CAIRO - Egypt plans to start rationing subsidised bread, a minister said on Tuesday, taking a politically risky step to restrict supplies of the cheap loaves upon which many Egyptians depend as the state tries to save money.

Bassem Ouda, the supply minister, said the government would start implementing rationing "after two months". Trials of a rationing system using electronic smart cards would begin in the restive Suez Canal city of Port Said and its suburb Port Fouad.

The change means anyone wishing to buy subdisied loaves will need a ration card - to which all Egyptians are entitled but which the better off have typically let lapse. Ouda did not say to how many loaves citizens would be entitled.

Food supply has long been an explosive issue in Egypt, which is struggling to secure an IMF loan as parliamentary elections approach. Rising prices are being passed on to struggling consumers and shortages have already provoked discontent.

"Every ruler of Egypt has resisted cutting these subsidies because of fears of social unrest," said Elijah Zarwan, a Cairo-based analyst. "It's clear that the subsidy system is sick, the economy is sick.

"But the cure in this case may be as painful as the disease."

Curbs on bread subsidies provoked bread riots in 1977 and Egyptians are now angry about falling living standards as the economy has headed into crisis under new, Islamist leadership since the overthrow of president Hosni Mubarak two years ago.

The cheapest subsidised loaves are sold for 5 piastres, or less than 1 U.S. cent. As recently as 2008, Mubarak faced protests over bread shortages.

Though Egyptians are technically each entitled to three subsidised loaves a day, according a report published by the government and the World Food Programme last year, there are in practice no curbs on how much of the cheap bread people can buy.

Cutting subsidies is seen as vital for Egypt to secure the $4.8 billion loan it is seeking from the International Monetary Fund (IMF), which held talks with the government this week.

The government spends over $5.5 billion a year on food subsidies, which also cover items such as rice, oil and sugar. A slide in the Egyptian pound's value is pushing up the bill, as much food has to be bought for dollars on international markets.

Yet some farmers can still give subsidised loaves to their livestock as they are cheaper than - unsubsidised - animal feed.

Wheat imports are down sharply this year as the economic crisis makes it harder for Egypt to arrange payments; between Jan. 1 and Feb. 20, it bought around 235,000 tonnes, roughly a third of what it purchased in the same period a year ago.

Tempers rise

Supply minister Ouda told the state news agency MENA that subsidised bread and cooking gas would be added to the list of staples made available to Egyptians below market prices under a state rationing system. The government has already said it would use a new smart card system to ration motor fuel from July.

Tempers are rising. Bakers are already threatening to strike, accusing the government of owing them 400 million pounds ($59 million) in overdue subsidies for their production. Ouda said on Monday that the bakers would face legal action unless they called off the strike action.

The cities earmarked for the bread trial, Port Said and Port Fouad at the Mediterranean mouth of the Suez Canal, have seen violent protests in recent weeks over death sentences handed down on local soccer fans for their role in a stadium riot last year when more than 70 people died.

With the economy weakened by two years of political turmoil, Egypt is under pressure to curb a subsidy bill that accounts for about a quarter of state spending - although the bulk of this is for fuel rather than food.

"Cooking gas and bread will start to be distributed using smart cards after two months," Ouda said, adding that this would follow a tender process to pick a smart card supplier.

Cairo analyst Zarwan said he expected the government to make very sure the smart card system was working well before trying to ration bread:

"The number of people who depend on subsidised bread is enormous," he said. "If the people who depend on it are no longer able to get it, the response would be terrifying to consider."

Reuters