Wednesday,22 November, 2017
Current issue | Issue 1353, (20 - 26 July 2017)
Wednesday,22 November, 2017
Issue 1353, (20 - 26 July 2017)

Ahram Weekly

Streamlining bread subsidies

The government is to make sure funds earmarked for bread subsidies are efficiently spent, reports Mona El-Fiqi

Streamlining bread subsidies
Streamlining bread subsidies

The Ministry of Supply and Internal Trade announced last week that starting in August this year the production of subsidised bread will take place at market prices, with the state later intervening to make up the difference to bakeries obliged to sell their bread at subsidised rates. 

This decision aims at tightening the food subsidy bill, reducing waste and curtailing the smuggling of subsidised flour. Under the new system, bakeries will buy flour at market prices upfront and after producing and selling their bread to ration-card holders according to government criteria will be compensated for the shortfall in production costs.  

Subsidy card holders can currently buy loaves for LE0.05 each, less than a 10th of the real cost of production, using an electronic smart card that gives a maximum of five loaves of bread a day to card holders. 

The real production cost of bread is currently estimated at between LE0.55 and 0.6 per loaf, according to government figures.

Mohamed Sweed, a spokesman for the Ministry of Supply and Internal Trade, said that the government was committed to providing bread at the same price for ration-card holders. The round baladi bread has been sold at LE0.05 per loaf since 1989.

Sweed explained that the new measure would remove incentives to smuggle flour and prevent corrupt bakeries from selling subsidised flour on the black market, costing the government millions of dollars in wasted subsidies.

By cutting down on waste the move is expected to save around LE8 billion from the country’s food subsidy bill, estimated at LE85 billion in 2017/2018, according to Sweed.

Wheat used for producing bread represents a significant part of the food subsidy programme, and Egypt is the top wheat importer worldwide. Imports of wheat by the General Authority for Supply and Commodities reached 5.5 million tons in 2016/2017, compared to 4.4 million tons the previous year. 

According to government estimates, the new decision will help cut wheat imports by up to 10 per cent since lower consumption will translate directly into reduced imports. 

The government is currently working on reducing its expenditures and increasing revenues by cutting subsidies and increasing taxes as it implements a $12 billion International Monetary Fund three-year loan programme. 

The Ministry of Supply and Internal Trade announced that the new system of bread subsidies had been approved after meetings with members of the Egyptian Federation of Chambers of Commerce.  

To secure bakery rights as well as profits, Abdallah Ghorab, head of the Bakeries Division at the Federation, said the Ministry of Supply had agreed to raise the production costs of subsidised bread from LE122 to LE180 per bag of flour (100kg), enough to produce some 1,050 loaves of bread. 

The total daily production of subsidised bread in all the governorates is around 300 million loaves, according to figures from the Ministry of Supply and Internal Trade. 

This means that the government will pay LE0.13 instead of LE0.09 for each loaf of bread actually sold to ration-card holders as compensation for production costs and to cover a profit margin.   

Moreover, the Ministry of Supply and Internal Trade promised that bread production costs are expected to be reconsidered by the end of the year in order to meet increases in the prices of utilities, diesel and labour costs, according to Ghorab.

Decree 22/2017 issued last week by Ali Moselhi, the minister of supply and internal trade, which regulates production, includes a list of penalties for bakeries that violate the law. 

Those who misuse the ration-card system to increase their dues, or who shut down their bakery without a justified reason or increase their bread prices, will be subject to different penalties, including fines, temporary closure, or the cancellation of licences.

Sayed Ashosh, a bakery owner in Heliopolis, told Al-Ahram Weekly that the new system was worrying for several reasons. It was inapplicable to at least some bakery owners, including him, since it would be difficult for them to buy flour upfront as required under the new scheme.

“The cost price determined by the government at LE180 per bag of flour will never cover the costs of utilities and workers’ salaries as well as flour,” Ashosh said, adding that his bakery’s water bills had recently gone up starkly, as had his electricity bills.

If the government really wanted to solve the problem of waste, Ashosh said, it should form a committee of all concerned parties and follow the production process in bakeries in different governorates in order to define actual production costs and solve the problems facing production on the ground. 

He said that he had not received any official statement from the Ministry of Supply regarding the new system. However, “I will try to apply the new regulations by the beginning of the coming month and find out if they are possible or not. If they are not, it would be better to close the bakery, demolish the building, and sell the land rather than try to apply them,” Ashosh added.

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