In a speech delivered last week during the inauguration of Silo Foods, a new food industrial complex in Menoufiya, President Abdel-Fattah Al-Sisi pointed to the anomaly of “20 loaves of subsidised bread costing the same as one cigarette”.

He said the price of subsidised bread would increase, and though he did not specify an amount he said the increase would not be large. The actual cost price per loaf, which retails at five piastres, is 60 to 65 piastres, said the president.

Economist Hani Tawfik argues that the decision to raise the price of bread “is long overdue, and had been shirked by previous presidents.

“It is a courageous decision because [Al-Sisi] knows it will lower his popularity,” said Tawfik.

Raising the price of bread is a sensitive subject. The decision to reduce the subsidy in 1977 triggered protests nationwide. In August 2017, the government deregulated the price of flour and diesel fuel for bakeries as part of its new subsidy programme.

Under the new system, the Ministry of Supply sells wheat to mills for LE 4,000 ($256) a ton and the mills sell the flour they produce to bakeries at LE 4,700 ($300) a ton. The prices are subject to review every three months.

Per capita wheat consumption in Egypt is about 180kg, compared to the international average of 85kg per person, and since the introduction of electronic subsidy cards in April 2014 people entitled to the smart cards have been able to buy bread at five piastres ($0.0032) per loaf.

Former Minister of Supply Gouda Abdel Khalek told Al-Ahram Weekly that the budgetary allocation for bread subsidies, which amounts to EGP 48 billion ($3 billion), is a “drop in the ocean” when it comes to the overall national budget of EGP 1.8 trillion ($115 billion). To eliminate bread subsidies entirely would have a terrible impact on poor families, he said, and even raising the price of subsidised bread is a source of political anxiety.

More than 65 million Egyptians benefit from the government’s social protection programmes, one of which allocates five loaves of bread per day to eligible citizens. Subsidy card holders who do not use their daily entitlement of five loaves per person since 2014 receive 10 piastres for every loaf they do not purchase. They can use this amount, called “bread points”, to purchase other subsidised goods in excess of the set quotas.

The Ministry of Supply had earlier proposed reducing the daily subsidised bread entitlement to four loaves and increasing bread points to 20 piastres in an attempt to save on the hard currency used for importing wheat.

According to the Ministry of Supply, subsidised bread consumption ranges from 2.5 to 3.8 loaves per person per day. A report released by the ministry proposed directing the additional points to purchases of other food products, such as rice and macaroni, in the hope that promoting alternatives to bread would change consumer patterns and reduce bread consumption.

Currently, more than 120 billion subsidised loaves are distributed annually. According to the Ministry of Finance, 3.7 per cent of the beneficiaries from the subsidy programme use their entitlements, while 26.3 per cent opt to replace bread with other goods they can obtain with their smart cards.

Heba Al-Leithi, a consultant with the Central Agency for Public Mobilisation and Statistics (CAPMAS), told the Weekly that the government should first screen subsidy lists to identify the neediest families. Then, when it raises prices, it should exempt these families. Because bread is so important to the poor, she said, the government should consider subsidy cards exclusively for bread and then introduce a full or partial entitlement system based on the needs of eligible families.

Al-Leithi notes that the bread subsidy level has been reduced in recent years via successive reductions in the weight of a loaf. In August last year the government reduced the weight of an individual loaf from 110 to 90 grams in response to the rising cost of wheat.

“It would have been better,” she argues, “to sharpen the focus on the neediest by introducing a system of full or partial support, or by offering them cash subsidies.”

The CAPMAS consultant is concerned that a price hike will alter food consumption habits in potentially harmful ways and fears the poor will be forced to reduce consumption of high protein foods, fruits and vegetables.

“The cost of bread should remain stable for the poorest families,” she said.

Former supply minister Gouda Abdel-Khalek argues the government should save resources by lifting hidden subsidies for the rich, such as those offered to local automobile manufacturers who are entitled to lower custom duties on imported automobile parts. Given custom duties on fully manufactured imported vehicles can reach 100 per cent, domestic car assemblers are in a position to make huge profits. Abdel-Khalek also points out that even a small levy on capital gains from stock market transactions would cover the cost of subsidising bread many times over.

Tawfik counsels prudence and a clearer focus on the neediest. “This decision should not be implemented until after the completion of the database of the poor who are entitled to subsidies.” Once the database is in place, he says, in-kind subsidies can be replaced by cash subsidies. “Around 30 per cent of the population lives below the poverty threshold and exposing them to more pressures is extremely dangerous and holds political risks for the regime.” 

*A version of this article appears in print in the 12 August, 2021 edition of Al-Ahram Weekly