For the world’s wheat farmers already reeling from decade-low prices due to bumper crops around the world, it is the last thing they wanted.

Confusion surrounding quarantine rules in Egypt has effectively taken the world’s largest wheat importer out of the international market, depressing prices, which are already weak from plentiful harvests.

Wheat sales to Egypt have come to a standstill after the government announced in late August that there would be zero tolerance for any traces of ergot fungus, a naturally occurring fungus, despite internationally accepted standards which allow for levels of 0.05 per cent.

“Business with Egypt has almost stopped,” says Swithun Still, director of Switzerland-based grain trader Solaris Commodities.

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The decision was the latest twist in the chaos surrounding Egypt’s wheat imports, where the government has flip-flopped on the accepted levels of ergot, which is toxic when consumed in large amounts.

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At the end of last year, the country’s quarantine authority rejected a 63,000-tonne shipment of French wheat due to the presence of ergot, despite being below the 0.05 per cent threshold stipulated by General Authority for Supply Commodities (GASC), Egypt’s official grain importing body.

The uncertainty led to traders withdrawing their offers for GASC’s tenders, with Bunge — the trader behind the cargo — taking the government to arbitration. The government in July announced it would resume allowing wheat with up to 0.05 per cent ergot.

The Egyptian government, which provides subsidised bread to citizens, is the top buyer of wheat, but few traders are now willing to put in their offers in the state-run wheat tenders after the country’s authorities recently rejected vessels from Romania as well as Russia.

The situation is threatening Cairo’s relationship with Moscow after Russia said it would temporarily suspend fruit and vegetable imports from Egypt. According to Reuters, Egypt’s agriculture ministry has formed a high-level committee to try to resolve the trade stand-off.

GASC has also been forced to cancel its recent wheat tenders due to the lack of offers from traders. Suppliers cannot realistically guarantee zero levels of ergot, says Mr Still, adding: “There is a stand-off. No one wants to take the risk.”

The virtual absence of the world’s largest buyer comes as wheat markets are groaning under excess supplies.

The Australian government recently raised its wheat production forecasts for 2016-17 to the second highest on record, while the US Department of Agriculture also increased its world production estimates for the same period to a new record high of 744m tonnes due to increases in India, Kazakhstan, Brazil and Australia.

With Black Sea producers, led by Russia, being among the leading suppliers to Egypt, Wibke Baars at French grains information and consultancy Agritel says: “The Black Sea origins are strongly affected by this zero per cent ergot tolerance policy.”

Wheat

For example, export prices for Russian milling wheat have fallen about 25 per cent since the end of last year and it is trading just above $160 a tonne.

Theories surrounding the reason behind the latest decision have ranged from the need to annul contracts due to falling foreign reserves to infighting between government ministries.

But the official explanation has been public safety and the potential spread of ergot due to climate change.

Wheat

“Should we allow something that is diseased to enter the country? We do not have this fungus, why should I wait until it comes in before taking action?” says Eid Hawash, spokesman of Egypt’s agricultural ministry.

He says the decision which had allowed 0.05 per cent ergot levels had included a proviso that the issue would be revisited if there is climate change. A scientific committee appointed by the agriculture ministry recently concluded that the changing climate in Egypt could lead to the spreading of ergot in the country.

“The committee proved that this fungus will represent a danger to Egypt which is approaching climatic changes prompting fears that it will spread,” says Mr Hawash.

Despite the uncertainty, analysts expect Egypt to return to the international markets as the country, while not needing to import wheat immediately, will eventually see their inventories dwindle.

Some traders are also watching to see what the new minister of supplies, General Mohamed Ali El-Sheikh, decides. Many are hoping that Gen El-Sheikh — who was appointed earlier this month after his predecessor resigned — will take a more pragmatic view of the ergot policy and accept the international ergot threshold.

As such, many wheat market participants see Egypt’s import demand to have been “deferred” for a few months rather than to have disappeared.

Abdolreza Abbassian, senior grain economist at the UN Food and Agricultural Organisation, is in no hurry to cut his Egypt import forecasts for 2016-17, currently at 12m tonnes, even after the latest cargo rejections by Cairo. He says: “I’m willing to bet that Egypt would get its wheat.”

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