 1.83%

Viscosity B.L. 0.36% 0.39%

of

Black Liquor Extraction consistency adjusting device added. Evaporation Short-tube evaporators with circulation, suitable operation schedule established. Furnace many improvements were achieved to obtain better operation, such as the diameter and height of spray nozzle, the enough height of furnace, etc. Caustization chute-type clarifier, horizontal belt vacuum filter, etc. Lime Mud Producer is planned to be converted to CaCO3 for paper filler and coating materials with the successful experience of Yuan Jiang Paper Mill,Hunan Province. Black Liquor Extraction Rate >85% (TS 10.5%). Evaporating Effect (concentration of B.L. 43-45%): evaporation intensity 10-12 kg/m2.h, evaporation efficiency 3 kg water/kg steam. Furnace / Boiler (model WGZ-13/9-1, made by Wu Han Boiler Factory, Hubei Province): heat efficiency reaches 70%. Long-term Alkali Recovery Rate about 60%, and is further improved to 75% recently. Environmental and Economic Benefits For a 50 t/d straw pulping mill, the annual recovery of alkali reaches about 4000 tons which is an attractive economic and social benefit. On the other hand, according to the environmental legislation of China, if the serious pollution caused by the black liquor could not be reduced, the mill should be closed at the end of 1995. Investment costs and the operational and maintenance costs are not available, but in comparison with the pr ice of commercial caustic soda, the recovered alkali may save production costs by about 15-20%. The payback time is not available, but according to other feasibility studies for new alkali recovery systems in China, the payback time would be 7-9 years for 30-50 t/d straw waste liquor recovery systems. Constraints Though the alkali recovery rate reaches about 60%, nevertheless, this mill has not yet finished its rebuilding project. The spent liquor occurred from a 15 t/d straw pulp workshop at an old area has not been reclaimed, which causes underload running of the

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recovery system, and thus influences the recovery rate. Moreover, the process technique, equipment and operation skills should be further improved. Through a series of efforts, the alkali recovery rate may reach 75%. Contacts Industry/Program Contact and Address: Professor Ke Zhang China Technical Association of the Paper Industry No. 11 Fucheng Road (Beijing Institute of Light Industry) 100037 Beijing, P.R.China Tel: +890571-476. Abstractor Name and Address: Professor Ke Zhang, China Technical Association of the Paper Industry No. 11 Fucheng Road (Beijing Institute of Light Industry) 100037 Beijing, P.R.China, Tel: +890571-476. Mrs. Virve Tulenheimo, MSc, Research Engineer Technical Research Center of Finland Non-Waste Technology Research Unit P.O. Box 205 SF-02151 Espoo Finland Tel: +358 0 4561; Fax: +358 0 460 493 Telex 122972 vttha sf Review Status This case study was submitted by the UNEP Working Group on Cleaner Production in the Pulp and Paper Industries, based at the Technical Research Center of Finland (address above) in 1992, as part of a contract for UNEP IE. Before submission the case studies were reviewed at the Center. They were edited for the ICPIC diskette in June 1997. Subsequently the case study has undergone another technical review by Dr Prasad Modak at Environmental Management Centre, Mumbai, India, in September 1998.

Enzyme Treatment

Biological delignification in paper manufacture: optimisation of enzyme mixtures for treating cereal straw and other non-woody materials Summary This project has investigated in detail the use of various biological treatments, based on either growing fungi or isolated enzymes, in the preparation of paper pulp from straw. Straw, in common with other fibrous lingo-cellulosic materials, is made up of the

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cellulose components which form the bulk of the final paper, as well as hemi-cellulose (carbohydrate) and lignin (phenolic) materials which are removed and/or bleached during processing. Conventionally pulping uses alkali salts and may use strong chemical bleaches based on chlorine, which produces polluting effluents and environmental concern. The enzyme approach should provide less degraded by-product streams and reduced environmental impact. However, although many fungi produce enzymes which breakdown hemi-cellulose and some produce lignin degrading systems, considerable development and optimisation is required to make such approaches commercially viable. As indicated here, this groups has made significant advances in understanding of the mechanisms and possibilities. Objective The objective of the project is to optimize enzymatic treatments for straw delignification through an interdisciplinary approach that will take into account peculiarities both in tissue anatomy and chemical structure of cell wall polymers - in order to provide a biotechnological solution (increasing paper productivity by improved dewatering, and decreasing lignin in effluents) to some of the main drawbacks of straw for pulp production, and to reduce simultaneously the costs of energy and chemicals used in pulp manufacture that will be combined with biological means. The above interdisciplinary approach will include the following tasks:

