Thursday,14 December, 2017
Current issue | Issue 1251, (18 - 24 June 2015)
Thursday,14 December, 2017
Issue 1251, (18 - 24 June 2015)

Ahram Weekly

Understanding Egyptian food prices

Food prices have been rising in Egypt, a process that cannot be understood solely in terms of the laws of supply and demand, argues Nader Noureddin

Nader1
Nader1
Al-Ahram Weekly

‌Egypt experiences three different peaks in food consumption every year. The first is at the start of the academic year in late September, when there is a marked increase in the demand for grocery products, especially eggs, cheese and vegetables, due to the eagerness of mothers to prepare healthy breakfasts and sandwiches for their children during the school day.

‌This is also the period when young people return home after the summer holidays, adding to domestic food consumption. With the resumption of family routines comes the resumption of regular meals at home, which means a slightly increased demand for meat, poultry and vegetables.

‌The second peak comes during Eid Al-Adha, the Feast of the Sacrifice, when there is a sudden increase in the demand for red meat, including live sheep and calves, as well as for rice, bread and tomatoes. The rise in demand triggers a rise in the prices of these products.

‌But it is during the month of Ramadan that the major peak in food consumption and increased demand for all foodstuffs occurs. It has been estimated that Egyptians eat from 25 to 50 per cent more of all types of food during this month, but the demand for food oils and sugar soars due to the increased consumption of sweets associated with Ramadan, among them kunafa, qatayef, and baclava, sweetened apricot paste and dates with sweetened milk.

‌The demand for rice and pasta, which constitute 50 per cent of many meals, also increases significantly, as does that for red meat such as beef and lamb and poultry. Duck and goose are often added to the table in the first evenings of the fasting month, while there is also a higher demand for chicken and stuffed pigeon.

‌There is also higher demand for all types of seasonable vegetables during Ramadan, whether it falls in summer or winter. Egyptian kitchens remain open throughout the month, and Egyptian cooks are firm believers in fresh produce, cooked and served the same day, with any leftovers from the previous day being banned from the table.

‌It is as if those fasting during Ramadan need to reward themselves for refraining from food for 16 hours, banishing thoughts associated with asceticism or empathy with the hungry.

‌Also during Ramadan there is a sharp increase in the demand for bread and above all for the finer brands available on the market as opposed to poorer-quality subsidised bread. The demand for ful (fava beans) and yoghurt goes up, as these constitute staples of the pre-dawn meal in Ramadan.

‌Ful takes time to digest and remains in the stomach for long periods, helping to ward off sensations of hunger, while yoghurt (usually eaten with honey) helps the body retain water and thus helps reduce the feelings of thirst that can set on pretty quickly when Ramadan falls in the summer months, as is the case this year.

‌The demand for fish, on the other hand, plummets during Ramadan, as fish stimulates thirst. Only towards the end of the month does demand begin to rise, with fish being added to meals to make a change after a surfeit of red meat, poultry, stuffed vegetables and other dishes during Ramadan. Various kinds of baked, salted and smoked fish become the protein source of choice for the first few days after the holy month has ended.

‌This year, Ramadan has arrived as the world experiences a major drop in the price of food. Some might even describe it as a collapse as overall prices have plummeted to the level they were at 15 years ago.

‌The UN Food and Agricultural Organisation (FAO) has hailed this as good news for the poor, as at least now food will not consume all their income as has generally been the case in the past due to the surplus in global production and stagnation in the markets.

‌Figures published by the FAO in June, illustrate how world prices of strategic commodities in May continued the downward trajectory of the Food Price Index from February 2014 to the end of May 2015.

‌The Food Price Index reflects the average prices of some 55 products that fall into the five basic food groups of meat, cereals, vegetable oils, sugar and dairy products. For example, under the category “meat” are beef, lamb, goat, calf, camel, pork and various types of poultry, and under “cereals” are wheat, barley, rice, oats, maize and corn, while the “oil” group consists of palm oil, sunflower oil, soybean oil, cottonseed oil, olive oil, peanut oil, sesame seed oil and coconut oil. The figure on the left illustrates details of the price declines.

‌A sharp drop in the prices of wheat, maize and other cereals can be seen in the figures. Of particular concern is the price of wheat as Egypt remains, for the eleventh year running, the world’s biggest wheat importer, importing on average 11 million tons of wheat a year, or over a third of its annual wheat consumption of around 15 million tons.

‌Egypt is also the world’s fourth-largest importer of maize, bringing in an average of 5.3 million tons a year for use in the production of livestock and poultry fodder, and making the price of maize a determinant of the prices of all types of meat and dairy products. The country is also among the top ten vegetable oil importers, ranking seventh in the world.

‌International wheat prices fell to an average of $200 per ton from an average of $265 per ton last year and $320 the year before. Yet the price of bread, whether fresh, packaged or even subsided, has increased. For example, the price of the rolls used to make burger sandwiches and the like has risen to LE5 for a package of four from LE4 only a month ago.

‌The official answer to this increase is the rising exchange rate of the dollar and recourse to the black market to obtain hard currency needs. However, the collapse of petroleum prices from $120 a barrel last year to $60 per barrel this year brought a 50 per cent drop in the transport prices of imported commodities. This alone should have been sufficient to offset the 13 per cent rise in the US dollar exchange rate.

