World’s biggest wheat importer dealing with an economic downturn.
Egypt is the world’s biggest importer of wheat and runs a national system to keep its population supplied with subsidized bread. However, a sharp economic downturn has hit its currency and added urgency to the need to reform the system. The country’s farming is efficient, but the availability of fertile land is limited in comparison to its fast-growing population.

The International Grains Council (IGC) forecast Egypt’s 2017-18 total grains crop at 15.3 million tonnes, which compares with 15.5 million the year before. Wheat production is forecast unchanged at 8.6 million tonnes. The 2017-18 maize crop is forecast at 5.8 million tonnes, down from 6 million the year before. Sorghum production is forecast at an unchanged 800,000 tonnes.

The IGC forecasts Egypt’s 2017-18 grains imports at 21.9 million tonnes, up from 20.5 million the year before. The figure includes 12.1 million tonnes of wheat, up from 11.6 million in 2016-17. This year’s maize imports are forecast at 9.7 million tonnes, up from 8.8 million the year before.

“On July 5, 2017, the agriculture minister announced a near-doubling of the 2017-18 maize procurement price, to EGP3,400/t (US$190),” the IGC said.

Egypt is set to produce 4 million tonnes of rice in 2017-18, according to the IGC. The figure for the previous year’s rice crop was 4.8 million. The IGC also reported that the government said on July 6 that its ban on rice exports would continue at least until the new crop harvest.

Economic woes

The country faces problems with high unemployment, and an unstable currency, with its main foreign exchange earning industry, tourism, having suffered a sharp fall in revenues. That has created a need to reform Egypt’s subsidized bread program.

“They are finding it difficult to cope with importing wheat,” Dorit Cohen of the U.K.’s British Cereals Exports promotion body, part of the Agricultural and Horticultural Development Board, told World Grain.

Currently, she explained, about 60% of imports are controlled by the state body GASC General Authority for Supply Commodities, with 40% private.

“This will change in the future,” said Cohen, who visits Egypt regularly to discuss needs with local millers. “What the millers explained to us is that they are spending so much money on subsidizing the bread wheat to feed the low-income population.”

One problem is that subsidized bread is inexpensive and a family with the right to buy 10 subsidized loaves might buy them and sell them if they are not needed or even use them as animal feed.

“They need to reform the subsidy policy to reduce the wastage,” she said. “They are literally spending so much money.”

However, the price of bread is a sensitive subject.

“What they are going to do is phase out the subsidy system, but slowly and gradually,” she said. “What they have done with oil and gas and other commodities, they have cut out the subsidy system outright. With bread they can’t do that.”

Imports eventually will be handed over to multinational grain groups.

“Already multinationals such as Toepfer and Cargill are in place in Egypt waiting for that to happen,” she said. “There is no timeframe for this at the moment. What they will also do is hand over more import control to the private millers.”

A fast-growing population will make Egypt more dependent on grain from outside.

“They will need to import more,” she said. “They are increasing their own domestic production but it is very slow. The majority of the country is desert and they rely on production to happen around the Nile River. There are irrigation issues, weather issues.”

Russia is the dominant supplier.

“The Russians basically are very strong in the Egyptian market and we will not be able to compete,” Cohen said.

Instead, British exporters are aiming for niche markets.

“Where there is an opportunity for the U.K. is in the biscuit market,” she said.

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Egypt wheat production and import
Source: U.S. Depratment of Agriculture.
To view the full chart, click here.

Excess milling capacity creates inefficiencies  

According to the attaché, Egypt has more than 410 public, public/private, and private sector mills with total investments of more than $1 billion.

“According to some private investors, Egypt has an excess milling capacity of more than 30%, creating many inefficiencies in this economic subsector,” the most recent annual report on the sector said. “Public and public/private milling capacity ranges between 50,000 to 55,000 tonnes per day while the capacity of private sector mills is estimated at 20,000 tonnes per day.

“Ironically, last year many private mills operated at 40% capacity due to shortages of imported wheat, caused by limited foreign currency and delayed letters of credit.”

Cohen identified a lack of funding for imports as a problem with the level of capacity usage in mills.

“Because of the current situation, a lot of them are being kept open but they aren’t running at capacity or they have stopped milling but they are not actually shut down,” she said. “Some of them are looking to re-open their mills once the financial situation gets better.”

Referring to the private sector, she said there are “no more than a dozen that are functioning properly.”

The attaché explained the mix of production.

“Public mills and public/private mills produce 82% extraction flour used for making the subsidized baladi bread, producing 70% of all the flour going to the bread subsidy program, while private mills produce the remaining 30%,” the report explained. “Private sector mills producing 82% flour for the government’s bread subsidy program are not allowed to produce the 72% extraction flour produced by other private sector mills in an attempt to avoid leakages. The 72% extraction flour is sold to around 20,000 private sector bakeries that produce higher quality bread and pastries. Cakes, pastries and baked goods consumed in Egypt witnessed a reduction in their consumption rate in the second half of 2016-17 due to a 100% increase in prices compared to the first half of the marketing year, as 72% flour increased from EGP 3,500 per tonne to EGP 7,000 per tonne. Private bakeries and in-store bakeries at large retailers and hypermarkets also have increased their prices, driving consumers to substitute their consumption to cheaper, unsubsidized baladi bread.”

The attaché reported in July that the Egyptian government planned to change its subsidy system the following month.

“The Ministry of Supply announced that the move will cut wheat imports by up to 10% by curtailing smuggling,” the report said. “Egypt is looking to tighten its finances as it pushes ahead with a $12 billion, three-year International Monetary Fund loan tied to ambitious reforms such as subsidy cuts and tax increases. In an attempt to reduce waste, next month the state will stop subsidizing the flour used by bakeries offering the subsidized bread. Instead, subsidies will be tied to the actual bread purchased by consumers.”

The Ministry hopes that the new measure will remove the incentive for smuggling flour, cutting down on waste and helping to save the state up to EGP 8 billion ($447 million) on its 2017-18 food subsidy bill, it said.

“Currently, 2017-18 food subsidies are expected to reach EGP 85 billion ($4.7 billion),” it said. “In addition, the Ministry expects that the lower flour consumption will translate directly into reduced imports.”

In February, the attaché reported on how the government has changed its pricing mechanism for payments to farmers, in response to the crop in the currency, which followed the floating of the Egyptian pound, moving to a price based on international market prices.

“Egypt’s farmers are some of the most productive wheat farmers worldwide, averaging yields of 6.5 tonnes per hectare,” the report explained. “However, their small average production plots, averaging less than one hectare, are a key reason why the government maintained a high procurement price.”

After the country floated the pound, which depreciated by over 100%, farmers became much more competitive relative to foreign producers, the report said.

“Although costs increased, they are not of the magnitude of the depreciation, averaging a total increase of 15%, as imported input pricing had already been factored by the much higher exchange rate to which importers had to resort in the parallel market,” the report said.