Egyptians buy government-subsidized bread from a bakery in Cairo, Egypt. Egypt has spent $4 billion a year, or 1.8% of GDP, on its bread subsidization program in an attempt to insulate the 40% of Egyptians living on less than $2 a day from inflation. But prices continue to rise.
By Jake Caldwell, Director of Policy for Agriculture, Trade, and Energy at American Progress, and coauthor of “The Coming Food Crisis.”
Egypt faces daunting challenges as it prepares for broad presidential and parliamentary elections within a year. Ongoing volatility in global food prices will strain resources during this critical transitional period.
As the world’s largest importer of wheat, Egypt is acutely vulnerable to any surge in food prices. Wheat prices have risen 47 percent over the last year and other staples are rapidly approaching dangerously high levels.
Food price inflation and volatility strike hard at the household budgets of average Egyptian families. Many of them spend 40 percent of their monthly income on food. As prices rise, purchasing power is eroded, and the recovery of Egypt’s fragile economy during the transition is slowed.
Ensuring Egyptians have access to a reliable and affordable food supply is an urgent priority for both Egypt and the United States. Regrettably, conservatives in the House of Representatives appear headed in a different direction and are slashing funding for international humanitarian assistance. This includes funding for emergency food aid, investments in women and small landholder farms, and efforts to combat climate change in some of the most vulnerable countries in the world.
These drastic and shortsighted cuts undermine our strategic relationships with allies such as Egypt, undercut the jobs and farms at home that rely on selling U.S. goods overseas, and lead to increased levels of global poverty and instability that threaten our national security.
The United States, in partnership with Egypt, can act immediately to ensure Egypt’s food security with both short-term emergency assistance and a renewed long-term investment in Egyptian agriculture and economic development. As my colleague Neera Tanden details in another column this week, the Obama administration must develop a multipronged strategy with the private sector and the Egyptian people that is tightly focused on ensuring rapid economic growth and investment. Providing assistance to Egypt to help it boost its long-term food security should be part of that strategy.
Food prices and rising uncertainty
Food prices are at record levels partly due to population growth and increased demand from a recovering global economy, tight supplies, high oil prices, and weak agricultural production attributable to climate change-induced natural disasters and crop loss in key producing nations.
But the most striking aspect of this latest surge in food prices is the destabilizing role of a relatively new and powerful factor confronting the world’s food system: uncertainty.
Our changing climate is feeding this uncertainty. Climate change is causing extreme weather events such as massive flooding in Australia, Pakistan, and Brazil; unprecedented heat waves and drought in Russia, Ukraine, and now China; heavy rains in Iowa and Illinois; and dry conditions in key U.S. wheat-growing regions such as Kansas and Colorado. These are all affecting food production and have injected a level of doubt into forecasts for upcoming harvests, current stockpiles, and the prospects for the spring planting season.
Food price volatility and uncertainty are further triggered by shortsighted government and private-sector actions. These include government export bans and hoarding of tight supplies, unreliable information regarding stockpiles, and trade-distorting subsidies and tariffs. Increased private speculation in commodity markets and outdated ethanol policies contribute to instability in the international food system.
In the face of rising uncertainty and greater risk in global food markets, prices will only go in one direction: up.
Egypt, agriculture, and food: What can be done?
Any effort to stabilize food prices in Egypt must be led by Egyptians to identify and meet local needs. But the United States has a role to play.
Egypt is not facing the chronic food shortages that continue to ravage Pakistan in the wake of devastating floods or drought-stricken Kenya. Nonetheless, dramatic spikes in food prices disproportionately affect Egypt’s poor.
Rapid population growth, widespread poverty, massive unemployment among the two-thirds of Egyptians under 30 that form part of the youth bulge, and spiraling inflation all make it difficult for families to keep pace with rising food costs. Egypt has spent $4 billion a year, or 1.8 percent of GDP, on its bread-subsidization program in an attempt to insulate the 40 percent of Egyptians living on less than $2 a day from inflation. And yet prices continue to rise.
