CAIRO: A group of bakery owners who produce subsidized bread are claiming to have incurred heavy losses over time because the government has miscalculated the price of flour.
A division of bakery owners at the General Federation of Chambers of Commerce conducted a study on the production cost of subsidized bread, concluding that the price of flour used by the government in its calculations is lower than what bakeries pay.
According to the state-run Al-Ahram, Abdullah Ghorab, head of the division, said that while the real price is LE 85 for a sack of flour weighing 100 kg, the government calculates bread subsidy on the basis that bakeries buy flour at LE 65 — which would mean bakeries have been selling bread for less than the cost of input.
Bakeries must use no less than 10 sacks per day for production to be economically sound even though the current quota for bakeries ranges between 5 and 20 sacks. The study will be submitted to the Ministry of Social Solidarity and bakery owners await a decision to ensure their continued operation.
Ghorab added that the prosecutor general has decided to drop fines on bakery owners producing subsidized bread and drop all cases filed against them from January 2006 to January 2010, which he estimated to be around 126,000 with fines estimated at LE 600 million.
Magdy Sobhy, senior economist and deputy director of Al-Ahram Center for Strategic Studies, said that losses incurred by bakeries of LE 20 per 100 kg of subsidized flour may be exaggerated given that specifications for the size and quality of the bread are usually ignored.
“Another way that bakeries make profits is by selling subsidized flour at higher prices,” he added.
Jennifer Bremer, chair of the public policy department at the American University in Cairo, said owners could be mixing subsidized flour with more expensive flour to make non-subsidized bread at lesser costs, thus earning profit dubiously.
She added, however, that if indeed the prices were not fair, this would encourage corruption, noting that there may also be a discrepancy in the alleged price of flour calculated by the bakeries.
According to Mirette Ghozzi, senior financial analyst at CI Capital, to her knowledge, the government currently buys wheat either locally or through imports and supplies wheat to milling companies, paying LE 75 per to mill a ton of wheat. This is then crushed into subsidized flour, supplied to bakeries at LE 505 per ton (or LE 50 per 100 kg), which is less than the proposed LE 65.
Discrepancies in the cost of raw materials and the complicated calculations of subsidies are some of the main challenges facing the whole system and why many analysts claim its inefficiency.
“There are many options available to solve this issue and one of them is to stop subsidizing flour itself and subsidize the final product, the bread. This will cut out all the intermediary corruption and waste,” said Sobhy.
He also said that that to provide a better supervisory process, inspectors must earn higher wages.
For Bremer, the problems of corruption and the complicated nature of subsidy calculations are inherent in this type of in-kind subsidy. “Subsidizing this way is very inefficient, it would be better to move to cash transfer program of some sort,” she said.
Finance Minister Samir Radwan was quoted by the state news agency MENA as saying that wheat, flour and oil have all been made available for the coming period, and reserves of basic commodities are safe.
Reuters reported that Egypt, the world’s biggest wheat importer, has secured enough wheat supplies to last at least five months and is pursuing its purchases as normal. "Currently, we have (wheat) supplies for five months. This is excluding locally grown supplies," Nomani Nomani, vice chairman of the General Authority for Supply Commodities (GASC), said.
"We have enough (wheat) supplies, so there is no need for long-term contracts. Purchases are proceeding as normal. GASC is always in the market whenever the prices are suitable," Nomani told Reuters.