Egypt bakeries protest planned reduction of flour subsidies

[DJKeefy]

Egyptian bakers and bakery owners protest government decision to significantly raise price of flour used to produce subsidised bread.

Hundreds of Egyptian bakery owners on Saturday blocked Cairo's Qasr Al-Aini Street near the Ministry of Supply and Internal Trade to protest government plans to reduce flour subsidies.

On Thursday, the supply ministry announced that it would continue to subsidise bread loaves, but not flour – which would henceforth be sold to bakeries at market prices. The move means that prices paid by bakeries for a 100-kilogram bag of flour would rise from LE16 to LE286.

The government will then purchase loaves of bread from bakeries for 34 piastres each before selling them on to consumers at 5 piastres each.

Saturday's protests were not the first of their kind. After the ministry announced the new arrangement on Thursday, bakers from north Cairo prevented government trucks from distributing flour to local bakeries.

Protesting bakers and bakery owners say that, while they oppose the new price structure, they don't oppose the overall subsidy reduction scheme.

"We agree with the principle of the new system, but not with these conditions," said Abdallah Ghorab, head of the bakery owners division at the Egyptian Federation of Chambers of Commerce.

"We have long called for the liberalisation of flour prices and the entire system of bread production," Ghorab added. "But with its latest decision, the government is setting an unrealistic production cost."

The supply ministry puts the production cost of 1050 bread loaves (produced from 100 kilograms of flour) at LE80. Bakeries, meanwhile, assert it is closer to LE120. Bakers are therefore demanding 40 piastres for each loaf of bread rather than the proposed 34 piastres.

"We can't afford these prices," said Ghorab. "We'll take losses."

During the first 100 days of President Mohamed Morsi's term in office last year, bakeries were promised that estimated bread production prices would be increased gradually to some LE100 (per 1050 bread loaves). This did not happen, however, and only the liberalisation plan remained in place.

The government has often accused bakeries of selling subsidised flour on to the black market rather than using it to produce bread.

"Some bakery owners are calling strikes and sit-ins in hopes of seeing the new system fail, so that the old system – which allowed them to sell large amounts of flour on the black market – would be maintained," Nasser El-Farrash, advisor to the supply minister, said recently.

El-Farrash went on to assert that the ministry would nevertheless push through with the new plan.

According to Ghorab, bakery owners plan to hold a meeting on Tuesday to formulate their demands and open talks with the government.

The Egyptian government has traditionally kept local bread prices down by both importing and purchasing massive amounts of locally-produced wheat and supplying state-sponsored bakeries with flour to produce needed quantities of bread.

Local bread prices have remained unchanged since the 1980s due to a policy of frequent government intervention to stabilise subsidised bread prices. Until now, the local price for a loaf of bread remains about 5 piastres.

Last year, several Egyptian governorates suffered temporary bread shortages. Many Egyptians remain unable to buy subsidised bread on a regular basis, since the bakeries that produce it remain uncommon in many rural areas.

Total bread subsidies in Egypt's 2012/13 state budget are expected to reach some LE16.2 billion.

Source: http://english.ahram.org.eg/News/67089.aspx

[Hafiz]

The bakers revolt seems simple but it isn't and like most protests is based on self interest, in this case a lifestyle based (for many) on decades of rorting the Government.

The wheat/bread/flour issues are linked and complicated so bear with me because Its one example of the mess in which Egypt has been left for the current government to fix.

Everyone knows that the Government is going to reform the subsidies on flour to reduce the cost of this program by keeping the benefits only for the poor. Some see this as harsh, others long overdue and likely to reduce waste and corruption.

To understand the current system you just assume what usually happens when you combine crony capitalism with socialism.

Wheat production in Egypt is the biggest farm produce taking c1.3 million hectares. The Government either knows or won't tell of doesn't know wheat production and its import figures are also all over the place - about 10 million tons and falling slightly (the FAO says 11.5). Domestic production increased moderately in 2011/12 to about 8 million tons (unreliable) with 3 million tons of that purchased by the government (the rest traded or retained) under a very expensive program offering a purchase price 1/3rd above international price. Increasing the purchase price to increase production has had only limited success, ignores many other barriers to increased production and is very expensive to government.So the figures are all over the place and lots of money is being spent to limited effect to increase domestic production.

Expanding the production of grains from within Egypt faces a lot of difficulties which won't be solved by higher prices 9and the Government knows this) including the fact that the Government controls the breeding of better wheat seed and can't seem to get its act together, finance difficulties, outmoded production methods, small landholdings, low mechanization etc.

