Egypt, the biggest wheat importer, is starting to find out what one of its smallest neighbours knew months ago: You can’t buck the market.
The most populous Arab nation has seen wheat prices jump, prompting Egypt to scrap three tenders in two weeks, since it tussled with traders over the quality of grain they supply and turned away a French ship it said was contaminated with fungus.
The experience of nearby Jordan suggests things may get worse. With barely a 10th of Egypt’s 88mn people, the country has struggled for months to secure supplies as sellers withdrew or sought above-market prices to compensate for increased risks after it rejected a Polish cargo last year.
Both Middle Eastern nations rely on imports to feed their people. Egypt’s General Authority for Supply Commodities spends billions on wheat each year for subsidised bread in an economy hit by shrinking tourism revenues. Without a resolution it may struggle to buy the more than 1mn tonnes it needs before July. Jordan, host to more than 1mn refugees fleeing conflict in Syria and Iraq, also uses foreign grain to provide cheap bread.
“Everybody used to chase GASC business, and now you are seeing fewer and fewer offers,” Hakan Bahceci, chief executive officer of Dubai-based trader Hakan Agro, said on Wednesday. “We have seen Jordan face the same problems, with almost no participants in its tenders for a long time,” he said. “Every restriction you impose on sellers will have a price.”
Jordan said in October it lost $7mn on the 50,000 metric tonne cargo of Polish wheat it rejected, claiming the grain failed to meet its specifications and had to be resold at a lower price. The country has repeatedly cancelled or extended deadlines of tenders for the grain in recent months as traders balked at participating in case ships were turned around.
Prime Minister Abdullah Ensour was dragged into the standoff, meeting with importers in December to discuss shipping rules, but the country is still paying higher prices than its neighbours to secure grain. In its most recent successful tender last Tuesday, Jordan agreed to pay $203.75 a tonne for European and Black Sea wheat, including shipping costs. That’s even more than the $190.88 a tonne that Egypt paid for Romanian wheat in a tender on February 12, and compares with prices paid by Algeria and Tunisia in recent weeks of about $179 a tonne.
Egypt, like Jordan, has sought to reassure traders. The Agriculture Ministry, which sparked confusion this year by declaring a zero-tolerance policy for ergot, the naturally occurring fungus found in the rejected French shipment, later rescinded its statement and said Egypt would accept a level of 0.05% in shipments, in line with global and long-held GASC standards.
Still, uncertainty remains. Bunge Ltd said the week before last that it started legal proceedings to challenge Egypt’s rejection of the 63,000- tonne cargo of French grain, denying the country’s claim that the ergot level was above the maximum allowance. Egypt also rejected a Canadian cargo for a second time, even though its ergot level fell below the 0.05% requirement, according to a trader at a Cairo-based firm familiar with the matter who asked not to be identified because the information isn’t public.
The Agriculture Ministry again last week stated that the 0.05% ergot level should be acceptable, according to a copy of a letter to GASC obtained by Bloomberg on Wednesday. GASC vice chairman Mamdouh Abdel Fattah and ministry spokesman Eid Hawash weren’t immediately available for comment on the latest developments in Egypt’s wheat tenders.
The lack of clarity is translating into higher prices. French wheat offered in a tender in the weekend before last, which was eventually cancelled, was almost $15 more expensive than the port price in Rouen, the highest premium this season.