Tuesday,17 October, 2017
Current issue | Issue 1231, (29 January - 4 February 2015)
Tuesday,17 October, 2017
Issue 1231, (29 January - 4 February 2015)

Ahram Weekly

Overpriced food?

Declines in international food prices have not reached local markets, reports Mona El-Fiqi

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Al-Ahram Weekly

Cereals, vegetable oils, sugar and dairy products all witnessed drops in international prices during 2014, according to UN Food and Agricultural Organisation (FAO) figures.

The changes in prices were reflected in the FAO’s Food Price Index, which tracks the prices of five major food commodity groups. Meat was the only tracked commodity that registered a price increase during the year.

The December Food Price Index witnessed a drop of 1.7 per cent from November, and 2014 saw prices drop by 3.7 per cent from 2013, marking their decline for the third consecutive year.

The FAO attributed the price drops to abundant harvests and large stocks combined with a stronger US dollar and falling oil prices.

According to the FAO, the price of cereals dropped 12.5 per cent from the previous year, due to forecasts of record production and sufficient inventories. But the FAO sub-index for meat rose to an annual average of 199 points, up 8.1 per cent from 2013. The other four food groups included in the index fell in 2014 and are at, or close to, their lowest levels in five years.

In Egypt, however, local consumers have not seen these falls in international prices reflected in what they are charged in the shops. Soha Moustafa, a housewife, said, “The prices of products like electrical equipment, furniture and mobiles drop, but food prices never decrease.”

She added that annual increases in her family’s income couldn’t cover jumps in the price of food. “Lunch alone costs LE80 due to the increase in prices, and the drop in international prices does nothing for us,” Moustafa added.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), the annual urban inflation rate rose to 9.8 per cent in December 2014, up from 8.5 per cent in November.

CAPMAS attributed the jump to the higher prices of food and beverage products, including vegetables, fruit, meat, dairy products and seafood.

Blaming the way the local markets are monitored, Shereen Al-Shawarbi, a professor of economics at Cairo University, told Al-Ahram Weekly that increases in international prices usually affect local markets, but this is not the case for falling prices.

When international prices rise by 10 per cent, local prices increase by almost 20 per cent, she said, but if international prices fall, local prices remain stable because traders and importers do not reduce prices, in order to maintain their profits.

Al-Shawarbi had reservations about setting a profit ceiling for traders and importers because such restrictions could lead to corruption. She said it would be better for the Consumer Protection Authority to intervene to cap food prices in local markets.

Runaway local food prices may continue in 2015. The World Economic Outlook report issued by the International Monetary Fund (IMF) expects Egypt’s inflation rate to reach 13.5 per cent in 2015, compared to 10.1 per cent in the previous year.

However, Heba Al-Leithi, a professor of economics at Cairo University, said that, contrary to the IMF’s expectations, the inflation rate may begin to fall due to the decline in global oil prices, as well as in international food prices.

“The decision to cut interest rates recently taken by the Central Bank of Egypt (CBE) is a sign of an expected improvement in the inflation rate,” Al-Leithi said.

The CBE said it based its decision to reduce the overnight interest rate by 0.5 per cent on the fact that inflation has slowed down and growth has been improving. The headline consumer price index slowed down by 1.53 per cent month-on-month and 0.07 per cent month-on-month in November and December.

However, the increase in the dollar exchange rate against the pound could limit the benefits of the retreat in international food prices in local markets, according to Al-Leithi.

The drop in food prices would be mirrored in local markets if prices were left to supply and demand alone, she said. “But as we have monopolies by some producers and importers in Egypt, nothing will change,” Al-Lethi added.

Other factors that push up local prices are transportation costs, especially after recent reductions in fuel subsidies. This is in addition to higher packaging costs. Poor storage can also increase waste, leading to higher food prices, Al-Leithi said.

Egypt is a net importer of food, and its food import bill is high no matter how the value of imports changes, Al-Leithi said, adding that further efforts should be made to increase self-sufficiency in food.

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