How did the war affect Egypt's food?

How did the war affect Egypt’s food?

16 March 2023

Russia’s invasion of its neighboring country Ukraine has not only had a devastating impact on life in Ukraine, but has extended to a shortage of energy supplies throughout Europe, driving the global economy towards the risk of recession¹, at a time when countries around the world were already struggling to recover and restore their economies two years after the spread of the Corona virus pandemic.

Southern countries have had their own share of the war’s effects as well, when it comes to their food security. Egypt is considered as one of the most damaged countries by the war, despite its geographical distance, given the impact it had on its food security, or what remains of it, following decades of decay since the end of the last century, due to its tendency to liberalize agriculture and food sector, replacing it with the private sector, in the midst of its quest for integration into the global neoliberal order.

How has the war reached Egyptians’ food supply?

The war in Ukraine brought a new threat to what was left of Egypt’s food security, with the U.N. Food and Agriculture Organization² (FAO) warning that about 9.6 per cent of Egypt’s population, or more than 10 million people, were at risk of not being able to afford healthy food if their purchasing power decreases by about a third, either due to high food prices or due to a decline in people’s incomes, at a time when 85.3 percent of the population was already unable to afford healthy food, according to the FAO’s 2019 data.

The war’s heavy impact on Egypt’s food security has revealed the extent to which such security is fragile. For decades after the 1973 war, Egypt has rapidly moved towards integration into the global neoliberal order, liberalizing its economic policies one after the other. Progressively, Egypt has gone from being a food producer to one of the world’s major importers of basic food products and seeds for agriculture.

Decades of policies towards integrating the global system

In the 1980s, an American presidential mission visited Egypt³ to examine what it described as Egypt’s agricultural problems, and then to provide solutions and recommendations for these problems as a requirement for American aid, including the associated conditions and diktats, such as importing American machinery and agricultural products into Egypt. At the same time, this assistance has sought to curtail the cultivation of strategic crops, such as wheat and cotton, in exchange for obtaining them as aid.

Furthermore, the government encouraged farmers to grow export-oriented varieties of vegetables and fruits in order to get hard currency. This required obtaining the necessary seeds for the crop from international companies that acquired the seeds’ property rights since Egypt signed⁴ the International Convention for the Protection of New Varieties of Plants (UPOV).

However, this Convention does not protect small farmers, but instead is designed to protect plant species developed by international companies, and entitles them to take legal action against farmers if they use these varieties without acquiring the right to reproduce or cultivate them. This obviously means that this protection has turned into a monopoly for these companies and their importing agents, particularly in light of the decrease in funding for Egyptian agricultural research centers, which has made it impossible for them to produce new varieties of their own seeds, thereby undermining Egypt’s ability to achieve food sovereignty.

The return of capitalism in the farming sector

This occurred at a time when the law reforming the relationship between landlords and tenants⁵ was issued, allowing the liberalization of farmland rental prices, which have in turn increased significantly and became unaffordable for a large proportion of small farmers.

This resulted in hundreds of thousands of people moving from being tenants on large landowners’ farms to being paid workers on the same farms, or giving up the farming profession. In addition, the government has extended the development of desert lands through various projects. However, in pursuit of rapid development, it has tended to sell or lease these newly developed lands to large Egyptian and foreign companies and investors⁶. This has resulted in increased control of the farming sector by the larger economic entities, and a tendency to grow products for export, such as vegetables and fruits that are highly priced for most of the Egyptian social segments, which means that the arable land in Egypt has become land used to serve consumers in the global North. On the other side, the importance of small farmers has decreased, and the competition between the two sides has become more intense, to the advantage of companies, of course, especially with the diminished role of agricultural cooperatives.

The fragility of this system has become evident throughout this period, as the government relied on imports of strategic food commodities from abroad, making its ability to supply these commodities at the mercy of fluctuating prices in the event of a sudden change in the global economy. With the 2008 economic crisis, the government was unable to supply the wheat needed to make the subsidized bread that most citizens depended on, and long lines of people stood in front of bakeries across Egypt to fight for sustenance (i.e., bread), sometimes resulting in fights that ended in killings amongst those waiting in the line⁷.

Wheat… The greatest loser

In recent years, the Coronavirus pandemic has hit the global supply chains and the economies of Egypt and the rest of the world. Governments began to get the economic situation under control early this year, but new hardships suddenly emerged, either due to the direct effects of the war in Ukraine and its impact on the prices of imported food commodities such as wheat, or indirectly after the Egyptian economy found itself in a severe hard currency shortage crisis, which limited its ability to provide the dollars needed for imports, with important food sectors on the verge of collapse, including the feed and protein industry.

