* State prioritises wheat imports, Egyptian output up
* Political, economic turmoil tough for importers - banker
* Wheat stocks well down on last year
* Egypt wants to reopen talks on IMF loan
By Yasmine Saleh and Sarah McFarlane
CAIRO/LONDON, Feb 24 Egypt's wheat imports are
sharply down this year as it endures economic and political
crisis, but state and private buyers insist they still have
funds to keep the nation supplied with its staple bread.
Egyptian officials and traders acknowledge the government's
problems with a rising budget deficit and falling currency
reserves, but say the state is allocating priority financing for
wheat imports. They are also pinning some of their hopes on an
increase in domestic production.
Foreign traders and financiers remain sceptical, pointing to
a big drop both in wheat stocks - to about three months' supply
from over seven last October - and in the number of grains ships
arriving at Egyptian ports.
This, they believe, is evidence that the state grains
supplier, the General Authority for Supply Commodities, (GASC)
is facing problems in maintaining imports.
"It's an ongoing concern that the political and economic
turmoil is making it a challenge for GASC to import wheat," said
Karel Valken, global head of trade and commodity finance at
Egypt has a history of bread riots but maintained supplies
of heavily subsidised flat loaves - which sell to the poor for
just 5 piastres (less than 1 U.S. cent) - throughout the popular
uprising that overthrew president Hosni Mubarak in 2011.
The man who until last week organised Egypt's state wheat
purchases, Nomani Nomani, dismissed any suggestion that the
government had failed to produce promised funding or guarantees
to ensure that shipments could go ahead.
"The state has not at any point reduced its payments or
failed to deliver to us financial guarantees," Nomani, who now
advises the supply minister, told Reuters on
Sunday. As vice chairman of GASC, Nomani was
arguably the most powerful man on the global wheat market as
Egypt is traditionally the world's biggest importer of the
President Mohamed Mursi's government faces daunting economic
problems. The Egyptian pound has fallen more than 8 percent
since the start of January, and foreign currency reserves have
tumbled to $13.6 billon in January from $36 billion before the
fall of Mubarak.
A HEAVY STRAIN
The pound's drop is putting a heavy strain on the government
budget as it has pushed up the cost of state subsidies on energy
and food, much of which is purchased in dollars.
At the same time detailed negotiations for a $4.8 billion
loan from the International Monetary Fund have yet to get
underway, and Egyptian politics are in turmoil due to disputes
between the ruling Islamists and opposition parties over a new
constitution and parliamentary elections due to start in April.
Nevertheless, private traders discount talk of delivery
disruptions, payments problems or shortages so far.
"If you're asking about any delays in shipping schedules due
to contractual liability performance on GASC's side due to a
shortage of foreign currency, the answer as of today, as we
speak, is no," said Hassan Abdel Fadil, chief executive of
Egyptian trader Venus.
"It's obvious to the entire world that there is pressure on
the dollar in Egypt, but so far they've been doing well," Fadil
told Reuters on Saturday.
"There is a good local supply, both on the private side and
on the GASC side. People keep talking about shortage of stocks -
no, it's not true, neither on the private nor on the GASC side."
Nevertheless, the figures are striking. GASC has bought
235,000 tonnes of wheat since Jan. 1, about a third of what it
purchased in the same period a year
And dry bulk vessels over 50,000 deadweight tonnes (dwt) -
the kind of ships used to carry wheat - are arriving in sharply
Altogether 30 have called at Egyptian ports from the
country's main wheat supplier countries in the January to
February period. This is down from 59 vessels in the same period
last year, ship-tracking data from maritime intelligence
publisher IHS Fairplay showed.
Egypt normally buys strategically to ensure it has wheat
stocks equal to at least six months' consumption in its silos.
By contrast, the government said last week that it has stocks
to last until May 29, or just over three months.
The cabinet said this would rise to about four months under
current international contracts, but this falls well short of
the almost seven months' cover in October last year.
GETTING BY ON STOCKS
Such figures encourage a belief that the dollar shortage is
forcing Egypt to import less and make up the shortfall from
"We've done some business there in the last few weeks and
didn't have too much trouble getting paid, but our normal buyers
now are saying they are going to live on the stocks they have on
hand for the next little while," said Wayne Bacon, president of
grain trader Hammersmith Marketing, which is involved with
private importers. "They're waiting to see if they can get any
foreign currency to pay for things."
Egypt faces a huge task in feeding its people. Most of its
territory is desert, and what little land that can be cultivated
by using the waters of the Nile is under heavy pressure from
development. With its population of 84 million growing fast,
buildings are springing up on agricultural land.
Nomani, who left his job at GASC saying only that he had
been promoted, said measures to boost domestic production were
paying off at a time of difficulty for state finances.
"We have proper planning. We were aware of the conditions
the state is going through, and we made a list of factors to
rely on for securing our essential supply of wheat, including
offering attractive incentives and prices to local farmers," he
Nomani expected local wheat production to increase by "at
least 500,000 tonnes in 2012/2013, if not more, raising the
amount of local wheat to 4.2 million tonnes".
This would mark an impressive rise from 2.6 million in
2010/2011, but overall needs are greater.
Egypt imports about half the 18.8 million tonnes of wheat it
consumes a year, with business split roughly evenly between
private importers and GASC. The U.S. Department of Agriculture
had estimated Egypt's imports at 9.5 million tonnes in 2012/13.
Nomani said the government had budgeted 11 billion Egyptian
pounds ($1.6 billion) for domestic wheat purchases this
financial year, which runs from July to June.
Nevertheless, the state is short not only of dollars but
also domestic currency. The budget deficit in the last six
months of 2012 was 5.1 percent of economic output, up sharply
from the previous year.
Planning Minister Ashraf al-Araby predicted the deficit
could hit 10 percent of GDP in the financial year to June - a
level Egypt cannot afford without outside help.
Cairo's main hope is completing the IMF deal that was agreed
in principle last November but put on hold during street
violence the following month.
Admitting that foreign direct investment had all but dried
up, Araby said the government planned to invite an IMF mission
to Cairo within a week.
The funds are sorely needed. Egypt suffered bread riots in
1977 when the state tried to curb subsidies, and a dive in the
pound in 2003 forced up the food subsidy bill by 40 percent.
Riots erupted again in 2008 over high food prices and low wages.
"I don't think they can afford to jeopardise their subsidies
at the moment," said Hammersmith's Bacon. "They're going to have
to find funds to finance their wheat and sugar purchases because
there's just too many people in the country who can cause a lot
of trouble if they don't."