Last Update 22:17
Friday, 15 November 2019

Egypt wheat stocks dwindle; no purchases planned until June

The country is unlikely to to buy more wheat at international tenders until end of June and its harvest forecasts are unrealistic, say industry sources

Reuters, Monday 25 Mar 2013
Wheat
File photo:A farmer harvests wheat on Miet Radie farm El-Kalubia governorate, about 60 km (37 miles) northeast of Cairo May 8, 2012 (Photo: Reuters)
Share/Bookmark
Views: 3662
Share/Bookmark
Views: 3662

Industry sources spoken to by Reuters in recent days painted a darker picture than previously understood about the ability of the most populous Arab state to continue to feed its 84 million people with the cheap subsidised bread that they expect.

Egypt is the world's biggest wheat importer, buying about 10 million tonnes a year, more than half of its consumption.

But two years of political turmoil and economic crisis since the fall of autocrat Hosni Mubarak have eroded its hard currency reserves at a rate of about $1 billion a month, raising questions about its ability to pay cash at open tenders.

The country's politics have been paralysed and its hard currency-earning tourism industry devastated by repeated waves of deadly riots between supporters and opponents of President Mohamed Morsi.

Industry sources say an exodus of staff from the state grain buying agency in recent weeks has worsened the problem, leaving the agency without the expertise needed to cobble together affordable deals.

The government has announced plans to buy record amounts of wheat from domestic production, but sources say those targets would be unrealistic even in good times, much less in a crisis when farmers are short of fuel, equipment and spare parts.

And even if those goals for domestic purchases are met, the harvest of homegrown wheat is weeks away, and Egypt is already far short of its target to have six months supply on hand.

The country's strategic stocks of imported and local wheat fell to just 2.207 million tonnes by March 13, enough to last just 89 days.

"Traditional suppliers consider that Egypt is around 1 million tonnes behind in imports," said Fehmi Hannachi, head of commodity finance for Middle East and North Africa at ABC International Bank plc and board member of ABC Egypt.

A Western diplomat in Cairo said the state grain buying agency, the General Authority for Supply Commodities (GASC) has nevertheless already signalled it will not buy wheat at open auction, at least until the fiscal year ends at the end of June.

"They have made it clear that they won't be tendering for any more (international) wheat before the end of this fiscal year," the diplomat said. "Maybe at the start of the next fiscal year they will re-enter the market."

Personnel turmoil at agency

Questions have been raised about GASC's ability to carry out purchases since GASC's head, Nomani Nomani, left his post last month. Several industry sources said turmoil at the agency goes deeper, with other key managers either having left or being due to leave their jobs in coming weeks.

The grain buying agency operates under the authority of the government's Supply Ministry. Industry sources, who declined to be identified while discussing internal politics, said the ministry was increasingly taking the upper hand in deciding strategy, even though it lacks the agency's specialist market expertise.

"The turnover of people in government entities such as GASC is high, which is problematic," said Hannachi. "There is need for stability in key functions in view of the difficult current conditions and in order to be able to establish a medium/long term approach toward strategic imports."

A GASC official declined to comment on changes among its personnel, deferring to the ministry. Ministry spokesman Nasser el-Farash said personnel changes at GASC would have no impact on policy.

"I would like to assure everyone that Egypt after the revolution is run by people who take their decisions within the framework of an institution as a strategy, and that no issue should be pending on the change of individuals," he said.

Burning through reserves

Egypt is heavily dependent on imports of food and fuel, but has burned through its foreign currency reserves to keep the pound currency from collapsing. On the eve of its 2011 revolution it had $36 billion. It now has just $13 billion.

The government hopes to sign a deal with the International Monetary Fund by the end of June and to have received the first tranche of a $4.8 billion loan by then, which may make it easier to buy wheat from the international market. But the IMF is also demanding reforms to its lavish system of state subsidies.

The government has hiked its official estimate of the 2013/14 domestic wheat harvest to a record 9.475 million tonnes, but that figure is not seen as realistic.

Egypt produced just 8.4 million tonnes of wheat last year. The U.S. Department of Agriculture and International Grain Council predict it will increase production only marginally to 8.5 million tonnes this year.

The government has also raised its target to buy domestic wheat to around 4.5 million tonnes for the crop starting harvest in April, up from an average target of around 2.4-3.7 million tonnes in previous years.

ABC Bank's Hannachi said he still expects Egypt to search for ways to buy some grain abroad, but without mounting the huge public tenders that have been a centrepiece of the international grain trade for decades.

"The mechanism will be changing with the government playing a bigger role in the negotiation and purchase process, even if GASC remains the counterpart buying," he said.

"They need to have a major solution for large scale supply... local operators consider the summer as the horizon everyone is looking at. They have 2-3 months to make the process more flexible and find other solutions."

Local crop challenge

Even if the government does make up for a shortage in imports by buying more wheat produced at home, it will have trouble producing bread. Egyptian wheat is normally blended with equal amounts of superior imported wheat to make edible flour.

"They don't seem to understand that you cannot work with Egyptian wheat at 100 percent," said a Cairo-based trade source.

"It needs to be blended with imported wheat. You can do 50/50, 60/40, but 60 percent is the limit."

Roland Guiragossian, Cairo-based Middle East manager for France's export promotion agency Export Cereales, said the Egyptian government has asked millers to increase the share of domestic wheat in flour blends to 70 percent.

And even if the government finds the wheat and makes edible flour, it must still find the money to pay bakers to bake it.

Bakers have threatened to go on strike, saying the state owes them 400 million Egyptian pounds ($59 million) in incentives due for producing subsidised bread, which sell for just 5 piastres a loaf - less than one U.S. cent.

They are due to meet with the prime minister this week.

Search Keywords:
Short link:

 

Email
 
Name
 
Comment's
Title
 
Comment
Ahram Online welcomes readers' comments on all issues covered by the site, along with any criticisms and/or corrections. Readers are asked to limit their feedback to a maximum of 1000 characters (roughly 200 words). All comments/criticisms will, however, be subject to the following code
  • We will not publish comments which contain rude or abusive language, libelous statements, slander and personal attacks against any person/s.
  • We will not publish comments which contain racist remarks or any kind of racial or religious incitement against any group of people, in Egypt or outside it.
  • We welcome criticism of our reports and articles but we will not publish personal attacks, slander or fabrications directed against our reporters and contributing writers.
  • We reserve the right to correct, when at all possible, obvious errors in spelling and grammar. However, due to time and staffing constraints such corrections will not be made across the board or on a regular basis.
Latest

© 2010 Ahram Online.