| CAIRO/LONDON, March 25
CAIRO/LONDON, March 25 Despite dangerously low
stockpiles of wheat, Egypt is unlikely to be able to buy more at
international tenders until at least the end of June, industry
sources say, and its plans to grow record harvests at home to
replace imports are unrealistic.
Industry sources spoken to by Reuters in recent days painted
a darker picture than previously understood about the ability of
the most populous Arab state to continue to feed its 84 million
people with the cheap subsidised bread that they expect.
Egypt is the world's biggest wheat importer, buying about 10
million tonnes a year, more than half of its consumption.
But two years of political turmoil and economic crisis since
the fall of autocrat Hosni Mubarak have eroded its hard currency
reserves at a rate of about $1 billion a month, raising
questions about its ability to pay cash at open tenders.
The country's politics have been paralysed and its hard
currency-earning tourism industry devastated by repeated waves
of deadly riots between supporters and opponents of President
Industry sources say an exodus of staff from the state grain
buying agency in recent weeks has worsened the problem, leaving
the agency without the expertise needed to cobble together
The government has announced plans to buy record amounts of
wheat from domestic production, but sources say those targets
would be unrealistic even in good times, much less in a crisis
when farmers are short of fuel, equipment and spare parts.
And even if those goals for domestic purchases are met, the
harvest of homegrown wheat is weeks away, and Egypt is already
far short of its target to have six months supply on hand.
The country's strategic stocks of imported and local wheat
fell to just 2.207 million tonnes by March 13, enough to last
just 89 days.
"Traditional suppliers consider that Egypt is around 1
million tonnes behind in imports," said Fehmi Hannachi, head of
commodity finance for Middle East and North Africa at ABC
International Bank plc and board member of ABC Egypt.
A Western diplomat in Cairo said the state grain buying
agency, the General Authority for Supply Commodities (GASC) has
nevertheless already signalled it will not buy wheat at open
auction, at least until the fiscal year ends at the end of June.
"They have made it clear that they won't be tendering for
any more (international) wheat before the end of this fiscal
year," the diplomat said. "Maybe at the start of the next fiscal
year they will re-enter the market."
PERSONNEL TURMOIL AT AGENCY
Questions have been raised about GASC's ability to carry out
purchases since GASC's head, Nomani Nomani, left his post last
month. Several industry sources said turmoil at the agency goes
deeper, with other key managers either having left or being due
to leave their jobs in coming weeks.
The grain buying agency operates under the authority of the
government's Supply Ministry. Industry sources, who declined to
be identified while discussing internal politics, said the
ministry was increasingly taking the upper hand in deciding
strategy, even though it lacks the agency's specialist market
"The turnover of people in government entities such as GASC
is high, which is problematic," said Hannachi. "There is need
for stability in key functions in view of the difficult current
conditions and in order to be able to establish a medium/long
term approach toward strategic imports."
A GASC official declined to comment on changes among its
personnel, deferring to the ministry. Ministry spokesman Nasser
el-Farash said personnel changes at GASC would have no impact on
"I would like to assure everyone that Egypt after the
revolution is run by people who take their decisions within the
framework of an institution as a strategy, and that no issue
should be pending on the change of individuals," he said.
BURNING THROUGH RESERVES
Egypt is heavily dependent on imports of food and fuel, but
has burned through its foreign currency reserves to keep the
pound currency from collapsing. On the eve of its 2011
revolution it had $36 billion. It now has just $13 billion.
The government hopes to sign a deal with the International
Monetary Fund by the end of June and to have received the first
tranche of a $4.8 billion loan by then, which may make it easier
to buy wheat from the international market. But the IMF is also
demanding reforms to its lavish system of state subsidies.
The government has hiked its official estimate of the
2013/14 domestic wheat harvest to a record 9.475 million tonnes,
but that figure is not seen as realistic.
Egypt produced just 8.4 million tonnes of wheat last year.
The U.S. Department of Agriculture and International Grain
Council predict it will increase production only marginally to
8.5 million tonnes this year.
The government has also raised its target to buy domestic
wheat to around 4.5 million tonnes for the crop starting harvest
in April, up from an average target of around 2.4-3.7 million
tonnes in previous years.
ABC Bank's Hannachi said he still expects Egypt to search
for ways to buy some grain abroad, but without mounting the huge
public tenders that have been a centrepiece of the international
grain trade for decades.
"The mechanism will be changing with the government playing
a bigger role in the negotiation and purchase process, even if
GASC remains the counterpart buying," he said.
"They need to have a major solution for large scale
supply... local operators consider the summer as the horizon
everyone is looking at. They have 2-3 months to make the process
more flexible and find other solutions."
LOCAL CROP CHALLENGE
Even if the government does make up for a shortage in
imports by buying more wheat produced at home, it will have
trouble producing bread. Egyptian wheat is normally blended with
equal amounts of superior imported wheat to make edible flour.
"They don't seem to understand that you cannot work with
Egyptian wheat at 100 percent," said a Cairo-based trade source.
"It needs to be blended with imported wheat. You can do
50/50, 60/40, but 60 percent is the limit."
Roland Guiragossian, Cairo-based Middle East manager for
France's export promotion agency Export Cereales, said the
Egyptian government has asked millers to increase the share of
domestic wheat in flour blends to 70 percent.
And even if the government finds the wheat and makes edible
flour, it must still find the money to pay bakers to bake it.
Bakers have threatened to go on strike, saying the state
owes them 400 million Egyptian pounds ($59 million) in
incentives due for producing subsidised bread, which sell for
just 5 piastres a loaf - less than one U.S. cent.
They are due to meet with the prime minister this week.
(Sylvia Westall and Yasmine Saleh reported from Cairo, and
Sarah McFarlane reported from London; Additional reporting by
Jonathan Saul in London, Valerie Parent and Gus Trompiz in
Paris, and Amena Bakr in Dubai; Writing by Veronica Brown;
Editing by Peter Graff)