Morocco says wheat subsidy cut will not hit bread price

RABAT (Reuters) - A 15-percent cut in Morocco’s subsidies on soft wheat imports in the last quarter of the year will not boost bread prices, Najib Boulif, minister in charge of general affairs and public governance, said on Friday.

Freshly baked bread cools off on the racks at a downtown bakery in Taipei July 19, 2007. REUTERS/Pichi Chuang

High food prices were seen as a factor in violence which engulfed North African neighbours Tunisia, Libya and Egypt last year and Morocco has also witnessed violence following bread price hikes in the past.

“The price of bread (200-gramme loaf) has to stay at 1.2 dirham,” Boulif told Reuters by telephone.

He said while it would lower the subsidy, the government would end up spending an additional $100 million to maintain the bread price, reflecting wheat prices that have soared this year due to drought in the United States and Russia.

“We have agreed to raise by 860 million dirhams the total amount of subsidies to be paid for soft wheat imports during the fourth quarter because we want the price of bread to remain the same,” Boulif said.

Strapped for cash, Morocco’s government on Thursday announced a rare cut in the subsidy it pays millers for imported soft wheat, part of a plan to gradually reform the country’s wider subsidy system.

“We suspended the import duty on soft wheat imports (for Q4, 2012) to help the operators,” said Boulif. “But they always import more than what we need, piling up stocks,” Boulif said.

The government will cap the payment of the import subsidy at 1.3 million tonnes of soft wheat in the last quarter, Boulif said.

Its actions raised concern that industry operators might pass on the any impact from a lower subsidy by raising bread prices, a sensitive issue in a country where protests over unemployment and poverty are common.

In 1983, dozens of people were killed by security forces in riots in Casablanca after authorities were forced to raise bread prices.

A Casablanca-based importer and miller said the subsidy reduction meant his firm would look to less expensive origins from the Black Sea or Latin America instead of French and U.S. origins for now.

“We have to compensate for the 15 percent discount,” he said. “There is not much Black Sea wheat available out there ... Buying French and U.S. origins will prompt industry operators to act by raising wheat flour prices.”

Already hit by fiscal and current account deficits which surged last year, bad weather has hurt Morocco’s labour-intensive agricultural sector.

Rabat was granted a $6-billion-plus liquidity line by the International Monetary Fund (IMF) last month as the crisis in the euro zone, its main trade partner, threatens to further deplete the country’s hard currency reserves.

Based on demand of 7.1 million tonnes last year, Morocco will need to import around 4 million tonnes of soft wheat, its biggest import campaign in 30 years.

State grains agency ONICL has not yet made any imports under a 12-month import campaign that ends next May, however, as authorities put particular emphasis this year on encouraging local growers.

The agriculture ministry said soft wheat stocks should stand at 1.3 million tonnes by end-September, which would cover the nation’s needs for three months.

Boulif is a member of the moderate Justice and Development Islamist party (PJD) which leads the government.

It has pledged to reform subsidies by restricting them to the neediest Moroccans in an approach commended by the IMF.

The reform push, which follows a highly-critical ruling of the subsidy system for cereals earlier this year by the state’s anti-trust body, may take until 2016, PJD ministers have indicated.