While the global economy was already under inflationary pressure from low supply due to a two-year disruption in production on the back of Covid-19, the war adds insult to injury. Prices of food, oil, metals as well as shipping costs worldwide are on a spiral increase.

In Egypt, it is wheat supply and prices, in particular, that have been making the headlines since the beginning of the war. Not only is Egypt the largest wheat importer in the world, but it also has a bread subsidy system that provides 70 million Egyptians with bread every day, meaning that any rise in prices is translated into a wider budget deficit. Egypt’s reliance on Russia and Ukraine for its wheat imports has almost doubled over the past decade with more than 80 per cent of its imports coming from these countries at competitive prices.

In the short term, the country can manage the situation; it has four months of wheat in stock, and this season’s local harvest can secure an additional five months, covering local wheat needs until December.

Egypt is eyeing the EU for future imports but is also mulling over other possibilities like the US, Kazakhstan and Romania. The Ministry of Trade has loosened restrictions on the quality of wheat imports to make it easier to diversify its import base. However, the problem with most of these new markets is the high shipping costs due to their remoteness from Egypt.

It is not only the shipping cost as the price of wheat has increased by 37 per cent since the beginning of the year hitting its highest level since early 2008. The increase in prices will push up Egypt’s import bill and further widen the budget deficit. Rising global wheat prices could cost the government an additional LE 15 billion this fiscal year, said Finance Minister Mohamed Maait earlier this week. The Finance Ministry allocated almost LE 50 billion to bread subsidies in the fiscal year 2021-2022, which is 10 per cent more than the previous year.

These developments pose questions about the fate of a government plan to cut bread subsidies. It was last summer when President Abdel-Fattah Al-Sisi first mentioned the possibility of a bread subsidy taper. A month ago the Supply minister said it will reveal the plan to reduce subsidies by the end of March.  

Under the existing subsidy programme, more than 70 million Egyptians receive five loaves of round bread daily for 50 piastres a month. Egyptians consume 182.5 kg per year vs 67 kg per year for the average person abroad. 275 million bread loaves are produced by bakeries affiliated with the Ministry of Supply annually.

According to analysts, there are three scenarios for a bread subsidy overhaul including lifting the price, switching to cash subsidies or targeting fewer people. The government has already been filtering the beneficiary base to make sure that the subsidy reaches only those who need it.  

Prices of the most consumed Baladi bread have not unchanged since 1989. At private bakeries, which are not regulated by the government, the price of Baladi bread increased to an average of LE1.5 per loaf over the last couple of weeks compared to LE0.75-1 per loaf before the Russian war started.

If taken, such a step would probably push Egypt’s inflation rate to 12 per cent, according to estimates of Al Ahly Pharos, a local investment bank, from 7.3 per cent in January, its highest level in almost two and a half years.

*A version of this article appears in print in the 10 March, 2022 edition of Al-Ahram Weekly.