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 US 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. 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 (714,000 hectares) 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. 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. "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.
