Ending flour subsidies saves LE8B: Supply Ministry

CAIRO – 13 July 2017: Halting flour subsidies will save Egypt LE 8 billion ($447 million) from its 2017-2018 food subsidy bill, set at LE 85 billion, spokesperson of the Supply Ministry Mohamed Sewed said Wednesday.

The Ministry of Supply issued a decision on Wednesday to stop subsidizing flour for its bread subsidy program starting August, in an effort that is expected to reduce wheat imports by 10 percent. The move aims to avoid smuggling flour outside the subsidies system.

Under the new decision, the General Authority for Supply Commodities (GASC) would sell wheat to mills at market prices, which will later sell flour to bakeries at market prices as well.

Consumers, however, will still get bread at a subsidized price of at 5 piasters per loaf.

The official decree no. 22/2017, issued by the Ministry of Supply, stated that any bakery that would violate the law by obtaining flour quantities and selling it outside the subsidies system will be liable to pay a fine at a double value of the quantity it sold.

Other violations stipulated in the decree were selling bread at higher prices or closing the bakery without notifying the ministry to halt flour allocations to it.

Penalties for these violations vary from fines to closure of the outlets for a period ranging from one month to one year, depending on the size of the violation.

While the ministry is selling each loaf of bread at LE 0.05, it costs the state between LE 0.55 to LE 0.60, calculating the production cost of bread endured by the bakeries.

In order to ensure the effectiveness of the new decision, bakeries should repay the flour value to the government-run mills before selling bread to citizens, head of the general division of bakeries at the Federation of Egyptian Chambers of Commerce (FEDCOC) Abdullah Ghorab told Egypt Today.

The government should also pay bakeries the production cost before they sell the bread to citizens, Ghorab added.

The decision comes in favor of bakeries’ owners who have been suffering losses over the past few months because of increased production costs following the flotation of the Egyptian pound, head of Cairo Bakeries Chamber Attia Hammad said.

In fiscal year 2016/2017, wheat imports registered 5.58 million tons, up from 4.4 million tons in the previous year.

In a meeting with the FEDCOC last week, Minister of Supply Ali el-Meselhi discussed the cost of production inputs and the profit margins for bakeries.

The attendees agreed that the cost of producing 100 kg of flour, which produces 1,250 loaves of bread, will be LE 180 ($10), as the Supply Ministry will incur the latest hikes in diesel prices.

Meselhi promised that the new production cost will come into effect as of August, stressing on the importance of abiding by the quality standards when producing the baladi bread.