Back to the breadbasket?
A recent decision to raise local wheat prices may encourage farmers to sell more of their crop to the government and cut the import bill. Niveen Wahish reports
Last month's decision by the government to pay local farmers more for their wheat was long overdue. For many years, economists have been arguing that this measure would raise production and reduce reliance on imports of this strategic crop. The idea finally hit home with the government this summer when the depreciated pound wreaked havoc with the wheat import bill.
Wheat imports have remained a necessity, despite increased production during the past 30 years. Whereas only about two million tonnes were harvested locally in the mid-1980s, today the annual output exceeds six million tonnes thanks to the use of higher yield seed varieties. But the improved yield has failed to meet the soaring demand fueled by high population growth. Local production represents less than half of Egypt's total consumption needs. A similar amount, representing around 55 per cent of Egypt's needs, is imported annually. And although this figure is almost 50 per cent less than what Egypt imported in the 1970s, it remains problematic, particularly with the depreciation of the pound.
In an attempt to encourage farmers to grow the much-needed crop, the government has recently announced that it will be paying LE145 per erdabb (equivalent to 150 kilogrammes of wheat), up from LE105, the price paid to farmers last year. The government move comes following complaints that the delivery price paid to local farmers is half that paid for imported wheat.
Sayed Hammad, head of the Farmers' Secretariat in the National Democratic Party is optimistic that the new price will encourage farmers to sell more of their crop to the government and to begin planting more wheat. With the price of wheat falling in real terms, farmers had opted to cultivate more profitable crops like rice. He explained that only two million tonnes of a total production of six million tonnes actually is sold to the government. A study carried out by the International Food Policy Research Institute (IFPRI) on wheat policy reform in Egypt shows that most of the wheat produced is consumed in rural areas. Rural households process the wheat into different types of flour in local village mills and use the flour to bake their own bread.
In the past farmers were obliged to deliver a certain quota of their wheat crop to the government at a fixed price that was lower than international prices. The farmer could keep any surplus for home consumption or sell it at market prices. This policy changed in the late 1980s with the adoption of an agricultural reform programme, making wheat sales to the government optional.
With only two million tonnes of local produce delivered to the General Authority for Supply Commodities, which buys the wheat on behalf of the government, the authority imports an additional 4.5 million tonnes to process into the 82 per cent extract flour used to make baladi (street) bread. An additional 2.5 million tonnes is imported for the production of fine 72 per cent extract wheat used for fino (bagette-style) bread and pastries.
Encouraging farmers to deliver more of their crop to the government would diminish the amounts the government has to import. Procuring the seven million tonnes of imported wheat weighs down on the government budget, costing some $1.5 billion annually. Varying weather conditions and increasing global demand are making for an expensive commodity. In 2002, the price of US wheat, which for years represented the bulk of Egypt's wheat purchases, hit a high of $200 per tonne.
According to Richard Prior, regional vice president for East Africa and the Middle East for US Wheat Associates, American, Canadian and Australian wheat were all hit by drought and recorded small harvests last year. This triggered Egypt to look for cheaper sources of supply, turning to non- traditional suppliers such as Ukraine, Russia, Pakistan, India and Syria. These countries have not traditionally been exporters, but have started to produce surpluses. They were selling for $120 dollars when US wheat averaged $170-180.
However, it is expected that Egypt will soon return to American, Canadian and Australian wheat, which are currently reaping huge harvests, with their prices dropping to $145 a tonne. In the meantime, an unusually cold winter is hitting Russia and Ukraine.
While more deliveries of local wheat would spare the government from spending foreign currency on wheat imports, there is still a price to pay. According to the IFPRI study "encouraging farmers to sell the wheat they have set aside for home consumption will increase their purchases of subsidised baladi flour and bread, resulting in a higher budgetary burden on the consumer subsidy system."
Solutions to the wheat quandary usually fall into one of two camps, either seeking self-sufficiency in wheat production or exploiting Egypt's comparative advantage in other crops to earn the hard currency to import wheat. Abdel-Salam Gomaa, former head of the Agriculture Research Institute, speaking during a seminar held at Cairo University, believes that a larger degree of self-reliance can be realised as land reclamation projects are completed. He said that Egypt should attempt to cultivate at least 60 to 65 per cent of its needs. However, he is optimistic that with 3.4 million feddans targeted for reclamation by 2017 (with one feddan equaling roughly one acre), self-sufficiency in wheat can ultimately be achieved.
But Mahmoud Mansour, professor of agricultural economics at Al-Azhar University, believes that self-sufficiency is an outdated and counter-productive goal in a globalised world. He pointed out that Egypt's agricultural land is limited and mostly ideal for crops other than wheat. So rather than devoting more land to farming wheat, the solution is to work on improving yield. Although yield per hectare has more than doubled from 2.47 tonnes in 1961 to reach 5.99 tonnes in 1998, as shown by the IFPRI study, Mansour believes better irrigation, fertilisation and modern technology could further boost output. To make up the gap between this output and national demand, he argued that planting high-revenue export-oriented crops can procure the hard currency needed to import wheat.
