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Date: 23.03.2016
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How Egypt is struggling to
end corruption in wheat
industry as shortage looms
When Egyptian lawyer Ahmed Gad
Eight sources in the wheat industry said the
stepped out of a cafe on the outskirts smart card system could be hacked, allowing
of Cairo to take a call last October, a some bakers to falsify receipts and request far
gunman on the back of a motorcycle trained a more subsidised flour than they officially sold.
Instead of reducing the amount of flour the state
semi­automatic rifle on him and opened Are.
Three bullets ripped into Gad's right side be­ paid for, the critics said, the smart card system
actually increased it. That triggered a wave of
fore his attackers sped off.
Gad, who survived, said the men were trying fraud higher up the supply chain that the sources
to silence him for his attempts to expose corrup­ say cost the country hundreds of millions of dol­
tion in one of Egypt's most important commodity lars last year.
Internal statistics produced by the Supplies
markets: wheat.
Wheat can be a matter of life and death in Ministry and reviewed by Reuters suggest the
Egypt. The country is the world's biggest importer problems with the smart card system were con­
of the grain, in large part because Cairo runs a
bread subsidy programme that feeds tens of mil­
lions of poor Egyptians. Wheat shortages have
triggered riots in the past, and when Egyptians
rose up against autocrat Hosni Mubarak in 2011
one of their signature chants was "Bread, free­
dom and social justice."
The pressures have returned over the past few
months as Egypt has faced potential wheat short­
ages because of its strict ban on imports of wheat
infected with ergot, a common fungus.
The hardest blight to eradicate, though, has
been corruption.
President Abdel Fattah al­Sisi has made end­
ing corruption — including graft in the wheat
industry — one of his government's priorities.
In 2014, his government rolled out a system of
smart cards designed to stop unscrupulous bak­
siderable. The data show that consumption of
state­subsidised flour rose in early 2015 in 12 of
the 19 provinces where the smart card system
had been introduced. In February 2015, consump­
tion of subsidised flour was 955,000 tonnes, the
data show, up from 750,000 tonnes the previous
February.
The government concedes there were teething
problems in the smart card system that temporar­
ily drove up consumption. But it said the problem
was limited and was dealt with.
Whatever the case, the extra consumption early
last year drained government grain reserves. By
last May, ministry data show, wheat reserves had
fallen to just435,000 tonnes, enough for about two
weeks' supply and far below the stock of three to
four months normally held by the state.
Four traders said that the government tried to
eries selling government­subsidized flour on the paper over the shortage by declaring a bumper
domestic harvest last year and then quietly fill­
black market.
Cairo says the system has been a big success, ing the gap by buying extra imported wheat. In
saving millions of dollars in bread subsidies, re­ fact, the traders and one former adviser to the
ducing imports, and ending shortages that once Supplies Minister said, the harvest was no bigger
prompted long queues outside bakeries across
the country. Supplies Minister Khaled Hanafi told
Egyptian reporters in late 2014 that roughly 50 per
cent of the country's flour supply was stolen. In
December last year he told Reuters that the new
system had saved more than six billion Egyptian
pounds ($766 million) worth of flour.
But industiy officials, traders and bakers say
those reforms have failed ­ and even made abuse
of the system worse.
than normal.
It was not possible to verify the size of the har­
vest. Nader Nour El­Din, a former adviser to the
supplies minister and now a professor of agricul­
ture at Cairo University, said it was inconceivable
for the harvest to have been as big as the govern­
ment said because the area under wheat had not
increased in size, production methods had not
changed and fertilizer use had not increased.
The Egyptian government denied that it faced
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Date: 23.03.2016
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any suspicious increase in flour
a wheat shortage. In his December interview with
consumption.
Reuters, Supplies Minister Hanafi said that wheat
"Of course for any system for the
levels were deliberately reduced in the
Internet... there is a very minor per­
first five months of 2015 to clear space
cent of hacking," Hanafi said. But he
in silos for the bumper crop the state
added: "If there is any increase not
was expecting. "We never, (and) we
are not facing at all, a shortage in the
justified in the consumption, our people directly
reserves," he told Reuters. "The oppo­
go and take care of it."
site is true."
Attiya Hamad, head of the bakeries division
at the Cairo Chamber of Commerce, said the gov­
The smart card system was designed
ernment had closed scores of bakeries for cheat­
to end corruption.
ing and thrown many bakers in jail. Sitting in his
The scheme provides each family
tiny office, tucked inside a government bakery in
with a plastic card allowing them to
the working class Cairo neighbourhood of Zawya,
buy five small flat loaves of bread per
Hamad said that despite the crackdown and new
family member a day. A family member
must swipe their card through a machine every caps on how much flour each bakery can buy, the
time they visit a bakery ­ so the Ministry of Sup­ system could still be manipulated using the unof­
plies can track exactly how much bread each bak­ ficial master cards.
Hanafi said the problems had been dealt with.
ery sells. The government then pays each bakery
Low wheat stocks fuelled another scam.
a subsidy per loaf.
