Russia-Ukraine crisis: Collateral damage on wheat

Ahmed Abdel-Hafez, Thursday 24 Feb 2022

Egypt’s wheat import bill will likely be inflated on the back of the tensions between Russia and Ukraine.

Collateral damage on wheat
photo: AFP

As tensions continue to rise between Russia and Ukraine, observers are anticipating the economic fallout from a possible war in the region since Russia, Ukraine, and Romania combined produce one third of the world’s wheat.

This is particularly important for Egypt, the world’s largest wheat importer.

The expected economic fallout from the tensions in Ukraine will likely lead to an increase in the price of wheat around the world, said Nader Noureddin, a professor of water and land resources in Cairo.

Noureddin said that Egypt imports 90 per cent of its wheat from Russia and Ukraine. In 2021, it imported ten million tons from the two countries out of the 13 million tons of wheat it imported that year.

While there are alternative sources such as France, Australia, the US, Canada and Argentina, the cost of wheat from them is much higher.

Egypt’s reliance on Russian and Ukrainian wheat is due to two main factors, according to Noureddin. First, wheat from the two countries costs ten per cent less than global prices, and second, they are closer to Egypt with shipments taking only ten days to reach Egyptian shores.

In comparison, shipments coming from the US take 24 days, and they take 28 days from Argentina.

Egypt began bidding on wheat from France at a global auction in December, buying just over 300,000 tons that will be delivered in March, according to the General Authority for Supply Commodities.

As well as adding to transportation costs, the Russia-Ukraine crisis could also raise the price of oil worldwide, meaning a hike in the cost of food production in general since energy constitutes 33 per cent of the cost of agricultural production, according to Noureddin.

A former adviser to the minister of supply, Noureddin said that the cost of shipping around the world is rising not only because of the price of fuel but also because of the higher cost of insuring goods, especially any that pass near Ukraine.

He expects the Egyptian government to have to pay an additional LE1 billion in extra costs to import wheat, yellow corn, and cooking oil if the Ukraine crisis continues.

“Egypt is the largest importer of wheat in the world, the fourth-largest importer of corn, and the fifth-largest importer of cooking oil,” Noureddin said. “It relies for 90 per cent of its annual needs on the same sources — Russia and Ukraine.”

The government has been preparing for the possible additional costs, and Prime Minister Mustafa Madbouli announced some days ago that the price of subsidised bread was being reviewed, with a possible slight adjustment being made.

“The price of bread in Egypt has not been adjusted since 1988, and at the time the cost for the state was five piastres a loaf,” Madbouli said. “Today, the cost of subsidised bread is 65 piastres a loaf, and this means there must be a slight adjustment.”

Some 71 million of Egypt’s 100 million population buy subsidised bread using the smart-card ration system.

A day after Madbouli’s comments, Minister of Supply Ali Meseilhi said that “Egypt expects to reduce government imports of wheat in 2022 to 3.5 million tons, compared to 5.5 million tons in 2021.”

“This is used to produce between 250 and 270 million loaves of subsidised bread a day,” he said.

Last year, Egypt imported a total of 13 million tons of wheat, divided between municipal bakeries producing subsidised bread and the private sector producing macaroni, desserts, and other bakeries producing unsubsidised bread.

“Government wheat imports in 2021 amounted to 5.5 million tons,” Moseilhi told a news conference on 15 February, “compared to 3.5 million tons grown locally. The reduction in imports this year has been supplemented by an increase in local production supplied by Egypt’s farmers.”

Noureddin said that Egypt had silos that can store between 3.5 and four million tons of wheat, about one third of domestic consumption, which means it has a strategic stock of four to five months of wheat that can be stretched to cover six months.

Alongside the review of the price of subsidised bread, currently costing consumers five piastres a loaf, the Ministry of Supply has also taken other measures to rationalise wheat consumption.

These include digitising the system for receiving wheat from farmers in order better to monitor the amounts received and the better monitoring of deliveries to silos, mills, and bakeries and of bread production and distribution via smart-cards.

The database of the 70 million people who receive subsidised bread is being overhauled in order to remove any who do not qualify for the subsidies.

*A version of this article appears in print in the 24 February, 2022 edition of Al-Ahram Weekly.

Short link: