Egypt's Russian wheat dispute shakes world grain market

Region Egypt, the world's largest importer of wheat, is locked in a quality dispute with Russian suppliers that could harm the north African country's food security.

Egypt will buy an estimated 8 million tons of wheat in 2009/10 to meet annual consumption of 16 million tons.

CAIRO // Egypt, the world's largest importer of wheat, is locked in a quality dispute with Russian suppliers that could harm the north African country's food security, evoking memories of violent food riots in the 1970s. Egypt will buy an estimated 8 million tons of wheat in 2009/10 to meet annual consumption of 16 million tons; the scale of Egypt's purchases are significant to the world grain trade, and uncertainty over the dispute has caused confusion on global markets. The dispute, which has sparked Parliamentary debate on a food safety bill and resulted in tightening of quality controls on imported wheat, has seen the price of Russian wheat steadily closing the gap with grains from other nations. Since the controversy began in early May, it has also captured the attention of a public buffeted by food scandals and a government still smarting from bread riots last year. Bread is considered a national security issue in Egypt, where a 17 billion Egyptian pound bread program feeds around three quarters of the country. As the Egyptian government seeks to reduce the cost of its subsidy program, cheap Russian grain has been steadily displacing more expensive French and American grains. Of the 8 million tons Egypt is expected to buy this fiscal year, 6 million will be dedicated for the subsidy program. Around 50 percent of this comes from Russia. In this context Russia views the dispute - and the quarantine of several Russian wheat shipments - as simply an attempt by Egypt to lower prices. "All grains we ship to Egypt fully correspond to conditions, including grade and quality, specified in export contracts," said Arkady Zlochevsky, head of Russian Grain Union to Reuters. "The problem is not the quality, but an attempt to play with prices." If this had been Egypt's intent, the opposite has occurred. Grain trading houses have built the uncertainty arising from the dispute, and new quality regulations, into the price of Russian grain. Egypt's last purchase of Russian wheat early August saw the country pay US$176 per ton, just under the $178.96 it paid for French wheat. For the Egyptian public though, the controversy is not about quality so much as the whiff of government corruption that has emerged since the first Russian shipment was impounded back in May. "My personal assessment is that there is a conspiracy between the commodities' authority and other governmental entities," says independent MP Mostafa Bakry. It was Mr Bakry who first discovered that a Russian wheat shipment had entered the country despite being rejected by agricultural quarantine. "I do not think that this is a one off incident, I'm sure it happens repeatedly but it doesn't get caught or publicized," says Mr Bakry. The conspiracy theory, ever popular in a country rife with corruption, has been given steam by a widening criminal investigation that has seen the head of Egyptian Traders - owner of the shipment that started the controversy - arrested, and four members of the state wheat purchasing agency suspended from office. The government has responded to growing public pressure. Minister of Trade and Industry Rachid Mohamed Rachid backpedaled on an earlier announcement that there would be no changes to quality measures, declaring stricter controls on wheat imports, including new requirements for certificates of inspection at point of origin issued by the exporting state. At the center of the dispute are quality certificates issued by a cargo inspector and allegedly forged by Egyptian Traders. In a market facing global oversupply, Russia and its main competitor in Egypt France, were quick to agree to the new requirements. Despite the widening investigation and public outrage, the controversy is unlikely to see Russia displaced as Egypt's most important source of wheat. While Egypt has increased its intake of French wheat since the dispute began, it has also purchased 90,000 tons from Russia. And with the price of Russian wheat predicted to fall to between US$112 and US$99 per ton over the next two years, and Egyptian demand to grow to 9 million tons over the next five, there is little chance the cash-strapped country will find alternative suppliers in the medium-term. Business@thenational.a