* Governments fearful of shaking up bread system
* World's biggest wheat importer
* Pilot project could help tackle food import bills
By Maggie Fick
PORT SAID, Egypt, Feb 25 (Reuters) - A device resembling a credit card swiper is revolutionising some of Egypt's politically explosive bread lines and may help achieve the impossible -- cutting crippling food import bills.
Authorities who hope to avoid protests over subsidised loaves sold for the equivalent of one U.S. cent have turned to smart cards to try to manage the corrupt and wasteful bread supply chain that has been untouchable for decades.
If it succeeds, the pilot project in the Suez Canal city of Port Said could be used as a model for food and fuel subsidy reform throughout Egypt, where bread, known in the local Arabic dialect as "life", is the staple.
"This is an urgent project," said Dr. Ali Attria, an official from the Administrative Development Ministry who has helped manage the trial.
Egypt, the world's largest importer of wheat, purchases around 10 million tonnes a year, draining its hard currency reserves to provide the poor with a disc-shaped loaf.
The government spends around $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 since December 2012 is pushing up the bill, as much food has to be bought for dollars on international markets.
Profiteers exploit the system, and many people feed bread to their livestock because it is cheaper than animal feed.
Yet, one cash-strapped government after another has resisted attacking the problem, fearful that cutting subsidies could be political suicide.
President Anwar Sadat triggered riots when he cut the bread subsidy in 1977, while President Hosni Mubarak faced unrest in 2008 when the rising price of wheat caused shortages.
When Egyptians rose up against Mubarak's rule three years ago, one of their signature chants was: "Bread, freedom and social justice."
TAKING A CHANCE ON PORT SAID
Before he was deposed by the army last July, President Mohamed Mursi and his Muslim Brotherhood began working to ensure that bread was delivered efficiently to those who truly need it, a move designed to win over the public.
Distrustful of state bureaucracy, the Mursi administration relied on mainly Islamist non-governmental organisations to clean up the bread mess.
They decided to take a gamble, however, and use government authorities in Port Said. Mursi is now in jail but the programme is starting to yield results.
At a simple metal kiosk in front of an oven, a smart card scanner hangs on a wall between windows that open onto two orderly gender-segregated lines. Those who have complaints about the new system can call a hotline.
The scene was unthinkable just a year ago.
"There was congestion, people were coming from outside Port Said to buy our good bread in bulk," said bakery co-owner Adel Hassan Shater, 63, referring to a once thriving black market.
"Now things are organised and this is better for everyone."
The now year-old programme in this city of 650,000 has enabled the government to keep tabs on individual consumption of bread via the electronic cards, already used for other subsidized goods such as rice and sugar.
Smart card-holders are allowed five loaves per family member per day, a number officials hope can be reduced.
A parallel effort to issue smart cards to drivers in order to monitor fuel consumption is not yet operational, but is likewise aimed at gathering data the government can refer to when drafting its subsidy reform policies.
Army chief Field Marshal Abdel Fattah al-Sisi, who ousted Mursi after mass protests against his rule, is expected to run for president and win in elections due within months.
Even if Sisi, who became immensely popular after crushing Mursi's Muslim Brotherhood, delivers on his promises of bringing elections and political stability to Egypt, he will still have to carefully manage the sensitive bread issue.
The top military commander could showcase the Port Said project and spread it to other cities in the country of 85 million where poverty is widespread.
Safwat Emar, the top Supplies Ministry official in Port Said, said that the project is hitting the people at the heart of the problem: dishonest bakers.
But eradicating greed will not be easy in a country plagued by corruption.
Bakers producing state-subsidised loaves siphon off flour provided by the government and make a killing in the black market.
The government's flour is then baked into loaves sold at private bakeries at prices beyond the reach of the poor.
Bakers have long been able to cheat authorities because consumption data is hard to come by.
At Port Said's Freedom Bakery, owner Mahmoud El Kefery says he works closely with government monitors who check data registered by his smart card readers and allocates his daily flour supply accordingly. Customers seem satisfied.
"We like systems, and we want things to be organised so there can be security and everyone can get their fair share," said Baseema El Bani, a 55-year-old government employee.
After presenting her green plastic card in a transaction that resembled purchasing a latte at a coffeeshop, Bani folded her stack of loaves and placed them in a shopping bag.
Before the "smart card" system was introduced, the bakery would often run out of loaves by midday, before the mother of five got off work, leaving her empty handed.
Bani blamed the shortages not on low supplies, but on people who abused the system.
The government, short on foreign currency and in dire need of fuel imports, cannot afford to keep funding the inefficient system.
The Supplies Minister recently estimated that the food subsidies bill amounts to 35 billion Egyptian pounds ($5.03 billion) per year.
Surprisingly, the smart card effort in Port Said has not provoked protest among consumers or resistance from bakers who stood to profit from the old system.
Implementing the programme nationwide would be a daunting task.
Attria of the Administrative Development Ministry cites bureaucracy as the chief hurdle.
Port Said, known nationally for its high quality bread, was seen as a safe site for a pilot. But progress here should still be considered an achievement.
"It is a difficult decision to change the bread subsidy system, but it is possible," said Dr. Magdy El Hennawy, an ex-army officer who helped the government launch the nationwide smart card system for other commodities. ($1 = 6.9611 Egyptian pounds) (Editing by Michael Georgy, Veronica Brown and Keiron Henderson)