UN warns of global food crisis, but is Egypt prepared?

Marwa Hussein, Monday 10 Sep 2012

Net food importer and world's largest consumer of foreign wheat, Egypt could be especially vulnerable to recent surge in commodity prices. Ahram Online looks at the country's prospects

Our daily bread: but at what cost in future? (Photo: Reuters)

As the United Nations issues warnings over soaring global food prices, Egypt may have more to worry about than most.

A net food importer and the world's biggest consumer of foreign wheat, the Arab world's most populous country would be wise to keep an eye on consumer prices indices as well as its budget, say experts.

In late August, three UN agencies made a joint statement suggesting the world could be on the brink of a repeat of the 2007-8 food crisis, citing "sharp increases" in the prices of maize, wheat and soybean caused by summer droughts and scorched crops across the globe.

Global food prices soared a monthly 10 per cent in July, the World Bank said in August as it warned of the effect on domestic prices.

"Africa and the Middle East are particularly vulnerable, but so are people in other countries where the prices of grains have gone up abruptly," the Bank said.

Egypt has bitter experience of such events.

Between 2007 and 2008, soaring global prices meant the country's food import bill nearly doubled. The government's allocation for food subsidies in the budget were revised upwards in the middle of the financial year, and inflation reached a record high of some 23 per cent.

A repeat is a worrying prospect for Egypt, but just how likely is it?

According to some experts, Egypt is already starting to feel the effect from rises in global cereal prices.

Hany Genena, head of research at Pharaohs Securities Brokerage, says one of the lesser-noted effects has been on the Egyptian poultry industry whose profit margins have been squeezed due to an increase in prices for grain-based fodder.

Some domestic poultry producers have passed on the cost to consumers, Genena says, but have had to limit such moves due to competition from Brazil and Saudi Arabia.

He says Egypt's poultry companies have reported declines in profits for the second quarter of 2012 as a result.

Genena also casts doubt on the possibility of a short-term surge in year-on-year inflation, saying food prices for the same period last year were also high.

But he doesn't rule out a monthly rise in September if the current trend of rising international food prices continues.

"There's a positive side and there's a negative one," said Genena, pointing to the relative stability of the local currency as a plus, but suggests the US-Israel crisis with Iran, which hits standard energy prices, could lead to an increase in biofuel production.

Using crops for fuel would have an obvious effect on supplies for other uses, likely sending food costs soaring.

A new focus on using crops for biofuels rather than food was one of the main causes of the 2007-8 crisis, Genena warns.

Noamany Noamany, deputy head of the General Authority for Supply Commodities (GASC), Egypt's state-owned wheat buyer, believes things are under control.

"We are covered for the coming six months and wheat prices are expected to dip," says Noamany, explaining that the GASC already has strategies to limit the effects of global price hikes.

"First of all, in time of great price fluctuations we take advantage of the slides to purchase bigger quantities," he told Ahram Online.

The General Authority for Supply Commodities made its biggest purchase of the year last week by buying 355.000 tonnes of mainly Russian wheat. The shipments should arrive in Egypt between 11 and 20 October.

Noamany is also optimistic that an increase in domestic wheat production means Egypt can gradually wean itself off imports.

Egyptian is importing 1.1 million fewer tonnes in the 2012-13 financial year, with local agriculture filling the gap, he claims.

"Egypt will only import 4.6 million tonnes [in 2012-3], which is the least it has imported in many years," Noamany says.

In addition, Egypt's main source of wheat is Russia, says Noamany, not the United States where a summer of drought has affected spring wheat due to be harvested in September.

Over the past decade, Russia has gradually replaced the United States as Egypt's main source of wheat, except in 2007/8 when Russian yields fell.

Last year, Egypt imported 67.5 per cent of its wheat imports from Russia versus around 10 per cent from the United States. Its other sources are Ukraine, Argentina, France and Romania.

"Russian wheat is $40 cheaper than American, that's already a plus," Noamany said proudly.

GASC has a flexible budget and is able to spend more to secure the same quantities, should price hikes occur.

Egypt's Ministry of Finance has not revealed the wheat price it is relying upon in the 2012-13 budget.

However, allocations for total food subsidies have reached LE26.6 billion ($5.2bn), which include wheat, sugar, oil and rice.

The budget also shows Egypt's bread subsidy -- which relies on wheat -- rising to LE16 billion, 50 per cent higher than in 2011/2012, and 60 per cent of total food subsidies.

The data for staple foods may seem worrying. The prices of internationally traded maize and soybeans reached all-time peaks in July. Wheat prices have also soared to levels comparable to 2011 peaks, although still below their record highs.

It's not all bad news. Last Thursday, the Food and Agriculture Organization (FAO) said that global food prices had remained steady in August, following a 6 per cent jump in July.

An overall FAO index of food prices averaged 213 points last month, the same level as in July.

Egypt may have been spared the worst -- for now.

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