Last June, the Supplies Ministry said that
Until the smart card system, the ministry re­
lied on bakeries to report how much bread they thanks to Egypt's bountiful harvest, it had
sold. But many bakeries overstated the amount bought a record 5.3 million tonnes of domestic wheat,
and then sold the extra on the black market. The
up from around 3.5 million tonnes a year in the previ­
government has said the new system stopped that ous few years.
over­reporting.But four bakers, three wheat trad­
But traders and millers say the domestic harvest was
ers and a miller told Reuters that the system was no bigger than normal. They estimate that some two
possible to cheat.
million tonnes of the 5.3 million tonnes the state said it
The smart cards and the machine that reads
bought was either imported or existed only on paper.
them were produced by SMART, a private company The traders, millers and former ministerial adviser who
based in Cairo. According to the traders and bak­ spoke with Reuters also allege that companies sold im­
ers, employees at SMART secretly produced cards ported wheat to the Ministry as Egyptian wheat so they
that resemble the ordinary smart card but act as a could receive the better subsidised price. The state paid
"master" that overrides the system. By swiping a around $370 a tonne for domestic Egyptian wheat, ac­
master card through their machine, bakers were cording to the government's published data, or $150 a
able to reset the system and then swipe ordinary tonne more than the global spot price.
Hesham Soliman, president of Med Star for Trading,
smart cards multiple times. SMART employees
sold the cheat devices to bakeries for several thou­ a medium­sized wheat importer, said he complained
to the central bank that the (harvest) number was in­
sand dollars, according to rival bakers.
One grocer in the industrial suburb of Helwan, accurate and made it hard for private companies to
outside Cairo, described how merchants in his gauge demand and plan how much they should import.
neighbourhood cheated the system: "The card is "This (such a large crop) has never happened in 30 or
entered into the machine and the ration spent but 40 years," he said. Waleed Diab, managing director of
the device can then reset the card allowing more Egyptian Millers Company, one of the country's three
spending. So instead of spending once or twice a largest millers, said the Supplies Ministry allowed a "cor­
month you can spend 1,000 times," said the grocer. rupted" system to continue "to cover up for the decrease
He said bakers and other shopkeepers who did in strategic reserves." In all, the sources estimate, local
not want to take part in the scam complained to suppliers made an extra 2 billion Egyptian pounds ($255
the Supplies Ministry, which subsequently began million) by selling the Ministry imported grain.
clamping down.
Cairo company Facilitation for Agricultural Crops
SMART did not respond to re­ (FAC) was one of several firms the sources said cashed
quests for comment. Supplies Min­ in on last year's crisis.
ister Hanafi acknowledged the smart
FAC is the company where Gad, the 29­year­old
card system had been compromised lawyer who was shot, worked. According to Gad, in the
but described the problems as "very scramble to fill the massive wheat shortfall FAC sold the
marginal and minor." He said the government wheat which did not exist. Gad told Reu­
ministry immediately investigated ters there was not enough space at the company's silos
to hold all the wheat FAC said it had sold. Documents
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Date: 23.03.2016
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between FAC and the Ministry of Supplies and other tonnes. He said the storage unit had been expanded be­
government agencies show that the firm sold the gov­ tween 2013 and 2015 ­ but by only a very small amount,
ernment hundreds of thousands of tonnes of wheat in probably no more than a few thousand tonnes.
2015. The documents, which Gad collated while he was
Diab, the mill owner, said the government revised
still at the firm and which were reviewed by Reuters, the storage capacity of many wheat silos lastyear to jus­
include receipts from the government, import contracts tify quantities that could never realistically have been
and government silo appraisals.
stored. "It happened all over the country," he said. Hanafi,
the minister, denied there was any fraud and blamed
Phantom wheat
One FAC sales contract shows that the firm sold the the confusion on changes in how the supply chain was
government 102,652 tonnes of wheat from a FAC silo managed. He and the Ministry have since declined to
answer requests for more detailed comment.
called Hanager al­Masna'a.
But inspectors from the Supplies Ministry had ex­
amined the silo in 2013 and found it to have a storage
capacity of just under 10,000 tonnes, an appraisal record
from the Ministry of Supplies show.
Gad said the inspectors returned last year to do a
new appraisal and found the storage space to be 102,000
Facilitation for Agricultural Crops told Reuters it
never falsified its wheat procurement. It said it did not
know its total storage capacity and could not say how
much wheat it had sold the government. It said that it
was impossible to cheat the government, which it said
had excellent oversight.
­REUTERS
we
the
Ifthereisany
increase not
justified in the
consumption, our
people directly go
andtakecareofit
to
per
ISUPPLIES MINISTER KHALED
HANAFI
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Indian workers load
wheat onto a truck at
a grain distribution
point on the
outskirts of Amritsar.
Egypt faces shortage
ofthe commodity
because of its strict
ban on imports of
wheat infected with
ergot, a common
fungus, afp
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Business Daily
Date: 23.03.2016
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AVE: 428133.33
Ipsos Kenya ­ Acorn House,97 James Gichuru Road ­ Lavington ­ Nairobi ­ Kenya