Sour taste over sugar prices in Egypt

Each year Egypt’s central bank spends billions of dollars to keep the Egyptian pound from rising against the United States dollar. The main reason, say officials, is that if the currency weakened, the cost of imports would rise, especially those consumed by Egypt’s poor.

So the government must have been absolutely overjoyed as it watched the recent plunge in international sugar prices. By the end of March, prices had fallen to their lowest in six years.

Egypt, despite producing an annual 2.1 million tonnes of sugar domestically, is a big importer, and the cheaper price should mean a sizeable fall in the price that consumers pay for their sugar.

The country imported 726,000 tonnes of sugar in the first 10 months of 2014, 90 per cent of it from Brazil, according to a US department of agriculture report issued on April 15.

Local sugar costs the government US$671 per tonne, while imported sugar costs about $443, the report says.

Low income Egyptians don’t consume that many imports, but sugar is one they do buy. Cheap sugar would be a wonderful gift for them at the approach of Ramadan, when consumption surges, you might think.

Apparently not.

On April 19, the ministry of trade and industry announced a 20 per cent tariff, with a minimum charge of 700 Egyptian pounds (Dh335) per tonne, on white sugar. The tariff will remain in place for 200 days to give time to investigate an “influx of imports in 2014 and the first quarter of 2015”. The tariff may breach international free trade accords, traders suggest.

“This onslaught of white sugar imports is the result of a fall in the international price of sugar unprecedented in more than 20 years,” the trade ministry said. “It will cause heavy losses to the Egyptian sugar industry that will soon reach 1 billion pounds, in addition to losses to the small farmers who supply cane and beet sugar.”

Fine for producers, but what about consumers?

And if poor consumers don’t benefit, why does the central bank still keep the pound artificially strong?

With the pound pegged so high, banks no longer have enough dollars to give to everyone who wants them. The bank has helpfully drawn up a list of which commodities are given priority when importers seek dollars with which to buy goods.

To be fair, sugar is not on that list. Priority goes to the staple commodities of poultry, meat, fish, wheat, corn, edible oil, milk, beans, lentils, tea and butter. But sugar traders say that if you ask your commercial bank for cheap foreign currency to import sugar, sooner or later you will receive it.

“The bank will put you in a queue. It may take a long time, but eventually you will get your dollars,” says one trader.

So now these wonderfully dysfunctional government marketplace interventions are working at direct cross-purposes. The central bank hands out dollars at a below-market price that makes importing sugar artificially cheap, and the ministry of trade charges a tariff that makes importing it artificially expensive.

The mess that is the Egyptian sugar industry began in 1963, when the government nationalised the country’s eight private sugar mills and bundled them into the Sugar and Integrated Industries Company (SIIC), which tightly controlled prices and distribution, from farmer to consumer.

It wasn’t long before shortages appeared, and eventually, in the 1990s, the government began allowing private traders to import sugar. In the past decade it even let two privately controlled refineries be built. SIIC still controls six refineries in Upper Egypt, where sugar cane is grown, and another four refineries on the Delta, where beet sugar, which consumes far less water than cane, is king. The SIIC also guarantees farmers a high price for their crops.

Last July, the SIIC’s boss, the ministry of supply, introduced a successful adjustment to the way it distributes subsidised sugar to lower-income Egyptians. In place of the old system of smart cards that allowed consumers to buy a handful of subsidised products, including sugar, at prices well below the market rates, it began allowing them to use the cards to buy 15 pounds per month of a long list of products at market prices. Sugar is the main product they want.

The smart card system has sharply reduced the massive leakages and pilfering from the 25,000 private grocery stores and 4,000 ministry of supply cooperatives that distribute the products.

Then, to save money, the ministry began allowing its shops and cooperatives to buy sugar from private refiners and importers to sell to holders of smart cards, instead of buying exclusively from the state-owned SIIC, according to the US department of agriculture report.

The ministry of supply move has angered the SIIC, which is having trouble paying farmers for last year’s crop. Unsold sugar stocks will rise to 278,000 tonnes by October from 161,000 tonnes in October 2014, the report forecasts. The move has angered farmers even more, especially after the government in mid-2014 sharply raised the price of the subsidised diesel and petrol they use for their crops.

Patrick Werr has worked as a financial writer in Egypt for 25 years.

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