July 17, 2014 / 12:53 PM / in 3 years

INTERVIEW-Egypt food subsidy reforms to slash wheat imports

* New smart card programme to save money

* Ministry revising wheat storage systems to cut losses

* Govt aims to buy 4 mln tonnes local wheat in 2015

By Ehab Farouk

CAIRO, July 17 (Reuters) - Egypt, the world’s top wheat importer, said on Thursday reforms to its bread subsidy programme alongside an improved storage system should cut its import needs by as much as 30 percent.

Supplies Minister Khaled Hanafi told Reuters a new smart card system for bread distribution launched in April is now operational in five provinces and should be implemented nationwide by October.

“We took quick steps towards the new bread system and overcame a lot of the bureaucratic obstacles...,” Hanafi said in an interview.

“With the completion of the new system our imports will fall around 30 percent,” he said.

Egypt spends more than $4 billion a year on food subsidies, on which millions of poverty-stricken Egyptians depend. One cash-strapped government after another has resisted tackling problems in the system, fearful of a backlash from the public.

But in an effort to rein in its budget deficit to 10 percent of gross domestic product in the next fiscal year, Egypt’s new government slashed subsidies for car fuel and natural gas, increasing their prices by more than 70 percent earlier this month.

President Abdel Fattah al-Sisi and Prime Minister Ibrahim Mehleb have not announced similar drastic cuts to the food subsidy system but reforms to the way the government hands out the subsidy have been in the making since April in an attempt to decrease waste and corruption.

Under the new system Egyptians use electronic smart cards for bread purchases and around 20 different subsidised goods at grocery stores across the country.

The cards follow a points system which raises incentives for Egyptians to buy only as much subsidised bread as they need, helping reduce spending on wheat by as much as 5 billion Egyptian pounds ($699 million), Hanafi said.

Food and energy subsidies traditionally eat up a quarter of state spending.

Officials say wheat consumption is kept artificially high in part by citizens who purchase subsidised loaves for the equivalent of one U.S. cent and feed them to their livestock because the bread is cheaper than animal feed.

Under the old system, Egyptians only have the option of buying infamously poor quality rice, sugar, and oil but Hanafi said the list of items available to purchase would now be expanded first to 20 and then to 100 within months. Meat and poultry will be among the new products on the initial list.

He said smart card holders would accrue points if they bought less than the quota of five loaves per family member per day, a number that officials hope can later be reduced. The points would allow them to purchase other subsidised goods.

Hanafi, who retained his position after Sisi took office earlier this month, has been outspoken about the need to reform wasteful subsidies.

Egypt imports around 5.5 million tonnes of wheat annually for its bread subsidy programme. The country also bought 3.7 million tonnes of local wheat in the 2014 season.

Hanafi said Egypt’s enhanced storage capacity should help it increase its local wheat purchases and cut waste.

Egypt is making progress in increasing local storage capacity with the help of one of its major Gulf backers, the United Arab Emirates.

The UAE has committed to funding silos that can store up to 1.5 million tonnes of wheat.

“We purchased from farmers all the quantities that were available to us and we aim to buy 4 million tonnes next year,” he said. ($1 = 7.1500 Egyptian Pounds) (Reporting By Ehab Farouk; Writing By Maha El Dahan; Editing by Michael Georgy)

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