Hunger economics: do rising food prices mean trouble ahead?

The conditions are ripe for a full-on food crisis, which would be a
political disaster for the current government.

Egypt imports 40 percent of its total food and 60 percent of its wheat

Sherif Zaazaa Egypt Independent Thu, 20/09/2012 - 13:07
http://www.egyptindependent.com/news/hunger-economics-do-rising-food-prices-mean-trouble-ahead

Ali Mazen, a day laborer from Fayoum, barely makes enough in Cairo to buy
food for his family back home. He can’t imagine how he would cope if basic
food prices were to rise.

“The money I make now barely covers my own expenses. I wait for weeks to
gather enough money to go home,” he tells Egypt Independent. “I don’t know
what to tell my children anymore.”

But Mazen and others like him could face a steep rise in prices if the
current economic problems worsen. Economists warn that a food crisis could
take place within months if several domestic and international factors don’t
improve significantly.

Egypt is in a precarious situation, being heavily dependent on food imports.
Former Agriculture Minister Amin Abaza, in a speech before the Food Security
Conference in 2010, said Egypt imports 40 percent of its total food and 60
percent of its wheat.

The 2012 World Bank Global Monitoring Report warned that North African and
Middle Eastern countries were seriously behind on their Millennium
Development Goals of providing affordable and nutritious food to the poor.
People in the region remain susceptible to international food price
fluctuations due to governments’ reliance on food imports, the report says.

“Progress toward halving the proportion of people who suffer from hunger is
significantly lagging in the Middle East and North Africa,” the bank says.
“In times of high food prices, the double burden of malnutrition and chronic
disease increases, and obesity and undernutrition may coexist within the
same household and the same person.”

One of the indicators of an imminent food crisis is the devaluation that
seems to be in the country’s near future. Having burned through its foreign
reserves to keep the currency’s value high at a rate that cannot be
sustainable for more than a few months longer, the government has little
choice but to devalue or keep racking up debt.

Depreciation, most experts say, is more likely — and because of higher
import prices, that would probably cause inflation across the board.

But the government also needs the foreign currency to purchase the country’s
badly needed food imports, and they are enough to last just a few months.
Foreign reserves stood at US$15.1 billion in August after currency
injections from neighbors Qatar and Saudi Arabia, according to the Central
Bank of Egypt.

“With the drop in tourism and investments, the bare monthly minimum required
to cover Egypt’s needs are $2 billion a month,” says Alexandre Starker, a
governance adviser and economic consultant who specializes in Egypt. He says
that if Egypt keeps spending the reserves at the current rate, consumers
could wake up to skyrocketing food prices in a few months.

These problems could be compounded by a shortage in US and Russian corn
production; the decrease in supply within the coming months is likely to
push prices for all global grains higher, including wheat — of which Egypt
is the world’s largest importer.

A planned decrease of 22 percent in energy subsidies marked in the 2012/13
budget could also raise prices of most consumer goods, including food.

“On a macroeconomic level, a rise in energy prices would deter foreign
investments,” says Starker. “Further, production capacities would decrease
because of factories’ inability to accommodate increasing costs.” The
consequences could be serious unemployment and possible social unrest, he
says.

In 1973, after the global increase in commodity prices, the subsidy system
became a fixture of Egyptian policy — a measure to keep social and political
stability.

Leaders have tried to lift it in the past, but with little success. In 1977,
riots ensued after former President Anwar Sadat attempted to eliminate
flour, rice and cooking oil subsidies.

It is also internationally recognized that cheap bread for Egyptians means
more regional stability. Saudi Arabia and Qatar contributed to Egypt’s World
Food Programme fund this year, and the US sent food aid until 1992.

It remains to be seen whether Egypt’s new leaders will adhere to the same
cheap-bread-no-matter-the-cost policies.

Purchasing power

If a food crisis does happen, it seems many consumers could end up losing
doubly. Food prices will increase while their income is decreasing.

According to a December 2011 report issued by the Information and Decision
Support Center, Egyptians spend an average of 44 percent of their total
income on food-related items.

Amid rising prices, factories could increase layoffs in an attempt to reduce
expenses. Unemployment would lead to reduced income per family, further
straining their ability to obtain food.

In addition, data released by the Central Bank of Egypt shows that,
nationwide, total savings have dropped by nearly a third since last year.
Many people have essentially been dipping into their savings to make it
through the past 20 months of unrest.

When those savings run out, an even greater number of people will be
struggling to put food on the table.

The conditions are ripe for a full-on food crisis, which would be a
political disaster for the current government.

But if leaders remain unable to provide for the dearth of resources, the
government will either have pass on the higher prices to its citizens, or it
will bear the cost itself, while risking running down its foreign reserves
and worsening its own balance of payments.

Hungry Yemen

Some experts warn that Egypt could go the way of Yemen, which has been in
the grip of a food crisis for more than two years.

Yemenis also revolted against their leader last year, ending Ali Abdullah
Saleh’s 33-year-reign, which many said was plagued with suppression,
economic turmoil, inequality and corruption. His regime left behind a
population, like Egypt’s, of which half lives on less than $2 a day.

According to the United Nations Office for the Coordination of Humanitarian
Affairs, the number of food-insecure Yemenis has doubled over the past two
years. This translates to roughly 10 million nationals, or 44.5 percent of
the population, of whom 5 million need immediate assistance.

Yemen has also been in negotiations with the International Monetary Fund,
which approved a $370 million loan in April.

But the IMF money does not guarantee a relief from soaring food prices.
Anti-IMF groups say the fund’s economic free-market policies and ideology
will breed more poverty and raise prices, as they say they did under former
President Hosni Mubarak.

In recent years, food price volatility has been in part attributed to food
commodity speculators who bet on the price of wheat or other foodstuffs in
the near future. Traders have become increasingly active and bold in recent
years, speculating over the weather and crop yields.

The practice is hardest on poor and developing countries that rely on a
stable market price for foodstuffs.

Proof is in the policies

No matter what measures are taken, experts say the government will likely
have to deal with increases in food prices in the coming months — but how
much these increases will impact the poor will depend on the competency and
safety net of the government’s overall economic policy.

So far, it seems that President Mohamed Morsy’s government still has many
hungry bellies to fill before it proves itself capable of keeping food
affordable.

Om Shahenda, a domestic worker who lives with her three daughters, is
unimpressed by the new government’s actions so far to help her feed her
family. Widowed, and in her late 50s, she says she can no longer keep up
with rising prices.

“At times, I have no money at all at home,” she says. “On a recent occasion,
I had to the sell the last bag of sugar to a nearby coffee shop to afford
transportation to a house I work at.”

She’s not hopeful that leaders’ actions will be able to change her situation
any time soon.

“Where is Morsy now? Collecting money from the world — money that we never
see,” she says.

This article originally appeared in Egypt Independent's print edition.