Given its highest importance in the Egyptian food basket and its greatest impact on Egypt’s food security, wheat was naturally the first priority during the war.

Egypt is considered as one of the most damaged countries by the war, given the impact it had on its food security

Bread has occupied a special position and absolute importance for Egyptians since the time of Pharaohs, starting from its ancient sanctification, and lasting for thousands of years, due to its nutritional value and ease of access in the current era. For decades, wheat remained the only crop that the government kept supporting in all of its forms, starting with providing the necessary seeds for its planting at the beginning of the season, providing subsidized fertilizers for its cultivation – despite continuously increasing its prices – buying it from farmers at higher prices than its world counterparts, and then milling it and turning it into flour to be sold in bakeries at a subsidized price to Egyptian consumers. Since the subsidies introduced in the aftermath of World War II, bread prices have only increased three times, as successive governments have avoided altering bread prices to maintain a solid political system.

To meet the need for wheat to produce bread, the Egyptian government estimates that the country needs to grow about 10 million tons of wheat. These estimates are questionable, considering that the data used is outdated, besides experts’ opinions on the evolution of the agricultural area and the actual crop production in Egypt. In any case, this production is not sufficient to cover the demand for flour, which amounts to 18 million tons. The gap (about 9-10 million tons) is compensated by imports ⁸ from several countries, primarily Russia and Ukraine, whose exports to Egypt represented about 80% of total wheat imports ⁹ last year.

The outbreak of the war in February disrupted Russian and Ukrainian wheat supplies, resulting in a gradual increase in world wheat prices over the months following the start of the war, reaching an estimated increase of 48% compared to last year.

The government’s attempts to contain wheat prices

In an attempt to address the crisis, the General Authority For Supply Commodities, the government’s wheat procurement agency, initially issued successive tenders to import wheat. But in the process, it was forced to cancel several tenders, either because of a lack of bidders or because of price increases compared to the pre-war period. As a result, the government changed its plan and decided, for the first time, to reduce its dependence on imported wheat and rely on the local one, by buying twice as much from farmers, estimated at six million tons, which is equivalent to 60 percent of the government’s total planned domestic production, and the remaining needs (three million tons) will be ensured through imports.

However, the government feared that wheat would be sold to the private sector, which could offer a higher price than the government’s counterpart. Instead of raising the price to ensure their local needs were imported, the government issued a decree ¹⁰ whereby farmers were under obligation to sell part of their production to the government.

This is when the problem emerged

In an effort to ensure a minimum level of food security, the government encourages farmers to grow wheat, and prohibits its export and sale to the private sector. After the harvest, the government buys about three and a half million tons of wheat from farmers at a price it sets before the season, which is higher than the world market price. The remaining wheat is kept by farmers for domestic use and some is sold to the private sector, although this is legally prohibited.

But then the war changed everything. International wheat prices continued to rise, even exceeding the price set by the government to buy wheat from farmers, along with rising prices for fodder, flour, and commodities, causing farmers to refuse to sell to the government despite the government’s binding decision.

The government increased the import incentive to encourage farmers. However, the incentive was not sufficient, even after the price increase, for farmers to give up their wheat, which they considered to be a guarantee of their food security in circumstances that were new to them. Following this incentive, the government neither listened nor responded to farmers’ repeated requests to increase the import price, given the high inflation rate both in urban and rural Egypt, especially with the General Authority still importing at the same international prices and wasting hard currency, despite the availability of wheat locally.

Looking outside, rather than solving inside

In the midst of the crisis, the Egyptian Ministry of Supply has sought to take action by allowing the import of wheat from alternative sources, in an effort to move away from the unstable Black Sea region and avoid the high prices of American and French wheat. One of these alternatives was India. Unfortunately, after Egypt contracted its first shipment, India soon banned wheat exports as a result of high inflation rates in the country along with a heat wave that damaged the crop. Egypt therefore did not import any quantity.

Amidst the deteriorating circumstances and Egypt’s continued cancellation of international tenders due to prices, the government has decided to get tough on farmers and issued another decision punishing farmers who refrain from selling their wheat to the government with penalties up to imprisonment, for the first time in its history. Yet, despite these legal restrictions and continuing censorship campaigns, the government was only able to collect about 3.8 million tons of wheat despite official claims¹¹ of 4.2 million tons.

