As part of the government’s plan to cut fuel subsidies to narrow the budget deficit, the price of diesel, widely used by bakeries producing subsidised baladi bread, has seen a 50.7 per cent hike to LE5.5 per litre.
However, according to the government, this rise will not be passed on to consumers in a rise in the price of bread.
Newly appointed Prime Minister Mustafa Madbouli said the Ministry of Supply would bear any extra cost for bakeries to ensure that the price of Egypt’s main staple remained unchanged. A loaf of bread is sold at LE0.05.
Subsidised bread is an essential staple for millions of people, and this has made successive governments keen to maintain its low price for fear of stirring up social unrest.
Under the subsidies system adopted last year, the General Authority for Supply Commodities (GASC) sells wheat to mills at market prices. Bakeries then buy flour from mills at a higher price that includes the cost of milling.
A ration cardholder can buy a maximum of five loaves of bread a day at the subsidised price. Bakeries sell the subsidised bread at LE0.05 and then receive any additional production costs that remain uncovered, such as the price of flour, workers’ wages and electricity, from the government.
This decides on the amount to be paid based on the number of loaves sold under the smart ration-card system.
Minister of Supply and Internal Trade Ali Moselhi issued Decree 12/2018 stating that the price of subsidised bread the government pays to bakeries will increase to LE0.16 per loaf.
Mohamed Mustafa, 33, a state employee, said that “keeping subsidised bread at the same price is the best decision the government has taken over the past two years.”
Magdi Sayed, the owner of a bakery in the Zaytoun district of Cairo, told Al-Ahram Weekly that the decision would not be relevant to his bakery since it used liquefied gas and not diesel for fuel.
“The ministry pays me LE0.07 per loaf in compensation for production costs in addition to the LE0.05 received when selling bread to consumers,” Sayed explained.
“While the government provides my bakery with subsidised liquefied gas in addition to covering production costs per loaf of LE0.07, I am still burdened by workers’ wages, social insurance, taxes, electricity and water bills, as well as rental fees,” he added.
He said that the cost price should be increased for all bakeries since workers’ wages had now reached LE200 a day and rental fees had also increased. Sayed’s bakery, which has eight workers, uses an average of 10 bags of 50kg of flour a day to produce 6,250 loaves.
Sayed added that the ministry paid money owed into his bank account according to smart-card sales.
A colleague who owns a bakery that uses diesel in Sohag in Upper Egypt said he was not satisfied by the government scheme as he had lost money under the new price starting on 20 June as the price of diesel had gone up on 16 June.
According to figures from the Ministry of Supply and Internal Trade, the total daily production of subsidised bread in Egypt is around 300 million loaves.
The consumption of the wheat used for the subsidised bread stands at about nine million tons, of which 5.5 million tons was imported in 2017, up from 4.4 million tons the previous year.
Egypt is the top wheat-importer worldwide, with total imports estimated at 20 million tons for both government and private-sector consumption.
The wheat used for producing bread represents a significant part of the country’s food subsidies. While the government targets cutting these, they are set to move in the opposite direction.
The elimination of fuel subsidies except for on liquefied natural gas by the end of 2019 should help to reduce the budget deficit from 9.8 per cent of GDP in fiscal year 2017/2018 to 8.4 per cent in 2018/2019.
However, food subsidies will increase by five per cent to reach LE86.175 billion from LE82.177 billion. The government provides food subsidies to some 68.8 million people through 20.8 million ration cards that grant LE50 monthly to buy essential goods.
The Ministry of Supply and Internal Trade announced last week that it would soon start an assessment of cardholders’ financial status in order to ensure that those who need the subsidies the most are benefiting from them.
*A version of this article appears in print in the 28 June 2018 edition of Al-Ahram Weekly under the headline: No change in bread prices