NationStates Jolt Archive


Food, Fuel and Foreign Markets.

Abdju
02-11-2008, 14:34
(Al Ahram Weekly) http://weekly.ahram.org.eg/2008/919/sc6.htm

The domestic supply of food in Egypt is undergoing a crisis of dangerous proportions. This crisis, caused by a combination of international and domestic factors, threatens Egypt's economy, social fabric, and domestic politics.

The food crisis in Egypt, as in many other countries, has been caused by a "perfect storm" of price increases in food and fuel markets. The Egyptian crisis, perhaps the worst since the 1977 bread riots, is the result of two complementary shocks: the end of cheap food and the end of cheap transport. This piece outlines the contours of the domestic food crisis, tracing its international and domestic roots, and explores some of its implications for Egypt's agricultural sector.

The reality

Empirical evidence of the food crisis is all around us, has been well reported in the press, and is painfully obvious during every trip to the local store. The price of a kilogram of tomatoes, a basic foodstuff in the Egyptian diet, is up nearly eight times over the past year. Lentils and milk are up nearly four times while the price of cooking oil has tripled. Cereals and bread are up 48 per cent, and foodstuffs as a whole have risen by 24 per cent. The price of a tonne of rice, another staple in the Egyptian diet, has risen from LE1200 to LE2200, a rise of 83 per cent. To counter this alarming trend, the Egyptian government has taken dramatic steps, including increasing the annual bread subsidy from $3.6 to $6 billion, and restricting or eliminating the export of rice.

Egypt, to be sure, is not alone. Globally, food prices have increased 73 per cent since 2006. During the same period the price of edible oils has increased by 144 per cent, and cereals, including wheat and rice, have increased 129 per cent. Egypt, however, is particularly vulnerable and poorly positioned to cope with the consequences of the global crisis. The government, with many resource demands on its limited budget, is reluctant to continue subsidising food imports at levels required to stabilise prices. Salaries, already low, are being outpaced by inflation, making foodstuffs that were expensive last year unfordable today. Indeed, the food crisis is just one component of a general inflationary environment that saw increases in the cost of cigarettes, diesel and petrol, items relied upon by low-income Egyptians and whose prices were considered inviolable two years ago.

It is easy to theorise about the background and potential causes of the situation. The consequences, however, are altogether too real. The fragility of the situation was clearly shown by recent events following the scarcity of subsidised bread[1]. Much more in the same vein can be expected unless the ability of Egypt's food system to cope with the aftershocks of the global food crisis is urgently addressed.

The causes

The causes of the food crisis are many: some factors are domestic and others interconnected to the globalised food production system. Global factors affect Egypt passively, though with serious consequences, mainly through the increased price and scarcity of agricultural commodities in global markets. Domestic factors are unique to Egypt and carry profound implications.

In terms of global factors, we can note the following:

1. Biofuels as an oil replacement. The global search for an alternate fuel to oil has had a dramatic impact on the global food production industry. The possibility of producing bio- diesel from rapeseed or canola or other oil crops, or producing ethanol from wheat and corn, has resulted in emptying huge world grain reserves. Furthermore, demand for energy crops lead to reversing the trend of reducing the intensity of land use, such as leaving fallow portions of arable land. From 2008 on, very little land will be left fallow since stocks are depleted and demand for agrarian produce is booming. Record prices have currently been recorded for wheat, maize and rice, with the price of wheat tripling over the past 10 months.

2. Climate change. Many significant agrarian producers around the world, such as Australia, have seen their agricultural output compromised due to issues related to climate change, a global trend of unpredictability in rainfall and temperature and increasing cycles of drought and flood. The total number of recorded worldwide weather related disasters is now 400-500, up from 125 in the 1980s. As a result, significant shocks are sent through global agricultural markets, increasing prices and supply unpredictability. Increasing water scarcity is mostly felt in the traditionally arid countries between Morocco in the west and Iraq in the east. Few of these countries have more than 1,000 cubic metres of fresh water resources available per capita per year. Since food production in arid countries depends on irrigation, this amount of water is the lower limit for producing enough food for the population. As an example, in order to feed its population of almost 80 million, Egypt disposes of approximately 60 billion cubic metres of fresh water and hence has to import food that is equivalent, if it were grown locally, to nearly 20 billion cubic metres of irrigation water.

