* Conflict on ergot in imported wheat still rife
* Government sources say zero tolerance policy still applied
* FAO report on ergot with agriculture minister
(Adds trader comment, wraps in FAO report)
By Maha El Dahan and Eric Knecht
ABU DHABI/CAIRO, June 8 (Reuters) - Egypt has rejected two
shipments of wheat for containing trace levels of the ergot
fungus, backtracking on a government pledge to apply
international standards and alarming traders looking to do
business with the world's largest buyer of the grain.
Earlier this year traders boycotted state wheat tenders
after the country's agriculture quarantine authority began to
apply a zero tolerance policy for ergot, a common grain fungus.
Suppliers said at the time the standard was impossible to
meet.
The ministries of supply and agriculture later assured
suppliers they would follow a 0.05 percent tolerance policy, a
widely applied international standard.
This pledge has now been called into question after renewed
quarantine authority rejections -- 30,000 tonnes of Polish wheat
and 10,000 tonnes of Canadian wheat since April --despite their
levels of ergot falling below 0.05 percent, traders said.
"The ergot problem was sleeping. It has not been resolved
and it remains a serious problem," one European trader said.
The Polish wheat was imported by trading firm Venus while
the Canadian grain was purchased by Five Star.
The Polish wheat, rejected twice since April, contained just
0.02 percent of ergot, a company source told Reuters.
Eager to have their stalled wheat accepted, the company took
out advertisements in three state newspapers last month pleading
with President Abdel Fattah al-Sisi to intervene and resolve the
ergot crisis, the source said.
As Egypt's local wheat procurement comes to a close this
month and as the country prepares to re-enter the international
market, traders say the renewed rejections could make purchasing
difficult.
Egypt's state grain buyer, the General Authority for Supply
Commodities (GASC), declined to comment on the two rejected
shipments or on the zero ergot tolerance policy.
"The weather problems in France, in Europe and the Black Sea
are favourable to ergot development. This could make supplying
GASC very difficult next season," another European trader said.
FAO REPORT
Egypt's agriculture ministry said it had received a crucial
study on ergot conducted by the United Nations Food and
Agriculture Organization (FAO) earlier in the year.
The report was commissioned to help standardize the
country's regulations and ease the conflict between rules
governing the agricultural quarantine authority and the supply
and agriculture ministries.
"The report is with the minister," Eid Hawash, spokesman for
the ministry told Reuters, ending weeks of speculation by
traders on the fate of a study that was seen as potentially
resolving the standoff over the country's import policy.
Hawash stressed that the FAO report alone would not be the
sole factor in determining any change in policy and said he was
unaware of what recommendation the report contained.
GASC said it had no information on the contents of the
report.
In the meantime, government sources said the zero tolerance
policy would continue to be applied by the agriculture
quarantine authority on both public and private sector
shipments, signalling the standoff still existed.
Traders, many of whom have opted to sit out state tenders
since the wheat rejections earlier this year, said that
purchasing from abroad will likely get even more expensive for
Egypt in coming months.
"The risk premium they were already paying a few months ago
will be even higher," one trader added.