Rice prices skyrocket
Recent hikes in rice prices place a heavy burden on ordinary consumers. Mona El-Fiqi
looks into the reasons for the price increases
During the past two weeks consumers were surprised to see locally produced rice -- an essential staple for the majority of Egyptian families -- increase in cost by almost 50 per cent. Best grade rice increased from LE4 to LE5.5 per one-kilo bag while lesser quality rice increased to LE3 per kilo instead of LE2. The increase of rice prices a few weeks before the holy month of Ramadan, a season of high demand for food products, means a heavier financial burden for Egyptian families. Layla Mohamed, a maid and mother of three children, said "I was shocked to buy the rice at LE3 per kilo, but I have to as my children live on rice with vegetables."
There are different reasons behind the price hikes. The government attributed the rise to supply and demand. The Ministry of Trade and Industry told Al-Ahram Weekly in an e-mailed statement that as is the case every Ramadan, commodity prices increase as it is the time of the highest consumption. Moreover, Ramadan starts before the new rice harvest season begins. This is helping to drive up prices with some consumers wrongly believing there is insufficient rice in the market. "Despite the fact that we are at the end of the previous harvesting season, we still have sufficient amounts to cover the needs of the domestic market fully until the new harvest season," said the statement.
On the other hand, some experts blame the government for its policy of reducing rice production while others accuse traders of storing huge quantities to control prices in local markets. Low-income consumers, who do not care who is responsible for the price rises, are getting squeezed in between. While rice prices usually witness an increase during the last two months of the rice season that starts in October, this year's increase is far above usual.
Aiming at saving scarce water resources, the government reduced from 2.2 million feddans in 2008 to 1.8 million feddans in 2009 the areas where rice cultivation is permitted. In 2010, rice production has been authorised on only 1.1 million feddans in the Nile Delta. The rice policy includes an annual plan to decide areas of rice cultivation according to the nature of the agricultural land and available water resources. Farmers that cultivate rice illicitly are subject to fines of LE2,000 per feddan.
According to Minister of Water Resources Mohamed Nasreddin Allam, the rice policy aims to save five billion cubic metres of water -- equivalent to 50 per cent of Egypt's annual total drinking water consumption.
However, Nader Noureddin, professor of agricultural resources at Cairo University, said that the government's decision is based on inaccurate claims that rice needs more water than other crops. On the contrary, "each cubic metre of water produces 1.5 kilos rice while it produces one kilo of wheat. Moreover, the productivity of rice is higher. When one feddan is cultivated with rice it produces four tons of rice as opposed to two tons of wheat," Noureddin said.
The local consumption as well as the international prices of different crops should be taken into account when taking decisions, Noureddin argued. The price of rice is $600 per ton while the international price of wheat is $170 per ton, according to Noureddin. But although the price of rice is high, farmers do not benefit. Mohamed Hassan, a farmer from Daqahliya governorate, said: "I sold last year's harvest of rice at LE1,000 per ton while it currently reaches LE2,000 per tonne. This year I did not plant rice since my land was not allocated for rice cultivation. Farmers are not pleased with the new rice policy."
Small and medium sized farmers, according to Hassan, do not have stores to keep rice and they have to sell the rice harvest at the beginning of the market year at a lower price in order to pay for their living expenses and buy fertilisers for the next crop. "In fact, traders able to store large amounts of rice gained a lot of money," Hassan added.
Defending traders, Ahmed El-Wakil, chairman of the Alexandria Chamber of Commerce said that some illegal traders with no commercial or industrial licences keep large quantities of rice and control market prices during the last two months of the market year. The Ministry of Trade and Industry said that traders holding rice to control prices will face severe penalties.
El-Wakil asserted that there is enough rice -- exceeding one million tons -- currently in the local market. The problem is that demand is high because of preparations for Ramadan. "In fact, 30 per cent of Ramadan's consumption is sold a month before Ramadan," said El-Wakil. Within the coming two weeks, according to El-Wakil, prices will stabilise due to the new harvest that is collected in some areas in August. This harvest is expected to add five million tons to the one million remaining from the current year, which is enough for the coming season.
According to El-Wakil, concerned authorities, including the ministries of agriculture, trade and industry, water resources and investment, are expected to meet soon to discuss the current rice policy -- inclusive of cultivation, trade, and importing and exporting -- and how to avoid problems over the next five years. As Egyptian rice enjoys high demand in export markets, Egypt used to export any surplus from local consumption. Alongside the policy to reduce rice production, in 2008 rice exports were banned by Decree 258. Broken rice exports were not included. Egypt is eligible to export up to 80,000 tons of broken rice to EU countries at a zero tariff according to the Egyptian-EU Partnership Agreement.
In February 2009, the Ministry of Trade and Industry allowed rice exports of quantities not exceeding 600,000 tons per year on two conditions. The first is that the exporter must supply equal quantities to the government through an auction system. These quantities are delivered to the General Authority for Supply Commodities and are apportioned to ration card holders. The second condition is that the exporter must pay $175 per ton in export fees.
The government uses the export tax and export restrictions to decouple domestic prices from high international prices. The government wants to keep local prices low to limit the budgetary outlay on 950,000 tons of milled rice purchased for ration card holders.
Egypt exported 560,000 tons in 2009/2010, but the Ministry of Trade and Industry suspended auctions of rice export licences until the new crop appears in the market in October 2010. Observers believe that as long as Egypt gives high priority to water reserves and continues to reduce rice production, exports will be suspended.
Noureddin said that stopping rice exports was a bad decision that would have negative effects. As international prices rise, the government will have to stabilise prices in the local market for the sake of consumers. Due to expectations of continuing high rice prices, consumers will be directed to alternatives, such as pasta and bread. Noureddin expects an increase in their prices due to higher demand and scenes of long queues in front of bakeries once again.
To forestall any problems, traders have proposed importing rice, both medium and long grain. But the Ministry of Trade and Industry said in a statement that, "Since there is no real shortage of domestically grown rice, there are no plans to import rice.