VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #2316/01 3511507
ZNR UUUUU ZZH
R 171507Z DEC 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 4475
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS CAIRO 002316 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA/ELA 
 
E.O. 12958:  N/A 
TAGS: ECON EAGR ETRD PGOV EG
SUBJECT: GOE LOOKS TO RAISE CROP PRICES AND STIMULATE CULTIVATION 
 
¶1. (SBU) Key Points 
 
-- The GOE has announced that, as part of its support for farmers 
and rural communities, it plans to raise crop procurement prices by 
20-25% 
 
-- These price hikes would apply to government purchases of five 
"strategic commodities" and, with the exception of rice, would 
maintain prices substantially above international market prices. 
 
-- Despite much fanfare about the initiative, the GOE has yet to 
publish final details or a timeline for implementation. 
 
-- Industry participants suggest delays are preventing farmers from 
making informed planting decisions in the current season. 
 
-- Because of local consumption patterns and the private sector's 
reliance on imported agricultural products, the impact of this 
program is limited and local and is driven by political rather than 
economic decision-making. 
 
¶2. (U) The GOE has announced plans to increase procurement prices in 
an effort to stimulate cultivation and market supply for a number of 
crops. The proposal, prepared by the Ministry of Agriculture for 
discussion in an inter-ministerial committee formed for this 
purpose, would increase procurement prices by 20-25%. These 
procurement prices, some of which are currently below international 
market prices for agricultural commodities, govern the prices paid 
by the GOE for the five "strategic" crops.  These crops, wheat, 
corn, rice, sugar cane, and cotton are purchased by the government 
and used in government food subsidy programs and in state-owned food 
industries.  Raising procurement prices is intended to stimulate the 
agricultural sector, which has lagged behind nearly all other 
sectors of the economy in recent years. 
 
¶3. (U) However, only about 40 percent of local wheat production is 
purchased by the government and 10-15 percent of locally produced 
corn.  The government purchases 100 percent of the sugar cane 
harvest. In recent years, the government and government-owned 
enterprises have not directly purchased rice and cotton from 
farmers.  The procurement price for cotton acts more as an indicator 
price for farmers and traders.  Wheat and corn that are not 
purchased through GOE programs are generally consumed on-farm as 
imported product is cheaper and generally better quality. 
 
¶4. (U) In the recent annual party conference of the ruling National 
Democratic Party, and in a subsequent speech to a joint-session of 
People's Assembly and Shura Council, Egyptian President Hosni 
Mobarak has called for more government support to farmers and giving 
priority to rural development. The government controlled press 
announced that the full details of the new procurement price scheme 
would be announced shortly after Mubarak's address on November 21, 
though to date no details or implementation schedule have been 
announced. 
 
¶5. (U) The most recent proposal would set new price levels for GOE 
purchases to above world market prices to encourage farmers to 
cultivate a higher volume of these crops.  The proposed prices 
reported by the government press as being suggested in the draft 
legislation are as follows: wheat--LE270 (US$49.50) per ardeb (150 
kg) or US$330 per ton versus US$230 per ton CIF Egypt for imported 
wheat, corn--LE200 (US$36.70) per ardeb (140 kg) or US$262 per ton 
versus US$220, cotton--LE898 (US$164.80) per kantar (45 kg) or 
US$1.66 per pound, sugar cane--LE200 (US$36.7) per ton, and paddy 
rice--LE1500 (US$275.20) per ton (Note: The wheat and corn prices 
are substantially above import prices for these commodities as are 
the sugar and cotton prices.  The new higher procurement price for 
rice is significantly below international prices, and the GOE has 
implemented export controls to prevent rice exports and maintain 
this price gap. The low rice price helps limit the production of 
rice, which consumes relatively large amounts of water, and keeps 
down government expenditures on the rice component of the subsidized 
food basket.  End note.)  Despite much coverage in the press, the 
GOE has yet to issue any final decisions on these procurement price 
changes. 
 
¶6. (SBU) Some land owners have criticized the slow pace of GOE 
action since the official announcement. Assem Doss, a landowner and 
the manager of Yara Agri Trade Misr, the local subsidiary of a large 
agricultural fertilizer company, told us that the announcement of 
procurement price increases at the NDP conference was strategically 
timed to promote the image of the government as a supporter of 
farmers. Doss suggested that increasing the prices paid for crops is 
a more efficient method to support farmers than subsidizing seed and 
fertilizers. He added that the government should announce 
procurement prices prior to the planting season for each crop so 
that the farmers can make reasonable growing-cycle decisions. The 
GOE announcement in November, he added, came after farmers had 
already decided what to grow, and the decisions for the current 
growing season were made based on expectations of lower prices.  He 
concluded that if the proposed prices are not made official soon, 
the announcement will be of little value to farmers. 
 
¶7. (SBU) According to Mohamed El Bastawisy, head of the Commercial 
Affairs division of the Alcotan Cotton Trading & Export Co., the 
cotton industry in Egypt faces stiff competition from cheap 
lower-quality cotton which can be imported from other countries such 
as India.  Raising prices would encourage the production of cotton 
as well as the other strategic crops.  He echoes the message that 
swift movement by the GOE on setting new prices is vital, 
particularly for wheat since the planting season will begin shortly. 
 El Bastawisy stressed that the government needs to set clear 
policies for the agriculture cycle for the farmers to follow. 
 
¶8. (SBU) COMMENT: Rural development and support for farmers is a key 
pillar in the NDP's agenda and platform as the 2011 elections draw 
nearer.  In reality, the financial impact of procurement price hikes 
on farmers is limited, given that the majority of the wheat and corn 
grown in Egypt never leaves the farm. As a result, though GOE 
purchases are not insignificant--the GOE purchases about three 
million tons of wheat from local producers-- the impact on the 
agricultural sector of its pricing policies is more political than 
economic.  Clearly though, the Egyptian inter-ministerial process 
isn't timed well with respect to planting, and further delays may 
dilute much of the political goodwill the price hikes might 
generate.  Also, as the prices are generally well above world market 
prices, private sector end users will continue to rely on imported 
cotton, wheat, and corn. END COMMENT. 
 
SCOBEY