FAO.org

Egypt could reduce its import bill for wheat by attracting private sector investment in critical segments of the strategic value chain that turns cereals grown elsewhere into the country’s main staple food, according to a recently published study by FAO and the EBRD.

Egypt has the largest population in the Arab world. It is by far the largest importer of wheat globally, and its per capita consumption of wheat is amongst the highest in the world. For centuries, bread has been the main staple food in the national diet. Moreover, as a central and economical foodstuff for most of the population – a quarter of whom live below the poverty line – wheat is also a commodity which requires very cautious public policies.

Involving the private sector

The importance of wheat to the country’s population has prompted the mobilization of massive budget support. For instance, the government has put in place a popular program that provides flat bread called Baladi to 65 million Egyptians – three quarters of all people in the country - at a highly subsidized price. The authors of the study emphasize that there is scope for reducing inefficiencies in the grain value chain, which would result in net gains for the economy and for the Egyptian budget.

More private sector investment in key logistical infrastructures such as port handling or storage facilities is one of the main recommendations of FAO and the EBRD to help solve the significant waste issue that characterizes the grain sector. At any rate, more dialogue is needed between public authorities and the grain industry, to ensure that each part can best contribute to improving the country’s food security equation. To facilitate this dialogue, the report advocates for the establishment of an independent association of grain storage and trade companies.

“A more active dialogue between the private sector and the government would do much for the development of Egypt’s wheat industry and address phytosanitary, import tender processes and other issues,” said Dmitry Prikhodko, Economist at FAO’s Investment Centre. “In order for this dialogue to be effective, the private sector should also speak one voice and that’s why an association representing the interests of the private sector would be helpful.”

Reducing import costs through greater involvement of the private sector in building and managing storage facilities

A shift towards wheat import infrastructures owned and managed primarily by the private sector could lead to considerable savings. The study suggests moving to modern, privately built, silo storage rather than the current flat storage system, also called Shona, which induces significant losses due to the wheat being exposed to pests and rodents. Because private sector storage is generally used for more than one commodity and run more efficiently, with far fewer employees, it is able to achieve a higher throughput of commodities and provide storage at a lower cost. Modern silos might be more expensive, but the switch could lead to over USD 43 million in savings per year, ensuring a quick return on investment and lower costs to the Egyptian budget.

Building trust through dialogue

One of the goals of launching an effective public-private dialogue on grain policies is improving trust between government and private grain operators.  More open and sustained discussions between the General Authority for Supply Commodities (GASC) and the private sector could help alleviate current trade-related issues, while ensuring that imported wheat meets GASC import requirements. That’s especially relevant in the wake of the controversy over Egypt’s recent demand that wheat imports be completely free of ambrosia or ergot, which suppliers say are impossible conditions to meet.

To foster such a dialogue, two technical workshops on trade inefficiencies were already organized in Cairo by FAO in 2015, which gathered representatives of GASC, other public sector bodies as well as private companies involved in grain supply, to discuss possible steps for enhancing the efficiency of the grains import chain. Amongst these, removing redundant GASC grain shipment inspections and aligning phytosanitary requirements for the presence of ambrosia seeds in wheat shipments were identified as priorities, as they can lead to important savings along the grains import chain. The Wheat Sector Review estimated the cost of current GASC inspections at the port of loading at USD 0.68 per tonne, while private local companies could execute the task for USD 0.2 per tonne. In addition, it has been estimated that the current rule that requires wheat shipments to be free from seeds of ambrosia (a widespread and common invasive weed) could lead to additional costs of up to USD 12 to USD 15 per tonne due to demurrage, sieving and additional storage costs that might be incurred. The cost of ergot regulations were not considered as it had not been reported as a problem at the time of report preparation.

Another area of improved communication would be the publication of regular information on the baladi bread programme, such as the volume of monthly flour deliveries and bread demand. Yet another area of increased transparency would be the publication of domestic wheat production, procurement and consumption data, as well as forecasts which is also in line with Egypt’s participation in the MED-AMIN network launched in early 2014 by CIHEAM with the aim of ‘fostering cooperation and experience sharing among the national information systems on agricultural markets’, in tight cooperation with AMIS (the Agricultural Market Information System).

Opening channels for change

The publication of the FAO/EBRD study is part of an overall effort to improve public private dialogue in Egypt’s wheat sector. It is an ongoing process and FAO and EBRD are working diligently to see it through.

“The private sector can play a greater role in supplying wheat to the Egyptian consumers at a lower cost, for the benefit of all” stipulated Iride Ceccacci, Food Security Economist, further adding that “by opening channels of dialogue, we are linking actors from both spheres who have the knowledge and resources to create a more efficient wheat supply chain.”

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