3. Rising transportation costs. The global increase in the price of oil, which over the past year has risen to record levels, has tremendous adverse consequences on global food markets. Oil price increases drive up the cost of food along the entire food chain, from production to the costs of fertiliser, to diesel for planting and harvesting, and fuel for transportation. Some much needed rationalisation has been introduced in the system, ending, for example, the extraordinary situation in which fish caught and consumed in Scandinavia was being prepared and packaged in China. However, the increased cost of oil also makes agricultural produce an enticing oil replacement, and increased oil prices have a direct upward implication on the global costs of food. In many ways, this is the end of the era of cheap food. It seems a new, more expensive reality is here to stay.

4. Rising global income levels. The economic boom, especially in Asia, and the rising revenues of oil exporting countries have caused a dramatic change in domestic food consumption. China, for example, has doubled its consumption of meat, fish and dairy products since 1990. Likewise, it has moved from being one of the largest exporters of maize to a significant importer of maize. These trends remove considerable agricultural supply from global markets and increase competition for the remainder.

5. Changes to the global agricultural commodities market. These factors, in addition to a host of domestic factors, have resulted in a series of alterations in the global market for agricultural produce. As countries have tried to protect domestic production, several agricultural producers have restricted or banned certain exports. Export restrictions in countries like China, India, Vietnam and Cambodia, for example, have tightened global food supply and driven up prices elsewhere. Egypt too experimented with trade protectionism, banning rice exports from April through October of this year. Similarly, food aid is down as a development agency priority, lessening the purchasing power of developing countries in agricultural produce. Likewise, global food reserves are at their lowest point in the last 25 years, resulting in little ability to cushion food price fluctuations and leaving the market susceptible to price spikes and speculation.

The factors listed above affect Egypt's domestic situation due to the tightening of supplies in the global food market and the increased prices of agricultural produce. A series of strictly domestic factors further exacerbate the situation. These include:

1. Population increase. Egypt's population of over 80 million is growing at annual rate of around two per cent, leading to projections of over 120 million by the year 2050. A new child is born in Egypt every 23 seconds, where the population has more than doubled in last 30 years. One-third of Egyptians are under 15 years old, meaning that the population bubble will be felt long into the next generation.

Population growth is by no means unique to Egypt: the UN predicts a world population increase from 6.5 billion to over nine billion by 2050. Every year, world population swells by about 80 million people, equivalent to the population of Egypt. But in Egypt, because of its limited resources of fresh water and fertile land, the impact is particularly acute. For example, Egypt currently imports over half of its annual demand of 14 million tons of wheat. Egyptians, on average, consume a spectacular 180 kilograms of wheat per person per year (in India and in Germany, for example, the figure is closer to 70 kilograms).

Continuing to satisfy such a high demand for wheat of a rapidly expanding population will continue to tax Egypt's import capabilities. Substantial increases of local wheat production are possible only at the expense of areas dedicated to growing animal fodder, thus widening the already important deficit in local meat production and other animal products.

2. Urban encroachment on agricultural land. Comparing current satellite images of Cairo with comparable images from the 1970s illustrates the challenges faced by Egyptian agriculture. In recent years, vast tracts of fertile agricultural land have been lost to ever-expanding housing and infrastructure developments. The city has expanded too rapidly, compromised by absent or inadequate planning, and in the process has destroyed its own food base. Some 45,000 feddans are lost in Egypt annually to urban encroachment. This problem is not limited to Egypt. Since 1976, 10.5 million hectares have been lost to urban encroachment worldwide. This is equivalent to the entire wheat cropping area of Canada, the world's sixth-largest producer of wheat, or to about four times the entire cultivated area of Egypt.