Testing and improving strains of selected species of ligninolytic fungi for preferential degradation of straw lignin. Identification and production of the fungal enzymes that could contribute to lignin removal, including those acting on phenolic and non-phenolic lignin moieties, and those splitting linkages with other straw polymers. Enzymatic treatment of straw by the individual enzymes and by enzyme mixtures, which will exhibit synergistic effects (e.g., ligninolytic enzymes assisted by enzymes providing co-substrates or preventing repolymerization of degradation products). Evaluation of the efficiency of the above enzymatic treatments in terms of the modifications of lignin composition and its relationships with other cell-wall polymers. Monitoring histological changes produced by enzymes in order to verify the degradation of undesirable tissues (e.g., Parenchymatic cells included in the fine fraction of pulp) and the preservation of fibre structure. Testing pulping properties of the enzyme-treated straw, compared with fungus-treated straw and semichemical pulp, in combination with other pulping treatments and with special emphasis on the reductions in energy and chemicals and the decrease in the amount of lignin-derived products in effluents.

Up-grading Straw Into Paper

Upgrading straw into pulp, paper and polymeric materials Summary Wheat straw, surplus of which is available in many EU Member States, has been used in the past for papermaking. However, environmental and quality issues have generally prevented its use. As a fibre source, straw still has significant potential, if suitable methods can be developed. This was the objective of this project which investigated a

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novel pulping process, together with the equipment required to provide suitable chopped straw as feed, in order to produce unbleached straw pulp for use in packaging grade papers. The project also investigated the industria l use of straw for the manufacture of composite materials for which there is an increasing demand. In addition, it looked at the environmental impacts of straw processing by this new process and investigated effluent treatment. Overall, it provided the technical and economic information required in order to make a decision to build full-scale straw processing plants. Introduction Wheat straw is regarded by many as a waste product and as such is readily available in many EU countries. It has been used in the past for papermaking but environmental and quality issues has generally stopped its use. As a fibre source, straw still has significant potential, if suitable methods can be developed. This was the objective of this project which investigated a novel pulping process, together with the equipment required to provide suitable chopped straw as feed, in order to produce unbleached straw pulp for use in packaging grade papers. The project also investigated the industrial use of straw for the manufacture of composite materials for which there is an increasing demand. As the main drawback to exploitation of lignocellulosics is the multi-component nature of these materials and their low compatibility with synthetic matrices, alternative process technologies were investigated. The project also looked at the environmental impacts of straw processing by this new process and investigated effluent treatment. Overall it provided the technical and economic information required in order to make a decision to build full-scale straw processing plants. Activities The project had 5 inter-linked sub-groups which considered the following aspects:

Straw varieties, preparation and storage. Straw pulping using the Bivis extruder. Straw pulping us ing the steam explosion process. Polymers and biocomposites from straw. Treatment of straw pulping effluents.

Results Straws: Some varieties appeared to be more suitable for papermaking, based on the assumption that the best straws should have a high content of cellulose and a low content of silica, water extractables, alcohol/benzene extractables and lignin. Among the wheat varieties investigated, Soissons appeared the best whilst triticale and barley straws also gave good results. The average silica content was around 3%; a few samples as low as 1% were found. The average lignin and cellulose contents were 16% and 35% respectively. Hemicellulose was between 24% and 28%. Preparation The straw preparation system included a bale breaking device which consisted of two horizontal shredder rotors into which the bales were fed. The loosened straw was then held in a moving floor reservoir before being fed to an inclined elevator and metering rake, followed by a rotary slicing device. Besides requiring less power, the slicing equipment was shown to be quieter, produce less dust and have lower maintenance

