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Cablegate: Egypt Buys Kazakh Wheat to Cut Losses On Sensitive

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.
RICCIARDONE

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