Forget the abstract jargon of the financial crisis for a moment. This year was marked by another crisis, also severe and ongoing, surrounding something far more relevant to most Egyptians than derivatives and interbank lending rates.
In late 2007, international food prices began to soar. Pundits labeled it a “silent tsunami and heralded the “end of cheap food. Poorer countries, where a bigger portion of income goes to food, were hit hardest. Egypt was not spared, as lines for subsidized bread swelled, provoking occasionally deadly scuffles.
Yet few starve here. Egypt’s food subsidy system is one of the most expansive in the world and the country was, with the exception of some unrest, able to absorb the price shock better than many.
Egypt’s situation does, however, present huge challenges. The population is growing fast, the amount of arable land is shrinking, infrastructure is limited and the education system is overburdened. And, like many developing countries, the state must balance its push to liberalize markets with the need to provide for its many poor.
Gathering of the storm
The prices of wheat, rice and other staples began to rise dramatically late last year. A confluence of short- and long-term factors propelled food prices’ ascent.
Biofuel-friendly policies in the United States pushed heaps of corn into ethanol production. At the same time, rising incomes across the developing world sparked a rise in demand for meat, which takes more land and energy to produce by weight than staples. A drought in Australia and soaring oil prices exacerbated the situation.
The price of wheat over the first four months of 2008 jumped 108 percent over the same period in 2007. At one point this year, the cost of a ton of rice was up 83 percent from 2007.
In Egypt, local issues compounded the problem. Urban expansion has cut into Egypt’s increasingly scarce arable land. And, despite relatively high crop yields, post-harvest losses of up to 70 percent in parts of Upper Egypt waste much of the country’s produce.
In April, riots in the industrial town Mahalla El-Kobra were linked to high food prices. Protestors tore down posters of President Hosni Mubarak, displaying unusual bravado. Media comparisons to the 1977 Bread Riots were common.
The state responded by buying more wheat, banning rice exports and calling on the army to help bake and hand out subsidized bread. Order has since returned, but wheat and rice prices are still lofty compared to the same period last year.
In theory, food supply should rise to meet new demand. Low food prices pushed countries to import goods for the last three decades, said Gianpietro Bordignon, country director of the World Food Program (WFP) in Egypt. Those days may be over, but the lure of higher revenues should spur farmers to plant more. “Every action has a reaction as well, he noted.
Slowing demand for fuel may also ease matters. “The economic downturn and the drop in the price of oil are likely to help bring food prices down a bit, said Mauro Guillen, director of the Lauder Institute at the Wharton School.
For the time being, however, prices will likely remain high.
Egypt’s situation
The WFP’s role here illustrates how broadly Egypt differs from famine-struck countries such as Ethiopia and Somalia. The UN organization has no original programs in Egypt and does not provide direct food aid as they do in other, less food-secure countries.
Instead, officials at the food program say they try to bolster existing state programs. For instance, the WFP helps fortify the wheat flour for government-subsidized baladi bread with iron and folic acid.
“Egypt is not a starvation country – everybody knows that, said Tarek El Baz, a consultant to the United Nations Industrial Development Organization (UNIDO) in Egypt. “We have an issue of physical accessibility of food for small groups and we have financial inaccessibility.
Egypt has a rate of self-sufficiency as high as 60 percent for some staples, according to WFP statistics. Crop yields are relatively good and the subsidy program provides for many of the neediest Egyptians.
The problem in Egypt, analysts say, is that diets are poor and big percentages of many incomes go to buying food.
“There are foods available throughout the system, whether it is the food subsidy or whether it is the commercial market, said Bordignon. “But more and more people with the lowest income purchasing power find it difficult to buy a balanced diet.
This is partly because people do not make enough money, experts say, but also because of the inefficiency of the Egyptian agricultural system.
One of the biggest hampers to the domestic supply chain is that small farmers lack information about the appropriate price and quality of food, El Baz suggested. “That’s why you find tomatoes in Qena for 50 piasters and in Cairo for up to LE 5, he said.
Many farmers are also limited to knowledge of specific markets, often relying on generations-old practices. And in many cases, they lack the storage for higher-income brands of crops.
How to fix it
Subsidies are necessary for Egypt’s short-term food security, but they are not enough in the longer term, development workers say. Egypt’s limited water resources and huge post-harvest losses call for improving technology and educating farmers about how food should be grown, moved, stored and distributed.
Improving the supply chain will reduce losses, bolster quality and bring more poor into the economic fold, said El Baz.
Only about 40 Egyptian farms are now capable of maintaining the standards necessary to export to Europe, he added. These farms are among Egypt’s largest, while the majority of the market is made up of small, dispersed farmers.
Observers often link this fragmentation to Egypt’s agricultural inefficiencies, but El Baz disputes that bigger farms are necessary for a better-working market. “Fragmentation itself is not a problem, he said. “It’s not the size; it’s how you design the size to work.
Fragmented markets can succeed if the farmers are educated and placed into efficient group models, he said. Tailoring infrastructure to the needs of smaller farmers can also help; for instance, building a number of satellite storage houses near clusters of small farmers will be more effective than building one large central packhouse.
Development workers are also planning some less conventional solutions. UNIDO, for instance, designed a system known as “E-trace, which helps track Egyptian foodstuffs to their source, thereby helping farmers comply with European Union import standards. Delta Rasmala, an Egyptian financier, will soon begin managing a special private equity fund for agricultural projects in Upper Egypt.
In a broader scope, world food markets must be freed from distortions, many experts say.
“The distortions are large and real, said Guillen. “They have to do with protectionism in the US, the EU, Japan and Korea, and also with subsidies for corn-based ethanol. It is a disaster for the world, and especially for the poor. But politicians in Europe, North America and East Asia are not willing to eliminate the subsidies.
“The first thing we need is for subsidies and protectionism to be phased out, he said.
This is not always easy. Matters of social stability and national security are wrapped up in food markets in a way they are not in, say, electronics manufacturing.
“Where is there completely free food production? There is not one country, said Bordignon. “Countries like India for example, they always said that they can negotiate on textiles, they can negotiate on anything, but they cannot negotiate on foods.
At least one upshot of the food crisis is that world leaders, policymakers and pundits have begun to pay attention to agricultural food markets, development workers say.
“At what cost? At a heavy cost, El Baz said. “But who knows? Maybe you needed that kind of shocking experience to develop a more sustainable way.
