Egypt has set a fixed price for unsubsidised bread in an effort to counter rising food prices after Russia's invasion of Ukraine closed off access to lower-priced Black Sea wheat.
Prime Minister Moustafa Madbouly on Monday set the price of commercially sold bread at 11.50 Egyptian pounds ($0.66) per kg, his office said in a statement.
Food prices had been rising in Egypt even before Russia's invasion of Ukraine, but now bread - a politically symbolic staple on which many Egyptians are heavily dependent - is becoming more expensive as Black Sea wheat exports are disrupted.
The price of unsubsidised bread has jumped by as much as 25%, from 1.00 to 1.25 Egyptian pounds a loaf, in some bakeries in the three weeks since Russia's invasion of its neighbour. Flour prices have risen by up to 15%, said Attia Hamad at the Cairo Chamber of Commerce.
New Fixed Prices
The new fixed prices for flat, round balady bread have been set at 0.50, 0.75 and 1.00 Egyptian pounds for loaves weighing 45, 65 and 90 grams respectively. Prices for 40, 60 and 80 gram small, white fino loaves were set at 0.50, 0.75 and 1.00 Egyptian pounds respectively.
Violations of the fixed prices will result in fines between 100,000 and 5 million Egyptian pounds.
President Abdel Fattah al-Sisi last week asked the government to set a price for unsubsidised bread because of the recent price increases.
Egypt is typically the world's largest wheat importer, buying more than 60% of its wheat from abroad. Russia and Ukraine accounted for about 80% of government and private sector imports last year.
Egyptian Pound Drops
Egypt's pound depreciated more than 11% on Monday after weeks of pressure on the currency as foreign investors pulled out billions of dollars from Egyptian treasury markets following Russia's invasion of Ukraine.
The pound dropped to 17.72-17.82 against the dollar, Refinitiv data showed, after having traded at around 15.7 pounds to the dollar since November 2020.
The central bank also hiked overnight interest rates by 100 basis points in a surprise monetary policy meeting.
Egypt has been in discussions with the International Monetary Fund about possible assistance, people close to the negotiations have said, but it has not announced any formal request.
Analysts at investment bank JP Morgan said two weeks ago that the pound was 15% over-valued and a devaluation was likely to be required, adding that Egypt may need further IMF help if financial market pressures intensified.
Monday's weakening of the pound could catalyse inflows of foreign currency, while investors who already had money in Egyptian treasuries would be unlikely to sell now, said Farouk Soussa, senior economist at Goldman Sachs.
"The move is designed to trap liquidity in the market and bring in investors who might be sitting on the sidelines waiting for the pound to bottom out," he said.
But it would also likely add to inflation and possible local dollarisation. "The big question is whether this is enough, or if more might be needed to entice portfolio investors," he said.
Higher Wheat Import Prices
Shortages of dollars have led to blockages at Egyptian ports, after importers could not obtain necessary foreign currency for letters of credit to get their goods cleared, bankers said.
The war in Ukraine has also left Egypt facing higher costs for its substantial wheat import needs as well as a loss in tourism revenue from Russian and Ukrainian visitors to Red Sea resorts.
The higher wheat prices could nearly double annual state spending on wheat imports to $5.7 billion, according to a study last week by the International Food Policy Research Institute, straining government finances and fuelling inflation pressure.
Headline inflation has accelerated to its highest level in nearly three years, registering 8.8% last month and touching the upper limit of the central bank's 5-9% target range.
News by Reuters, edited by ESM – your source for the latest Fresh Produce news. Click subscribe to sign up to ESM: European Supermarket Magazine.