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Let them eat vegetables: Egypt's wheat farmers hit hard by diesel price hikes

Squeezed between rising diesel costs and fixed government pricing, Egypt's wheat farmers are seeing their profit margins shrink, with some looking to other – potentially more lucrative – crops

Deya Abaza in Minya al-Qamh, Tuesday 16 Apr 2013
Farmers in Minya El Qamh in the Nile Delta governorate of Sharqiya, the largest wheat producer in Egypt (Photo: Deya Abaza)

Soaring fuel costs are expected to deal a major blow to the profit margins of Egypt's wheat farmers this year, driving them away from the government-subsidised crop at a time when the country plans to increasingly rely on local production of the vital commodity.

Wheat farmers in Minya Al-Qamh, the second largest town of the Sharqiya governorate in Egypt's Nile Delta, the very name of which means ' port of wheat,' are bracing for a tough harvest season, which in this region will begin in the second week of May. 

The fertile governorate is the country's largest wheat producer, as its lush, golden landscape attests.  

"We're going to suffer this year," lamented Mohamed, a small landowner from one of the many little villages surrounding Minya Al-Qamh. "One jerrycan (20 litres) of diesel officially costs LE22 (approx. $3.2), but now we're forced to buy it on the black market for double – even triple – the price."

Rising diesel prices impact agriculture

Egypt has been plagued by increasingly frequent fuel shortages since its 2011 revolution, as foreign currency reserves have dried up and credit ratings plummeted, impeding fuel and other imports.

Hajj Mohamed, whose lined, coarse brown face bespeaks a long life spent labouring outdoors, is the proud owner of a small wheat field in Mamoun, Minya Al-Qamh, where he was born and raised his three sons.

Like other subsistence farmers in his village, he rents the combine – a diesel-operated machine that separates grain from straw – from a private owner. "The rent of the combine has doubled this year to LE100 an hour," Mohamed complained.

Harvesting larger wheat fields requires use of larger, more sophisticated combine harvesters, also diesel-powered, which are rented out by the agriculture ministry.

Diesel costs impact every stage of the farming process, as tilling, irrigation and transport all rely on diesel engines.

"Renting a tractor to till the land costs LE400 per feddan [roughly equivalent to one acre] this year; it used to cost LE200," explained Abdullah Romeih, a local agricultural engineer.

"I used to rent a water pump for LE8 an hour. Today it costs me LE15," he added. "The owner will tell you he had to pay for the hikes in diesel prices."

Farmers say the rising fuel costs have not been matched by corresponding rises in wheat prices, which are set by a government that heavily subsidises flour.

The Egyptian government is offering LE400 ($57) per ardeb (roughly equivalent to 150 kilograms) of wheat this year. Though this is roughly a LE100 higher than the international price, which currently hovers at around $44 per ardeb, the rise has not been proportional to soaring local production costs.

"So the government upped the price of the ardeb by LE15. If it had increased its price by LE100, it still would not cover the rise in costs for farmers," said Samir Nada, manager of a local wheat field.

The risk is that diesel shortages will affect the availability of this machinery to wheat farmers, thus delaying the harvest, causing waste, and disrupting the distribution of state-bought grain to the urban mills that produce state-subsidised flour. 

A Foreign Agricultural Service (FAS) report on Egypt issued by the US Department of Agriculture in early April estimates that "upwards of 150 million litres of diesel fuel will be required to operate combines, bagging equipment and trucks for hauling wheat from fields to storage areas" in Egypt this year. 

The report cites "growing concerns among producers, traders and industry experts alike that the lack of diesel fuel availability may affect [this year's] crop harvesting and its distribution." 

This would be catastrophic at a time when Egypt is currently striving to boost wheat self-sufficiency and as dwindling foreign currency reserves have led the government to cut back on wheat imports, which account for more than half of domestic consumption.

Dreams of self-sufficiency

The government has said it aims to cut wheat imports by half this year, filling the 4 to 5 million ton gap with domestically produced wheat purchased from farmers through the Principal Bank for Development and Agriculture Credit (PBDAC).

But experts and industry insiders say this target for local procurement is wildly optimistic.

"Historically, this figure has never reached 3 million tonnes," a high-level agriculture ministry source told Ahram Online. He put Egypt's annual local production at between 7 and 8 million tonnes on average.

This is in part because subsistence wheat farming, defined as farming on plots of one acre or less, accounts for half of the roughly 3 million acres cultivated with wheat across Egypt, according to the source.

Although subsistence farmers like Mohamed sell large chunks of their produce to the government, which offers the highest price, they have consistently set a certain quantity aside for their household needs and for seed stockpiling for the coming year. This, according to the FAS report, is due to price speculation and high storage losses.

Mohamed, whose half-acre plot produces 8 to 9 ardebs of wheat, sets one ardeb aside for himself. 

The transport of domestic wheat to government warehouses nationwide, for which suppliers are responsible, will also be hit by fuel shortages, further depleting government stocks.

Mohamed complains that the truck owner on whom he depends to transport his grain to the local government warehouse had recently upped his fee to keep up with rising diesel prices. 

Industry insiders also voice concern over the government's ability to transport the grain that it does collect out of its warehouses in time to avoid waste due to prolonged storage in poor conditions.

"It's doubtful that the state's grain buyer will be logistically capable of meeting the domestic wheat procurement target, as the fuel shortages will affect transport of the wheat from its warehouses to the cities," said Ahmed El-Naggar, owner of an agriculture development company.

Should the state fail in its gamble to replace imports with domestic wheat, a possible shortage in state-subsidised bread – the main dietary staple for millions in a country where over 20 percent live under the poverty line – would have dire social and political consequences.

Egypt was rocked by bread riots in 1977 following a government attempt to lift subsidies, and again in 2008 due to shortages of subsidised bread.

Farmers mull leaving wheat

The reduced profitability of cultivating wheat will undoubtedly drive some farmers to switch to other more beneficial crops, which – unlike wheat – are not state-subsidised.

"This year, I have no choice," says Mohamed. "But next year, God willing, I might plant vegetables instead of wheat – and I would get a better price for them."

However, the costs and risks associated with cultivating vegetables instead of wheat will likely limit the exodus of farmers away from wheat.

"The agricultural cost of cultivating potatoes, for example, is between LE5,000 and LE17,000 per feddan, whereas wheat requires an investment of only LE3,000 to LE4,000 per feddan," El-Naggar estimated.

"Though the profit margins for vegetables are much higher, cultivating them is much riskier, especially for inexperienced farmers who don't have guaranteed buyers," said the agriculture ministry source.

He added: "Even if wheat farmers decided to switch en masse, this would affect 200,000 acres at most."

In any case, Hajj Mohamed will not be expecting much in the way of returns as he and his workers toil this summer in the unpitying midday sun.

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