Thursday,19 July, 2018
Current issue | Issue 1312, (22-28 September 2016)
Thursday,19 July, 2018
Issue 1312, (22-28 September 2016)

Ahram Weekly

Wheat for citrus?

Egypt’s restrictive policy on wheat imports is leading to multi-million dollar losses in agricultural exports to Russia, reports Sherine Abdel-Razek 

Al-Ahram Weekly

For the third time in a month, the General Authority for Supply Commodities (GASC), the state-run wheat buyer, canceled a tender to buy wheat on Monday as it had received no offers. Traders abstained from participating because Egypt decided at the end of August to reinstate the zero-ergot specifications on imported wheat shipments.

In what the traders saw as a retaliatory measure, Russia then decided to temporary suspend imports of fruit and vegetables from Egypt from 22 September. “We are talking, among other things, about citrus fruit, tomatoes and potatoes,” Yuliya Shvabauskene, deputy head of Russia’s food safety watchdog Rosselkhoznadzor, told the Interfax news agency.

The ban was being imposed due to insufficiencies in the work of the Egyptian phytosanitary system, she said, adding that quarantined items had been found in Egyptian supplies many times this year.

“Through the last seven or eight years we as exporters have had several discussions and sometimes arguments with Moscow about import specifications related to vegetables and fruit. The Russian side sometimes tightened the regulations governing the imports of certain crops, but things never escalated to reach the point of banning exports. I think they are retaliating for the ergot ban,” said Hisham Al-Naggar, a fruit and vegetable exporter.

Russia has a history of using threats and limiting imports in trade disputes. An Egyptian delegation will visit Russia next week to discuss possible ways of dealing with the dispute.

“The dilemma we are facing comes from the fact that the ministry of agriculture did not bother to discuss its decision or its repercussions with officials from the ministries of trade and supply,” said Mustafa Al-Nagari, secretary of the Agricultural Exports Council.

“For example, it should have discussed it with the Ministry of Supply to make sure it would not affect the supply of wheat for the national subsidised bread programme.”  

Egypt imports around 10 million tons of wheat per year to cover the needs of the programme. The Ministry of Supply said at the end of August that it had enough stockpiles to meet demand for more than six months

“There should also have been a plan to deal with the import contracts finalised before the ban was introduced,” Al-Nagari said.

Applied retroactively, the new rule will affect hundreds of thousands of tons that have yet to be shipped. The sales were originally agreed under a rule allowing 0.05 per cent ergot, a common international standard for the presence of this fungus that can affect wheat.

Egypt has rejected two cargoes from Romania and Russia over the last three weeks. Several Russian cargoes suspected of containing trace levels of the fungus have been held at Russian ports, awaiting a decision from Cairo over whether to allow them to pass under the old rule, traders told Reuters.

Romanian agricultural trader Cerealcom has asked Egypt to return about $500,000 it put down as a guarantee on wheat supplies it can no longer ship due to a dispute over the level of ergot fungus.

According to Bloomberg, Cerealcom’s vessel was twice loaded with different stockpiles, but Egyptian inspectors refused them in both cases. The trader refuses to proceed with the shipment.

Russia has had its largest wheat crop in post-Soviet history this year, and export prices of Russian wheat are under pressure due to the Egyptian ban. According to Bloomberg, wheat for loading at Black Sea ports dropped to a one-month low of $167 a metric ton recently.

Egypt is the largest wheat importer in the world and one of the main consumers of Russian wheat. In 2015/2016, Egypt imported six million tons of Russian wheat, equivalent to a quarter of Moscow’s total wheat exports for the year.

Meanwhile, Russia is the second most important market for Egyptian fruit and vegetable exports after Saudi Arabia. It bought around $150 million of Egyptian citrus products in 2015, about 13 per cent of its total citrus imports from across the world.

“If the wheat ban continues, we are talking about lost exporting opportunities of vegetables and fruit of almost $250 million. The loss is huge, bearing in mind that the cost of cultivating these crops this year was high as pesticides and fertilisers were more expensive due to the dollar shortage in Egypt,” Al-Naggar said.

The real loss will not be just to the 20 or 30 exporters who export to Russia, he said. Instead, it would affect millions of Egyptian farmers whose harvests won’t find markets to sell in.

“The point is that we export certain categories of produce to Russia that do not fit the local taste, and these represent 20 per cent of imports. We use large-sized potatoes, for example, and export small ones to Russia,” Al-Naggar explained.

The way out is to deal with the problem in a diplomatic way. “We need the Russian wheat as much as they need our market, so let us make the deal a win-win situation,” Al-Nagari commented.

