Egypt’s new wheat subsidy could cut future wheat harvests

Egypt's decision to slash wheat subsidies, which has infuriated farmers, threatens to cut future harvests and force the country to burn scarce dollars on more imports during a foreign currency crisis, traders and experts say.

Earlier this month Egypt said it would no longer pay a fixed, and highly subsidised, price to procure local wheat in what traders and agricultural experts say is a drive to end corruption involving wheat purchases from farmers being mixed with imports.

Egypt said the new subsidy is designed to encourage wheat cultivation. But farmers say the new system, based on average global prices, will instead decimate their profits.

"We are being forced to cultivate something for almost no money," said head of Kafr al-Sheikh farming syndicate Ali Rageb.

Though it's too late for farmers to change the crop for the coming year's harvest, they are already talking about other crops for next season.

Egypt, already the world's largest wheat importer, could be faced with an even steeper wheat import bill at a time when dwindling foreign currency has hit manufacturing.

Egypt will import about 11.5 million tonnes of wheat during the 2015/2016 fiscal year, according to U.S. Department of Agriculture estimates.

Wheat has always been a politically sensitive issue in Egypt, the most populous Arab state.

President Anwar Sadat triggered riots when he cut the bread subsidy in 1977. When Egyptians rose up against autocrat Hosni Mubarak's rule nearly five years ago, one of their signature chants was: "Bread, freedom and social justice."

The government said it would now directly pay farmers a smaller subsidy and then buy the wheat at global prices.

The change in the subsidy system was intended to end chronic smuggling of wheat.

Traders say as much as 1 million tonnes of last year's announced harvest of 5.3 million could actually be foreign wheat, but the supplies ministry has repeatedly denied this.

The new system exposes farmers to plummeting global prices that they say will make growing wheat nearly unprofitable.

"If you compare the new system and the old one you'll see no one will cultivate wheat. He can make money if he cultivates anything else other than wheat," said Hesham Soliman, president of Med Star for Trading.

If the area of farmed wheat drops in future seasons it would force the country to import even more.

"How are you going to import everything when you are facing a hard currency problem?," said Soliman.

Egypt's foreign currency reserves stood at $16.415 billion at the end of October, enough for only three months of imports and down from about $36 billion before the 2011 revolt.

Under the new structure, farmers will lose between LE1,500 and LE1,800 ($191.57 – $229.89) per feddan compared to the previous five years, estimates former adviser to the ministry of supplies Nader Nour El-Din.

"We borrow money and repay our debts from season to season. We don't get monthly salaries as others do. We will sweat, work, and fight for our production to make us money at the end of the season, but what if there is nothing? How can we survive?" said Damietta farmer Ahmed Sabry.

The subsidy change came after the farmers had begun their planting season and purchased all their seeds, farmers say.

The ministry of supplies spokesperson said the decision was not made intentionally late, without elaborating.

A future decline in Egypt's own output could also drive up global prices, costing the country even more to import, said Nour El-Din.

"The ministry keeps taking bad decisions without consulting us, and it's going to lead to disastrous implications," said a farmer from Daqahlia.

($1 = LE7.8300 )

Related Articles

Back to top button