Bread subsidized | Insecure political regimes tend to import food to calm public unrest
The coup in Egypt unsettled world stock and commodity markets, but some grain market analysts believe it creates a more bullish-short term outlook for world wheat consumption.
“There’s anticipation we’ll see large purchases of wheat by Egypt to try to stabilize bread prices,” said grain market analyst Arlan Suderman of Water Street Solutions.
The democratically elected Muslim Brotherhood government of Egypt was forced out by the nation’s military on July 3, which has in-stalled an interim government dominated by secular opposition politicians.
While instability is often toxic for demand-based markets, grain markets were not rattled, even though Egypt is the world’s biggest wheat importer, regularly importing more than nine million tonnes.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
Basic food products are often considered recession-proof and free of some of the problems that apply to discretionary items.
Unstable regimes are often seen as more likely to import food to keep populations satisfied than they are to curtail purchases.
The assessment proved true during the unrest of the Arab Spring, the string of unrest that swept through large parts of the Middle East in 2011.
The biggest problem that tends to affect food imports during times of social ferment occurs when the nation’s political or financial system breaks down.
This happened to a small degree in the Arab Spring, with small buyers of prairie pulse crops sometimes losing their credit or backing out of deals.
Some cargoes of Canadian pulses were stranded on North African docks after local buyers could not or would not take possession.
But short of political disintegration or financial collapse, endangered or insecure regimes tend to find a way to bring in basic foodstuffs.
Suderman said the new Egyptian government has big challenges with its finances that will make importing wheat challenging.
“There are questions about what they’re going to do to stabilize their currency so that exporters will actually sell to them,” said Suderman.
Egypt is a not a major customer of Canadian wheat. According to the Canadian Grain Commission, Egypt imported 405,000 tonnes of Canadian wheat, durum and wheat flour in 2010-11. That is significant, but not a large percentage of the crop.
It has been a major buyer of U.S. winter wheat, however, and is a major buyer of Black Sea wheat. According to the U.S. Wheat Yearbook, in 2010-11 Egypt bought 3.8 million tonnes of U.S. wheat, but in 2011-12 bought only slightly more than 900,000 tonnes.
In 2012-13 (year runs June-May) it bought 1.6 million tonnes.
Suderman expects Egypt will turn to Black Sea exporters for supplies, however if the government’s finances are dire, it might even turn to an even lower-priced, very low quality exporter.
“Perhaps they will buy from India,” said Suderman.
“They have been reluctant to buy from India in the past, but right now all they want is quantity to feed the people. Quality is important (usually), but so is getting those bread prices down.”
Egypt has a population of 84 million people and is very poor. The government subsidizes bread prices because many people live on less than two dollars per day.