“If we wanted to upgrade the quality of our imports, we should have acted differently. We can adopt the 0.05 per cent ergot rule, but we should call for certain measures in both their ports and our mills to make sure it is processed in a way that makes the ready-to-be milled wheat free of the fungus. All this is doable,” he added.

“Let us learn from the way Russia and Europe dealt with the problem of brown rot in potato exports. They did not ban them, but worked with us to put regulations in place to make sure they got the best produce. They applied restrictions on the areas where the to-be-exported crops were cultivated to make sure they would not be contaminated by bacteria,” for example.

 “We are not going to participate in the tenders until Egypt forgets about this unusual law requiring zero ergot,” Mihai Andrei Anghel, responsible for international trade at Cerealcom, told Bloomberg.

He added that Cerealcom was unsure if it would go back to participating in the tenders if Egypt went back to accepting international standards “as the country is constantly changing its rules,” he said.

Timeline of controversy

December 2015: A 63,000-ton shipment of French wheat sold by Bunge to Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC), is rejected by the Agriculture Quarantine Authority for containing trace levels of ergot.

January 6, 2016: Egypt’s quarantine head, Saad Moussa, says the Authority is applying a zero-tolerance ergot policy despite the Ministry of Supply and GASC stipulating 0.05 per cent tolerance.

January 14, 2016: The Ministry of Supply insists it will keep its 0.05 per cent tolerance level for ergot.

January 31, 2016: GASC confirms Bunge’s French wheat shipment has been rejected, saying it contained an ergot level higher than 0.05 per cent. Bunge denies this.

February 3, 2016: Egypt’s Agriculture Ministry says it will accept 0.05 per cent ergot in wheat shipments, while the quarantine authority, an agency that falls under it, says anything above zero will be turned away.

February 7, 2016: After two GASC purchase tenders are cancelled due to low turnout, Egypt seeks to reassure the global market. The supply and agriculture ministries stress they will adhere to a 0.05 per cent ergot level.

February 9, 2016: Bunge launches legal proceedings against GASC.

February 17, 2016: Under mounting pressure from trader boycotts of its purchase tenders, GASC distributes a letter to suppliers from the Agriculture Ministry stating it will adhere to a 0.05 per cent tolerance level.

March 2, 2016: Reuters reveals agricultural quarantine continues to apply zero tolerance in part because of an old decree governing it that calls for zero ergot. That is at odds with a separate regulation, used by GASC, that allows 0.05 per cent.

March 6, 2016: Egypt replaces Moussa, the head of the Agriculture Quarantine Authority and the man who strictly applied the zero-tolerance policy. Ibrahim Imbaby replaces him.

March 7, 2016: Egypt’s Agriculture Ministry says it has assigned an expert from the Food and Agriculture Organisation (FAO) of the United Nations to conduct a risk assessment on ergot in order to bring the country’s laws into harmony.

March 8, 2016: Imbaby says he will, like his predecessor, apply a zero-tolerance policy until a new law is passed.

July 4, 2016: A decree is passed by the Agriculture Ministry allowing quarantine to accept 0.05 per cent ergot.

July 13, 2016: The Agriculture Ministry reveals that an FAO study concluded ergot is not a threat to Egyptian crops, but says the decision can be amended if future studies indicate harm.

August 25, 2016: Egypt’s supply minister, Khaled Hanafi, who had defended the 0.05 per cent policy, resigns on the back of a wheat corruption scandal.

August 28, 2016: Egypt’s Agriculture Ministry imposes a new decree reinstating the total ban on ergot. The ministry cites a locally conducted follow-up study that finds the fungus to be a threat to Egyptian crops.

August 31, 2016: GASC changes its tender specifications, bringing them into line with quarantine’s zero-tolerance policy on ergot for the first time. Global suppliers stage a boycott and GASC is forced to cancel a tender.

September 5, 2016: Egypt’s Health Ministry adopts a zero-ergot stance, bringing all three ministries that oversee the policy in line for the first time and making it harder for GASC to backtrack.

September 7-9, 2016: Egyptian inspectors reject a 63,000-ton Romanian wheat shipment at its port of origin for trace levels of ergot even though the cargo had been contracted under the old ergot rules. It is the first cargo rejected at its port of origin.

September 16, 2016: GASC cancels its second consecutive wheat tender after failing to receive any offers and as a 60,000-ton Russian wheat shipment is rejected at Novorossiisk after weeks of inspection.

September 16, 2016: Russia says it will ban imports of fruit and vegetables from Egypt from September 22, apparently in retaliation for held-up shipments of Russian wheat.

September 19, 2016: GASC holds its third wheat tender under the zero-ergot rules even as suppliers insist they will not make offers. Traders speculate the failed tenders are a strategy for GASC to convince the government to overturn the zero-tolerance policy as grain reserves come under pressure.

(source: Reuters)

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