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Wednesday, 30 March 2022

Does Egypt have the capacity to store more domestic wheat this season amid import disruptions?

Egypt ramped up its domestic wheat purchase targets this season — but how feasible will storing it be? Egypt’s local wheat harvest has taken on new importance in light of Russia’s invasion of Ukraine threatening some 80% of our imports. The two countries are our two top suppliers of wheat, and the war has already impacted our purchases, with state grain buyer GASC canceling two tenders since it broke out. With global wheat markets in disarray, the Madbouly government has shifted its wheat procurement focus inwards, increasing its purchase target for local wheat to 6 mn tonnes — nearly double the 3.5 mn tonnes procured from domestic farmers last year.

With procurement targets set to meet our consumption needs, the next issue to consider is our storage capacity: The government currently has a total of 44 silos, after ramping up storage capacity for the past eight years to add 35 silos to the mere nine we had back in 2014, according to the Egyptian Holding Company for Silos and Storage (EESS). In 2020, Egypt’s wheat storage capacity had increased to north of 4 mn tonnes from 3.6 mn tonnes the year before, marking an 11.1% y-o-y increase. The ramp-up of wheat storage as part of the government’s silos strategy also aimed to cut down on wheat, with an estimated 15% waste rate prior to this strategy.

There are storage alternatives to the government’s silos: Besides our 44 state-owned silos, the government also uses rented silos, hangars, bunkers, assembly centers, grain bins, and wheat procurement centers, which raises our total capacity to 5.4 mn tonnes, according to recent data from the EESS.

And there’s a system in place for storing local + imported wheat: The government usually tones down its wheat imports around the harvest season to avail space for domestic supplies, Hussein Abu Dahab, chairman of Dahab for Food Industries and member of the Chamber of Cereals Industry, told Enterprise. The government then restarts the import cycle once it dips into the local wheat reserves.

Our storage capacity has worked for us — so far: The number of new silos built in the past eight years have so far secured our country’s basic wheat needs and allowed the government to maintain bread subsidies, head of the bakeries division at the Cairo Chamber of Commerce Attia Hamad told us.

But still, there’s a storage gap: Our current total storage capacity still leaves a gap of around 600k tonnes the government plans to procure domestically this season without a clear storage plan — and that’s without accounting for our strategic wheat reserves, which are enough wheat to cover the next four months of consumption and are also occupying a bulk of our storage capacity.

The local harvest is also on course to hit new records this year: Egypt is expected to produce somewhere between 9.8 mn metric tonnes (MMT) and 10.5 MMT of wheat this season, up from 9 MMT during the previous season. The US Foreign Agricultural Service forecasts (pdf) the lower end of that range, while Abu Saddam expects to see the higher end. Farmers were encouraged to increase the cultivated area of wheat this year thanks to the government’s move to hike local wheat procurement prices to EGP 800-820 per ardib, Abu Saddam tells us. Other measures introduced have also led to higher output per feddan, with a feddan now yielding 18-20 ardibs on average, Agriculture Ministry spokesperson Mohamed El Qersh said recently.

Recent incentives could boost supply even further: The government hiked local wheat prices again earlier this month to EGP 865-885 per ardeb, meeting farmers nearly halfway after they had called for an increase to EGP 1k per ardeb to help the industry cope with inflation and meet production targets. The government also applied a minimum selling quota to the state of 12 ardibs of higher quality wheat per feddan, and a ban from selling the rest of their crop to other buyers, or transporting the grain, without a license from the Supply Ministry. Those who sell 90% or more of their wheat to the government will also receive subsidized fertilizers for summer planting, while those who flout the rules risk jail terms of one to five years and a fine of up to EGP 1k.

The good news: The private sector is about to step in and help ramp up storage. The Finance Ministry recently launched a tender for companies to provide grain storage space in a public-private partnership, with a first phase seeing Orascom Construction, Samcrete, and Hassan Allam awarded the contracts to establish four warehouses in Sharqia, Suez, Fayoum, and Luxor, with EGP 3.2 bn in collective investments, PPP framework unit head Atter Hannoura said. The contracts will be signed within weeks, after which the ministry will begin preparations for a second tender with an eye to launch it later this year, he told us.

And there are more government silos in the pipeline for the next two years: EESS announced plans late last year to invest EGP 600 mn in building five silos over the next two years. The government could also move to rent more silos from the private sector, which could allow it to get enough storage for 6 mn tonnes of wheat, Abu Saddam told us.

The introduction of agrotech in the sector is also helping storage efficiency: The government recently teamed up with IBM to automate 22 wheat silos to increase supply chain efficiency in the first effort we’ve seen to introduce agrotech to the sector. The project aims to equip the silos with AI-powered software to automate and provide real-time data on processes relating to shipping, transport, storage and supply of the wheat silos, ultimately helping eliminate waste and optimize our reserves.

Your top infrastructure stories for the week:

  • France is lending us EUR 777 mn for the Metro Line 1 revamp: The 55 new trains for Cairo Metro Line 1 being supplied by French manufacturer Alstom will be partly funded through an EUR 776.9 mn loan from the French government.
  • Battery-powered trains: US firm Wabtec wants to supply Egypt with the world’s first battery-powered electric freight trains.
  • The Central Bank of Egypt has launched a national digital payment app, InstaPay, which provides instant and secure payments between Egyptian banks, Meeza cards, and mobile wallets via its new nationwide instant payment network (IPN).

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