UPDATE 2-Egypt edges toward wheat supply crisis as traders boycott tender

* Traders shaken by mixed signals from Egypt

* Egypt is world’s biggest importer

* Politically-explosive commodity

* No bids submitted, tender cancelled (Adds GASC direct contract, quotes, background)

By Maha El Dahan and Eric Knecht

ABU DHABI/CAIRO Feb 2 (Reuters) - Rattled by stringent new import rules, Egypt’s wheat suppliers boycotted en masse a state tender on Tuesday, pushing the world’s biggest purchaser of the commodity towards a crisis that could threaten its strategic grain reserves.

Wheat supplies, critical to a bread subsidy programme that feeds tens of millions, are a red line in Egypt, the most populous Arab country. When Egyptians rose up against autocrat Hosni Mubarak in 2011, a signature chant was “Bread, freedom and social justice”.

Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC), confirmed it received no offers in its tender, and said it was now looking for a direct contract for 3 million tonnes of wheat, something traders said was unrealistic.

“Negotiations are ongoing now for the import of 3 million tonnes outside of the tender process,” Mamdouh Abdel Fattah, Vice Chairman of GASC, told Reuters, without elaborating.

The move by traders to shun Tuesday’s tender was prompted by mounting concerns that their shipments would be rejected at the country’s ports because of tough new import standards.

“I cannot remember a GASC tender ever being cancelled for lack of offers, certainly not in recent years,” one Europe-based trader said.

The shelved tender comes after a 63,000 tonne wheat shipment was rejected by GASC this week for containing traces of ergot, a common grains fungus, despite it meeting the 0.05 percent threshold allowed by the authority’s specifications.

Traders viewed the shipment, supplied by Bunge, as a crucial test for whether Egypt would stick to a stringent new zero-ergot standard they say makes doing business here prohibitively expensive.

“People had expected the Bunge ship to be accepted and there was great concern when it was rejected,” the same European-based trader said.

Mixed signals among authorities have deepened concerns.

The supply ministry, which includes GASC, has baffled traders in recent weeks by assuring them their shipments would be permitted with ergot levels up to 0.05 percent -- a common international standard -- even as agricultural authorities have rejected all shipments above zero.

Traders say it is impossible to guarantee the complete absence of ergot.

“The risk of bidding in GASC tenders is now too high. It is not possible to guarantee zero ergot content from any origin and the likelihood that cargoes will be rejected is so high that it is not possible to add a risk premium,” another trader said.

So far, Egypt has rejected three wheat import shipments due to the presence of ergot, a ministry of agriculture spokesman told Reuters on Tuesday.

Uncertainty over Egypt’s reliability as a customer has hit markets at a time of global oversupply, helping push European wheat prices this week to new contract lows.

Suppliers -- many of whom have continued to supply Egypt despite payment delays caused by the country’s ongoing foreign currency shortage -- decided on Tuesday that the added layer of risk brought about by the ergot saga was simply too much.

“Unless Egypt changes its rules it could face trouble importing,” said the first European trader.


Egypt imports around 10 million tonnes of wheat each year, most of which goes to providing cheap, subsidised bread to feed its exploding population of 90 million.

Egypt has said it has enough strategic wheat supplies to last until May 11, but this number includes shipments that had not yet arrived, including the recently rejected 63,000 tonnes.

Much of the country’s calculated reserves sit outside Egypt in shipments that still may be rejected, traders said, raising the possibility that reserves could hit critical levels sooner than anticipated.

“This shows how an argument between the two ministries is risking the supply of a strategic commodity like wheat,” a Cairo-based trader said.

“They have to think of their reserves, if they are counting in the problematic shipments in them the figure is misleading,” he added.

Another Cairo-based trader issued a more dire warning.

“This is a matter of national security for Egypt...You cannot leave the country without wheat for bread.” (Reporting by Eric Knecht, Maha El Dahan and Michael Hogan, additional reporting by Valerie Parent in Paris; Writing by Eric Knecht; Editing by Michael Georgy and David Evans)