Egypt's wheat problem: how Mursi jeopardized the bread supply

CAIRO Thu Jul 25, 2013 4:44am EDT

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CAIRO (Reuters) - The biggest mistake deposed Egyptian President Mohamed Mursi made during his year in power was dramatically reducing wheat imports, according to Mohamed Abu Shadi, the country's new minister of supplies.

Lack of money and a quixotic attempt at making Egypt self-sufficient spurred the decline, say officials familiar with the matter. Mursi dreamt of making Egypt grow all its own wheat and allowed imported stocks to fall to precariously low levels. It hurt both the country's wheat stocks and Mursi's government.

With a quarter of Egypt's 84 million people living below the poverty line of $1.65 a day, millions depend on subsidized bread that sells for less than 1 U.S. cent per loaf. That supply relies on foreign wheat.

The country is the world's largest wheat importer, bringing in about 10 million tonnes a year, around half its annual consumption. Keeping the system running smoothly was vital when Mursi, backed by the Islamist Muslim Brotherhood, took over as president in June 2012.

Mursi appointed Bassem Ouda, a 43-year-old engineer, as minister of supplies. Ouda, who took office on January 6, said Egypt's $3 billion program for subsidized bread would be his top priority. However, he and Mursi promptly began talking about Egypt becoming self-sufficient by more than doubling its wheat production to meet its needs of over 18 million tonnes a year; at the same time they made big reductions in wheat imports and began eating through stocks.

In May, Mursi was quoted during a festival to celebrate the harvest season at a farm near the northern city of Alexandria as saying: "By God's will, in two years we will be achieving more than 80 percent of our needs, and seek in four years not to import wheat." It was a an ambitious target; critics called it foolhardy.

"Many people were disconcerted and unhappy with the government for making statements that we would become self-sufficient," said Adel Beshai, professor of economics at Cairo's American University. "Every villager knows we cannot become self-sufficient, any illiterate farmer could tell you we could not be self-sufficient, so people felt they were being lied to."

While Egypt is one of the oldest agricultural civilizations, once the granary of the Roman Empire, it can no longer feed its modern population, which is mostly crammed into the fertile Nile valley and delta, a narrow strip surrounded by huge areas of arid land. Egyptian agriculture is almost entirely dependent on irrigation with more than 90 percent of the country desert.

The U.S. Department of Agriculture estimated Egypt's latest harvest at 8.5 million tonnes of wheat. The subsidized bread program alone requires around 9 million tonnes of wheat. Local wheat is low in gluten so it is mixed with foreign wheat in roughly equal parts to produce flour suitable for making bread. Much of what remains of the Egyptian crop is consumed on farms.

A lack of funds also played a part in Egypt's failure to import wheat, according to a government source familiar with the matter. As it faced economic crisis, the Islamist government began exploring alternative methods of procuring wheat.

"They were looking at barter deals for oranges and potatoes," said a second source with experience of the inner workings of GASC, the state grain buying agency, adding that Russia imports a lot of Egyptian potatoes and oranges and is a key supplier of wheat.

The result was inaction. "This was an extension of what was happening in the rest of the ministries and the rest of the country," said the government source.

On July 10, days after Mursi was ousted and Ouda resigned, Ouda said government stocks were 3.5 million tonnes, including 500,000 tonnes of foreign wheat. This compared with 4.9 million tonnes on July 1 last year, including 1.2 million tonnes of imported wheat.

The government source said that the risk of shortages could be reversed with proper management: "All you need is speedy decisions to enter the market at the right times."

(Additional reporting by Maha El Dahan in Abu Dhabi; Editing By Richard Woods)

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