CAIRO: Egypt's decision to shift its wheat import programme to a military-affiliated entity around four months ago has been anything but smooth as local prices climb and stock levels fall, traders in the country said.

Egypt, one of the world's largest wheat importers, previously relied on the General Authority for Supply Commodities (GASC) to conduct large-scale international tenders, securing supplies with long-standing financing agreements.

However, in December, the government transferred this role to Mostakbal Misr, an entity that until that moment was only known to be the development arm of the Egyptian Air Force.

It has not said why the change was made.

The success of its wheat import programme is absolutely critical for Egypt which distributes subsidised bread to tens of millions of its people providing a lifeline in a country facing a cost-of-living crisis with record-high inflation.

Traders said the switch has transformed Egypt from one of the most transparent wheat buyers to a much more secretive one.

Instead of buying wheat directly from global markets in publicly announced tenders, Mostakbal Misr has largely sourced it from local Egyptian importers, who primarily procure from Russia, traders said.

According to three traders, Russian suppliers have been hesitant to engage with Mostakbal Misr, citing its lack of experience in commodity trading.

Instead, one trader said that global and Russian suppliers prefer to engage with experienced Egyptian importers rather than military organisations with no history in the trade.

This shift has contributed to a 10% rise in domestic wheat prices, as Mostakbal Misr's purchasing model has increased demand in the local market, traders said.

According to two traders, representatives of Mostakbal Misr are present at ports and agricultural offices to oversee incoming shipments, with negotiations taking place at Mostakbal Misr's headquarters to take part or all of the cargo.

Despite buying from the local market and paying local suppliers in Egyptian pounds, two traders told Reuters that Mostakbal Misr charged the state in U.S. dollars and still relies on GASC to manage financing arrangements, adding another layer of complexity.

The Egyptian Supply Ministry did not immediately respond to a request for comment.

Meanwhile, wheat reserves have declined and now cover just five months of consumption, which includes future deliveries, down from seven months in mid-2024.

Since taking over, Mostakbal Misr has signed contracts for 2.7 million metric tons with Egyptian suppliers, including 1.7 million tons for February and March delivery, one trader with knowledge of the matter said.

Around 850,000 tonnes have been delivered so far, he noted.

He said around 1.7 million tons were bought using 270-day letters of credit, while 900,000 to one million tons were purchased with funding from the International Islamic Trade Finance Corporation (ITFC), which lends Egypt hard currency to secure grain purchases.

In both cases, Mostakbal Misr still had to rely on GASC to manage the purchases, he added, noting that financial backers, such as the ITFC and the European Commission have not yet embraced the change in purchasing agency.

Both the ITFC and the European Commission recently signed agreements to support Egypt's grain imports through GASC and not Mostakbal Misr.

A trader questioned the current financial processes, asking why GASC is receiving funds from foreign lenders if Mostakbal Misr is handling grain imports exclusively. (Reporting by Mohamed Ezz; editing by David Evans)