But the problem for Egypt is made particularly acute by the tendency for urban encroachment to take place on the most fertile agricultural land near the Nile River, which are the easiest to irrigate from the river. "Old lands", the traditional agricultural lands in the Nile Valley and Delta regions, are twice as fertile as "new lands", newly reclaimed lands on sandy soils[2]. Desert soil has neither the storage capacity for water nor for plant nutrients to make it even remotely comparable in productivity to the deep alluvial clay soils in the Nile Valley and the Delta. Desert soil is much more expensive to irrigate and to cultivate, and to compensate for the loss of one feddan of old land, at least two feddans of new land must be reclaimed.

3. Changing domestic dietary habits. Egypt, too, has an expanding middle class, the benefits of economic liberalisation and a growing economy. As people upgrade in economic status, their dietary preferences change accordingly. Generally, one of the effects of expanded economic purchasing power is an increase in the amount of animal protein in the diet -- particularly beef. Producing beef meat is notoriously land and water inefficient. For example, it requires 20 square metres of agricultural land to raise one kilogram of beef. This is 40 times the land required to grow one kilogram of fruits, and 100 times the amount of land required to grow one kilogram of potatoes. Likewise, it requires about 15,000 litres of water to produce a single kilogram of beef, compared with 900 litres for a kilogram of potatoes, or a similar amount for a kilogram of wheat. Other forms of animal protein, like goat or chicken, rate better than beef does but still considerably worse than the traditional Egyptian diet consisting of beans, cereals and vegetables. Thus, the effect of a growing middle class threatens to dramatically alter Egypt's land and water use.

4. Growing attractiveness of agricultural exports. The dramatic increases in global prices for agricultural commodities, along with the increasing liberalisation of Egyptian import and export procedures, has made it easier for Egyptian producers to sell to foreign markets. Thus, traders are increasingly able to sell Egyptian products to the highest bidder globally rather than at lower rates domestically. Last year, for example, Egypt produced 6.5 million tons of rice, which in theory should have been more than sufficient for the domestic demand of three million tons. However, shortages were common, meaning that many traders were able to access foreign markets where a higher price could be obtained. Such exposure to market forces means that Egyptian producers can charge Egyptian buyers more in line with international prices. A proportion of the resultant price hike is borne by Egyptian consumers.

5. The limitation of agricultural subsidies. The current Egyptian government seems committed to scaling back agricultural subsidies, even as they increase subsidies for some consumers. For example, the price of a sack of fertiliser has increased recently from LE30 to LE161. Likewise, the price of diesel -- a critical input during production, harvesting and processing -- has considerably increased. The resulting price increase of agricultural commodities is borne in large part by consumers. The government aims to offset these general increases by targeted subsidies to needy Egyptian consumers, but these efforts have yet to gather steam.

The implications

The combination of these global and domestic factors has the potential to radically alter Egyptian agricultural production. Potential implications of the food crisis on Egypt's agricultural sector include:

1. A greater emphasis on agricultural self-sufficiency. In many countries, agricultural self-sufficiency had been a largely discredited during the era of faith in free-market economics and globalised trade. The food crisis is forcing countries to rethink their positions on the subject of agricultural self-sufficiency and to support efforts to increase levels of domestic production. The Egyptian Ministry of Agriculture, for example, recently announced the aim of attaining 65 per cent self-sufficiency in the production of wheat by the next season. Land reclamation initiatives like Al-Salam Canal and Toshka may move from the fringes of future planning into the mainstream of government (and even donor) policy. Egypt has become the world's largest wheat importer, importing over seven million tons annually. Domestic production of "strategic" crops like wheat could therefore be given a much higher priority.

2. Greater emphasis on cropping intensity. Supporting the aim of greater agricultural self-sufficiency with limited potential to put new land under cultivation means that cropping intensity on already cultivated land needs to be increased. Greater research and policy emphasis could therefore be placed on efforts to emphasise higher yield strains of existing crops, and on finding ways to optimise the cropping calendar. For example, the government is currently pursuing initiatives to increase average annual productivity of wheat from 2160 to 2640 kilograms per feddan[3], a 23 per cent increase in productivity.

