* Ergot fungus takes centre stage as row over levels persist
* Quarantine agency sticks to zero tolerance law
* Threat of rejected shipments has kept suppliers away from
Egypt
By Eric Knecht and Maha El Dahan
CAIRO/ABU DHABI March 2 (Reuters) - A global grain glut
should make purchasing wheat cheap and easy for Egypt, the
world's biggest importer, but traders say one bureaucrat has
made it anything but.
Saad Moussa, the head of the agricultural quarantine agency,
refuses to let in a single grain of wheat infected with ergot, a
common fungus that can lead to hallucinations and irrational
behaviour in large quantities but at trace levels is of no harm
to humans.
Confusion over Egypt's position on ergot levels has
disrupted wheat tenders, raising the possibility of a shortage
of grain which could pose a political problem for President
Abdel Fattah al-Sisi as the impoverished population relies on
highly subsidised bread.
Officials at Moussa's quarantine authority use a 2001
regulation, which Reuters has seen, stipulating zero tolerance
for ergot as their main guide, according to a quarantine
official who declined to be named. They first used the rule to
reject a wheat shipment in December.
Moussa, who did not respond to repeated attempts to contact
him for this story, told Reuters in January: "Any wheat that we
inspect that has any level of ergot will be rejected...it would
be very harmful if any level of contamination reached plants in
Egypt."
Moussa reports to Agriculture Minister Essam Fayed but a
spokesman for the agriculture ministry said he had no knowledge
of the 2001 regulation Moussa was relying on.
"I don't know anything about this topic, the last thing I
have is what was announced by the agriculture minister and the
minister of supply that they would accept 0.05 percent,"
spokesman Eid Hawash said.
Officials at the Supply Ministry were not available for
comment for this story.
Most Egyptian officials follow a different specification
issued in 2010 by the Egyptian Organization for Standardization
and Quality allowing trace levels of 0.05 percent, the common
worldwide standard and the one stipulated by Egypt's
grain-importing body, the General Authority for Supply
Commodities (GASC).
"I am bound by the Egyptian specifications," Mamdouh Abdel
Fattah, vice chairman of GASC, told Reuters when asked about the
contradiction between the two, stressing that the 2010
specifications are more recent than the 2001 regulation and is
accepted internationally.
TWO DECISION MAKERS
Panic began to spread among traders after a 63,000-tonne
French wheat shipment purchased by GASC was rejected by the
quarantine agency in December for containing trace levels of
ergot.
GASC was forced to cancel two tenders after rattled traders
and suppliers stayed away, uncertain that their shipments would
be ergot free and fearing the heavy cost of having a shipment
rejected.
After weeks of confusion Minister Fayed and Supply Minister
Khaled Hanafi tried to reassure the market in a joint press
conference on February 7 that Egypt would accept all shipments
with less than 0.05 percent ergot.
The following day Moussa's agency rejected a shipment of
Canadian wheat, further baffling the market
"This was a big surprise. It was one day after the TV
announcement of both ministers...and all of a sudden the vessel
is rejected. So do we have two different decision makers in the
same (agriculture) ministry?" the Cairo-based trader said.
According to documents seen by Reuters, the shipment had a
far lower ergot reading than 0.05 percent.
The lack of successful sales prospects to a huge buyer along
with record global wheat supplies has weighed on Benchmark
global grain prices and curbed export prospects for European
Union producers. ID:nL8N1611D1
That should have created ideal conditions for Egypt to buy
wheat at great prices.
INCALCULABLE RISK
GASC successfully purchased 300,000 tonnes of wheat last
week. But with less than half the usual number of suppliers
opting to make bids during the tender, the uncertainty was still
front and centre. ID:nL8N1643V8
"The risk is still incalculable," said a Cairo-based trader
that sat out of the tender, echoing the sentiment of several
others reached by Reuters.
All traders interviewed for this story asked to remain
anonymous. Wheat traders are generally banned from speaking to
the media by the companies they represent.
Traders who sat out the latest tender said they would remain
on the sidelines, at least for now.
"(Moussa's) definitely not changed his mind at all -- he's
even lobbying all the research centres in the country and now
they are all convinced with the zero," said another trader.
Egypt will announce the results of its latest tender for an
unspecified amount of wheat from global suppliers for shipment
from April 5-14 after 3:30 p.m. local time (1330 GMT) on
Wednesday.
Hanafi said on Friday Egypt has enough wheat supplies to
last until the middle of June. But should the crisis deepen, it
could hurt Sisi's credibility at a time of waning popularity and
with the economy struggling after years of political turmoil.
The former army chief faced tough criticism last week by
Egyptians on social media after he delivered a long television
speech on his vision for the future.
Any Egyptian leader knows ample supplies of low-cost bread
are key to maintaining stability.
President Anwar Sadat triggered riots when he cut the bread
subsidy in 1977. And when Egyptians rose up against autocrat
Hosni Mubarak's rule in 2011, one of their signature chants was
"Bread, freedom and social justice".
(Editing by Michael Georgy and Anna Willard)