Egypt is moving away from financial commodity ins. in favor of a massive physical hedge, more than tripling its food storage capacity from 1.8 mn tons to around 6 mn tons to insulate the budget from global price spikes, a senior government source tells EnterpriseAM. The state is now prioritizing physical hoarding as a proactive risk management tool, potentially shelving plans discussed last year to take out ins. contracts against rising commodity prices, they added.

Why this matters: The state is moving to protect its EGP 160 bn subsidy bill for commodities for the current fiscal year, which is already up 20% from the last budget. By shifting from paper hedges (which carry high premiums) to physical hedges, the state is betting that it can manage volatility more cheaply — and keep inflation in check — by buying in bulk during troughs and storing the surplus in a new, private-sector-built infrastructure.

Warehouses to accommodate the drastic increase in stockpiled commodities are also in the works, with the government to take delivery of three massive strategic warehouses designed to extend the shelf life of strategic reserves — particularly wheat — to 9-10 months in the second quarter of the year. The three warehouses in Sharqia, Suez, and Fayoum are being developed under build-own-operate-transfer agreements by Orascom Construction, Hassan Allam Holding, and Sancrete with investments totalling EGP 12 bn, we were told. The government is also accelerating the deployment of 40 smart silos before the spring procurement season.

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