(Bloomberg) -- Food trader Adel Abdou was enjoying a weekend with his family when police raided his warehouse in Cairo and seized 45 tons of sugar.
“They treat us like drug dealers now,” Abdou said on Sunday, adding that he's moved quickly to dispose of his rice and oil stocks in case they're also confiscated. “I will not work anymore. Do I want to get locked up?”
Egypt has been facing a shortage of sugar for weeks as a currency crunch and rising global prices curbed imports. Authorities have accused traders of hoarding, and seized stocks from companies including Edita Food Industries -- one of Egypt's largest producers. With inflation at a seven-year high, the sugar crisis is making it harder for the government to cut subsidies and introduce cost-saving measures ahead of a $12 billion International Monetary Fund loan.
The government is in a state of panic “resulting from an unprecedented shortage in a key strategic commodity,” said Hany Farahat, senior economist at CI Capital, a subsidiary of Commercial International Bank in Cairo. It's trying to find a “swift solution to a problem that needs time to be investigated and resolved,” he said.
So far, 9,000 tons of sugar have been seized, Prime Minister Sherif Ismail said in an interview with Bloomberg. It's resold to citizens at discounted prices through state-run outlets, he said.
Edita, one of the country's largest food producers, suspended production at one of its four factories over the weekend after police seized about 2,000 tons of sugar.
‘Shameful Treatment'
“What kind of message does this send to investors?'' Edita Chairman Hani Berzi said in a television interview on Sunday. “If the government has a problem, they should come and negotiate, but this way of seizing stocks and treating us as smugglers is shameful.”
Authorities were assessing whether the company was overstocking the commodity, while other senior government officials intervened to prevent the sale of its sugar to the public, he said.
State-run Ahram Gate news website reported on Monday that the government had overturned the seizure, and shares of Edita, which produces Twinkies and Ho Hos among other snacks, rose 5 percent as of 11:32 a.m. Tuesday. They fell as much as 6.7 percent the day before.
Sugar was also seized from a local plant of PepsiCo Inc, the Al-Masry Al-Youm newspaper reported, without giving details. Executives at the company weren't immediately available to comment.
Currency Crunch
In a television interview on Monday evening, Ismail said the government is dealing with “negatives” arising from the inspections, an apparent reference to the raids on large corporations. “We're increasing the amounts of sugar supplied to the market to end the crisis,” he said. “But we cannot leave the market unmonitored."
The sugar shortage is the latest byproduct of a foreign currency shortage that has crippled economic growth, and sent the Egyptian pound to a record low on the black market. Egypt imports almost a third of the 3 million metric tons of sugar it consumes annually, according to U.S. Department of Agriculture data.
Officials have said the IMF loan would end the currency shortage, restore investor confidence and revive the economy. But the government is widely expected to devalue the pound and lower fuel subsidies before the lender's board approves the loan, measures that some economists predict would drive inflation above 20 percent from 14 percent currently.
In the meantime, sugar prices are surging -- the cost per kilogram has risen to about 10 Egyptian pounds ($1.13) from 5 to 6 pounds a few weeks ago, according to supermarkets surveyed by Bloomberg.
Investment Concerns
Last week, Egypt's cabinet formed a committee to set limits on company profit margins on goods, earning the ire of the business community.
The seizure of commodities including sugar, rice and oil from private sector traders would result in more shortages, as “many people at the industry will be forced to exit the market instead of expanding and investing,” the Federation of Egyptian Chambers of Commerce said.
Mohamed Shoukry, a sugar supplier and board member at the Federation of Egyptian Industries, agrees.
“It's better to be idle than to be arrested and make the front pages of newspapers,” he said.
--With assistance from Abdel Latif Wahba To contact the reporters on this story: Salma El Wardany in Cairo at selwardany@bloomberg.net, Ahmed Feteha in Cairo at afeteha@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs
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