In the short term the United States should temporarily reinstate a program to provide low-cost financing that enables the Egyptian private and public sector to purchase commodities to fill strategic reserves and maintain full and transparent wheat stocks beyond Egypt’s current six-month minimum. Support for low-cost loans to Egyptian farmers would also increase agricultural output. The United States should also work directly and through the U.N. World Food Program to identify and provide targeted emergency food aid to Egypt’s school-feeding programs and most vulnerable populations.
Further, the United States can facilitate relatively rapid investment in Egyptian food-distribution infrastructure by arranging for the upgrade and expansion of grain-storage capacity at major ports, including Alexandria. The United States can also mitigate shipping risk and provide further technical assistance to improve the efficiency and transparency of Egyptian financing, customs, and tariffs procedures to make sure that arriving overseas grain is offloaded efficiently and can get to where it needs to be in the shortest time possible. All efforts must be made to ensure the Suez Canal operates at full capacity to ensure global grain shipments reach their final destinations expeditiously.
Midterm and long-term actions
In the midterm to long term, the United States must increase its investment in Egypt’s agricultural development. Agriculture directly employs one-third of Egypt’s labor force and cost-effective and strategic agricultural investment in Egypt can produce lasting dividends while minimizing the impact of uncertainty on food markets.
This increased U.S. and private-sector investment and technical assistance should be used to strengthen yields in key domestic food commodities such as wheat, edible oil, sugar, and dairy to bridge Egypt’s food gap. A focus on women farmers and small landholders and the production of high-value export crops such as fruits, vegetables, and livestock can boost incomes and employment and take advantage of Egypt’s proximity to potential markets.
As my colleague John Norris makes clear in another column this week, no “cookie cutter” assistance program will work for Egypt unless it truly reflects the real needs and aspirations of Egyptians. Along these lines, the United States should explore the feasibility of reinstating its practice of providing assistance directly to members of Egyptian civil society rather than relying on government-approved organizations.
Agriculture remains the most distorted sector in international trade. The Group of 20 leading developed and developing countries, or G-20, must do more to open markets in agricultural goods. Export bans and the hoarding of grain supplies must be strongly discouraged. Subsidies and tariffs in developed countries and barriers to trade between developing countries must be eliminated. The G-20 has pledged $20 billion for agriculture in developing countries and $6 billion for a World Bank fund for food security. Only $925 million has been delivered.
The G-20 is planning to make food security a centerpiece of their June summit. Investment today in Egyptian agriculture can reflect a prominent down payment on that commitment.
Helping Egypt is a matter of national security
Climate change’s impact on world agriculture is projected to be severe. Egypt is at profound risk to the negative effects of climate change, including rising temperatures, prolonged drought, increased evaporation, and water consumption. Egypt is also vulnerable to rising sea levels leading to more intense flooding, the loss of key agricultural land in the Nile Delta, and the mass migration of 8 million people from rural to urban areas.
In the face of looming water shortages due to increased demand and the effects of climate change, Egypt must also address water-management issues associated with the Nile and reengage with its Nile Basin neighboring countries regarding the future of this shared regional resource.
It is in the U.S. national security interest to provide financing to allow Egypt and the most vulnerable developing countries to prepare for and adapt to the effects of climate change in agriculture and development as resources become scarcer and the global population climbs to 9 billion by 2050. Open and transparent adaptation programs that meet the goals and needs established by local communities must become a U.S. priority.
In the short term, food prices, and specifically wheat prices, are likely to remain high. The rise and volatility of wheat prices place significant pressure on the Egyptian people and their economy. Uncertainty fed by climate change-induced natural disasters, crop loss, and misguided government actions will only drive prices higher. The United States, in partnership with the Egyptian people, can act now to ease the impact of food prices and lay a strong foundation for lasting and durable economic growth.
Jake Caldwell is Director of Policy for Agriculture, Trade, and Energy at American Progress.