By Dr Mahmoud Riyad
Egypt is one of the world’s biggest wheat importers and uses the purchases to make heavily subsidised bread, a politically sensitive benefit available to tens of millions of people.
Most deferred payment cargoes have been shipped and unloaded without interruption so far and Egypt’s state wheat reserves used to make subsidised bread have not been impacted. Following the war in Ukraine, Egypt now depends mostly on Russia for its wheat.
Egypt’s supply minister told Reuters the country’s state grains buyer has deferred opening letters of credit to pay for wheat imports to alleviate financial pressures caused by a foreign currency shortage.
Supply Minister Ali Moselhy acknowledged the delays, blaming it on a shortage of foreign currency that was worsened by the economic fallout from the war in Ukraine and has led to a general slowdown in imports.
“We don’t want to add pressure on the central bank. Hence, we are phasing with the suppliers and so we have to thank the suppliers very, very, very much for their understanding,” Moselhy told Reuters on Thursday.
Rising subsidy bill
Egypt buys around five million tonnes of wheat annually from abroad. Subsidised bread is available to more than 70 million of its 104 million population.
The finance ministry says funding for subsidies on food, mostly bread, will rise 41.9 percent to 127.7 billion Egyptian pounds (US$4.1 billion) in the fiscal year from July 2023 to June 2024. (US$1 = 30.8500 Egyptian pounds)
In recent years most imported wheat has come from the Black Sea and the war in Ukraine initially disrupted purchases. But the government later managed to boost its reserves, mainly relying on Russian wheat imports.
The Ukraine war shocked Egypt’s economy, causing investors to pull out billions of dollars. Egypt’s currency tumbled and inflation soared.
Many recent wheat purchases have been made with funding from the International Islamic Trade Finance Corporation (ITFC), which last year doubled a credit facility extended to Egypt to US$6 billion, and from the World Bank, which in December approved US$500 million in development financing, mostly for wheat imports.
Unpaid suppliers have also continued selling wheat at competitive prices despite not receiving payments for older cargoes.
“They do trust GASC 100 percent. Of course, they’re not happy but it’s not influencing business,” said the unpaid wheat supplier.
“It’s not normal but they know it’s GASC and it’s the government,” said the unpaid wheat supplier. “They don’t doubt they will be paid.”
Moselhy said last month that Egypt was strongly considering approving the currencies of its commodity trade partners, including China, India, and Russia to try to lessen the need for dollars.
Egypt’s strategic reserve of wheat is sufficient for 6 months, announced Ali Al-Moselhy, Minister of Supply and Internal Trade, ahead of Eid Al Adha (Feast of Sacrifice for Muslims).
During laying the foundation stone for two new logistical and commercial areas in Kafr El-Sheikh Governorate, on an area of 22 acres with investments of approximately EGP 6 billion, he added that the domestic wheat supply from the local farmers has reached 3.630 million tons since the beginning of the season in mid-April 2023.
Al-Moselhi added that the strategic reserve of edible oil is enough for more than four months, while rice stock, meat and are sufficient to about 3.3 months. As for the poultry reserve, it is enough for about seven months after importing more than 25,000 tonnes during the last period, the Minister added.
In April 2023, the Egyptian Ministry of Finance allocated 45 billion EGP to purchase local wheat from farmers this year, with an increase of more than 19 billion EGP compared to the last year, said Minister Mohamed Maait in a statement.
The government has started to buy the local wheat from the beginning of this April to the mid-August, with an additional cost to increase the price of one ardab (150 kilograms) by 74 percent from 865 EGP to 1,500 EGP, Maait added.
The increase in the wheat purchase price comes with the implementation of the presidential directives to support farmers and encourage them to expand the cultivation of strategic crops like wheat, in a way that contributes to achieving self-sufficiency.
