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Egypt’s wheat procurement prices short of farmers’ expectations

CAIRO: Local wheat procurement prices for the new season would not be less than LE 300 per ardab, local press reports quoted Minister of Agriculture Amin Abaza as saying Monday. Experts say the new price, which is 20 percent more than last season’s — at between LE 240-260 — fails to provide sufficient incentives for …


CAIRO: Local wheat procurement prices for the new season would not be less than LE 300 per ardab, local press reports quoted Minister of Agriculture Amin Abaza as saying Monday.

Experts say the new price, which is 20 percent more than last season’s — at between LE 240-260 — fails to provide sufficient incentives for farmers to boost wheat cultivation to plug the growing gap between supply and demand.

According to Ahmed Abdel Ghani, senior analyst at Cairo-based investment firm CI Capital, the new price will do little to encourage farmers to produce wheat, as their expectation sits higher at LE 350 per ardab.

As a result, he explained, farmers will choose to produce other crops in lieu of wheat, consumer staples such as beans able to command a higher price at the international level.

At a cost of LE 2,000 per feddan, wheat will be too expensive to cultivate, CI Capital highlighted in a note.

Asked whether the price demanded by local farmers was reasonable, Ghani confirmed that it was, noting that the price of fertilizers has grown markedly each year, thus driving up the cost of production.

Egypt, which is the world’s largest importer of wheat, consuming 14 million tons per year, is only able to produce enough to meet 50 percent of local demand.

Such a dynamic has increasingly placed the Arab world’s most populous country in a vulnerable situation and jeopardizing its food security environment, as well, explained Magda Kandil, executive director and director of research at the Egyptian Center for Economic Studies.

In Kandil’s eyes, last August’s wheat crisis demonstrated the weak links of Egypt’s food security armor.

Russia, the region’s top exporter of wheat, experienced a severe drought, which decimated grain production in the country, resulting in a ban on export shipments to ensure sufficient domestic supplies until the situation had been resolved.

The outcome of the ban left Egypt, one of Russia’s top export destinations, scrambling to diversify its suppliers.

Due to the persistent internal shortfall, foreign producers, most notably France and the United States — traditionally its second and third biggest providers, were able to guarantee Egypt’s demand.

Kandil argues that simply believing that farmers will begin shifting focus on other crops as an adequate solution to the wheat problem ignores the core issue at play.

She explained that the root of the problem continues to be the government’s subsidy system for wheat, in which the government procures wheat from producers at a guaranteed, stable price. To date, this price has been insufficient in motivating Egyptian farmers to produce enough wheat for local consumption. As a result, domestic supply has been consistently falling short of local demand.

The government’s decision to raise the procurement price for wheat to LE 300 per ardab, which was taken as a measure to stem this ongoing problem, is in Kandil’s view, “a step in the right direction toward eliminating the distortion,” but still falls short.

“The current situation is not sustainable, and the subsidy system is economically inefficient” she warned. To truly eliminate the distortion, she continued, the supply of wheat produced locally must rise.

As the price of flour is subsidized — due to the pre-determined wheat procurement price — it results in a situation of excessive consumption, and an undervaluation in the price of baked goods, such as bread, a major consumer item, she said.

To resolve this dilemma, Kandil believes that a complete reform of the subsidy system is called for, adding that farmers must be provided with further incentives to grow wheat, and that the subsidies should be targeted with higher precision to ensure that they reach those who truly need them.

Such a reform, she stated, would result in economic savings for the government, which would provide it with newfound resources to redirect to other services and subsidies to tackle equally pressing obstacles.

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https://dailyfeed.dailynewsegypt.com/2010/10/19/egypts-wheat-procurement-prices-short-of-farmers-expectations/
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