New incentives on wheat

Ahmed Abdel-Hafez, Thursday 24 Mar 2022

The government has announced new incentives for Egypt’s farmers to increase the available wheat.

New incentives on wheat
The Ministry of Supply should receive at least six million tons of homegrown wheat this year

Head of the Farmers Syndicate Hussein Abu Saddam praised the government’s decision to increase incentives for supplying wheat this week by raising the price of wheat domestically to LE5,400 per ton.

This is close to the price on the world market at LE6,000 per ton. Abu Saddam said he would like to see the incentive increase even more so that the price of domestic supplies of wheat equals that on the global market, benefiting Egypt’s farmers.

At its weekly meeting on 16 March, the cabinet approved a LE65 special stimulus per ton of wheat for supply and transportation to be added to supply prices ranging from LE865 to LE885 per ardeb.

Neither the Ministry of Agriculture nor the Ministry of Supply stated the expected increase in the price of wheat supplied by farmers after the hike in local supply prices.

Abu Saddam said that if this year’s wheat production reaches 10 million tons, the Ministry of Supply should receive at least six million tons of local wheat.

The estimates are much higher than the supplies last season, when the Ministry of Agriculture said that wheat production had been more than eight million tons but that farmers had only supplied 3.5 million tons.

It did not answer the question of what happens to the difference between the two figures of production and supply.

Last year, Egypt imported nearly 10.5 million tons of wheat. The Ministry of Supply received half of this amount and used it to supply bakeries with the flour needed to make subsidised bread.

The other half was imported by the private sector to operate macaroni factories, pastry shops, and bakeries. Last year, subsidised bread consumed 5.5 million tons of imported wheat and 3.5 million tons of homegrown wheat supplied by farmers to the Ministry of Supply.

A memo by a former ministerial advisor attempted to answer the question of why farmers may be reluctant to supply wheat to the government, despite the financial incentives.

It said that farmers divide their wheat crop every year and supply the government with half of it. The other half is processed by jarsh, or an incomplete grinding process, and used as fodder for livestock and sheep. This saves LE5,750, or the price of one ton of bran on the Egyptian market.

Bran is added to fodder at 24 per cent or 12 per cent depending on the age of the cattle eating it.

The memo cited a 2018 report by the Ministry of Agriculture that looked at the 600,000-ton decrease in the wheat supplied by farmers to the Ministry of Supply. It suggested that the drop was due to the increase in the price of bran that year, making farmers decide to hold on to more wheat and use it in fodder instead of buying it at higher market prices.

Nader Noureddin, a former advisor to the minister of agriculture and a professor at the Faculty of Agriculture at Cairo University, said the problem stemmed from overinflated estimates by the Ministry of Agriculture about annual cultivated areas and expected yields.

“The state has obliged all wheat farmers in Egypt to supply wheat for the first time since the abolition of this decision in 1993, the year of the trade liberalisation law,” he said.

“This shows that the state needs every grain of wheat it can get and that it has prevented farmers from selling wheat to traders, feed and grain stores, and macaroni factories, or selling green wheat, known as “freekeh,” or durum wheat, a staple in Upper Egypt, because it needs the entire wheat crop to make subsidised bread.”

Abu Saddam said that harvesting wheat early in the season when it is still green to make “freekeh” wastes 20 per cent of production across the country.

Noureddin called on the government to redistribute bran produced by wheat milling, such that farmers supplying a given quantity of wheat would get a similar quantity of bran at a subsidised price.

The price would be determined annually, in coordination between the ministries of supply and agriculture.

The report said that the state supplies wheat to mills to grind in exchange for bran, and that they are free to price the bran they sell to farmers, traders, and for fodder. It said that bran is overpriced on the domestic market at a production cost of LE1,000 per ton, which includes the cost of electricity, labour, and taxes.

Egyptian mills produce one ton of bran by milling four tons of wheat, and its current market cost is LE5,750 per ton. This means that one ton of bran generates LE4,750 in profits.

The memo recommended that the state intervene to buy bran from mills and resell it to farmers at a subsidised price to reverse their reluctance to supply wheat.

Before 1985, the Ministry of Agriculture was in charge of supplying mills with wheat. It then bought bran from mills and distributed it among farmers at subsidised prices as a way of supporting farmers and reducing the cost of fodder.

Noureddin praised the recent decision to increase incentives for wheat suppliers. “It is a very good incentive, bringing the price of Egyptian wheat close to global prices,” he said. “It encourages farmers to supply the majority of their crop to the state.”

Noureddin said that consecutive ministers of agriculture had evaded the question of the disparity in volume between wheat production and wheat supplies in state silos.

He said he did not believe that farmers hoard the difference, more than 50 per cent of production, for domestic use, because they use ration cards to purchase bread. The ration cards are used by 70 million out of Egypt’s 100 million population.

Abu Saddam suggested that contracts in the agriculture law be reactivated for the wheat crop due to its strategic importance.

This would mean that the crop would be pre-purchased, and farmers would also be supported through soft loans to cover the cost of production, instead of seeking funding from traders. Other loans for farmers should be facilitated so that they can buy agricultural equipment to increase yields and maintain larger areas.

Noureddin said a balance had been restored in international wheat imports and among various global wheat producers to avoid dependence on food imports all coming from one source.

Egypt will return to importing wheat from a variety of global producers, such as Australia, France, Romania, Hungary, Canada, the US, and Argentina, in anticipation of world food crises or droughts.

“Today, we are returning to a balance between numerous global wheat producers and not relying on one single source,” he said.

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

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