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Euromoney: Ministry of Supply to procure up to 200,000 tonnes of wheat

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Abu Shadi: We are determined to win the war on vendors’ inflated prices

The ministry will create the competition that forces vendors to sell for less
The ministry plans to complete 100 silos this fiscal year
Egypt awarded 7 silos, will issue tenders for 8 this month, and 10 next month
Rice exports are halted until sufficient amounts are secured for domestic consumption

Minister of Supply and Internal Trade pledges to fight vendors’ greed which leads to unexplainable hike in prices. (DNE Photo)

Minister of Supply and Internal Trade pledges to fight vendors’ greed which leads to unexplainable hike in prices.
(DNE Photo)

The Ministry of Supply is by far the department that matters the most to the largest portion of the Egyptian society, being the key handler of strategic commodities on ration cards serving about 70 million Egyptians, policies of this ministry affects every household.

Minister Mohamed Abu Shadi spoke to the Daily News Egypt about the challenges he encountered upon arriving in office, and the challenges he took upon himself to amend. He also spoke of wheat inventories, rice exports and rising prices.

What are the ministry’s most important goals at the current time, and targets for the next couple of months until a permanent government is put into place?

From day one, our paramount priority was to ensure the availability of strategic inventories of essential items and goods. This was critical as we realised, upon arrival to office, that there is a shortage of wheat. The former government spread a misleading and inaccurate notion of having reached self sufficiency. Had they checked the chronicled figures at the ministry, they would have noticed that we always offer to buy domestic wheat at a price higher than that of exports, along with other incentives to encourage farmers to plant the grain. Despite that, domestic wheat never exceeded 2 to 3.7 million tonnes a year, and therefore, for the past 10 years, we get about a third of our needs of wheat from within, and import the remaining two-thirds.

However, the former ministry decided to block exports for four months, which meant missing opportunities to buy the grain at suitable prices, and failing to procure strategic inventories.

Moreover, since the local grain must be stored for a year prior to grinding and cannot be used immediately for the high levels of moisture it contains, the former minister’s dependence on this wheat caused additional panic.

Given all the above, our first priority was to fix this and ensure that our reserves of wheat were sufficient for the normal safe period of six months. When I came to office, we only had enough for two months.

What is Egypt’s current wheat stock and how long will it last for? Will we be exporting more of the commodity this year?

The stock we have now is more than 3m tonnes of wheat, which is sufficient until the end of February. We plan on issuing a tender soon to purchase about 200,000 tonnes for the inventory to last until end of March. The time when the tender will be issued depends on the prices and market. We bought a bit over two million tonnes in the past two months with prices that are less than three years ago, as we increased the efficiency of our marketing teams.

Going back to strategic inventories, the ministry had to also fill a drop in cooking oil stocks, which again resulted from the former government’s decision to change the normal oil consumption. The former government decided to change our dependence on cooking oil on sunflower oil, which is not practical for several reasons. Unfortunately, Egypt does not produce any oils and relies fully on exports. The share of each citizen on the ration cards was a monthly 1.5 litres of mixed oil. The former ministry changed it from 920 grams of solely sunflower oil, which was problematic, given that this form of oil is produced in only two places in the world: in Latin America and the basins of the Black and Caspian Seas. Shipments from Latin America take a month to arrive and are prone to ocean turbulence, while the Black and Caspian Seas freeze for three months, paralysing any shipments. Therefore, it is very risky to depend on such circumstances in providing a monthly 88,000 tonnes of such a vital commodity to 69 million citizens on the ration cards.

In June, a shortage did take place which we had to compensate citizens for later. Now, the portion was returned to the original amount, costing the country from EGP 7bn to 8bn.

What are your main targets for the next several of months?

Our second achievement which we started working on is combating the increase in prices. It is important to point out, before we start discussing this matter, that we are strong advocates of maintaining our free supply-demand dominated market, which some are claiming to be at risk due to our attempts to curb the undesired  increase in prices. A government’s adoption of direct or indirect measures to meet shortages or restore a balance does not jeopardise a market’s independency or nature, but is crucial sometimes. For instance, the government can raise wages of workers of a certain sector to attract more labourers when needed, or it can offer incentives to investors of a certain type. These are all indirect governmental interventions to restore balance.

Given all that, and noting that many traders have decided to ignore and violate the ethics of trade through adopting unjustified hikes in prices, it was inevitable that the government intervenes to put things back on track. There are 4 million merchants, while we’re a cabinet that was put together to protect the best interest of 90 million citizens, and not that of a certain tranche. Taking the first steps in that direction, and bucking the trend of previous cabinets is in itself an achievement.

