VZCZCXYZ0001
PP RUEHWEB

DE RUEHEG #1462 1400353
ZNR UUUUU ZZH
P 200353Z MAY 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 5245
INFO RUEHTA/AMEMBASSY ALMATY PRIORITY 0063
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 001462 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NEA FOR ELA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR PINR EG
SUBJECT: EGYPT BUYS KAZAKH WHEAT TO CUT LOSSES ON SENSITIVE 
BREAD SUBSIDY 
 
REF: A. 2006 CAIRO 7009 
     ¶B. 2006 CAIRO 6894 
 
Sensitive but unclassified, not for Internet distribution. 
 
¶1.  (SBU) Summary: A recent Egyptian trade mission to 
Kazakhstan was aimed in part at securing low-cost Kazakh 
wheat for Egypt's highly subsidized bread.  Egyptian imports 
of higher-quality U.S. wheat have declined in recent years as 
the GOE sought to reduce its losses on "baladi" bread, the 
sine qua non of Egypt's daily diet, without raising the 
politically sensitive price to consumers.  The trade mission 
follows a number of high-level visits during the last year 
designed to strengthen Egypt's economic relations with the 
states of the former Soviet Union and China.  End Summary. 
 
¶2. (U)  Egyptian press reported that Minister of Trade and 
Industry Rachid Rachid's visit to Kazakhstan from May 6 to 9 
was aimed at expanding trade relations following a November 
deal for Egypt to import USD $250 million in Kazakh wheat. 
If completed, the deal will dwarf existing trade between the 
two nations, which amounted to only USD $10 million in 2006. 
Egypt received the first shipment of USD $38 million in 
Kazakh wheat in January.  Rachid and accompanying Egyptian 
business representatives also hoped to promote Egyptian 
investment in Kazakh pharmaceutical plants and other areas, 
according to press accounts. 
 
¶3.  (SBU) An aide to Rachid dismissed the likelihood that the 
mission and other recent high-level visits to the former 
Soviet Union and China would generate significant growth in 
Egyptian exports.  Trade with China in particular is 
one-sided in favor of Chinese exports, although it is 
partially offset by Egyptian revenues from the transit of 
goods through the Suez Canal to Europe, as well as increasing 
cooperation in energy and technology (ref A). 
 
¶4.  (SBU) The greater significance of the Kazakhstan trade 
mission is a further move away from Egyptian reliance on 
high-quality, relatively expensive U.S. wheat.  From 2000 to 
2006, U.S. wheat exports to Egypt fell by 53 percent, from 
$496 million to $235 million. Wheat in 2000 accounted for 
half of all U.S. agricultural exports and 15 percent of 
overall U.S. exports to Egypt, while in 2006 wheat 
constituted just over a quarter of agricultural exports and 
less than 6 percent of total U.S. exports to Egypt, despite a 
significant increase from 2005 to 2006. 
 
¶5.  (SBU) The GOE's General Authority for Supply Commodities 
(GASC) imports wheat as cheaply as possible to reduce its 
costs to subsidize production of "baladi," or rural, bread 
(ref B).  The price of the bread -- 5 piasters, or less than 
a penny, for a small piece -- is considered symbolic of the 
state's commitment to its poorest citizens.  But that subsidy 
contributed to a budget deficit of 53.4 billion Egyptian 
pounds (USD $9.3 billion), or 8 percent of GDP, in FY05/06. 
Cheaper wheat is helping the GOE reduce subsidies for basic 
food products including baladi bread from 9.7 billion pounds 
in FY05/06 to 8.6 billion pounds in FY06/07. 
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