* 400,000 tonnes of foreign wheat passed off as local
* Government says it applied "tight oversight"
By Sarah McFarlane and Maha El Dahan
CAIRO/ABU DHABI, July 10 (Reuters) - Tighter controls and a lower premium have helped Egypt slash by half the amount of foreign wheat smuggled into its local procurement purchases, with the government claiming it has completely eradicated the phenomenon.
The government buys around half of the most populous Arab country's wheat needs to supply its subsidised bread programme.
Traders estimated that among government purchases this year of local wheat, bought at a premium price to the world market, was around 400,000 tonnes of foreign wheat, compared with between 800,000 and 850,000 tonnes the previous year.
The imported wheat is sold by smugglers profiting at the government's expense during Egypt's April-June harvest.
Asked about the smuggling, Reda Agag, adviser to Egypt's deposed president's Minister of Supplies Bassem Ouda told Reuters: "Yes we had that in previous years but this year I can say there was no imported wheat at all smuggled in local procurement, we did a lot of work with very tight oversight."
This year Egypt set the fixed price it pays for local wheat at 400 pounds per ardeb (150 kg) - around $380 a tonne - compared to the global market price of around $250 a tonne.
Traders said wheat from several origins may have been imported to be sold onto the government at a profit of around $20-$50 per tonne, compared to that of around $100 last season.
"A minimum of 400,000 tonnes of foreign wheat was sold as local, there was still a margin," said a Cairo-based trader.
The profits are split between the importers and farmers along with others in the supply chain, traders said.
According to the U.S. Department of Agriculture, Egypt's wheat imports fell to 8.5 million tonnes in 2012/13, from 11.65 million tonnes the previous year, partly due to shrinking foreign currency reserves.
Government millers have already reduced the amount of international wheat used in their mix to around 30 percent from a previous ratio of 60 percent international and 40 percent local due to lower international wheat stocks.
As the subsidised bread programme requires a blend of international and local wheat due to the low gluten content of Egyptian wheat, traders said the smuggled imports could help mitigate the lower blend of international wheat.
Egypt is forecast to consume 18.7 million tonnes of wheat in 2013/14, in line with the previous year, according to the U.S. Department of Agriculture data.
(Editing by James Jukwey)
((sarah.mcfarlane@thomsonreuters.com)(+44 20 7542 5937)(Reuters Messaging: sarah.mcfarlane.thomsonreuters.com@reuters.net))
Keywords: EGYPT WHEAT/SMUGGLING
