EGYPT TO BUY IRANIAN WHEAT TO REDUCE COSTS OF

UNCLAS CAIRO 003424 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA, NEA/RA COMMERCE FOR 4520/ITA/ANESA/OBERG E.O. 12958: N/A TAGS: ECON ETRD EAGR EG IR SUBJECT: EGYPT TO BUY IRANIAN WHEAT TO REDUCE COSTS OF BREAD SUBSIDY REF: A. CAIRO 1462 ¶B. CAIRO 2588 ¶C. CAIRO 1488 Sensitive but unclassified, not for Internet distribution. ¶1. (SBU) Minister of Trade and Industry Rachid Rachid agreed to purchase 200,000 tons of reduced-price Iranian wheat last week during a visit to Cairo by Iranian Minister of Industries and Mines Ali-Akbar Mehrabian, according to Egyptian trade officials. However, Egyptian agricultural inspectors, who were unaware of the arrangement, told us that Iran would still have to pass a pest-risk inspection before any sales were final. ¶2. (SBU) Sayed el-Bous, senior advisor in the Egyptian Ministry of Trade, said Iran offered Egypt the wheat at a reduced price to expand its export markets. Egypt took the deal in order to reduce its expenses for the heavily subsidized baladi bread, a staple on tables across Egypt (refs A and B). A shortfall in international wheat production this year caused prices to soar in commodity markets, resulting in a 4-billion-pound (USD $710 million) increase in Egypt's bill for the bread subsidy to 9 billion pounds (USD $1.6 billion),or 4 percent of all government spending in FY06/07. ¶3. (U) American wheat experts expect that this year's wheat shortage in key producing countries will rebound next year, reducing the price of wheat on international markets. This year, Egypt has purchased $553 million of US wheat, making it the 2nd-leading market for U.S. wheat in 2007. ¶4. (SBU) Regarding the Iranian agreement, Ali Soliman, head of the Department of Agriculture's Plant Quarantine office, said that his office had yet to receive a request to send inspectors to Iran for a pest-risk assessment. Egypt requires such an assessment before accepting any wheat exports from another country. Several years ago, he noted, the GoE reached a deal to buy Pakistani wheat, but then canceled the agreement when Pakistan did not pass Egypt's pest-risk assessment. ¶5. (SBU) Regardless, Egyptian-Iranian economic relations may be advancing in other areas. Although Egyptian trade officials had previously dismissed the possibility of close trade ties with Iran (ref B),el-Bous said that GoE and GoI officials agreed last week to support construction of a new Peugeot plant in Egypt for the assembly of Iranian-made parts into cars for the Egyptian domestic market. Press accounts predicted the plant would produce 5,000 cars a year. RICCIARDONE