Bakeries sources: Supply Ministry to increase allocations for bakeries producing subsidized bread

The Supply Ministry is set to increase the financial support it allocates to bakeries producing subsidized bread starting in the new fiscal year, two informed sources in the bakery sector told Mada Masr on condition of anonymity.

Bakeries have repeatedly requested that the government provide them with more financial support to produce the subsidized loaves, most recently in meetings held with the ministry this week.

But the government has not increased its allocation to bakeries’ production costs for four years, despite a precipitous rise in expenses including rent, wages, electricity and other inputs, the sources said.

To review the government’s support for bakeries, the sources said the government and bakeries spent three days of meetings evaluating production costs.

Supply Minister Ali Meselhy issued a directive on Tuesday, of which Mada Masr reviewed a copy, to establish a committee to evaluate the production costs of the three types of baladi (subsidized) bread.

The committee was to comprise representatives from the ministry, the General Authority for Supply Commodities, the Holding Company for Food Industries, the General Bakeries Division at the Federation of Egyptian Chambers of Commerce, and a representative from the Finance Ministry. 

Representatives of the bakeries division submitted a memo on their costs to the Supply Ministry on the same day, of which Mada Masr also obtained a copy. The memo said that it currently costs LE500 to produce baladi bread from a 100-kilogram sack of flour, 92 percent more than the current support provided by the government of LE260.35 per sack.

The division mentioned 30 items making up their current costs, including LE223.05 in production supplies, LE210 in wages for labor, LE47 in monthly and annual overhead costs and LE10 for depreciating equipment.

According to the sources, the bakeries’ representatives and the ministry reached agreement on around 70 percent of the points. The remaining contentious items, which are pending Meselhy’s final decision on Thursday, include increasing the pricing of yeast and the profit margin per sack to LE10 instead of the current LE6, the sources added.

The bakeries division demanded that the ministry pay them the cost of free-market yeast brand Forno, which is LE35 per packet, while the Supply Ministry insisted they use yeast produced by the state-owned Hawamdiya factory, priced at LE22. The bakeries ultimately consented, but stressed that LE22 is the factory price, whereas retail prices can reach up to LE25. 

The two parties also negotiated around how much the government would pay bakeries for the required diesel supply, according to the two sources. A liter of diesel costs LE10, in addition to transport costs, losses in the dispensing and depositing process, and what has been described by one source as “what the gas station employee manages to pinch.” The division estimated that these factors add another LE1 to the cost of diesel per liter, while the Supply Ministry proposed LE0.25. The parties eventually settled on LE0.50.

After the ministry increased subsidized bread prices by 300 percent last week, the Supply Ministry opted to discontinue transferring production costs to bakeries via banks. Instead, bakeries are currently expected to deduct their production costs at the old rate from the LE0.20 consumers pay for a loaf of baladi bread, and any remaining balance is to be transferred from the bakeries to the government via bank.

The government has revised the bread subsidies system over recent weeks, hiking the cost for millions of members of the public who rely on bread as a food staple. The policy change of reducing in-kind subsidies comes in line with structural adjustments recommended by the International Monetary Fund.