This process will be complex and adverse consequences will need to be dealt with, particularly the rise of the ground water table in the Nile Valley and the Delta region, followed by an increasing salinity of the soil, and a higher load of pesticides and chemical fertiliser in drainage water, which may seriously hamper the potential for re-using drainage water and for expanding irrigation into newly reclaimed desert lands. Advisory support for farmers as well as important investment in drainage and water treatment facilities will be necessary in order to mitigate the adverse consequences of increasing cropping intensity.

3. New prestige and relevance for agricultural support programmes. Until recently, those supporting Egyptian agricultural production, and the protection of land and water supplies that this requires, found themselves on the losing side of a debate against land speculators and industrial entrepreneurs seeking greater water and land allocations. Proponents of agricultural production no longer fear losing this debate. Priority in increasing agricultural productivity will be given to the use of "old lands", more efficient by a factor of two to "new lands", and will require the assistance of dedicated and experienced professionals to help guide farmers through the changing landscape of agricultural production. Such a programme, to cite just one example, is the German funded "Agricultural Water Management Project" attached to the Egyptian Ministry of Agriculture.

4. Better targeting of sector subsidies. Subsidies regarding inputs to agricultural production, including fuel, electricity, water and fertiliser, is a complex and highly political subject the world over. For example, the EU and the US have been unable to wean their farmers off generous government subsidies supporting domestic agricultural production. However, the domestic food crisis in Egypt may provide renewed impetus to efforts to scale back or target more effectively government subsidies concerning inputs to agricultural production. Already, diesel and fertiliser prices have increased significantly. It is possible to imagine a scenario in which agricultural services and the provision of better irrigation facilities also attracts additional fees. In the same light, increased tariffs on agricultural exports may be levied in order to promote domestic consumption.

5. Increasing problems of adequate nutrition for all Egyptian families. Some 14 million Egyptians currently live on less than $1 per day. At the same time, inflation rates remain high with national wage averages unable to keep pace. The result is more Egyptian families less able to afford adequate nutrition. The potential for consequent social unrest was demonstrated by recent events following restricted availability of subsidised bread in Egypt, and by food riots in Indonesia, Haiti, Bangladesh and various parts of Africa.

6. Need for cooperation with Sudan and other southern Nile riparians. Cooperation between the countries of the Nile basin is ongoing, but the food crisis gives the dialogue a greater sense of urgency. There is growing discussion of increasing agricultural produce in Sudan and in Uganda with Egyptian manpower and knowledge and investment, bound for Egyptian markets. The food crisis will promote these discussions and will give greater weight in policy discussions to those in government who promote these schemes.

Summary

It is too early to tell the true consequences of the global food crisis. Technical advances may soften its eventual impact on certain countries. Other countries will face challenges greater and more complex than could have been foreseen. What is sure, however, is that those countries that are able to diminish the negative impacts of the crisis through alterations to domestic food production patterns will be much better equipped to ride out the storm than those at the mercy of international markets.

In this regard, Egypt is well positioned. Egypt's land, water and technical resources are well equipped to step up and address the challenges presented by the food crisis. What is required is the protection of Egypt's agricultural land and water resources from further compromises, the empowerment of farmers to ride out the challenges presented by the crisis, and commitment on the behalf of policymakers to ensure the adequacy of domestic food production.

Paul Weber is GTZ senior adviser in irrigation agronomy and head of the Agricultural Water Management Project with the Ministry of Agriculture and Land Reclamation, Egypt. John Harris is a water policy specialist and adviser to the Agricultural Water Management Project.

Explanations:
1 - The author is referring to the food riots of last summer, with protests in cities in Lower and Middle Egypt. Several people were murdered when fights broke out on separate occasions in 3-4 hour long bread queues. Link (http://www.guardian.co.uk/environment/2008/may/27/food.egypt)

2 - Reclaimed land here refers to brining desert areas into agricultural use, not reclaiming land from the river or sea.

3 - 1 feddan = 1.038 acres.

