Egypt’s wheat bill up, but bread riots unlikely

Sherine El Madany
7 Min Read

CAIRO: Egypt, the world’s biggest wheat importer, faces a higher bill for bread subsidies in the next year but has adequate financial resources and stocks to avoid any rerun of the violent protests of 2008.

Egypt raced to redo orders after drought-hit Russia halted grain exports in August, which sent wheat prices surging. Cairo had booked 540,000 tons of Russian wheat from July until then.

The speed at which it has refilled its wheat order book reflects a determination to avoid any shortages of subsidized bread on which many poor people in the country of 78 million depend. The government has repeatedly said supplies are secure.

Shortfalls two years ago, coupled with rising prices of other commodities, led to clashes between protesters and police.

In Egypt, securing basic staples is politically sensitive at any time, but analysts say the government is particularly wary now because it wants to head off any kind of unrest before parliamentary and presidential elections this year and next.

"I do not see the situation escalating to public unrest and riots similar to what happened in 2008, because international wheat prices are not rising to 2008 levels," said Magdy Sobhy at the Al-Ahram Center for Political and Strategic Studies.

Wheat prices surged in 2008 after several years in which global consumption of wheat had outstripped production.

But a Western industry expert based in Cairo said the latest price rise followed a couple of record global harvests, with supplies outpacing demand, so prices are unlikely to rise as high as that. "Prices went a lot higher a couple of years ago, and I don’t expect them to continue to climb so much this season or this marketing year because of the (global) stocks that have built up over the last two years," he said.

His comments echo those of a UN Food and Agriculture Organization economist, who said the Russian export ban did not mean a repeat of the 2007/2008 food crisis.

‘Enough money’

Egypt has paid about $280-$290 a ton for wheat from France, Canada and the United States in August and September, while in June it paid around $165 a ton for some Russian wheat. In early 2008, Egypt paid $450-$480 a ton for some shipments.

As prices rise, the government is taking no chances and has bought stocks to last to January, a comfortable cushion.

Egypt consumes some 14 million tons of wheat a year, about half of that imported and most of it by state buyer the General Authority for Supply and Commodities (GASC), which bought some 5.5 million tons via international tenders in fiscal 2009/10.

The government will have a bigger bill than planned this financial year to pay for the small, flat subsidized loaves, so-called ‘baladi’ bread, which weigh roughly 100-125 grams and each cost 5 piasters (less than 1 US cent).

Cairo has said it expects to spend an extra LE 2.5 billion to LE 4 billion in 2010/11 to make up the shortfall after the Russian ban. But experts say Egypt can easily cover this.

"We forecast around LE 3 billion, which constitutes around 0.2 percent of GDP," said Mohamed Abu Basha, an economist at EFG-Hermes investment bank. "It is not a significant increase, and we have enough money to pay the difference."

Egypt’s economy has defied the global slowdown, continuing to grow even during the credit crunch at near 5 percent. It has also built up the central bank’s foreign reserves to record levels, now in excess of $35 billion.

"They seem to have the hard currency. It is has not been an issue for them. Definitely wheat is going to be something that is a top priority for the government and they are going to make sure they have the budget," said the Western expert.

He also said ‘baladi’ bread can be made with a range of wheat varieties, giving GASC a wide choice for sourcing. GASC recently added Argentina to its list of usual suppliers — the United States, France, Germany, Canada and Australia.

But some Cairo traders said Egypt, which bought only from Russia in July, was too slow to spot the impact of a drought.

"There were signs ahead of time that Russia was facing some problems in wheat supply, and Egypt should have taken pre-emptive action by diversifying its sources," said one.

There has been some grumbling and the occasional modest protest of a few dozen people about price rises in recent weeks.

But analysts say the latest price rises are mainly fuelled by seasonal factors due to Ramadan, a month when Muslim families and friends often gather for big meals to break each day’s fast. Inflation has still held fairly steady at just over 10 percent.

No one expects President Hosni Mubarak’s National Democratic Party to face a significant challenge in either November’s parliamentary poll or the 2011 presidential vote, but the government wants to avoid giving opponents any ammunition.

"We will not see bread queues or riots because the government is well prepared ahead of elections season to avoid any negative impact on the NDP in the elections," said Sobhy.


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