Amid soaring global prices, will Egypt face a crisis in wheat provision?

The global wheat prices have recently soared due to the energy crisis that has cast its shadow on supply chains around the world, hitting Egypt, the largest wheat importer, extremely hard.

Under pressures from supply shortages and “unusually high” prices, the Egyptian government was forced to cancel a tender to buy wheat in October, for the fourth time this year.

Egypt, which imports vast amounts of grain said then it canceled the wheat tender due to its high prices, which highlights how high food costs disrupt global trade, causing a likely food crisis for Egypt, the top wheat importer.

The rise in food commodity prices has been reflected in inflation rates in Egypt, which imports more than 60% of its needs, amid expectations of an increase in the prices of all food commodities related to wheat, such as bread and baked goods of all kinds, pasta of all kinds, and sweets.

The annual inflation rate in Egypt increased by 8% in September, compared to 3.3% for the same month last year (2020), according to the Central Agency for Public Mobilization and Statistics. The government agency added that the annual consumer price inflation rate in Egyptian cities rose to 6.6% in September against 5.7% last August.

Agents of a number of Egyptian grain mill companies said flour prices have continued to rise significantly since last August, and have increased in conjunction with the rise in local demand due to the start of the school and academic season, according to Al Jazeera.

Prices have jumped since then by more than 25%, where the price of a ton of flour ranges between EGP 7 thousand and EGP9 thousand (a dollar is about 15.7 Egyptian pounds) per ton, up from EGP 5,500 and EGP 7 thousand per ton, according to type and quality.

The average price that Egypt’s General Authority for Supply Commodities has paid since purchases for this season began has jumped by about $100 a ton, according to Bloomberg.

In addition, there is another problem in the rising shipping costs, at a time when the world is facing the worst hunger crisis in 15 years and an energy crisis that threatens to make matters worse.

Egypt’s wheat import bill amounts to about $3 billion annually, and Egypt imports about 12 million tons annually (governmental and private), and consumes about 20 million tons of wheat annually, including about 9 million tons for the production of subsidized bread that is spent on ration cards to produce approximately 270 million bread loaves on a daily basis.

Dr. Abdel-Tawab Barakat, advisor to the former Egyptian Minister of Supply, says that the rise in wheat prices in the international market coincides with a wave of high prices and a decline in the quantities available for export for a group of basic commodities that regional countries buy from abroad, on top of which are wheat and edible oils, which Egypt imports by 90%, in addition to the yellow corn, used in the production of animal and poultry feed.

Barakat expected that the rise in wheat prices in the international market would negatively affect the size and price of a loaf of bread, as the private sector imports more than 5 million tons in dollars, noting that the government works to overcome the problem by purchasing lower quality wheat. However, he warned of the negative impact of such low-quality wheat on public health, reported Al Jazeera.

Abdel-Tawab, an expert in agricultural economics, did not rule out that the government would work to reduce bread subsidies in twisted and indirect ways, such as depriving newborns and children after two per family from benefitting from subsidies, deleting an additional number of ration card beneficiaries, and reducing the weight of a loaf of bread.

Last August, an article by Claire Willio, correspondent of “La Croix”, a French newspaper, in Cairo, monitored the negative impact of the hiking price of a ton of flour, which recorded EGP 6 thousand per ton at the time, against EGP 4 thousand, on the Egyptians, being a strategic commodity in the country.

Dr. Ahmed Zikrallah, an economic expert, considered that what is happening reveals the disadvantages of relying on imports to cover the essential needs of strategic commodities, adding that “Wheat constitutes a significant proportion of Egyptian imports and accordingly the expenditures of the state’s general budget.”

Zikrallah said that the rise in wheat prices came due to the impact of the energy crisis on the global supply chains, and the decline in agricultural production in many producing countries such as Russia and the United States, as a result of recent climate changes, according to Al Jazeera.

He believed that Egypt faces a double problem, the first related to the availability of the product, and the second related to its high price, which puts great pressure on the state budget that suffers from a continuous deficit, and accordingly this will negatively affect food prices in Egypt amid the high inflation rates.

Mohamed Fawzy, a member of the Board of Directors of the Daqahlia Chamber of Commerce, said in press statements that the increase in the prices of a ton of flour since October would negatively affect the pricing of bread, especially that used for schools and sandwiches.

The Egyptian government is currently relying on the reserves it has until prices drop, as the Egyptian Minister of Supply Ali Al-Moselhi revealed that the country’s strategic reserves of wheat are sufficient for only 5.5 months.

The question now is: Will Egypt face a food crisis following the hike in global wheat prices?