The Specter of Food Insecurity in Egypt
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Commentary

The Specter of Food Insecurity in Egypt

Aldo Liga
23 aprile 2022

War between Russia and Ukraine has put the Egyptian economy under pressure. Last month, the Egyptian government announced it had requested the International Monetary Fund (IMF)’s support to mitigate the shocks the country’s economy has endured since the eruption of the war. Egypt should also receive around $22 billion from Saudi Arabia, Qatar, and the United Arab Emirates in the form of central bank deposits and investments.

These funds will support the country in the context of an incomplete economic recovery from the pandemic, while the impact of the conflict in Ukraine is further wearing it down as the prices of energy and food, in particular cereals’, have significantly increased. Indeed, Russia and Ukraine provide around 30% of global wheat supplies, and Egypt is highly reliant on their imports.  

Global cereal prices grew by 27% in 2021 and, after the outbreak of the conflict, by an additional 19.7% between February and March. In the MENA region’s most populated country the price of bread is crucial for the preservation of the social and political equilibrium. In Egypt, nearly a third of its 103 million citizens lives below the official poverty line. Against this backdrop, concerns have emerged over the possibility that food inflation may fuel social unrest. The country has a long history of food-related turmoil, from the 1977 “bread riots” to the global food crisis of 2007-2008. Protesters’ key slogan during the 2011 uprising, which ousted former President Hosni Mubarak, was “bread, freedom, and social justice.”

 

A looming food crisis

Egypt is the world’s largest importer of wheat. The country is highly dependent on Russia and Ukraine, which provide 80% of its imports. It consumes around 21 million tons of wheat every year, 13 million of which are imported, purchased through international tenders by the Egyptian state’s buyer, the General Authority for Supply Commodities (GASC), or by the private sector.

The impact of rising global prices on costumers is alleviated by the food subsidy system, which dates back to the 1940s. Today, about 70 million people benefit from the Tamween ration-card system, while 83 million benefits from subsidized baladi bread. Every year, the subsidy programmes require about 9 million tons of wheat. The price of a subsidized basic loaf has consistently remained at 5 piastres ($0.003) since 1988, though over the time their weight has been progressively shrunk to reduce the quantity of wheat needed.

The food subsidy programme costs the government about $5.5 billion, and higher wheat prices are expected to cause an additional $763 million expense.

The government has repeatedly emphasised the will to rethink the food subsidy system; however, reforms have not yet followed and the current spike in prices alongside the risk of unrest will probably further postpone them. Indeed, food subsidies have historically helped governments strengthen “the legitimacy of their rule in the absence of meaningful political participation”. Today, many analysts fear current food inflation and the consequential impact on the state budget risk destabilising the country, due to the extremely significant part of the population that would be affected directly or indirectly by higher prices.  

 

Managing the fallout from the conflict

The Egyptian government has ensured it has a strategic stock of wheat that, with the local harvest set to begin this month, will suffice until November. The cabinet has approved a broad set of measures to tackle the looming crisis and thwart potential unrest. Among them, a price cap for unsubsidized bread, which rose by 25% following the outbreak of the war in Ukraine , intensified price controls, and the reinforced fight against speculators. The military was involved in the distribution of food boxes “to the neediest groups across the republic”. The exports of wheat, flour, lentils, and fava beans as well as other foods have been banned for three months.

In order to manage the fallout from the conflict, the Egyptian government is pursuing a strategy of diversification of wheat suppliers. However, at least for the moment and despite the state of conflict in the Black Sea, imports from Russia have not been disrupted. Last month, their quantity rose by 24% compared to March 2021, totaling 479,195 tons. Conversely, imports from Ukraine fell by 42%. 

So far, GASC tenders (subordinated by specific criteria, such as wheat moisture limits) are open to 16 accredited wheat import origins (Russia, Ukraine, the United States, Canada, Australia, France, Germany, Poland, Latvia, Argentina, Kazakhstan, Paraguay, Hungary, Romania, Bulgaria, and Serbia). In these weeks, Cairo is in talks with New Delhi to start importing wheat from India. This discussion is a relevant part of Egypt’s strategy for diversification of suppliers. 

Increasing local production is another pillar of the Egyptian strategy to reduce its dependence on global markets, though there are significant concerns over water scarcity. In February, President Abdel Fattah al-Sisi announced the increase of wheat planted areas (currently 3.6 million acres) by 1 million acres next year and by 2 million in 2024. According to the head of the Egyptian Farmers’ Syndicate, the country would need over 6 million acres (over half of the agricultural area of the country) to achieve self-sufficiency. The government also aims at raising productivity per feddan (1.04 acres), using new varieties of wheat and modern irrigation methods.

Additionally, the government has allocated more money for domestic wheat production, bringing the procurement price of local wheat to 885 Egyptian pounds ($48) to incentivize local farmers to supply the largest amount possible to state authorities. Moreover, the country is investing in the modernization and expansion of its strategic storage capacity, launching the National Project of Silos at the end of last year.

The extent to which these measures will alleviate  the country’s current dependence on global markets is hard to predict: Egypt has one of the highest population growth rates and consumes nearly three times the global average of bread.

 

The destabilizing effects of food insecurity

Global wheat prices are likely to remain high throughout 2022 and 2023. The country risks being impacted not only by rising food prices, but also by the growing costs of oil and the foreseeable consequences on the tourism industry (almost a third of tourists have come from Russia and Ukraine in peak years), with amplified social repercussions.

The European Union has recently announced that the biggest share of its newly announced “Food and Resilience Facility initiative”[1], which is worth around €100 million, will be allocated to tackle food insecurity in Egypt. Adding to the fundings pledged — or under discussion — with the IMF and Gulf countries, this is an additional illustration of the extent to which food insecurity in Egypt is perceived as a threat to the whole MENA region.

The fear of renewed political turmoil, the strong state-led repression, and the threats against opposition movements could prevent social unrest, as has been the case in recent years when the government started lifting energy subsidies. However, the political impact that abrupt changes in the food policy of the state could have on a commodity such as bread, which Egyptians call “aish” and translates to “life”, cannot be underestimated as it portends harsh consequences for the economic and political stability of the country and the entire MENA region.

 

 

NOTES:

[1] Which is part of an effort to counter the Moscow’s narrative that the current food crisis is a direct consequence of Western sanctions on Russia.

Contenuti correlati: 
Side Effects: Ukraine and the MENA's Looming Food Crisis

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Aldo Liga
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