Egypt has recently been issuing tenders to import wheat in quantities that are double its usual amounts, Reuters has reported.

However, some of these tenders have failed to secure the requested quantities, with some supplying only 10 per cent of the required amounts.  

The Egyptian population consumes around 20 million tons of wheat annually, importing a little over half of that amount. During the 2024 season, the government procured 3.5 million tons from local farmers.

Wagdi Al-Mashad, vice president of the Grain Chamber at the Federation of Egyptian Industries, believes that the decision to seek larger quantities of wheat is a hedging strategy driven by several factors, including uncertainty in the global economy that is prompting many countries to accumulate long-term food surpluses.

Given the ongoing regional conflicts, it is natural for Egypt to aim for a strategic stockpile of wheat and grains that exceeds six months, he added. The current drop in global wheat prices is also an opportunity that Egypt must capitalise on, given the abundant supply at competitive prices.

Looking at the situation from a longer-term strategic perspective, expert Emad Elsaey said that recent global conflicts have led to the emergence of the idea of “political logistics.”

This is a multifaceted concept that helps economists to analyse the needs and potential benefits among different parties, while the ultimate decision-making power rests with politicians and the security agencies.

In this context, logistical decisions can become political tools that countries use to shape their foreign policies.

Egypt imports wheat from both Russia and Ukraine, the latter with Russia’s tacit approval, despite the blockade it has imposed on Ukraine. Egypt’s political stance, grounded in foreign policies that promote integration and coordination with various international partners, has strengthened its position in numerous deals, Elsaey said.

He added that Egypt’s neutrality in the Ukraine conflict has allowed it to position itself as a reliable and neutral player, preserving global supply chains and putting the brakes on the effects of global inflation.

Egypt’s plan to increase its silo storage capacity by 3.5 per cent beyond the nation’s own needs was initiated during the tenure of former Minister of Supply Khaled Hanafi. The plan was based on the fact that during the winter temperatures in Russia and Ukraine can plummet to -25 degrees Celsius, and the cost of heating stored grain can undermine its competitiveness in the global market.

This gives Egypt a strategic advantage by allowing it to store surplus quantities from both countries in exchange for a share of the wheat stored in Egypt’s silos, Elsaey explained.

Many suppliers have also begun announcing that Egypt is their final destination to avoid possible Houthi disruptions in the Bab Al-Mandab Strait in the Red Sea. This is another outcome of the concept of “political logistics”, since it relies on Egypt’s neutral distance from parties in the conflict and enhances its prospects of becoming a regional hub for the storage and distribution of grains and other commodities with long shelf lives.

Nader Noureldeen, a former advisor to the minister of supply and professor of land and water resources at Cairo University, said that the international trade in grains is governed by regulations set by entities such as the World Grain Exchange in Chicago and the World Grains Council.

These bodies regulate transactions during periods of global price declines by establishing maximum shipment limits. At these times, no more than four shipments may be requested from each of the seven largest grain-exporting countries, with each shipment capped at 60,000 tons, the maximum capacity for giant cargo ships, he said.

This is because the global system safeguards the grain and crop markets from collapse and the exploitation of conditions that can lead to price drops. As a result, although Egypt has requested large quantities of wheat in some tenders, the actual supply has been lower than required, Noureldeen said.

He said that the global grain-management system prohibits importers from acquiring excessive amounts of wheat during low-price periods for the purpose of reselling it on the global market. No country is allowed to re-export wheat that is not its own production. Even if a country like Egypt wishes to export a product such as pasta, it must be produced using locally grown wheat rather than imported wheat.

However, Russia, for example, can store its wheat in another country, but the wheat remains under its control to prevent any tampering that could damage the reputation of the producing country, Noureldeen explained.

Strategically and economically, storing wheat in a central region in the Middle East would likely drive up its price, he added. This is because the additional logistics involved —transferring the wheat from ships to storage silos and then repeating the process when exporting it to another country —significantly increases transportation costs, surpassing the threshold necessary to maintain a globally competitive price.

Noureldeen referenced a 2004 study conducted by the Ministry of Supply that evaluated Brazil’s experience in storing large quantities of sugar in warehouses near the port of Beirut to be re-exported to various Middle Eastern countries. The study revealed that the logistical costs of shipping, unloading, storage, and related processes doubled the price of the sugar per ton, rendering the project economically unviable.

Similarly, in the case of grain, importing countries do not store more than a quarter of their annual consumption because the silos must be emptied yearly for maintenance. Storing wheat for extended periods, such as up to a year, not only reduces its quality but also increases the risk of contamination, Noureldeen said.

For this reason, it is advisable to limit storage periods to four months and use the stored grain for consumption while replenishing supplies. Storing wheat for longer than three months incurs additional costs that inflate production and storage expenses, driving up prices.

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* A version of this article appears in print in the 19 September, 2024 edition of Al-Ahram Weekly