Egypt banks on bumper wheat harvest

March 20, 2013

The world’s biggest wheat importer, Egypt buys half of the almost 21 million tons it consumes annually on the international market. Traditionally, the government has maintained strategic wheat reserves equivalent to six months of consumption in order to eliminate risks to the supply of cheap bread, of which some 250 million loaves are baked every day.

But because of the economic woes that have accompanied the country’s political transition, those reserves are disappearing. And having slashed its wheat imports because of a severe foreign currency crunch, the Egyptian government is pinning enormous hopes on a bumper harvest this year.

As of last week, its wheat reserves stood at 2.4 million tons, which officials say is enough to cover subsidized bread for just under three months. With the addition of contracted imports, they say, there will be enough to carry the country through to the end of June.

Beyond that, the government is counting on the local crop. Weather has been good so far, and officials predict that it will be the country’s biggest wheat crop at 10.5 million tons, about 7 percent more than last year.

Farmers also see encouraging signs.

“It will be an excellent crop,” said Ali Asaker, who farms fields near the Nile Delta village of Ikhsas and heads the local agricultural cooperative. “We got good seeds from the ministry this season. Thank God it will be a plentiful year.”

But depending on the domestic crop carries its own risks. At stake is not just the government’s credibility but also social peace in a country where heavily subsidized bread, sold for less than one cent a loaf, is a mainstay of the national diet.

Egyptian policymakers have never forgotten the riots that swept through their cities in 1977 when the prices of subsidized staples were increased.

The failure of the crop, for any reason — and a crippling diesel shortage is a threat — would increase rural poverty, fuel anger in the cities and force the government to spend scarce dollars on wheat imports. It wants to defer this until later in the year, when it hopes it will have concluded a stalled loan agreement with the International Monetary Fund.

“[The Egyptians] are very short of cash. Things are very, very tight,” said one European banker involved in trade financing.

Even if they have a good crop, they will still need to continue importing wheat, the banker said.

Officials acknowledge there is enormous waste in the bread subsidy system, with many people feeding it to livestock. To tackle this, they are discussing the introduction of a rationing system using smart cards.

In the meantime, the state plans to buy some 4.6 million tons of locally grown wheat, or just under half the projected harvest. It is offering farmers about $434 a ton — a substantially higher price than the $357 it pays for imported wheat, though domestic purchases are paid for in local currency.

“The government is committed to making available the funding to buy from farmers,” said Nomani Nomani, an adviser to the supply minister who was until last month the man responsible for Egypt’s wheat imports.

“If we get 4 million tonnes [4.4 tons] locally, we will have enough wheat for five months beyond June,” he said. “That will give us enough time before we [need to] go back to the international market.”

Farmers and local millers say that assuming the harvest is successful, Egyptian authorities should be able to secure most of the quantities they are targeting because the majority of wheat growers are strapped for cash and unlikely to hoard the grain in the hope of higher prices.

In addition, only the government owns silos for proper grain storage. Farmers keep some of the crop for their domestic use, but they are eager to sell the rest to avoid the risk of spoilage. Many also need to turn their crop over to the government to repay loans from state banks.

Even though many farmers sell to private grain traders to avoid dealing with government bureaucracy, a significant portion of the crop still ends up with the state, insiders say.

“The government is offering a high price, so in the end the wheat will still find its way to it,” said Tarek Hassanein, the head of the Grain Chamber, an association of millers. “In just 40 days, the state comes in to collect 4.2 million tonnes, who can compete with that?”

Nonetheless, Clemens Breisinger at the Washington-based International Food Policy Research Institute said food security in Egypt had deteriorated in the past few months.

“On national and household levels, there is not much of a safety net left,” he said.

— Financial Times

Terazono reported from London.

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