Bread subsidies reduced

Sherine Abdel-Razek , Tuesday 4 Jun 2024

Egypt’s subsidised baladi bread has gone up in price for the first time in more than three decades, reports Sherine Abdel-Razek

Bread subsidies reduced

 

The Administrative Court is expected to hear a lawsuit on 9 June filed by several lawyers against the prime minister and the ministers of supply and finance demanding the cancellation of the decision to raise the price of a 90g loaf of subsidised baladi bread — the traditional flat bread that is a staple for many Egyptians — from five piastres to 20 piastres per loaf.

The plaintiffs criticised the decision, saying that bread has always been a lifeline for the poor who depend on it as their main food staple, especially now amid the current wave of price inflation.

The government subsidises the bread for more than 60 per cent of the country’s 105 million population. Beneficiaries of ration cards used to get five loaves of baladi bread per person per day.

According to commentators, the decision to raise the price of the bread was unexpected. It was also bold, as successive governments have avoided doing so since the late 1970s when a similar decision triggered bread riots.

Egyptians are the largest consumers of bread in the world, devouring triple the global average annually. It is a main calorie source and indispensable staple for a large part of the population.

However, the high growth rate of the population and the inflated bill for wheat imports has rendered government subsidy at its current level unsustainable. “A loaf of bread costs the state LE1.25 and is sold at five piastres. As a result, the state is paying 120 piastres per loaf,” Prime Minister Mustafa Madbouli said on Wednesday.

He explained that with an average of 100 billion loaves of bread produced per year, the overall value of bread subsidies is hovering around LE120 to LE125 billion. This huge sum has made it inevitable for the subsidies to be reduced, though they will not be cancelled completely.

Madbouli said that the state is still committed to the subsidies and that the decision is “an attempt to rationalise them to ensure the sustainability of provision.”

“We depend on bread for all our meals. We eat it with everything: falafel, foul, fried aubergines, and potatoes and cooked vegetables. It gives us the feeling of being full even in the absence of more expensive foods like rice and pasta,” Amoura, a house-help from the Al-Mounib neighbourhood of Cairo, told Al-Ahram Weekly.

She expressed her frustration at staples getting more expensive, even “the food of the poor,” as she described baladi bread.

Food inflation has been feeding the overall inflation rate since the beginning of 2023. The price of red meat has jumped by 41 per cent since the beginning of 2024, reaching an average of LE450 per kg. Meanwhile, poultry went up by an average of 44 per cent in January and February, while the price of plant protein (legumes) has risen 30 per cent on average since the beginning of 2024.

The new hike in bread prices is equivalent to 300 per cent.

However, the new price still only covers 16 per cent of the cost of the bread, which increased from LE1.15 last year to LE1.25 this year, said Supply Minister Ali Moselhi at the same press conference. London-based consultancy firm Capital Economics said that while the value of bread subsidies in Egypt in 2024-2025 represents 0.7 per cent of GDP, the reduction in the subsidies will save only 0.1 of GDP.

“The bigger picture is that while these measures are small (for now), they further indicate a willingness by the government to keep fiscal policy tight and rein in Egypt’s overall budget deficit.”

The government has been working on putting a lid on its expenses to narrow the country’s fiscal deficit, notably by limiting public investments to LE1 trillion and slashing energy subsidies, as part of its deal with the International Monetary Fund (IMF) according to which it will be getting $8 billion instead of a $3 billion loan.

However, the decision to reduce bread subsidies has nothing to do with the IMF, Moselhi told the Kelma Akheera talk show on Sunday.

President Abdel-Fattah Al-Sisi brought up the idea in August 2021 when he said he would supervise a plan to raise the price of subsided bread. “It is unreasonable that 20 loaves of bread are the price of one cigarette,” Al-Sisi said. However, high rates of inflation followed by the Russian-Ukrainian war pushed the government to shelve the idea.

A statement by the Ministry of Supply stressed that each beneficiary of the bread-subsidy system will continue to get five loaves per day to a total of 150 loaves per month at the price of 20 piastres per loaf without any change in number or weight.

While consecutive governments over the last four decades have shied away from cutting bread subsidies, the weight of a bread loaf has seen several cuts from 140g in 2014 to the current 90g.  

Former supply minister and Professor of Economics at Cairo University Gouda Abdel-Khalek said that before deciding to increase the price of bread the government should have made sure that there was no waste that could be avoided in the production process.

Talking on a talk show on the Al-Qahera wa-al-Nas channel, Abdel-Khalek said that according to a study he had worked on in the 1980s, the percentage of wheat lost during transport from farms to silos and flour mills had been as high as 40 per cent.

“The percentage today might be around 20 to 25 per cent, but it is still a cost that can be avoided,” he added.

He also recalled that one of the study’s recommendations was to increase the domestic production of animal feed, so people do not use subsidised bread to feed their cattle.

Abdel-Khalek said that in reclaimed areas such as the Toshka Project, some international companies cultivate vast areas with alfalfa plants for animal feed but instead of using it domestically export it to the Gulf.

Another recommendation of the study, assigned to Abdel-Khalek and other economic experts by former president Hosni Mubarak, was mixing corn with wheat to make bread because corn is less expensive than wheat.

Egypt is the largest importer of wheat in the world, and it covers up to 45 per cent of its annual needs from the international markets. The cost of these imports increased on the back of the war between Russia and Ukraine, both major suppliers of wheat.

The Reuters news agency quoted Finance Minister Mohamed Maait two months ago as saying that Egypt has allocated LE125 billion in its 2024-2025 budget to bread subsidies.

According to Moselhi, Egypt uses 8.5 million tons of wheat annually to produce subsidised bread.

A report by the US Department of Agriculture stated that during the Egyptian marketing year 2023-2024 wheat imports came in at 12 million metric tons, up by 6.9 per cent from the previous year due to lower areas of production.

Corn imports stood at 6.5 million metric tons in the same year, it said, 8.3 per cent higher than the year before.

Egypt previously tried mixing corn with wheat to make bread to a ratio of 20:80 in 1996, but it was a short-lived experience.

The present decision may be the last increase before the government cancels in-kind subsidies. Madbouli said that the government is seeking to convert the subsidies from in-kind to cash and that the matter will be discussed in the National Dialogue in the coming days.

“The value of the cash support that the state is considering applying may be higher than the value of the in-kind support,” he said.

Abdel-Khalek agreed with this approach, saying it would be less costly and more efficient in channeling subsidies to those who really need them.

The effect on inflation is unknown. “It is unclear from Central Agency for Public Mobilisation and Statistics (CAPMAS) data what the weight of baladi bread in the CPI basket is [the basket of goods used to calculate inflation],” Capital Economics said.

“But a 300 per cent month-on-month price increase will lead to a bump in June’s inflation reading.”

According to Madbouli, fuel and electricity prices may also be hiked in July.


* A version of this article appears in print in the 6 June, 2024 edition of Al-Ahram Weekly

Search Keywords:
Short link: