A new direct debit system launched by the government at the start of August restructures its financial relationship with mills and bakeries — the supply chain that makes subsidized bread for around 64 million people.
The new system marks the first practical step toward overhauling the workings of Egypt’s largest subsidy program, sources in bakeries across the country told Mada Masr.
The government has said it plans to phase out in-kind bread subsidies, making bread just another option in a range of goods that subsidy program beneficiaries will be entitled to purchase through a monthly cash support program.
The transition has sparked concerns that some of Egypt’s most vulnerable will be left without government-guaranteed access to bread, leaving them exposed to high inflation.
Wheat and flour have always been supplied to mills and bakeries on consignment, with financial accounts settled later.
Under that system, bakeries received payments from the Supply Ministry to cover other production costs such as energy and labor through periodic settlements, without having to purchase flour themselves or provide cash to finance production.
Now, every stage of the bread-making process is set to operate on cash transactions instead. Mills must pay the General Authority for Supply Commodities for wheat up front before receiving it, and bakeries must, likewise, purchase flour from the mills.
The government will then reimburse bakeries only for the amount of bread distributed to subsidy beneficiaries, verifying how much bread they have supplied to consumers through their ration card point-of-sale machines.
Two sources in the General Bakeries Division of the Federation of Egyptian Chambers of Commerce told Mada Masr the shift to direct debit cannot be separated from the government’s broader plans to overhaul the subsidy system. The move to a financial cycle based entirely on digital payments and bank settlements will allow the state to monitor money and goods moving through the system more closely, they said — one of the key technical requirements for the planned transition to cash support.
The new step begins to shift government support away from the movement of wheat and flour themselves and toward the flow of money instead.
In doing so, it transfers part of the burden of financing daily operations from the state to bakeries, which must now ensure they have enough cash liquidity to pay for flour before recovering their dues from the government.
Supply Minister Sherif Farouk said in a TV interview on Wednesday that the changes will have no impact on citizens. He affirmed that subsidized bread will continue to be priced at 20 piasters per loaf, with each loaf weighing 90 grams, and each beneficiary will continue to be entitled to receive five loaves per day.
He said the new system is intended to strengthen oversight on the movement of wheat and flour, reduce waste and improve the efficiency of subsidy management without affecting beneficiaries’ entitlements.
But many people working in the subsidized bakeries sector said that the new system would turn their operations upside down, adding to already high costs that threaten the viability of their operations.
New cashflow requirements add to existing financial burden on bakeries
The new financial burden posed by the need for extra liquidity is added to rising costs that have already strained bakeries in recent months, bakery owners said to Mada Masr.
Days before the new system took effect, the General Bakeries Division called for their production subsidy to be raised by around 40 percent, arguing that current rates no longer reflect accumulated increases in labor costs, energy prices, operating expenses and administrative fees.
Instead, the Supply Ministry sought to reassure the sector with a 10 percent increase in the government subsidy payout for subsidized bread production starting August 1, according to a bakeries division statement Mada Masr reviewed. The increase applies to all types of subsidized bread produced under the ration card system, bakeries division head Abdallah Ghorab said, adding that the Supply Ministry will review production costs again once the full impact of the new system becomes clear.
Bakery owners see the increase as seeking to soften opposition to the new direct debit system, rather than as a meaningful solution to rising production costs.
They argue that the criteria used to calculate production costs and, hence, government payouts do not allow them to produce the quantity or quality of bread the program promises.
A member of the bakeries division’s Gharbiya branch told Mada Masr that current production costs covered by the government assume that a bakery can produce around 660 loaves from a 50-kilogram sack of flour. In practice, he said, bakeries can produce only around 620 loaves if they comply with the official loaf weight of 90 grams.
That gap either translates into bakery losses, they said, if they cover extra production costs themselves or to bakeries tweaking loaf size to try and make up the shortfall.
The source also called for the government to revise diesel and bran consumption rates, arguing that they are still based on estimates from when subsidized loaves weighed 110 grams, even though the production system has changed and the official weight has been reduced to 90 grams.
The government has reduced the weight of a subsidized loaf steadily over the past 12 years. In 2014, the Supply Ministry cut it by about 20 grams, to 110 grams. It removed another 20 grams in August 2020, bringing the loaf to its current weight of 90 grams while its price remained fixed at 5 piasters. In 2024, the government raised the price to 20 piasters, keeping the weight unchanged.
Administrative fees are another growing burden, the Gharbiya source said. Bakeries seeking to legalize their status and obtain licenses have to, in some cases, pay more than LE100,000, in addition to fees for commercial registration and fees to the Chamber of Cereal Industry at the Federation of Egyptian Industries, the National Food Safety Authority, the civil protection authority and others. None of these costs are directly reflected in the government’s approved production cost.
Bakery owners have also renewed calls for the government to revisit Ministerial Decree 175/2024, which sets penalty fees for bakery violations. They argue that the financial penalties stipulated in the decree have become an additional burden for many.
Many bakeries are also facing new production costs due to the direct debits system, according to a source in the Assiut bakeries division branch who told Mada Masr that bakeries will now need dedicated accounting staff to monitor cash flow and track bank deposits and payments to mills.
Haphazard rollout
The government has already delayed the rollout of the direct debit system to support bakeries’ integration into the scheme and to smooth over the anger and alarm that gripped the bakery sector over the last days of June.
The system was originally set to take effect at the start of the fiscal year on July 1, but implementation instructions were only sent to bakeries and mills shortly before the launch date, leaving them short on time to make the necessary banking and operational arrangements or test a financial cycle that differs entirely from the previous system, a source in the General Bakeries Division told Mada Masr.
The ministry therefore postponed implementation at the last minute to give bakery owners time to adjust their operations, including opening and activating bank accounts in some cases.
But even after the extra month, many details remain unresolved and many bakeries are not ready or equipped to continue their work under the system, according to the source.
And the first days of implementation have already exposed persisting operational hurdles, the source said.
To jumpstart the new system, the Supply Ministry agreed with the bakeries division that it would deposit enough money into each bakery’s bank account to cover two days’ worth of flour, based on the bakeries’ average production in June, the source said. But those deposits were delayed until the second day of August and did not reach all bakeries. According to bakery owners who spoke to Mada Masr, some bakeries received less than expected, while others received enough to cover a single day’s production only. Additionally, previous debts owed to the ministry were deducted from the deposits, effectively leaving bakeries without financial support to start the new purchasing cycle.
Some bakery owners, acting on instructions from state-owned mills, opted instead to pay in advance for their flour allocations for August 1 and 2 on July 31 to avoid production getting disrupted over the weekend, forcing them to cover the costs out of pocket.
Now that flour can only be obtained after bakeries pay mills and with payments depending on the efficiency of the digital system, the delays and inconsistencies over the initial rollout have heightened concerns among bakery owners that the daily work cycle could become unstable.
Bakery owners could find themselves facing the difficult decision of having to suspend operations, said the general secretary of one of the bakeries division branches, as the new system increases bakeries’ dependency on working capital, particularly small- and medium-sized bakeries that rely on daily cash flow, he explained.
Any delay in government payments could therefore leave owners responsible for supplying liquidity themselves, borrowing to keep production running or forced to halt operations.
Delays in payments would hurt bakeries, but consumers would ultimately bear the greater cost, a source in the bakeries division’s Monufiya told Mada Masr. As he put it, “if a bakery owner doesn’t find money in their account, what will they do? They’ll close. The citizen is the one who won’t find bread to eat. And that would be the government’s problem, not ours.”
What’s next?
The Supply Ministry insists that the direct debit system is not intended to impose new burdens on bakeries but to reorganize the financial cycle and improve the efficiency of subsidy management without affecting citizens or their bread allocations.
Farouk said the system will give every participant a stronger sense of the value of what they are handling, improve efficiency and curb undisciplined practices.
But so far, the government is yet to announce a contingency plan to keep the bakeries running if the digital system breaks down for several hours or a full workday.
Owners of the country’s 30,000 bakeries are now waiting to see whether the new direct debits will really allow them to continue operations and how the ministry will respond to malfunctions in the supply chain to ensure bread reaches the people who need it.
The post Bakeries voice concerns that new direct debit system could disrupt subsidized bread production first appeared on Mada Masr .
Bakeries voice concerns that new direct debit system could disrupt subsidized bread production
Aggregated summary from an independent source. Read the original at MadaMasr.