There are a few points perhaps taken for granted in the article that are not spelt out for those not familiar with Egyptian agriculture.

Irrigation - All agriculture in the country is irrigation based, using a state (sometimes locally) managed canal network for irrigation and drainage. Individual farmers can draw water from canals that run by their land, and pay fees to do so. Rainfall is agriculturally insignificant.

Artificial Fertiliser - Land is kept fertile by chemical fertilisers which attract a state subsidy. Old land requires less, since soil on old land has a high concentration of alluvial deposits.

Soil salinity - Is already extremely high on old land.

Groundwater - Is abundant on old land (plus Siwa). At present it is a pest, but it is possible to exploit it to provide additional irrigation water. However, this would require extensive engineering works.

Farm size - Most farms are small scale, typical land holdings are in the area to 2 to 2.5 fedans in old land areas. Labour is usually provided by the family owning the land.

Crops - Sugar and cotton are cash crops. Wheat, dates, market garden vegetables are all staples, and rice is both a staple and a significant cash crop. At present cash cropping takes up a significant portion of old land.

A long article I know, but I'd like the opinion of those who subscribe to all the various economic ideologies on this one. The challenges faced are spelt out above, and summarise the current conditions quite clearly.

How do you feel this mess can be resolved, without causing further social unrest, and with the limited resources available? Is sinking money into Toshka and Al Salam "New Valley" projects worthwhile, or would the money be better spent improving the irrigation systems on existing lands? (refer here (http://www.fao.org/landandwater/aglw/watermanagement/docs/MOD_Egypt.pdf) for details on some improvements to existing systems that could bring many benefits)

My thoughts:
* Targeted subsidies are needed to maintain a realistic budget. Blanket subsidies are wasteful. Ideally these would be more effectively spent at source, that is on agricultural inputs such as fertiliser, fuel etc. than on consumer subsidies, but this would be politically sensitive at the current time. As a long term policy aim however, I think it is a better solution, with a phased transition. This would need regulation to ensure these subsidies are only applied to farmers supplying the domestic market with staple crops within an agreed price. Subsidising cash crops or export goods is unnecessary.

* Develop and enforce green belt legislation around Cairo-Giza-Helwan-October City, and other large urban areas (Alex, Tanta, Zagazig). Halt expansion at October and focus on discouraging suburbanisation. New developments, except where pressing reasons dictate otherwise, really should be on uncultivated land. Also encourage brownfield development, which can be politically difficult due to disputes such as the old airport land at Embaba (http://thedailynewsegypt.com/article.aspx?ArticleID=17299).

* A family planning program with full commitment. It may be time to swallow pride and strike a deal with the MB to make it work.

* Restrict cash cropping to new lands. In order to achieve self sufficiency in strategic crops, higher yields will be needed and this can only come from old land. This will also alleviate the worst of the soil salinity problems,which are caused in part by excessive water needed to maintain sugar crop.This would help boost the yeild of other crops, directly by giving them more old land, and indirectly by improving the quality of the old land, no longer as saline and water clogged as before.

* Scale back Toshka and Al Salam to what has already been developed for the time being, and divert funds into bringing old land irrigation up to scratch. Line canals, upgrade distribution works and introduce more efficient pumping operations.

* Encourage efficiency. Extend and modify existing narrow gauge track work to allow transport of additional harvests (rather than just sugar), reducing fuel consumption on transport, saving subsidy and bringing down production costs.

* Replace government diesel pumps (including diesel driven sakias) with hydraulic rams (http://en.wikipedia.org/wiki/Hydraulic_ram) or the noria (http://en.wikipedia.org/wiki/Noria) where possible. A phased reduction in fuel subsidy coupled with micro-credit loans can be used to encourage farmers to do the same with their own privately owned pumps and sakias. Eventually this will allow for significant savings in subsidies and also reduce demand on domestic fuel supplies, much of which is eaten up by these devices. Again, it would also drive down production costs.

* Where feasible, re-align the mesqas to allow more gravity feed to individual fields, creating a simpler, more reliable, lower maintinance infrastructure.

