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Egypt inches toward far-reaching food subsidy reform

Egypt inches toward far-reaching food subsidy reform

Despite spending close to $5.5 billion a year on food subsidies, Egypt remains criticised for encouraging waste and distorting agriculture. Looming elections make fate of any reforms uncertain.

October 1, 2011 1:21 by



Egypt, once the breadbasket of the ancient Roman empire and now the world’s biggest wheat importer, is paying a hefty price to keep its citizens fed with cheap loaves and other foodstuffs.

The $5.5 billion which it spends each year on food subsidies, mostly on wheat, is a burden that it can ill afford as the economy falters and the budget deficit balloons after the uprising that ousted president Hosni Mubarak in February.

But the financial pressure is not the only cost of the subsidy system; subsidies have distorted Egypt’s agriculture. Bread is so cheap that it is sometimes used as animal feed. A focus on imports has led to neglect of farms at home. Produce often rots before it ever reaches market.

DEEP DIVIDE BETWEEN RICH AND POOR
Now the country’s post-Mubarak government is inching towards far-reaching reforms of the system. No one talks of scrapping subsidies altogether — the uprising against Mubarak was partly fuelled by anger at the deep divide between rich and poor. But experts say the financial burden could be reduced and cash more usefully spent on strengthening the agriculture sector.

“We need a radical shift in the way we deal with our bread subsidy system,” Social Solidarity Minister Gouda Abdel Khaleq told a seminar this month on food security in Egypt. His ministry is in charge of the country’s main wheat buying organisation and other bodies that handle subsidised foods, though any reform will also need input from the finance and agriculture ministries.

More than three quarters of Egypt’s 80 million people can buy, via their ration cards, saucer-sized flat loaves of 130 grammes at 5 piasters (less than 1 US cent) each. Abdel Khaleq said this system was unsustainable.

In the fiscal year ended on June 30, the government spent about 33 billion Egyptian pounds ($5.5 billion) on wheat, sugar, rice and food oil subsidies. It forecasts a budget deficit of 8.6 percent of gross domestic product for the current year, and analysts say it might exceed that level.

HOPELESS SITUATION
“It is like someone climbing to the top of the Cairo Tower, sticking their tongue out and jumping,” Abdel Khaleq, who joined the army-appointed government from a party with Socialist roots, said of the subsidy system, referring to an iconic building in the centre of Egypt’s capital.

Few dispute the need for change. But tampering with the system, set up in the 1950s by president Gamal Abdel Nasser, is tricky. In 1977, president Anwar Sadat’s bid to raise bread prices led to riots. Mubarak also faced protests in 2008 over shortages.

Even before Mubarak’s ouster the government talked about subsidy reform, but it made little progress. A plan to set up a voucher system for butane cooking gas cylinders, so that only the most needy could buy the most heavily subsidised cylinders, was due to be implemented before the uprising. It was postponed and the current, army-backed government has now said a trial scheme will start in October.

Anything which the current government does to change food subsidies will be liable to reversal. Parliamentary elections, to be held in stages, are due…
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