Explaining higher food prices

Ahmed Abdel-Hafez , Wednesday 7 Feb 2024

Why has food inflation in Egypt continued to rise despite global trends towards lower prices?

Explaining higher food prices

 

Global food prices declined in January owing to increased food production by leading countries and a rise in global crop yields by the end of 2023, according to the monthly report of the UN Food and Agriculture Organisation (FAO).

In contrast, the local market witnessed almost daily surges in food prices, with some products seeing hikes of up to 50 per cent throughout the past month.

The FAO’s global food price report said that January 2024 marked the lowest level in its index since February 2021, driven by the reduced prices of some grains and meat products.

Global meat prices declined for the seventh consecutive month, the report said. The grain index also dropped, reflecting the surge in global grain production to its highest levels ever in 2023 compared to lower levels in 2022.

Global wheat and rice production reached the highest levels on record, the FAO report added.

The report attributed decreasing prices to heated competition among exporters, particularly in the wheat sector, in leading food producers such as China, India, and the US.

Nader Noureldin, a former FAO expert, said the latest FAO report serves as strong evidence that prices are returning to their levels before the war between Ukraine and Russia and even pre-pandemic levels.

In Egypt, however, the dual pricing of the dollar in the local market and its lack of availability have been causing sudden and rapid hikes in commodity prices, he added.

When the state announces that it has strategic reserves of wheat to last for three months, this refers to the amounts needed for subsidised bread production, Noureldin said.

However, the flour used to make pasta, sweets, and non-subsidised products comes from private-sector stocks that in the best-case scenario do not exceed the amounts required for a month’s production, he added.

 As a result of the scarcity of dollars manifested in the surge in parallel-market prices, the prices of these commodities experience corresponding increases, Noureldin explained.

The shortage of dollars could result in a reduction in the quantities of food imported by the private sector or delays in unloading it at the ports, leading to the imposition of fines.

The end consumer ultimately bears such costs, with goods increasing by up to 60 per cent in less than a month, Noureldin noted.

The food prices inflation index, a sub-index of the inflation index produced by the Central Agency for Public Mobilisation and Statistics (CAPMAS), surged to over 60 per cent in the past six months, going beyond 70 per cent in August, September, and October 2023.

Hussein Abu Saddam, head of the Farmers Syndicate, said that the crisis is localised. He cited the rise in meat prices, which soared by over 40 per cent in January, despite state projects to raise veal production, for example, for which the government allocated LE8 billion.

While this project was successful in adding half a million new heads of cattle to local production, there is still a deficit in the local market of approximately 40 per cent, with a complete dependence on imported fodder, vaccinations, and medicines.

These factors are influenced by delays in feed shipments and dollar availability, Abu Saddam said. There are, however, opportunities for local fodder production from agricultural waste, which could significantly reduce the need for imported feed.

Ali Abdel-Mohsen, head of the Economic Affairs Sector at the Ministry of Agriculture, said the FAO’s announcement of a global decline in food prices was good news as it alleviates the burden on countries heavily reliant on food imports, including Egypt.

The reduction in international prices is expected to lower Egypt’s import bills for food commodities like grains, feed, and vegetable oils. This is anticipated to stabilise prices in the local market and alleviate the financial strain on the population.

The rise in wheat prices in Egypt does not reflect the decline in the international prices of wheat, said Abdel-Ghaffar Al-Salamouni, undersecretary of the Grain Industry Committee.

Fluctuation in wheat prices and the quantities available is attributed to the decision to stop trading wheat on the commodity exchange in January in order to prevent speculation from pushing its price up.

Al-Salamouni said that the exchange used to offer 20,000 tons of wheat daily, which is a fraction of the overall amount consumed each day in Egypt.

However, although the traded quantity on the exchange is small, it has a substantial impact as the price set through exchange transactions serves as an indicative price for the general market.

Since the discontinuation of offering wheat on the exchange, arbitrary pricing of wheat has ensued, with traders adhering to stringent hedging policies.


* A version of this article appears in print in the 8 February, 2024 edition of Al-Ahram Weekly

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