The Ministry of Supply, with a view to preserving and expanding its strategic wheat stocks, decided to reduce flour consumption rates by increasing flour extraction rates¹² in subsidized bread to 87.5 percent instead of 82 percent. In addition, because of the limited choices, Egypt abandoned one of the quality requirements for imported wheat and increased the allowable moisture content of wheat¹³. It eventually thought of producing bread from potatoes¹⁴ to save wheat. But the idea failed after the ministry discovered that the idea wasn’t practical¹⁵ at the time being.

The plan has been appreciated, and the government has flooded the media with coverage of its plan, and has imposed severe penalties on offenders¹⁶. However, in reality, the government did not give any flour to bakeries¹⁷, forcing them to buy flour at a high price on the free market, and to sell bread at lower prices than the cost price, out of fear of being fined, causing many bakeries to close down out of concern for losses. Three months later, the government cancelled this initiative – which has never been implemented – and the price of unregulated bread has risen again.

Increased wheat prices in the post-war period cost Egypt about 15 additional billion pounds¹⁸ in the current fiscal year, all of which was borne by the government, whether using its own resources or by borrowing.

Although the government has not burdened consumers with this price gap, considering the priority of bread and the sensitive nature of its prices, it has increased the prices of eight food products since the beginning of the year. In the second half of the year, it decided to compensate the Egyptian people eligible to receive aid with an exceptional increase in the amount of the allowance¹⁹ for six months since last September. But the prices of basic food commodities continued to rise even after the exceptional allowance, thereby reducing its effective amount.

In any case, neither wheat nor bread were the only products affected by the war; they were but more significantly impacted.

The war effects go beyond wheat

The impact of the war has reached another component of the Egyptian food chain, which is rice. Egypt has already achieved a high level of self-sufficiency and significant sovereignty over its production, but government policies have not helped to sustain the country’s food security, resulting in high rice prices and shortages in the market.

The crisis of high rice prices is due to the government’s attempt to buy local rice at prices that are unfair to farmers, and to increase market control by setting a mandatory price for the sale of rice to compel farmers to supply rice at the same price. This decision is intended to prevent prices from rising, especially given the spread of monopolistic practices in most food sectors, but at the same time these policies encourage farmers to refrain from growing strategic materials for fear of cheap government procurement. This is especially true given that production inputs are high, even the subsidized ones²⁰, and that irrigation costs are also high.

In addition to cereals and rice, Egypt is facing a new protein crisis

Russia and Ukraine together produce about one-fifth of the world’s maize, of which Egypt imports more than 800,000 tons a month to make fodder. With the shortage of dollars in the local market, importers have not been able to bring the feed into the country²¹. And what they have been able to bring into the country has escalated in price²² to unprecedented levels. As thousands of tons of feed ingredients piled up at Egyptian ports, prices for poultry and eggs soared, with feed costs alone accounting for about 75% of the poultry industry’s costs.

The decline in the availability of foreign currency is a direct result of the loss of billions of dollars in the Egyptian economy since the start of the war in Ukraine. In just a few weeks, the Egyptian economy has lost 20 billion dollars²³ in hot money.

In spite of this, the central bank kept supporting the value of the Egyptian pound against the dollar, based on an increase in foreign currency sources. However, this was countered by a significant increase in import bills within rising global prices and the withdrawal of foreign investment, which put the Egyptian pound and economy under increased pressure. As a result, the Central Bank and the government took several decisions in the first quarter of this year to significantly and abruptly restrict most imports, including imports of seeds, crop seeds, and production inputs needed by the industry, which includes products imported by Egypt for its feed industry, such as yellow corn and soybeans.

Russia and Ukraine together produce about one-fifth of the world’s maize, of which Egypt imports more than 800,000 tons

The crisis gradually worsened and the government lost the ability to provide foreign exchange to allow the entry of shipments of various imported goods, including feed ingredients. The crisis exploded after the appearance of videos²⁴ showing poultry producers slaughtering young birds called “katakit” after failing to provide poultry feed, meanwhile an informal parallel market²⁵ for feed emerged with unprecedented prices in Egypt. Instead of supporting the poultry sector, one of the few sectors in which Egypt has been self-sufficient for years, the government decided to put pressure on feed manufacturers and poultry farms; it used some of its scarce hard currency, not to provide feed and preserve the most important protein sources in the Egyptian food basket, but rather to import frozen poultry from abroad, without giving any explanation neither to citizens nor to the private sector.

Private sector flour mills have also been affected, with 80% of them ceasing to operate²⁶, as the inflow of imported wheat on which they completely depend has stopped, which has led to a significant reduction in the production of bran used by small farmers for animal feed.

What does the future hold for the Egyptians’ food system?

