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Cablegate: Egypt to Buy Iranian Wheat to Reduce Costs Of

VZCZCXRO5392
PP RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHEG #3424 3401508
ZNR UUUUU ZZH
P 061508Z DEC 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 7665
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 003424

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/RA
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON ETRD EAGR EG IR
SUBJECT: EGYPT TO BUY IRANIAN WHEAT TO REDUCE COSTS OF
BREAD SUBSIDY

REF: A. CAIRO 1462

B. CAIRO 2588
C. CAIRO 1488

Sensitive but unclassified, not for Internet distribution.

1. (SBU) Minister of Trade and Industry Rachid Rachid agreed
to purchase 200,000 tons of reduced-price Iranian wheat last
week during a visit to Cairo by Iranian Minister of
Industries and Mines Ali-Akbar Mehrabian, according to
Egyptian trade officials. However, Egyptian agricultural
inspectors, who were unaware of the arrangement, told us that
Iran would still have to pass a pest-risk inspection before
any sales were final.

2. (SBU) Sayed el-Bous, senior advisor in the Egyptian
Ministry of Trade, said Iran offered Egypt the wheat at a
reduced price to expand its export markets. Egypt took the
deal in order to reduce its expenses for the heavily
subsidized baladi bread, a staple on tables across Egypt
(refs A and B). A shortfall in international wheat
production this year caused prices to soar in commodity
markets, resulting in a 4-billion-pound (USD $710 million)
increase in Egypt's bill for the bread subsidy to 9 billion
pounds (USD $1.6 billion), or 4 percent of all government
spending in FY06/07.

3. (U) American wheat experts expect that this year's wheat
shortage in key producing countries will rebound next year,
reducing the price of wheat on international markets. This
year, Egypt has purchased $553 million of US wheat, making it
the 2nd-leading market for U.S. wheat in 2007.

4. (SBU) Regarding the Iranian agreement, Ali Soliman, head
of the Department of Agriculture's Plant Quarantine office,
said that his office had yet to receive a request to send
inspectors to Iran for a pest-risk assessment. Egypt
requires such an assessment before accepting any wheat
exports from another country. Several years ago, he noted,
the GoE reached a deal to buy Pakistani wheat, but then
canceled the agreement when Pakistan did not pass Egypt's
pest-risk assessment.

5. (SBU) Regardless, Egyptian-Iranian economic relations may
be advancing in other areas. Although Egyptian trade
officials had previously dismissed the possibility of close
trade ties with Iran (ref B), el-Bous said that GoE and GoI
officials agreed last week to support construction of a new
Peugeot plant in Egypt for the assembly of Iranian-made parts
into cars for the Egyptian domestic market. Press accounts
predicted the plant would produce 5,000 cars a year.
RICCIARDONE

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