Residents of Cairo stand in line to get bread on October 4, 2012. Reuters/Mohamed Abdel Ghany
By Maggie Fick
CAIRO, June 25 (Reuters) - Egypt is expanding its use of modern technology to tackle decades-old problems of corruption and waste in its costly food subsidies system as the government pursues reforms to ease the strain on state finances.
Supplies Minister Khaled Hanafi said some 25 million Egyptian families who already have electronic smart cards for bread purchases will be able to use them to buy 20 different subsidised goods at grocery stores across the country from July.
The new system aims to raise incentives for Egyptians to buy only as much subsidised bread as they need, helping reduce spending on wheat, of which Egypt is the world's top importer.
Subsidies of bread and energy products have traditionally eaten up around a quarter of Egypt's budget, which is forecast to end the current fiscal year on June 30 in deficit to the tune of 12 percent of economic output.
Officials say wheat consumption is kept artificially high in part by citizens who purchase subsidised loaves for the equivalent of one U.S. cent and feed them to their livestock because the bread is cheaper than animal feed.
"A motivation was needed (to bring down consumption), so we came up with a system to give citizens points for the bread that they do not use," Hanafi told a meeting of local businessmen in Cairo on Tuesday night.
Under the reformed bread programme being rolled out since April, a "points system" allows citizens who consume less than the quota to spend their savings on other foodstuffs.
Under the current system, they only have the option of buying infamously poor quality rice, sugar, and oil but Hanafi said the list of items available to purchase would be expanded first to 20 and then to 100 within months. Meat and poultry will be among the new products on the initial list.
He said smart card holders will accrue points if they purchase less than the quota of five loaves per family member per day, a number that officials hope can later be reduced.
The points can then be used to purchase foodstuffs to be made available at 25,000 privately-owned grocery stores around the country partnering with the government for the programme.
Hanafi, who retained his position after Egypt's new president Abdel Fattah al-Sisi took office earlier this month, has been outspoken about the need to reform wasteful subsidies.
Sisi spoke cautiously on the topic during his campaign, saying it could only happen gradually, but has urged Egyptians to prepare to make sacrifices, apparently laying the ground for a period of painful economic austerity.
Three years of turmoil in which protests have helped lead to the removal of two presidents and hundreds have been killed in the streets have wrecked Egypt's economy and left it largely dependent on aid from wealthy Gulf Arab allies.
"HUGE LEAKING HOLES"
Egypt spends more than $4 billion a year on food subsidies on which millions of poverty-stricken Egyptians depend. One cash-strapped government after another has resisted tackling problems in the system, fearful of a backlash from the public.
Officials increasingly acknowledge that a system intended to help the poor now allows profiteers to reap the benefits of corruption and mismanagement in the winding supply chain.
"A lot of money is pumped in by the state and the recipients are on the far other end, there are huge leaking holes and in the end the recipient doesn't get anything," said Hanafi.
The new system will also enable the government "to avoid a lot of corruption" because grocery stores will have to order goods requested by their customers from the government instead of the government delivering goods without any consumption data.
The new smart card system for bread distribution launched in April and now operational in several provinces already collects such data, and targets parts of the supply chain where waste and corruption has become ingrained.
Hanafi said last month that the reformed system had so far reduced bread consumption by 30 percent in the Suez Canal city of Port Said where the rollout began.
($1 = 7.1501 Egyptian Pounds) (Editing by Catherine Evans)