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Sunday, 31 October 2021

Supply Ministry downplays potential for bread subsidy cuts as global wheat prices rise

Bread prices may rise, but it will “take time”: The government is playing down the likelihood of an imminent increase in the price of subsidized bread amid rising global wheat prices, with Supply Minister Al El Moselhy telling reporters on Thursday that it “will take time” for the government to set a new price, Reuters reports.

Price rises were signposted in August by President Abdel Fattah El Sisi, who suggested that the government would make a “modest” reduction to bread subsidies for the first time in a generation without providing further details.

The Supply Ministry has been working on a plan to cut subsidies, which will be sent to the cabinet for approval when ready, the ministry’s spokesperson said at the time. Bread is currently sold for EGP 0.05 per loaf but costs EGP 0.6-0.65 to produce.

Vegetable oil subsidies will be cut for the second time this year: From 1 November, the price of a liter of cooking oil will increase from EGP 21 to EGP 25 for ration card holders, while the 800 ml bottle will jump from EGP 17 to EGP 20, El Moselhy said.

Rising wheat costs this season are posing an increasing problem to importers, especially Egypt which is the world’s largest importer of wheat. A convergence of factors, including reduced crop production in some of the world’s biggest producers, higher shipping costs, and trade tariffs, have pushed up global prices to highs not seen for a decade.

Mixed signals: The spiralling prices are putting Egypt’s public finances in a precarious position, according to Moselhy, who told Ala Mas’ouleety last night that the country’s budget deficit will widen and inflation will rise if subsidies are left unchanged (watch, runtime: 9:09). Despite the pressures on the state budget, he downplayed the potential for subsidy cuts, telling show host Ahmed Moussa that he does not think the price will be moved “in the near future” (watch, runtime: 5:59).

Egypt is looking to hedge to insulate itself from rising prices: The government is in talks with Citigroup to take out hedging contracts to reduce its exposure to wheat prices and minimize pressures on its finances as commodity prices continue to climb, he told Bloomberg. The ministry also wants the finance ministry to purchase contracts for vegetable oil price increases, he added. Commodity subsidies currently make up EGP 87 bn of the ministry’s budget, the minister said. Of that, EGP 51 bn is earmarked for bread subsidies for 71 mn Egyptians, while the remaining EGP 36 bn are funneled towards other commodities serving 64 mn people.

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