Supply minister Khaled Hanafy announced the figure at the weekend, but said the Egyptian government would buy wheat from local farmers until mid-July. The government had aimed to buy at least 4m tonnes this year, at the above-market rate of US$47.30 per 150 kg, after a backlash forced it to roll back plans to pay market prices for wheat.
Last year Egypt’s domestic wheat harvest brought in 5.3m tonnes, compared to 3.7m tonnes in 2014. Corruption, with foreign wheat being passed off as Egyptian to take advantage of the government’s high prices, is considered to be widespread – hence the government’s attempts to cut subsidies.
Potential for more efficiency
The country is the world’s largest wheat importer, and in recent years has been making significant efforts to improve its domestic growing, harvesting and storage operations. Earlier this year, the UN Food and Agriculture Organisation and the European Bank for Reconstruction and Development released a report on ways to reform Egypt’s wheat subsidy system.
The report estimated Egypt spent around US$357m subsidising wheat purchases in 2014 – with a significant portion going to intermediaries of dubious legality. It noted that, according to the Egyptian government’s own sources, intermediaries were able to buy domestic wheat at rates around 14% lower than the official government price – then sell it to the government at the full rate.
“While the proportion of wheat that is handled by these intermediaries is difficult to estimate, it would seem that the figure is relatively high… In addition, with the domestic procurement price being higher than that for imported wheat, there is an incentive for similarly unscrupulous intermediaries to resell imported wheat as domestic, with a potential profit of up to more than US$80 per tonne of wheat,” the report concluded.
Bread reform also needed
Along with the wheat harvest, the report also looked at the subsidy system for the baladi bread the wheat is used to produce. Previously, the government supplied bakeries across Egypt with subsidised wheat, which they would then turn into bread – but again, corruption was rife, with many bakeries reselling the wheat on the black market, creating shortages of bread.
The report welcomed Egypt’s move towards a smart card system, where consumers record their purchases of baladi bread with a card, allowing an appropriate subsidy to be paid to bakeries depending on their production. But there is still further to go, according to the FAO and EBRD report, which suggested direct cash subsidies to consumers would improve the food market in general.
“It would give citizens the freedom of spending the cash subsidy on food items other than bread, which could have potentially beneficial effects on public health, as a result of the diversification of the currently carbohydrate-heavy diet of most Egyptians. In any case, the system would be expected to lead to a reduction in bread consumption levels, which would have an expected positive impact on nutrition. Furthermore, no particular public discontent should arise as the cash subsidy system would represent more freedom of choice for the citizens,” said the report.