WASHINGTON, D.C., U.S. — Egypt’s wheat area is forecast to remain unchanged at least in the short run, despite challenges in water management and high input costs, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) in a March 10 report. In the next few years however, with more limited Nile water availability looming due to the construction of Ethiopia’s Renaissance Dam and because of heat stress issues and assuming salinity problems in the Northern Delta persist, absent the development of especially drought-tolerant seed varieties, a gradual reduction in planted area of wheat, rice and corn is expected.

Due to pressure from farmers and farmer groups, the Egyptian government backtracked from a new subsidy program that had been announced. So, for this crop year, the government returned to fixing a price reflecting a substantial subsidy for local procurement of the local harvest. The high price is a contributing factor in limiting any reduction in current wheat areas being cultivated by more than 3 million farmers.

Market year 2015-16 wheat imports are being revised downward to 10.6 million tonnes, 8.5% lower than USDA’s official forecast of 11.5 million tonnes. The decrease is attributed to challenges in accessing dollars that has made opening letters of credit more difficult and confusion that prevailed for several weeks in the first quarter of 2016 about whether a zero-tolerance for ergot was being applied to incoming wheat shipments. The report forecasts imports to reach 11 million tonnes in market year 2016-17 as a result of rising consumption, population growth, and growth in the bakery sector.

Between July 1, 2015 and March 2, 2016, the total amount of wheat purchased by the General Authority for Supply Commodities (GASC) reached 3.97 million tonnes, slightly under GASC imports during the same period in market year 2014-15 which amounted to 4.22 million tonnes.

Egypt has more than 410 mills divided between the public, public/private, and private sector mills with total investments of more than $1 billion. Public mills and public/private milling capacity ranges between 50,000 tonnes-55,000 tonnes per day while private sector mills capacity is estimated at 20,000 tonnes per day.

In market year 2015-16, many private mills, especially smaller ones, have been operating at under 50% capacity due, in part, to shortages of imported wheat as Egypt goes through a foreign currency crunch. According to some private investors, Egypt has an overall excess milling capacity of more than 35%. Public mills and public/private mills produce flour at extraction rate 82% used for making the subsidized baladi bread, producing 70% of its total.

The remaining 30% is produced by private sector mills that have a contract with the government. These mills are not allowed to produce the 72% extraction flour produced by the other private sector mills. However, in a new development, private bakeries producing 72% extraction are now allowed to produce flour at extraction rate 82% used for making the subsidized baladi bread under the premise that it would create competition in the milling sector leading to higher quality flour at reasonable prices.

The 72% extraction flour is sold to around 20,000 private sector bakeries which produce higher quality fino bread and other bakery products. This higher-end sector is expected to grow by more than 8% in market year 2016-17 due to their relatively cheaper prices and high caloric intake, the report said. Private bakeries and in-store bakeries in large retailers and hypermarkets are also witnessing high-growth for high quality baked goods.