EGYPT BUYS KAZAKH WHEAT TO CUT LOSSES ON SENSITIVE

UNCLAS CAIRO 001462 SIPDIS SENSITIVE SIPDIS NEA FOR ELA E.O. 12958: N/A TAGS: ECON ETRD EAGR PINR EG SUBJECT: EGYPT BUYS KAZAKH WHEAT TO CUT LOSSES ON SENSITIVE BREAD SUBSIDY REF: A. 2006 CAIRO 7009 ¶B. 2006 CAIRO 6894 Sensitive but unclassified, not for Internet distribution. ¶1. (SBU) Summary: A recent Egyptian trade mission to Kazakhstan was aimed in part at securing low-cost Kazakh wheat for Egypt's highly subsidized bread. Egyptian imports of higher-quality U.S. wheat have declined in recent years as the GOE sought to reduce its losses on "baladi" bread, the sine qua non of Egypt's daily diet, without raising the politically sensitive price to consumers. The trade mission follows a number of high-level visits during the last year designed to strengthen Egypt's economic relations with the states of the former Soviet Union and China. End Summary. ¶2. (U) Egyptian press reported that Minister of Trade and Industry Rachid Rachid's visit to Kazakhstan from May 6 to 9 was aimed at expanding trade relations following a November deal for Egypt to import USD $250 million in Kazakh wheat. If completed, the deal will dwarf existing trade between the two nations, which amounted to only USD $10 million in 2006. Egypt received the first shipment of USD $38 million in Kazakh wheat in January. Rachid and accompanying Egyptian business representatives also hoped to promote Egyptian investment in Kazakh pharmaceutical plants and other areas, according to press accounts. ¶3. (SBU) An aide to Rachid dismissed the likelihood that the mission and other recent high-level visits to the former Soviet Union and China would generate significant growth in Egyptian exports. Trade with China in particular is one-sided in favor of Chinese exports, although it is partially offset by Egyptian revenues from the transit of goods through the Suez Canal to Europe, as well as increasing cooperation in energy and technology (ref A). ¶4. (SBU) The greater significance of the Kazakhstan trade mission is a further move away from Egyptian reliance on high-quality, relatively expensive U.S. wheat. From 2000 to 2006, U.S. wheat exports to Egypt fell by 53 percent, from $496 million to $235 million. Wheat in 2000 accounted for half of all U.S. agricultural exports and 15 percent of overall U.S. exports to Egypt, while in 2006 wheat constituted just over a quarter of agricultural exports and less than 6 percent of total U.S. exports to Egypt, despite a significant increase from 2005 to 2006. ¶5. (SBU) The GOE's General Authority for Supply Commodities (GASC) imports wheat as cheaply as possible to reduce its costs to subsidize production of "baladi," or rural, bread (ref B). The price of the bread -- 5 piasters, or less than a penny, for a small piece -- is considered symbolic of the state's commitment to its poorest citizens. But that subsidy contributed to a budget deficit of 53.4 billion Egyptian pounds (USD $9.3 billion),or 8 percent of GDP, in FY05/06. Cheaper wheat is helping the GOE reduce subsidies for basic food products including baladi bread from 9.7 billion pounds in FY05/06 to 8.6 billion pounds in FY06/07. RICCIARDONE