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A power struggle in Egypt is upending global wheat markets as a dispute between government ministries resulted in the nation's failure Wednesday to buy grain needed to subsidize bread.
Egypt's state-run buyer couldn't attract enough offers and thus had to cancel Wednesday's tender after the Agriculture Ministry said over the weekend it would ban any imports with traces of ergot, naturally occurring fungus that can be dangerous in large amounts, the nation's Supply Ministry said Wednesday.
The statement highlights a dispute between the two government sectors over who controls imports in the world's largest buyer, where state grain purchases help supply bread to a population of more than 90 million.
Wheat is back at the center of a standoff between Egypt and international traders this year after the Agriculture Ministry said on Aug. 28 it had reinstated rules that are stricter than international standards and aim at protecting the local crop from being contaminated with the fungus.
The new ruling runs counter to a less restrictive policy by the Supply Ministry. The nation has gone back and fourth with its regulations over ergot, rejecting cargoes sold from companies including U.S. agribusiness giant Bunge Ltd. and local trader Al Wehda.
"I'm not sure why someone in Egypt is trying to make things stricter," said Michael McDougall, a senior director at Societe Generale SA in New York. "Has there ever been an outbreak of fungus that decimated local crops? I have never heard of anything like that so something doesn't appear to add up."
Venus International was the only company willing to supply wheat to Egypt in Wednesday's tender compared with seven traders that participated in the process last week, according to traders familiar with the matter, who asked not to be identified as they are not allowed to speak to the media.
Tunisia, which buys seven times less wheat than Egypt, managed to attract offers from 13 firms in a separate tender Wednesday before buying 50,000 metric tons from Dutch grains trader Nidera, according to a trader involved in the process.
Wheat is crucial to Egypt, where bread shortages triggered food riots in the past.
The Middle Eastern nation, which sends a team to check the quality for every cargo it buys at the loading port, could save as much as $30 million a year with changes to tender terms including using international inspection agencies, Peter Talks, a consultant for the Rome-based Food & Agriculture Organization, said last year.
"Egypt has already lived through the riots that occurred when wheat prices went up, it took down Mubarak then," McDougall said. "What will they do when they have no wheat? No one wants to play their games, and sooner or later, they have to bend a bit."
The country has stockpiles to cover demand for more than 6 months, the supply ministry said.
Egypt, which buys greater than 30 percent more wheat than the No. 2 importer Indonesia, is paying $6 a ton to $7 a ton more than private companies partly because of quality-inspection requirements, Talks said at the Global Grain Conference in Geneva in November, citing FAO figures.
The UN body said in a report to Egypt earlier this year that international ergot standards of as much as 0.05 percent didn't present a threat.
The Agriculture Ministry said on Sunday that a follow-up study showed the fungus is a risk to local crops and the FAO report didn't account for different strains of ergot.
"It's difficult to see where Egypt might go with this," said Amy Reynolds, a senior economist at the International Grains Council in London. "As the world's largest buyer, they need to secure supplies and it might have a possible stalemate."