CAIRO: The dramatic rise in global sugar prices in recent months has been a mixed blessing for Egypt. Sugar is one of a handful of food products supported by the government under its subsidies regime and the price rise has caused a budgetary predicament, prompting the government to reconsider its approach to food subsidies.
Meanwhile, the domestic sugar industry, which is dominated by state-owned companies, is set to prosper from the increase in prices. One of the nation s largest sugar producers, Delta Sugar, is considering expanding its facilities.
The company is about to prepare agricultural, technical and economical feasibility studies for new projects for sugar production from beets in the governorates of Sharkia, Ismailia and Sinai, says Medhat Seyam, communications manager at Delta Sugar, in a letter to the Cairo and Alexandria Stock Exchanges.
Delta Sugar, 51 percent of which is owned by the government, already has a large sugar beet processing factory in Kafr El-Sheikh. The use of sugar beets has become increasingly popular in Egypt as a more practical alterative to sugar cane, on which the nation has traditionally relied for its sugar requirements.
Sugar beets are more economical and may be planted the Nile Delta rather than Upper Egypt, explains economist Magdy Sobhy of the Al-Ahram Center for Political and Strategic Studies. Sugar cane cultivation requires high temperatures and a lot of water. Agricultural land is also limited in Upper Egypt and most of it is being used for cultivating sugar cane.
The high price of sugar has also upset domestic consumption. Sobhy explains that the government s target is to increase investment in sugar beet production so that it covers 80 percent of domestic consumption by 2009.
We consume approximately 2.5 million tons per year, of which we produce 1 to 1.25 tons, says Sobhy, and we consequently import approximately half of our consumption.
The local market has therefore been hit hard by the rise in global prices as a result of the need to import sugar from abroad. The global situation is that prices have increased over a period of six months by more than 80 percent, says Sobhy, with the price of one ton reaching $300 at times.
Sugar prices have similarly been affected in the local market. The price of sugar in the Egyptian market increased by approximately 65 percent to 70 percent, says Sobhy, from around LE 2 to LE 2.25 per kilogram up to LE 3.5 to LE 3.75 per kilogram; this is the price on the free market.
Since sugar is one of the key commodities subsidized by the government and the state s budget is already suffering from bloated subsidy payments, the rising price of sugar has generated a serious debate about the future of the system of subsidies.
The problem in Egypt is that part of sugar consumption occurs through subsidies provided by the government, explains Sobhy. Therefore, the increase in the price of sugar does not just mean that the price on the market increases, but also that the government must make larger sugar subsidy payments in order to continue to provide it at the same price.
This has contributed to a larger budget deficit and the government is contemplating its options. The government currently subsidizes five [food] commodities: sugar, oil, macaroni, lentils and beans, says Sobhy. The government s thinking of late is that macaroni, lentils and beans are commodities that citizens with subsidy cards do not desire due to the low quality of these products and because lentils, at least, are only consumed during the winter months and are not consumed in the summer. Therefore, subsidizing these commodities results in a waste and the government is thinking of transferring the funding for these products to only two products, sugar and oil, to try to reduce burden on the budget.
This would allow the government to avoid increasing its total spending on food subsidies. Meanwhile, there is also a debate about whether subsidies should be purely monetary rather than based on certain commodities.
This means that instead of providing sugar to the public for say, LE 1, explains Sobhy, when its price is LE 3.5 per kilogram. In other words, the government pays LE 2.5 for every kilogram, the government would provide every family that has a right to subsidies with say, LE 100 in cash. So no matter how high prices go, the government is not responsible for covering the increase.