Wheat suppliers boycott the state tender after a Bunge shipment was rejected, despite meeting the ergot threshold
ABU DHABI/CAIRO (Reuters) — Rattled by stringent new import rules, Egypt’s wheat suppliers boycotted en masse a state tender Feb. 2.
The move pushed the world’s biggest purchaser of the commodity toward a crisis that could threaten its strategic grain reserves.
Wheat supplies, which are critical to a bread subsidy program that feeds tens of millions, are a red line in Egypt. When Egyptians rose up against autocrat Hosni Mubarak in 2011, a signature chant was “bread, freedom and social justice.”
Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC), confirmed it received no offers in its tender, and said it was now looking for a direct contract, something traders said was unrealistic.
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“Negotiations are ongoing now for the import of three million tonnes outside of the tender process,” said GASC vice-chair Mamdouh Abdel Fattah.
The move by traders to shun the tender was prompted by mounting concerns that their shipments would be rejected at the country’s ports because of tough new import standards.
“I cannot remember a GASC tender ever being cancelled for lack of offers, certainly not in recent years,” a Europe-based trader said.
The shelved tender comes after GASC rejected a 63,000 tonne wheat shipment for containing traces of ergot, a common grain fungus, despite it meeting the .05 percent threshold allowed by the authority’s specifications.
Traders viewed the shipment, supplied by Bunge, as a crucial test for whether Egypt would stick to a stringent new zero-ergot standard they say makes doing business here prohibitively expensive.
“People had expected the Bunge ship to be accepted, and there was great concern when it was rejected,” the same European-based trader said.
Mixed signals among authorities have deepened concerns.
The supply ministry, which includes GASC, has baffled traders in recent weeks by assuring them their shipments would be permitted with ergot levels up to .05 percent, which is a common international standard, even as agricultural authorities rejected all shipments higher than zero.
Traders say it is impossible to guarantee the complete absence of ergot.
“The risk of bidding in GASC tenders is now too high,” another trader said. “It is not possible to guarantee zero ergot content from any origin, and the likelihood that cargoes will be rejected is so high that it is not possible to add a risk premium.”
Egypt has rejected three wheat import shipments due to the presence of ergot, an agriculture ministry spokesman said Feb. 2.
Uncertainty over Egypt’s reliability as a customer has hit markets at a time of global oversupply, helping push European wheat prices to new contract lows.
Suppliers, many of whom have continued to supply Egypt despite payment delays caused by the country’s ongoing foreign currency shortage, decided Feb. 2 that the added layer of risk brought about by the ergot situation was simply too much.
“Unless Egypt changes its rules, it could face trouble importing,” said the first European trader.
Egypt imports 10 million tonnes of wheat a year, most of which goes to providing cheap, subsidized bread to feed its exploding population of 90 million.
Egypt has said it has enough strategic wheat supplies to last until May 11, but this number includes shipments that had not yet arrived, including the recently rejected 63,000 tonnes.
Much of the country’s calculated reserves sit outside Egypt in shipments that still may be rejected, traders said, raising the possibility that reserves could hit critical levels sooner than anticipated.
“This shows how an argument between the two ministries is risking the supply of a strategic commodity like wheat,” a Cairo-based trader said.”
Another Cairo-based trader issued a more dire warning.
“This is a matter of national security for Egypt…. You cannot leave the country without wheat for bread.”
