Egypt's wheat demand stay high

Published Jul 13, 2017

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London - Egypt’s overhaul of its bread subsidy program isn’t likely

to lead to any significant change in how much wheat the country buys on the

international market, according to traders and analysts.

A fast growing population means that Egypt, the world’s

largest wheat importer, will continue to need large amounts of foreign grain

and the effect on prices will be minimal. On Wednesday, the Supply Ministry

said from August it would only subsidize the final sale of bread, instead of

production from grain bought locally or via international tenders.

“Import demand will be the same as people still need to

consume wheat and flour and Egypt’s bread consumption is one of the highest in

the world,” said Haitham Nouh, chief executive officer of Roots Commodities in

Egypt. “We expect import volumes to stay normal and any increase in wheat

imports will only be a reflection of the increase in population.”

Read also:   Crackdown on fake cotton helps revive Egypt crop 

The new system aims to reduce wheat and flour smuggling and

lower subsidy costs by at least 5 percent. Egypt’s subsidies are unsustainable

in the long term, and the government will eventually need to reduce its role in

producing bread -- a staple part of the local diet, Nouh said by phone.

Politically Sensitive

“Since it is a very political and socially sensitive issue,

the government will have to make the transition smoothly and gradually, ” he

said.

Chicago-traded wheat futures slipped 1.6 percent as of 4:29

a.m. local time. Prices dropped by as much as 3.3 percent Wednesday after a US

Department of Agriculture report showed U.S. wheat production will be bigger

than analysts expected.

Egypt is closely watched by the wheat market because it

spends billions of dollars on grain each year to provide bread for its 90 million

people. The country is trying to clamp down on smuggling and make sure it

doesn’t pay more than necessary to help feed its population, half of whom live

near or below the poverty line.

“The new move is mostly irrelevant for volume of imports and

prices, at least short term,” Andrey Sizov Jr, managing director of consultant

SovEcon in Moscow, said over email. “The new system looks more transparent and

less costly, this will help to save precious foreign reserves for the country.”

Under the new system, the state-run buyer will sell local

and imported wheat to public and private mills, and those mills will sell flour

to bakeries to make bread that the government will then subsidize, Supply

Ministry spokesman Mohamed Suwaid said. Currently, the government pays millers

to turn wheat into flour and then pays bakeries to make bread, before

subsidizing the final product.

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