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requirements than conventional chopping machines. The median particle length of the slicer output was 30 mm. Aspiration of leaf and leaf sheath from sliced straw was found to remove 60% of these fractions and subsequent aspiration of the hammer milled residue gave 70% removal of nodes with a 5% loss of the internode fraction. Pulping Steam explosion was investigated as a means of manufacturing a high yield straw pulp. The operating conditions were defined at pilot scale in a batch system as 20 bar (214C) for 3 min in the presence of 5% sodium sulphite on straw, followed by an instantaneous pressure release during which the cooked straw particles exploded. The ratio liquor to straw was 1:1. The resulting pulp had the following characteristics, measured at 66SR on handsheets of 120 g/m2: breaking length 4250 m, burst index 2.3 kPa m2/g, tear index 4.7 mNm2/g, Concora Medium Test 192 N, Ring Crush Test 220 N. These values were slightly higher than those of the pulp from the reference mill. However the pulp yield was very low level (61%). Several attempts to improve the yield failed. No more work was done on this process and the more promising Bivis extrusion process was focused on. This produced a high yield of unbleached pulp. Following laboratory trials, optimum operating conditions were determined (use of a solution of 9% sodium sulphite and 3% sodium carbonate at about 140C) giving a pulping yield around 86%. Under these conditions the mechanical properties of the pulp were as follows: breaking length 4000 m, burst index 3.0 kPa m/g, tear index 4.0 mNm/g, Concora Medium Test 190 N, Ring Crush Test 150 N. These values were higher than those of pulps produced from waste paper currently used in the manufacture of fluting medium papers. It was found that an increase from 100 kg/h to 300 kg/h in the feed rate improved pulp quality. The average fibre length (measured after Kraft cooking) was around 1 mm. Improving Pulp Treating the straw pulp after extruder pulping but before papermaking to optimise the stiffness characteristics was also necessary. This was because the pulp from the extruder contains a significant amount of shive. Fractionating the shive away from the pulped fibre is an attractive alternative, since specific refining could be directed to each of the pulp fractions using a defibering action to break up the shive. Effluent Treatment Pulp production form straw generates an effluent containing a significant pollution load. Several technologies of effluent treatment were investigated. This included ultrafiltration in a pilot plant which was operated for about 180 days without any major problem. Unfortunately, investment and operating costs are currently too high to justify the implementation of this technique. Biotreatments for decolorisation of straw-pulping effluents were designed after screening 84 fungal strains in several selection steps, 4 fungi (T. versicolor, G. australe, C. gallica and P. gigantea ) were chosen for effluent decolorisation under agitated culture conditions and two ( Paecilomyces sp and P. chrysosporium) under stationary conditions. The best decolorisation, (close to 90% under stationary conditions) was attained at 28C and were comparable with the best results reported during fungal treatment of other pulp and paper effluents. Exploitation After a series of pilot plant paper machine trials the decision was made to design, build and commission an industrial scale pilot plant pulping unit capable of producing between 2 and 3 tonnes of straw pulp per hour based on a Clextral KRO 200 Bivis extruder. Straw pulp from this pilot plant was used for a series of trials on industrial paper machines. Participants

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Packaging Sector Development Strategy & Action Plan

September, 2004

Industras Celulosa Aragonesa (Spain), Stazione Sperimentale per la Cellulosa Carta e Fibre Tessili Vegetali ed Artificiali (Italy), AFRC Institute of Engineering Research (UK), CNRS (France),CSIC (Spain), GIE Grainval (France), ASCAF (France), Universidad de Alcala de Henares (Spain), Universit di Padova (Italy).

Research Institutes

A large body of knowledge on straw pulping and papermaking has been built up at various universities and University of Washington in Seattle: Prof. Bill McKean and Mike Lewis are experts in the field. The Canadian Pulp and Paper Research Institute PAPRICAN in Vancouver BC has recently carried out a number of excellent studies on straw pulping for the Canadian pulp and paper industry, contact Paul Watson or Andy Garner for more info. Major institutes who should be of help are: Centro Internacional de Agricultura Tropical (CIAT) (International Center for Tropical Agriculture) Headquarters address: Apartado Aereo 6713 Cali, Colombia Director General: Grant M. Scobie. Email: g.scobie@cgiar.org Information Officer: Nathan Russell. Email: n.russell@cgiar.org Fax: (572) 4450-273 International Rice Research Institute Headquarters address: MCPO Box 3127, Makati City 1271, Philippines Director General: Ronald P. Cantrell, r.cantrell@cgiar.org Information Officer: Sylvia Oliver-Inciong. email: s.inciong@cgiar.org Fax: (632) 891-1292 West Africa Rice Development Association (WARDA) Headquarters address: 01 B.P. 2551, Bouak, Cte d'Ivoire Director General: Kanayo F. Nwanze. Email: k.nwanze@cgiar.org Information Officer: Guy Manners. Email: g.manners@cgiar.org Fax: (225) 634714

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