(Reuters) -
Smugglers in the Middle East are enjoying an unlikely moneyspinner -
illegal medium grain rice.
Shoppers across the Gulf,
mostly unaware of the smuggling, depend on Egyptian rice to make popular
Middle Eastern recipes such as Mahshi, a stuffed vegetable dish, since
Cairo refused to lift a ban on exports.
Contraband
Egyptian rice is displayed in shops across the Gulf including the
United Arab Emirates, Saudi
Arabia and Qatar, filling demand from shoppers like Ghada in Abu
Dhabi who argue there is no replacement for the high quality medium
grain rice.
"How can you make
Mahshi with basmati rice?" asked Ghada, doing her weekly supermarket
shop in Abu Dhabi where she and her family have been living for eight
years.
But while Ghada and other
shoppers in the Gulf are able to cover their needs through the growing
trade in illegal Egyptian rice, Egypt has been forced to import rice to
cover shortages in its subsidy program, introduced to fight rising food
prices.
Egyptian rice is meant to
be sold to the domestic market at subsidized prices - sometimes as
little as $250 a ton - in a government program to avoid any repeat of
protests over food inflation that rocked the country in 2008. In 1997,
President Anwar Sadat's attempt to raise bread prices led to riots.
But the artificially low price has produced
hefty premiums on the export market. With Egyptian rice fetching as
much as $900 a ton abroad, some traders are willing to risk being fined
by transporting the rice out of the country mainly to the Gulf.
"The only thing that has changed since the
ban is that instead of dealing with rice traders, now I have to deal
with smugglers, who basically look and operate like gangsters," said a
Gulf-based trader, who declined to be identified.
The smuggling business is so large that a
January report by the embassy attache for the U.S. Department of
Agriculture (USDA) estimates Egypt will export up to 600,000 tons of
contraband rice in the marketing year 2011/2012, which runs from October
to September. That would total around half of the 1.1 million tons it
needs ever year for its subsidy program.
FORCED
IMPORTER
Egypt banned rice
exports in 2008, regularly renewing it to try to protect its domestic
market and ensure low prices. It last renewed the ban in October.
Egypt should cover its needs easily;
farmers cultivated 1.7 million feddans of white rice this season and
should produce around 4 million tons, covering 3.34 million tons of
domestic demand including 1.1 million tons needed for the subsidy
program.
But with large quantities
diverted to smuggling, Egypt has been forced to turn to imports of
cheaper long-grain rice to feed its population.
"We have opened the door for imported rice
because the quantity of Egyptian rice offered in tenders does not meet
the needs of the subsidy program," said Nomani Nomani, vice chairman of
the state's main grain buyer, the General Authority for Supply
Commodities (GASC).
Egypt first
imported rice in December, buying 234,000 tons mostly of Indian origin.
The USDA estimates it will bring in a total of 500,000 tons in
2011/2012.
TO BAN OR NOT TO BAN
It would make sense to many in the rice
market for Egypt to lift the ban, continue importing cheaper grains,
export its more profitable harvest and pocket the difference.
If Egyptian rice can fetch $900 a ton on the
open market, GASC can pay around $530 a ton for imported rice, making a
healthy profit.
"If we only open
the door for imports, we will drain foreign reserves, but if we
simultaneously open the door for exports, we will bring more greenbacks
into the country," said rice expert and former exporter Mostafa
el-Naggari.
Others say the
government should allow those supplying rice to the subsidy program to
export a similar amount. But others say that was tested in 2009 and
quickly led to a black market in rice export permits.
"It was during that period that anyone who
could afford to rent a shabby apartment opened up an Egyptian rice
export business," said Samir Abdul Sammad, who imported Egyptian rice
for UAE-based Lifco Trading.
Egypt,
the world's largest importer of wheat, wants to decrease its reliance
on imports and is willing to pay a large price to keep its citizens fed.
In 2011, the food subsidy bill amounted to
$5.5 billion mostly for wheat but also for vegetable oils, sugar and
rice, a heavy burden for a country with a faltering economy and a budget
deficit that is ballooning after the uprising that toppled president
Hosni Mubarak last year.
"GASC
prefers that the ban remain in place, so that Egyptian rice remains
available domestically without resorting to imports," Nomani said.
And so the government has purchased
equipment to scan containers at ports in the same way bags would get
checked at an airport. It is not a failsafe measure.
"I doubt they will be available at all port
terminals, and even if they were, smugglers would still find a way to
get the goods out by taking care of some customs or port officials," the
Gulf-based trader said.
TRICKS OF
THE TRADE
Smugglers have found
increasingly ingenious ways to get round the ban - for example, taking
advantage of lax security at the Sudanese and Libyan borders after the
Arab Spring uprisings. But sometimes the old ways are the best - bribery
at ports.
"Forget about the Sudan
and Libya argument," said the Gulf-based trader, who regularly
purchases Egyptian rice smuggled into the UAE.
"The rice I'm getting is coming directly
from ports in Egypt like Alexandria, Ain Sokhna and Port Said."
Rice is often buried underneath other
goods in containers to pass through ports. The cover-up sometimes means
that traders receiving the goods are forced to buy products they don't
want.
"I've had to accept packets
of pasta, salt and other goods because the smugglers say if you want the
rice you have to purchase the whole container with everything in it,"
the Gulf-based trader said.
And
apart from smuggling, some rice traders in Egypt have also resorted to
other tricks to profit their businesses.
"I've
met various traders at a food exhibition in Dubai last month who have
offered Egyptian rice to me, and when I asked how they could get it out
of the country, they told me they were importing cheaper Russian rice
and processing it to look like Egyptian," the Gulf-based trader said.
Some traders say they use stockpiled
Egyptian rice from before the ban for their sales, while others blame
their counterparts for bringing it into the country - no one actually
confesses to having broken the ban.
"Egyptian
rice sold there now is fresh with very high quality and thus is not
pre-stored from before the ban. The ban has been imposed for several
years now, and that rice can't be that old," GASC's Nomani said.
The ban has slowly been turning consumers
away from Egyptian rice to other medium-grain origins.
"The market for Egyptian rice is getting
smaller because there have been alternatives now for some time," said
Ahmed Abou Al Nasr, chairman of Al Nahda Al Masriyya Food Stuff Trading
Company, which has offices in both Cairo and Abu Dhabi.
"The smuggling business is not as large as
when the trade was legitimate, and the U.S. medium-grain rice for
example, which is of a higher quality and with a better price, is taking
over," he said.
Cheaper Russian,
Chinese and Vietnamese brands are also eating into the Egyptian rice
market share, Nasr said.
Other
traders complain that it is getting more difficult to source the
contraband rice regularly to meet demand.
"The
business is unpredictable now ... I have to buy large quantities just
to make sure I don't get stuck," the Gulf-based trader said. Instead of
renting a small warehouse for 12,000 UAE dirhams ($3,333) a year, the
trader is now renting a much larger one for 200,000 dirhams to store his
goods.
"If the government does
not do something about this soon they will do to Egyptian rice what they
did to Egyptian cotton," the Gulf-based trader said.
Egyptian cotton, or Egypt's "white gold" as
it was dubbed during its heyday in the 1960s, has suffered from years
of government neglect and a series of bad policies, which have enabled
cheaper cotton imports to invade the market and provided little
incentive for farmers to grow the crop.
"Since
the ban came into place, I have said that it would make Egyptian rice
forgotten in markets abroad," Al Nahda's Nasr said.
HANOI: China could see a three-fold jump in
rice imports from Vietnam this year, industry officials said on Monday,
as the world's biggest consumer steps up purchases to contain domestic
prices.