A new system tightening control over the production of baladi bread has been well received by consumers, but not always by bakery owners, writes Mona El-Fiqi
The new system attempts to end the black market of subsidised flour
Providing high-quality bread at low prices has been a perennial challenge for successive governments over the past few decades. Unscrupulous distributors who sell subsidised flour on the black market instead of to government bakeries, creating bread shortages, has been just one of the problems facing the industry.
In an attempt to combat such abuses that are harming the production of Egypt’s traditional subsidised baladi bread, the government has now announced that production will take place at market prices, with the state then intervening to makes up the difference.
Bakeries will use flour sold at market prices, which they will use to bake bread according to government criteria, with any difference in production costs and what the bakeries make in selling the bread to consumers being met by the government.
Flour will be provided at the market price of LE282 per 100kg, enough to produce 1,060 loaves of the flat baladi bread. The bread will be sold to consumers at five piastres per loaf of 130 grammes, with the government then paying LE80 for each 100kg of flour used to meet the full costs of bakery labour and utilities.
The government has said that it is fully committed to retaining the retail price of five piastres a loaf, while changing the technical aspects of the subsidy system. Bread quality should also be improved under the new system. Baladi bread has been sold at five piastres per loaf since 1989.
According to Bassem Ouda, minister of supply and internal trade, a second phase of the new system will also be introduced, under which each citizen will be entitled to a quota of three loaves per day of subsidised baladi bread using a personalised smart card. The second phase should be introduced in 15 of Egypt’s governorates over the next two months.
“It is better to receive three good loaves of bread per day using a smart card like other food commodities provided with ration cards than to stand in long queues for hours on end only to receive poor quality bread,” said Reda Mohamed, a housewife and the mother of three children
The new system will be introduced soon in the Kafr Al-Sheikh governorate, where more than 500 bakeries have signed contracts with the government. The system was previously successfully tested in Port Said.
The new subsidies system is one of a series of measures taken to try to solve problems of bread production that have led to shortages over the past few years. These measures have included the creation of separate outlets, usually within walking distance of bakeries, for the sale of bread and the introduction of a home-delivery service in some districts.
In order to qualify for the latter service, households have to register and pay a fee of between LE3 to LE5 per month. The government has also been using military bakeries during bread shortages.
The move to sell flour at market prices was recommended by economic experts some years ago, since the current system creates an artificially subsidised price leading to the selling of subsidised flour on the black market.
For years, the authorities failed to tighten controls over the amounts of subsidised flour provided to bakeries to produce baladi bread since the gap between the price of flour on the open market and the price of the subsidised flour was too great, encouraging some bakery owners simply to sell the flour without producing any bread.
Hamdi Abdel-Azim, a professor of economics at the Al-Sadat Academy for Administrative Sciences, said that the new step was a positive one that should end the black market in flour.
However, he warned that the government should take precautions against any further problems in selling bread to consumers. It should separate bread production entirely from bread distribution, he said, which would prevent the current practice, sometime seen, of selling subsidised bread in small outlets at higher prices than the officially subsidised price.
Abdel-Azim said that in the past one problem had been bakeries selling bread to restaurants and other large consumers, creating shortages for low-income retail customers. “Unless the government tightens controls over the selling process until the smart-card facility is ready to be applied, the new system will not achieve its goals,” he said.
Experts are confident that in time the new system will help to ensure that bread made using subsidised flour reaches low-income consumers, rather than seeing the flour siphoned off onto the black market. However, not all bakery owners agree, and some have asked to meet the minister of supply and internal trade to express their reservations about the new system.
Farag Wahba, chair of the Bakery Owners Division at the Federation of Egyptian Chambers of Commerce, told Al-Ahram Weekly that while the owners were ready “to apply the new system, we have some reservations regarding the price of the flour, the cost of the bread, and the penalties for violating the regulations.”
According to Wahba, the price of flour determined by the ministry is too high at LE282 per 100kg, when it is available at LE260 on the open market. “We will negotiate with the ministry to change the price to the true market price,” Wahba said.
The new system also says that the government will reimburse bakeries to the amount of LE80 per 100kg of flour. However, Wahba said that the utilities used in the production process, including water, energy, and labour costs, meant that the true price for the owner was closer to LE120.
According to Wahba, labour costs were high, with bakery workers typically being paid LE100 per day.
A further complaint was that the new system would decrease the flour quota of a bakery by 25 per cent if that bakery failed to meet the criteria set by the government. “This penalty is too severe. We are not authorised to buy flour on the open market, and this kind of reduction will severely affect our work,” Wahba said.