With the deepening foreign exchange crisis, the government has gone for new concessions and started selling off assets it holds²⁷ in some important food production sectors, notably fertilizers.

The concern is the extent to which the private sector could be involved in the management of such an important industry, as the private sector is driven by profit without any other considerations. This could change the strategies of fertilizer companies, which are getting natural gas from the government at a subsidized price in exchange for allocating part of their production to the local market at a subsidized price, to help the Egyptian agricultural sector develop.

Fertilizer subsidy strategies have not changed yet, but the government, after selling part of its shares in these companies²⁸, has decided to increase the natural gas prices sold to nitrogen fertilizer plants, which is expected to increase local prices by about 33%, and may subsequently result in a shortage of fertilizers at the beginning of the winter season.

What’s even worse is that the biggest impact of this decision to increase gas prices, and thus fertilizer prices, will be felt by small farmers, as they primarily rely on nitrogen fertilizer, whereas large agricultural investment companies tend to use specialized fertilizers.

Besides fertilizers, the Egyptian government was forced to acquiesce to repeated global demands to withdraw from multiple economic sectors in the process of seeking a new loan from the International Monetary Fund. It subsequently announced what it called the State Ownership Document²⁹, in which it outlined its strategy to withdraw from certain sectors within three years, including livestock, fish farming and cereals, with the exception of wheat, and to later reduce its investments in the dairy sector.

Reducing state presence for foreign investment

The government’s State Ownership Document is one of the most important pillars of the negotiations with the International Monetary Fund (IMF) for the new, as yet unannounced loan. In addition to withdrawing from certain sectors, statements by government officials indicate their intention to pursue austerity policies that include restructuring commodity subsidy systems for the most vulnerable segments, in light of the crisis that subsidies have posed to successive governments – a significant burden on their public budgets, which has often led them to borrow instead of investing in Egypt’s vital sectors to strengthen the country’s food security and sovereignty.

The major challenge in getting a new loan lies in its neoliberal conditions, which lead to greater dependence on world markets and the global economic system, which means ignoring the importance of Egypt’s food security to provide safe, healthy, adequate and appropriate food for the entire population, and to eliminate some of the health problems, food-borne diseases, malnutrition, growth retardation and obesity that affect three out of four children in Egypt.

Eliminating subsidies does not provide the best way to redistribute government resources. On the contrary, research³⁰ suggests that comprehensive policies, including subsidy systems, may be the best solution.

Research confirms that the solution lies in adjusting the initial distribution of resources³¹ by increasing the minimum wage, by including all segments of the population, by generalizing the social protection system and extending its services, and by adopting a fair tax system that distributes the burden according to real wealth and ensures its redistribution in favour of the most disadvantaged. Indeed, this goal can be achieved through support to the poorest segments of society, including farmers, in order to encourage small-scale farming as an effective means of ensuring food security.

There might be more support… but the support offered to farmers is disappearing

One of the most important foundations of farmer support that is lacking is the provision of technical and extension support and training to small farmers who cannot afford to hire an agricultural expert to deal with the impacts of climate change they are not accustomed to. This has now become impossible after the number of agricultural extension workers of the Ministry of Agriculture in Egypt has decreased³² by 99.7%. On the other hand, the priority of preserving and developing domestic seeds requires increasing the budget of agricultural research centers, which have been neglected and underfunded dramatically, as well as reformulating Egypt’s participation in the UPOV agreement, in order to allow small farmers to benefit from higher productivity seeds in order to enhance Egyptians’ food security.

To do so, it is necessary to address the deteriorating economic situation of farmers, to protect small farmers and help them cope with such shocks, and to encourage them to engage in farming by offering them fair indicative prices before the agricultural season and providing them with production inputs at a reasonable price.

Furthermore, the government has not yet activated the Agricultural Solidarity Fund that it established years ago to compensate farmers in the event of losses and disasters, now becoming important, to enable farmers to withstand the huge crop losses, which are repeatedly occurring due to climate change and extreme weather variability.

The liberal policies followed continuously over the past three decades in Egypt have been reflected in the transformation of agriculture into a sector that serves large landowners and corporations, while the role of the small farmer in this system has been diminished, or there have been attempts to control it to serve policies whose objective is to stimulate exports. Such policies have plunged small farmers into extreme poverty, which is accumulating as agricultural yields are declining year by year, threatening the agricultural profession and its future in Egypt.

Nada Arafat, Journalist / Egypt

This article is taken from our special issue on “The Russian-Ukrainian war and its impact on food in North African Countries“
Read and Download the issue from The link