Don't panic over wheat, Egyptians told

A baker removes subsidised bread from an oven in Egypt, one of the world's largest wheat importers.

CAIRO // The Egyptian government rushed to reassure consumers yesterday that the price of subsidised bread would remain stable despite Russia's suspension of wheat exports last week. The timing of the droughts and forest fires in Russia's wheat-producing region is particularly menacing for Egypt, the world's largest wheat importer.

Many consumers are preparing their pantries for the beginning of Ramadan expected on Wednesday, when there is normally a spike in consumption of food essentials. While the government has told the public that the country's existing flour stores will outlast the Ramadan rush, Russia's wheat crisis has led to renewed calls for the Egyptian government to focus on food security and agricultural reform.

Despite sitting on some of the world's most fertile agricultural land, the country imports about half of the 14 million tonnes of wheat Egyptians consume each year. Some economists and farming experts complain that Egypt's centralised agricultural policy has steered farmers away from "strategic" crops, such as wheat, towards non-food cash crops. "Egypt is able to organise its system scientifically to meet at least 70 per cent of all of its grain and food needs, but importers have encouraged a system of sufficiency through imports," wrote Osama Saraya, the editor-in-chief of Al-Ahram newspaper.

"The government needs to wake up and concentrate on converting our villages, cities and towns into places of production... no matter how high the price, because this is in our interest and the interest of our country." This year's wheat supply concerns come at a particularly sensitive time for Egypt's ruling regime. In October, Egyptians will vote for a new parliament five years after polls awarded an unprecedented one-fifth of the People's Assembly seats to the Muslim Brotherhood, an officially outlawed Islamist organisation and the country's largest opposition bloc.

Food prices have long been a volatile component of politics in Egypt, where a withdrawal of bread subsidies led to bloody riots in 1977 and some low-level unrest two years ago following a global rise in food prices. "The government, the [ruling] National Democratic Party, will do everything in the cards to avoid irritating the public before the elections," said Gouda Abdel Khalek, an opposition politician and an economics professor at Cairo University. "Definitely it's going to be a tough task for the government to maintain fiscal stability."

Under Ahmed Nazif, Egypt's prime minister, the government has made halting efforts to liberalise the economy by phasing out food and energy subsidies, which together account for about 40 per cent of Egypt's budget, said Magda Qandil, the executive director of the Egyptian Centre for Economic Studies. Egypt's minister of trade and industry, Rachid Mohammed Rachid, met with representatives from Egypt's General Authority of Supply Commodities yesterday to discuss the impact of Russia's decision, which on Thursday saw wheat futures rise to their highest levels in two years.

"The recent decision by the Russian government to halt exports will not have an immediate effect on Egypt," said Mr Rachid yesterday. "It is also important to highlight that, while people are concerned about the impact this might have on the supply of subsidised bread during Ramadan, there will be no impact because projected supplies for all commodities needed during Ramadan have been in stock for more than three months."

The independent daily newspaper Al Shorouq reported yesterday that Russia's suspended exports could cost Egypt's government between Dh3.2billion to Dh4.5billion as prices for the French imports cost Dh367 per tonne more than the previously contracted Russian wheat. According to the minister of trade, the government's price cover will "impact" the 2010 to 2011 budget by about Dh1.6billion to Dh2.6billion.

Food subsidies account for about 8.5 per cent of Egypt's gross domestic product, said Ms Qandil, who expects the latest shock to raise subsidy spending to about nine per cent. Such an increase may be modest, but there is little room on Egypt's crowded budget sheet to absorb the extra expenditure, she said. However, the timing of the Russian crisis is not all bad, said Ms Qandil. Egypt signed a free-trade deal early this month with the four-member states of the South American free trade union Mercosur.

The deal will give Egypt improved access to wheat exports from the likes of Argentina, one of the world's largest wheat exporters and may add some much-needed strategic depth to Egypt's precarious reliance on food imports. "If you look into the rationale of why we are going this particular route at this juncture, I think food security is at the top of the rationale," Ms Qandil said. "The timing could not be any better to rationalise the value added of this trade agreement with Mercosur."