Aug 14 2010
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All eyes were on Egypt this week to see how it would react to Russia's decision to ban grain exports for the rest of the year.
Egypt, the world's largest wheat importer, consumes an average of 14 million tons of wheat annually. It only produces around half that quantity and imports the rest from around the world. Shortages in world wheat supplies thus place the government between a rock and a hard place. While it needs to make sure the country has enough wheat to meet local consumption, increased wheat prices will mean additional pressure on an already strained budget.
Wheat prices in the global markets have seen the largest monthly jump in more than three decades, up from $180 to $320 a ton. The rise in prices followed a decision by Russian Prime Minister Vladimir Putin to ban grain exports for the rest of the year. As Russia continues to suffer from its worst drought in 130 years, officials said that extreme heat and wildfires had scorched crops on 10 million hectares of land by the end of July.
However, although the United Nations Food and Agriculture Organisation (FAO) has called for the adoption of a mechanism to increase world wheat production, it has also said in a recent report that the current situation is not as bleak as it could be.
Amidst such international concerns, the Egyptian government has remained calm, with officials this week saying that Egypt would not be affected by the Russian decision, as the country had adequate stocks and a policy of diversifying imports.
"The recent decision by the Russian government to halt exports will not have an immediate effect on Egypt," said Rachid Mohamed Rachid, minister of trade and industry. Egypt has enough wheat to cover the production of subsidised bread for the next four months, he said, these stocks excluding orders currently on their way to Egypt.
Egypt is one of Russia's main clients for wheat, importing 59 per cent of its total needs from Russia in 2009.
Demand for food staples is especially high during Ramadan, but Rachid said that, "there will not be an impact because supplies for commodities needed during Ramadan have been in stock for more than three months."
According to government announcements, Egypt's policy of import diversification was also helping it avoid a shortage. Egypt imports wheat from different countries, including the US, Russia, Australia, France and Ukraine. Imports are negotiated through an international bidding process according to Egyptian specifications.
On Sunday, Egypt moved to buy 240,000 tons of wheat from France, with Rachid also announcing that the country had decided to suspend wheat imports from Ukraine and Kazakhstan until these countries had finalised their export policies in the light of the drought impacting the region.
In response to the Russian decision, an official letter was sent to the Russian minister of trade highlighting the current contract for 540,000 tons of Russian wheat, agreed before the Russian decision to halt exports. In the letter, Egypt suggested that Russia reschedule the previously contracted wheat, at the same time requesting that the originally agreed price be maintained.
In the meantime, Rachid said that current changes in the international wheat market will impact the country's budget for fiscal year 2010/2011 by LE2.5 billion to LE4 billion.
Wheat is heavily subsidised by the government to provide affordable bread for Egypt's population, 40 per cent of whom live on less than $2 per day. To cover the need for subsidised bread, the General Authority for Supply Commodities currently purchases an average of eight million tons of wheat annually, of which two to three million tons are purchased domestically, while the rest is imported.
According to Minister of Social Solidarity Ali Meselhi, the government does not intend to reduce the amount of flour available to produce subsidised bread, which is sold at LE0.05 per loaf. The government was committed to maintaining the quota of flour delivered to bakeries at its current level, estimated at 675,000 tons a month delivered to 23,000 bakeries across the country in order to produce 220-240 million loaves of bread.
However, rising wheat prices have prompting warnings from the food industry of rising prices for flour-related products.
Surging costs of wheat, rice, meat and other staples is increasing pressure on consumers. Soheir Mohamed, the mother of three children, said that due to increases in the price of food over the past three years, her family's food budget now takes up most of her total income.
The result, she says, is that the family is now obliged to ignore other needs, such as buying new clothes and entertainment.
Ali Sharafeddin, head of the Chamber of Cereals at the Federation of Egyptian Industries, is also concerned that the current crisis is taking place at the beginning of the production season. However, he said that there was no need for the country to resort to panic buying, since if Egypt imported large quantities of wheat the increased demand would cause world prices to rise.
To avoid any repetition of such problems, El-Basha Idres, chairman of the Agricultural Products Division at the Federation of Egyptian Chambers of Commerce, said that the government should consider expanding domestic wheat production.
"Increasing wheat production to achieve self- sufficiency is more important than subsidising poor quality bread. It is incredible that Egypt produces less than 50 per cent of its total wheat consumption and only 25 per cent of its consumption of beans," Idres said, blaming the Ministry of Agriculture for not having contingency plans to increase local production of strategic crops such as wheat, rice and beans.
Shortages in international production could happen again, Idres said, and the government needed to think in strategic terms.
According to Nader Noureldeen, a professor of agricultural resources at Cairo University, the government was also to blame for not reading the market accurately and predicting the present scenario.
Some months ago, changes in international wheat production were expected due to changes in the weather, but the government had not properly prepared for them, he said.
© Al Ahram Weekly 2010
© Copyright Zawya. All Rights Reserved.
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