After Russia Invades Ukraine, Egypt Looks to Diversify Sources for Wheat  

G7 ambassadors in Cairo note vital trade is threatened by ‘needless war’

(CAIRO) The impact of Russia’s invasion of Ukraine extends far beyond Europe’s borders. Ukraine has been dubbed the breadbasket of Europe, but Middle Eastern countries also have become extremely dependent on Ukrainian wheat exports.

The price of wheat has risen to $11.26 per bushel, or about $414 per ton, for the first time since 2008, up from $7.50 per bushel, or about $267 per ton, on February 3, 2022. Egypt requires 18 million tons of wheat annually. In 2021, it imported 50% of its wheat from Russia and 30% from Ukraine.

On Tuesday, a statement issued by the ambassadors of G7 countries in Cairo, titled “We Must Stand with Ukraine,” urged Egypt to vote in favor of the United Nations resolution condemning Russia. The statement said that “Egypt is already suffering because of Russian aggression. Egypt is the largest wheat importer in the world, and Ukraine is one of the largest suppliers. Now, this vital trade is threatened by needless war, inflicted upon Ukraine by Russia. Russia’s war of aggression means wheat prices and foodstuff prices will rise across Egypt and across Africa.”

On Sunday, days after the outbreak of the Russo-Ukrainian war, Egypt’s President Abdel Fattah el-Sisi met with his country’s minister of Supply and Internal Trade and told him to maintain the continuity of the state’s reserves of basic food commodities and to monitor their market prices, especially those listed on the ration cards that provide subsidies to families.

According to estimates by the Ministry of Supply and Internal Trade, the Egyptian government will be able to purchase 5 million tons of wheat from local production this year, compared to 4 million tons the previous year.

“The Ministry of Supply and Internal Trade has a safe strategic reserve of basic commodities, including wheat. The average reserves of basic food commodities for Egypt are estimated at six months. The reserves of wheat exceed four months. In addition, the wheat harvest season is approaching, beginning in April. We expect this harvest to yield up to five million tons of wheat,” Ibrahim Ashmawy, first assistant minister of Supply and Internal Trade and head of the Internal Trade Development Authority, told The Media Line.

“For this reason, we say that we have a safe stockpile that will take us to the end of 2022,” Ashmawy said, adding that “we have increased the storage capacities.”

Ashmawy confirmed that storage capacity for wheat reserves increased from 1.2 million tons to 3.4 million tons, and the ability to reduce waste from wheat decreased from 15% to 3%.

The Egyptian government agreed to buy wheat from the local market at a price of 5,500 Egyptian pounds per ton, or about $347, an increase of 95 pounds, or $6 over the purchase price in the previous year.

Ashmawy noted that, in Egypt, wheat consumption is about 182 kg of wheat per year per person, while in other countries it does not exceed 72 kg.

“Among the alternative countries to Ukraine and Russia are Romania, the US, and Kazakhstan, so there is no concern as there is more than one safe alternative to provide wheat in Egypt,” Ashmawy said.

The Egyptian Center for Strategic Studies (ECSS) warns that the danger of food insecurity and escalating economic pressures may fuel popular anger within fragile Arab countries, exacerbating existing political turmoil. It also will heighten the deteriorating humanitarian crises in countries such as Yemen and Lebanon, whose populations are struggling to access food. These countries may be unable to meet the increasing needs, especially since international funding for humanitarian aid and reconstruction is already suffering.

“One of the negative effects of the global food crisis on the Egyptian economy is raising food import bills, particularly wheat, given the widening gap between demand and local production, while Egypt’s food imports account for 20.7% of total merchandise imports. Therefore, the rise in food prices may increase the non-oil trade balance deficit amounting to $42.1 billion in the last fiscal year. The increase in the import bill will weigh heavily on Egypt’s cash reserve,” Basant Gamal, a researcher at the Economics and Energy Studies Unit at ECSS, told The Media Line.

According to data from the Central Bank of Egypt, the cash reserve at the end of January amounted to nearly $41 billion, and the inflation rate rose in January 2020 to 7.3%, compared to 5.9% in December 2021.

“Another negative effect is the rise in inflation rates, while food and beverages account for 35.87% of Egypt’s consumer price index. Therefore, a global rise in food prices will likely affect local food prices, due to ‘imported inflation’ which arises due to the country’s dependence on imported goods and services,” Gamal said.

The Egyptian government was aiming to reduce the total deficit in the state’s general budget, as the draft budget for the fiscal year 2021/2022 set the price of wheat planned to be imported at a value of $255 per ton, compared to $193.80 per ton during the previous fiscal year, an increase of $61.20.

This may be a lesson for Egypt and Arab countries, that we have to balance purchases, so that we can always diversify and secure supplies permanently if there are conflicts

The cabinet did well when it took a decision to diversify sources of wheat, grains and various types of food and not to rely on a single source,” Nader Noureldeen, adviser to the former minister of supply at the Supply Commodities Authority, and professor in the Faculty of Agriculture at Cairo University, told The Media Line.

Egypt, like most Arab countries bordering the Mediterranean, has depended on the Russians and Ukrainians to import 80% to 90% of its needs. The war between Russia and Ukraine has led to the closure of Ukrainian ports. And shipping companies now consider Russian ports to be conflict zones, which has led to an increase in insurance fees. Thus, the Russo-Ukrainian war has caused the suspension of all imports from Ukraine and a rise in the prices of others imported from Russia.

Egypt’s General Authority for Supply Commodities was forced to cancel two tenders to purchase wheat in recent days due to the lack of offers and high prices. Among the offers was a bid of French wheat at $429.22 a metric ton including freight, even though sanctions did not target Russian wheat directly.

“This may be a lesson for Egypt and Arab countries, that we have to balance purchases so that we can always diversify and secure supplies permanently if there are conflicts,” Noureldeen added.