Our first move was to bring together representatives of farmers, chambers of commerce, wholesalers and retailers and street vendors, as well as civil society. Together, they were asked to highlight causes leading to the increase in prices and how to solve it. It was unanimously agreed that a main factor was the randomness of trade, leading to farmers being underpaid and customers being abused. For instance, tomatoes are bought for 20 piasters a kilogramme from the farmers by wholesalers, who sell it for 50 piasters to the retailers, who then sell it for 4 to 5 pounds. This leads a huge marginal profit. The same applies to many vegetables, which should not be the case. The reason behind this is that 90% of local trading movements, not 40% as commonly believed, is haphazard, as trade syndicates have fallen short of playing their regulatory role.

On the contrary, the circle of merchants refuses the imposing of price caps. They want utter freedom, which means utter chaos as they strongly refuse any intervention. They have declared wars against these measures. However, I’m willing to take on the challenge.  In any business, a fair marginal profit ranges between 25% and 30%, distributed justly between farmers, wholesalers and retailers, and not 200% and 300% as is the current case.

Therefore, the ministry gave those concerned an ultimatum: either they jointly put in place and abide by price caps, or we will set mandatory prices. Of course, we’re being accused of meddling with the market’s freedom, but aren’t petroleum products, mineral water, cigarettes, and bread sold as per mandatory prices? It never affected the free market. Never did it interfere with the producers’ decisions of production, distribution, marketing etc. These are invalid claims that only aim to restrict the government’s regulatory role.

Do you think these measures will work to bring down prices?

The council which brought together all involved parties decided a month ago to put together a weekly consensual list of prices which varies from one governorate to the next. As a supervisory authority, we monitor the implementation of these prices every week. However, I am fully aware that rules are not always followed, and that these prices can easily be breached, and therefore I will not rely on only this procedure to bring down prices.

We have a started a monthly ritual, where we chose up to 20 food items that we reduce the prices of during the last ten days of every month by as much as 25%, even if that means a loss. These can include meats, chicken, fish, oils, sugar, teas, pastas, flours and so on, and are provided through the outlets of consumer cooperatives across the country, and government-owned wholesale companies, and therefore reach every region in the country. This took place for two months, and in the third month, we were approached by a number of privately-owned hypermarkets who expressed interest in taking part in these discounts. Ninety-six of these hypermarkets’ branches contributed to this.

Another procedure we’re taking is ensuring that supplies of food items are made available to all markets across the country through tens of mobile vehicles that roam the republic’s streets, according to demand, and sell these items at low prices. They are present in squares, slums, labour districts, and other areas. This creates the competition that forces greedy vendors to bring down their prices or bear losses as consumers seek the more affordable items.

We have also started seasonal expos that precede religious and national holidays which are always linked to certain feeding habits in Egypt. Through these expos, we make available these food items that are heavily demanded during this part of the year, and at very affordable prices.

What are Egypt’s plans with regards to silo construction?

The ministry has a plan to build 100 silos during the current fiscal year of 2013/2014. We have a national project to construct 50 silos, in addition to another 50 that were agreed to be funded by the UAE. Each one of these silos has a double capacity of 60,000 tonnes. The number of these silos alone will surpass the total number of silos built throughout Egypt’s history, and will raise the state’s storage capacity to between 3 to 3.5 million tonnes.

A silo takes from one to one and half years to build. We have already awarded tenders for 7 silos, and will issue tenders for another 8 this month. The remaining 10 silos will be issued next month. These will be funded by Egypt a SAR 373m loan acquired from the Saudi Fund for Development.

What about conflicting remarks on rice exports? While you have said earlier that rice exports will not be resumed until domestic markets are fulfilled, the Minister of Trade and Industry has announced opening exports doors. What is happening in these regards?

Firstly, Egypt produces around 6.5 million tonnes of rice, of which it uses up about 3.5 to 4 million tonnes. I have declared that exporting rice hinges on whether the demands of the domestic markets are met. I will not pay heed to the interests of a few dozen rice exporters at the expense of domestic markets. And by the way, once it was rumoured that exports have resumed, prices of rice hiked from EGP 1,800 a tonne to EGP 2,000. Exports may be resumed, but not before I’m confident that sufficient amounts are available for local needs.

About the author

Dahlia Kholaif

Business Editor at Daily News Egypt


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