‌The price of bread on the Egyptian market should have dropped, whether luxury brands, mass-produced sandwich rolls or subsidised baladi bread. But it appears that Egypt, the land of wonders, is destined to head in the opposite direction from global trends.

‌The deputy director of the World Bank was asked why food prices had not dropped in poor and developing nations following the end of the world food crisis in 2011 and the return of prices to their pre-crisis levels. He said that businessmen and importers in poor and developing nations have easy access to decision-making circles and can likely find people there who are willing to listen to them, and are more eager to cater to their interests than to the welfare of the poor. A drop in prices was, however, noted in the 2009 World Bank report on “Improving Food Security in the Arab Countries” in the wake of the food crisis of 2008.

‌It seems that businessmen and importers, then, have the power to control the markets and specifically to control decisions pertaining to commodity prices and the retail trade in developing countries. Nor is there any hope of ending this form of corruption without more democracy, public oversight over the decision-making process, expert monitoring of international price trends and the emergence of active and effective consumer protection services.

‌Free trade is not synonymous with anarchical trade. Nor does it mean that merchants have an inherent right to set prices free of regulatory systems and to rake in enormous profits on foodstuffs in poor societies.

‌Another extraordinary fact is that rice prices have climbed in the Egyptian market to LE7 per kg (double last year’s price of LE3.5 during Ramadan) even though rice is produced in abundance in Egypt and there is a surplus of about one million tons for export.

‌Here we have a commodity that is not imported so its price can climb even as rice prices decline internationally. But it appears that two ministers, the minister of supply and the minister of industry and trade, have allowed merchants to control the Egyptian markets whether with respect to foreign trade, domestic trade or industry.

‌According to official figures, some 6,000 factories have shut down over the past four years. This has enabled merchants and importers to gain control over the market for Egyptian products. At all events, the rise in rice prices has triggered a rise in pasta prices, pasta being the only alternative to rice for many Egyptian consumers.

‌When rice prices shoot up, the poor turn to macaroni and the increased demand triggers a price hike in this product as well. If rising prices lead consumers to abandon both rice and pasta and turn to bread, this will increase both the length of the bread lines and the cost of unsubsidised bread. It would also trigger price rises in fava beans and lentils as bread, like rice and pasta, is not eaten alone.

‌This is how food prices work — according to a chain reaction in which the price of every item affects the next one in a continuous loop.

‌The same thing can be seen in the prices of sweets, carbonated beverages and juices, despite of the collapse, and not just the reduction, in the global price of sugar. International sugar prices have dropped to LE3 per kg.

‌But in the Egyptian market the price has climbed to LE6, offering another illustration of how Egyptian merchants exploit the local market. In fact, some of them have collaborated with the minister of supply to ensure that imported sugar is distributed to people with subsidy cards for government food cooperatives.

‌As a result, about 4.2 million tons of locally produced cane and beet sugar have been left to accumulate in government warehouses. This is an amount sufficient to meet Egypt’s sugar consumption for a year, in spite of the fact that Egypt is a sugar-importing country, bringing in 32 per cent of its sugar needs.

‌It would make more sense to consume the domestically produced sugar first and to then turn to imports to meet the remaining demand. But evidently the minister of supply has interpreted the stagnation in the global sugar market as a sign that he needs to distribute Brazilian sugar first, thereby helping to protect the Brazilian sugar cane farmer, and only afterwards to turn his mind to locally produced sugar and the Egyptian farmer.

‌As a result, Egyptian sugar companies are suffering from a liquidity crisis and are five months late in paying what they owe to cane and beet farmers. Because the Ministry of Supply refuses to draw on the accumulated stores of locally produced sugar, government sugar factories are on the verge of closing down, and cane and beet farmers will soon have to turn to other crops for a living.

‌The same minister of supply has stated that 80 million Egyptians now have subsidised bread and food cards. This is a curious boast as it means that 95 per cent of the population of 85 million are poor. Such a ratio does not exist in even the poorest country in the world.

‌One can only conclude that the minister has inappropriately increased the number of beneficiaries of food cards, of which there were 60 million before he became minister last year, and that a chunk of the subsidies are ending up in the hands of people who do not deserve them, including food merchants, bakeries and the owners of shops where subsidised foods are distributed.

‌Clearly, the government must turn its attention to this matter and ensure that the beneficiaries of food subsidies are actually the poor and not 95 per cent of the population.

The principle of free trade does not warrant total anarchy, in the food markets in particular.

‌Nor does it signify that the government should leave market prices to the sole control of merchants, entitling them to impact the lives of the poor without restraint, without regulatory monitoring and without enforcement measures to ensure fair competition and prevent monopolisation.

‌As for the claim that government cooperatives are capable of regulating prices in the food markets in Egypt, this rings hollow as these cooperatives account for only about one per cent of the volume of food sales in Egypt.

‌The government of the UAE acted in a regulatory capacity during the 2008 and 2011 food crises. It prohibited price hikes before the arrival of new shipments with new price tags. At the same time, it set a 25 per cent profit margin on the sale of foodstuffs on the grounds that such products served the public welfare and therefore should not be vulnerable to excessive profiteering.

‌Such actions help illustrate how free trade does not mean that there should be no government role at all, or chaos and rapaciousness in the markets.


The writer is professor of agricultural resources at Cairo University.

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