* As a long term project, examine technical possibilities of deep water dredging in Lake Nasser to recover rich silt deposits trapped behind Aswan Dam. This would reduce need for artificial fertilisers which result in extremely bad soil and water pollution, hampering agriculture. It would also reduce dependence on high input, high cost artificial fertilisers. In addition it would preventing the silting up of the dam. This has been studied (http://books.google.co.uk/books?id=SEU0IIobJCcC&pg=PA377&lpg=PA377&dq=silting+up+aswan+dam&source=web&ots=Dx_Lbparoo&sig=mGN0ugNc3SiYffPABENDVszWDxs&hl=en&sa=X&oi=book_result&resnum=1&ct=result) and is deemed feasible and economically viable.

Funding - Much of these projects are not massively expensive. Halting of further work on Toshka and Al Salam beyond completing current phases would free up several billion USD for these projects and the donor community has already expressed interest in funding work on upgrade of mesqas, whilst it is likely environmental groups and "bleeding heart" charities could be persuaded to co-finance projects involving replacing diesel pumps. Since these projects do not require expensive technology or expertise, and the farmers who would directly benefit could be used to provide at least some of the labour requirements costs are likely be quite modest.

The dredging of Lake Naser's silt deposits are more technically ambitious. Areas where silt is most heavily deposited are estimated to be approx. 100m deep. This is regarded as deep water dredging, but proven and commercially available technologies exist to exploit resources and are deployed elsewhere, however it is likely foreign collaboration would be needed to master the technology. I would propose a solution with a corporation owned by the Ministry of Water Resources and Irrigation and it's Sudanese counterpart, directly employing foreign technical expertise as is needed. A secondary function of the operation would be technology transfer and research assistance with Egyptian (and Sudanese) research institutions. Sudan is necessarily involved, as some areas where the silt deposits are located are in the Sudanese portion of the lake.

Combined, these projects would raise yeilds and drive down production costs of key crops through using simple, efficient and more reliable irrigation systems. It would stand Egypt in better stead to be able to feed itself, and place less burden on farmers though lower maintinance demands and fuel costs. This would allow them to make additional income whilst still meeting government pricing aims for staple foods on the domestic market, and offset the price difference between staple and cash crops.
Neu Leonstein
03-11-2008, 02:09
The problem, I think, is the mismatch between the short-term and long-term solutions. A country with the population of Egypt and its agricultural resources can't hope for complete self-sufficiency in food. Even if it could there'd be significant losses borne by the consumers.

But right now, trying to shift consumption to imports is difficult to impossible because of the state of local markets. Nor can we expect higher prices to really attract more domestic producers, because there are limits to how much they can actually rise, partly due to price controls, partly because the consumers just can't afford paying any more.

So yeah, targeted subsidies, ideally inversely indexed to some sort of measure of import food cost and availability seem the way to go. When foreign food is expensive, domestic suppliers are encouraged to make more and vice versa. It's a bit scrappy, but there we go.

I'd also abolish the price controls. They don't work well enough anyways, and discourage suppliers which is precisely what you don't want when people are hungry enough to riot. There's a natural limit to how high prices can go, and if people are really going to starve to death, welfare payments may be more expensive for the government, but are still the far better option.

In the long run, you obviously want to free up things, encourage more investment and make sure Egyptian food stores have reasonable access to world suppliers as well as domestic ones, plus the option to hedge against price movements (that being the thing that has been particularly neglected in the developing world because the legal, financial and electronic infrastructure for it just doesn't exist). FTAs with other countries in similar situations might be a way to protect against any future attempts by others to raise trade barriers and push import prices higher.

The problem with all this is of course that the government may have to spend big and just isn't able to. Running consistently high deficits could also depress the currency, which would make imports even more expensive. Hence continuous reform of the way government money is collected and spent needs to be on the agenda as well. It's a bitch that the most problematic spending item is actually subsidies. The ones for petrol should go, but that's political suicide more often than not. And the ones for food - well, as I said, the mismatch between what needs to happen right now and in the future complicates matters.