There are more than 18,000 baladi bread bakeries in Egypt, of which 90 per cent are privately owned and 10 per cent are publicly owned. The public bakeries have an average through-put of seven tons of flour per day, while private bakeries typically use one ton per day.
Bread subsidies cost the country some LE16 billion annually.
In an attempt to combat such abuses that are harming the production of Egypt’s traditional subsidised baladi bread, the government has now announced that production will take place at market prices, with the state then intervening to makes up the difference.
Bakeries will use flour sold at market prices, which they will use to bake bread according to government criteria, with any difference in production costs and what the bakeries make in selling the bread to consumers being met by the government.
Flour will be provided at the market price of LE282 per 100kg, enough to produce 1,060 loaves of the flat baladi bread. The bread will be sold to consumers at five piastres per loaf of 130 grammes, with the government then paying LE80 for each 100kg of flour used to meet the full costs of bakery labour and utilities.
The government has said that it is fully committed to retaining the retail price of five piastres a loaf, while changing the technical aspects of the subsidy system. Bread quality should also be improved under the new system. Baladi bread has been sold at five piastres per loaf since 1989.
According to Bassem Ouda, minister of supply and internal trade, a second phase of the new system will also be introduced, under which each citizen will be entitled to a quota of three loaves per day of subsidised baladi bread using a personalised smart card. The second phase should be introduced in 15 of Egypt’s governorates over the next two months.
“It is better to receive three good loaves of bread per day using a smart card like other food commodities provided with ration cards than to stand in long queues for hours on end only to receive poor quality bread,” said Reda Mohamed, a housewife and the mother of three children
The new system will be introduced soon in the Kafr Al-Sheikh governorate, where more than 500 bakeries have signed contracts with the government. The system was previously successfully tested in Port Said.
The new subsidies system is one of a series of measures taken to try to solve problems of bread production that have led to shortages over the past few years. These measures have included the creation of separate outlets, usually within walking distance of bakeries, for the sale of bread and the introduction of a home-delivery service in some districts.
In order to qualify for the latter service, households have to register and pay a fee of between LE3 to LE5 per month. The government has also been using military bakeries during bread shortages.
The move to sell flour at market prices was recommended by economic experts some years ago, since the current system creates an artificially subsidised price leading to the selling of subsidised flour on the black market.
For years, the authorities failed to tighten controls over the amounts of subsidised flour provided to bakeries to produce baladi bread since the gap between the price of flour on the open market and the price of the subsidised flour was too great, encouraging some bakery owners simply to sell the flour without producing any bread.
Hamdi Abdel-Azim, a professor of economics at the Al-Sadat Academy for Administrative Sciences, said that the new step was a positive one that should end the black market in flour.
However, he warned that the government should take precautions against any further problems in selling bread to consumers. It should separate bread production entirely from bread distribution, he said, which would prevent the current practice, sometime seen, of selling subsidised bread in small outlets at higher prices than the officially subsidised price.
Abdel-Azim said that in the past one problem had been bakeries selling bread to restaurants and other large consumers, creating shortages for low-income retail customers. “Unless the government tightens controls over the selling process until the smart-card facility is ready to be applied, the new system will not achieve its goals,” he said.
Experts are confident that in time the new system will help to ensure that bread made using subsidised flour reaches low-income consumers, rather than seeing the flour siphoned off onto the black market. However, not all bakery owners agree, and some have asked to meet the minister of supply and internal trade to express their reservations about the new system.
Farag Wahba, chair of the Bakery Owners Division at the Federation of Egyptian Chambers of Commerce, told Al-Ahram Weekly that while the owners were ready “to apply the new system, we have some reservations regarding the price of the flour, the cost of the bread, and the penalties for violating the regulations.”
According to Wahba, the price of flour determined by the ministry is too high at LE282 per 100kg, when it is available at LE260 on the open market. “We will negotiate with the ministry to change the price to the true market price,” Wahba said.
The new system also says that the government will reimburse bakeries to the amount of LE80 per 100kg of flour. However, Wahba said that the utilities used in the production process, including water, energy, and labour costs, meant that the true price for the owner was closer to LE120.
According to Wahba, labour costs were high, with bakery workers typically being paid LE100 per day.
A further complaint was that the new system would decrease the flour quota of a bakery by 25 per cent if that bakery failed to meet the criteria set by the government. “This penalty is too severe. We are not authorised to buy flour on the open market, and this kind of reduction will severely affect our work,” Wahba said.
There are more than 18,000 baladi bread bakeries in Egypt, of which 90 per cent are privately owned and 10 per cent are publicly owned. The public bakeries have an average through-put of seven tons of flour per day, while private bakeries typically use one ton per day.
Bread subsidies cost the country some LE16 billion annually.
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