As a result, Egypt is the largest importer of wheat in the world and this is a huge cost to the budget because, unlike other countries, it is the state which does the buying. If you want a darkly funny insight into how well this is done go to the state enterprise which does the buying and which competes in a cut throat market of digital international traders such as Cargill and Glencore. Its website doesn't work but lest you think that they are not diligent the press report that its staff are known for their unprecedented attention to quality and always personally visit all overseas ships at their port of disembarkation to personally inspect the cargo for diseases which do not exist in the exporting country. No other importer or country does this. Tenders for small sales to them have less than 24 hour deadlines which indicates that they may have problems planning ahead. They are also responsible for storage yet storage (c5 months which no one believes) has been an unfixed problem for years. So its fair to say that the purchase and storage of wheat in Egypt is in thoroughly unsafe hands. Its Vice Chairman (good title) has recently been kicked upstairs. http://www.gasc.gov.eg/index_en.htm

These bureaucrats, together with private enterprise mill the wheat which leads me to a complex description of the various grades of wheat and their uses and levels of subsidies (can you imagine the army of bureaucrats required to manage this Rubik's cube of a system).

There are three qualities of milled flour milled. 82% flour (95% of total by volume), 76% flour and 72% flour. The 82% is fully subsidized baladi type flour (66% of all bread sold), the 76% for partially subsidized tabaki bread, and the 72% (the smallest volume of flour by far) for unsubsidized flour for white high quality flat bread and European type bread, biscuits, pastries and pasta. The Government mills most of the 82% whilst the private sector dominates the other two and sells back to the government much of its 82% and 76% production.

Consumption of bread is interesting with subsidies ending up where they shouldn't.

In 2005 2/3rd ‘s of households purchased baladi bread with the richest comsuming the same as the poor.

The poorest households purchase a lot of subsidized flour rather than bread and this mainly in rural areas. In upper Egypt baking bread at home from subsidized flour is by far the practice.

The ration card system and the role of the bakers is where it gets completely out of control.

The number of bakeries in Egypt is huge and therefore difficult to detect fraud – 19,000 baladi, 4,000 tabaki and 2,000 unsubsidized 72% bakeries. I think you'll agree that its impossible to manage such a system.

After the mill the government is the sole seller to bakeries of 82% baladi flour for, at the moment, about 8% of the black market price (and 5% of the government’s purchase price) so its unsurprising that with a 1200% profit in the offing bakers sell about 30% of what they are given on the black market delivering a huge unearned windfall to the baker/dealer, defrauding the government of 100’s of millions $ and limiting supplies to the poor.

I assume that a similar system of black marketeering exists in all other subsidized areas.

76% and 72% flour is (for reasons I don’t understand) can be up to 2/3rd more expensive to produce than 82% and the governments subsidy system for these two is different but still huge and subject to windfall black market rorting.

Ration cards – 75% of the population in 2005 had ration cards with higher numbers (81%) in rural upper and lower Egypt. Eight out of 10 ration card holders have a full ration card. The allocation of ration cards is untargeted with about the same percentage of the most vulnerable having cards as the least vulnerable. The figures are similar for full ration cards. The relatively well off get the same as the poorest. Its gets worse – 70% of those in full time employment have a card whilst only 50% of those in casual employment have one. Forty percent of card beneficiaries included persons who were dead and half the total cards were held by people not entitled who have gained it from within the family or by corrupt means. Young people are half as likely to own a ration card as the very old and middle aged and this seems to be a crude government policy starting in the 1980’s to wind back the program.

I know that this card also covers sugar and cooking oil - so there is misallocation there also but I don't know whether the same card covers vehicle fues, gas etc. If it does you get the picture that a lot is going where it shouldn't.

You can judge poverty in Luxor by the fact that 78% of all households in Upper Egypt own a ration card with 17 out of 20 of these having a full card and, as I've said above, they purchase flour because it is cheaper than baladi.

After all of this, after government agencies roaming the world, governments milling wheat and selling it to bakers at a huge subsidy, after a complicated card program you still have unmet needs as a 2005 World Food Program report showed with 40% of children 6-59 months in Souhag governorate stunted or wasted. Cairo was even worse.

If you were going to change this mess the last thing you would do is to give in to the bakers.

There are similar stories for corn, rice, sugar, cooking oil, fuel, gas, electricity etc. Given programs out of control, huge waste and mismanagement and a betrayal of the poor I doubt the sanity or intelligence of those who want back the regime which designed and put in place this mess.