Russia-Ukraine crisis poses a serious threat to Egypt

Mar 18, 2022

The top featured image of Reuters is not only for illustration but meant to draw some attention to one of the most important cause of this traumatic situation of Egypt as well as that of many countries in the MENA region. Russia-Ukraine crisis poses a serious threat to Egypt, that with an over-population still on the rise, has a limited but diminishing arable lands area. Building on farmland coupled a certain lack of control of all real estate developments bear on the lower social classes; those supposed to be at the forefront of food production.

Russia-Ukraine crisis poses a serious threat to Egypt – the world’s largest wheat importer

By Kibrom Abay, The International Food Policy Research Institute (IFPRI) ; Clemens Breisinger, The International Food Policy Research Institute (IFPRI) ; David Laborde Debucquet, The International Food Policy Research Institute (IFPRI) ; Joseph Glauber, The International Food Policy Research Institute (IFPRI) , and Lina Alaaeldin Abdelfattah, The International Food Policy Research Institute (IFPRI)

Russia’s invasion of Ukraine could create a global food security crisis. It is disrupting agricultural production and trade from one of the world’s major exporting regions. This threatens to drive rising food prices still higher and create scarcity, especially for regions most dependent on exports from Russia and Ukraine.

Particularly affected is the Middle East and North Africa – or MENA – region. These Arab countries consume the highest wheat per capita, about 128 kg of wheat per capita, which is twice the world average. More than half of this comes from Russia and Ukraine.

As agricultural and food security experts, we have explored the impacts of the war on the wheat market, focusing on Egypt.

Wheat is a key food item for Egypt, representing between 35% and 39% of caloric intake per person in the last few years. And wheat imports usually account for about 62% of total wheat use in the country.

Despite the government’s efforts following the global food crisis in 2007 to 2008 to diversify sources of cereal imports, the vast majority of cereal imports, between 57% and 60%, come from Russia and Ukraine.

A number of key policy actions are needed that will reduce dependence on Russia and Ukraine in the short term. This will help Egypt’s agriculture and food system to become fairer and more resilient – an absolute necessity in the context of looming threats from climate change, water scarcity and conflict.

Black Sea import disruptions

Egypt is the world’s largest importer of wheat. It imports a total of 12 to 13 million tons every year. With a population of 105 million, growing at a rate of 1.9% a year, Egypt has become increasingly dependent on imports to meet food needs.

Imports of cereal crops have been steadily increasing over the last three decades at a rate higher than that of domestic production.

Egypt’s wheat market and trade regime is largely controlled by government agencies. The General Authority for Supply Commodities, operating under the Ministry of Supply and Internal Trade, usually handles about half of the total wheat imported, while private trading companies handle the other half.

Government agencies are already feeling the impact of the war, which has led to recent cancellation of tenders due to lack of offers, in particular from Ukraine and Russia.

Still, there is no fear of shortage in the coming weeks. In early February, Egyptian MoSit Minister Aly Moselhy said that the country held sufficient inventory to cover five months of consumption. But the outlook beyond that is less clear.

With the abrupt closure of Ukraine ports and current maritime trade in the Black Sea – wheat is transported across the Black Sea – Egypt will have to find new suppliers if Ukraine is unable to export wheat this year and if sanctions against Russia impede food trade indirectly.

Such opportunities are, unfortunately for Egypt, limited.

Limited options

Currently, wheat producers in South America – Argentina in particular – have larger than usual surpluses from the last harvest available to export. Overall, however, it will be difficult to expand the global wheat supply in the short run. About 95% of the wheat produced in the European Union and about 85% of that in the United States is planted in the fall, leaving those regions little room for expanding production in the near term.

In addition, wheat competes with crops such as maize, soybeans, rapeseed, and cotton, all of which are also seeing record high prices. In combination with record-high fertiliser prices (also exacerbated by the Russia-Ukraine conflict), farmers in some regions may favour less fertiliser-intensive crops, such as soybeans.

About 20% of world wheat exports come from the Southern Hemisphere (primarily Argentina and Australia) which typically ship from December through March.

In addition, Canada and Kazakhstan are large producers that harvest in the fall. Over the coming year and beyond, their exports may be able to make up much of the deficit created by the loss from Ukraine production, but at a higher cost due to longer shipping routes and increased transportation costs triggered by higher oil prices.

Rising prices

Rising global wheat prices hit a 10-year high at US$523 per ton on March 7. This is a serious problem for the Egyptian government’s budget and a potential threat to consumer purchasing power.

Even just before the outbreak of the Russia-Ukraine war, prices of commodities in Egypt were increasing. The war has started adding further pressure and consumers are feeling these impacts.

Some countries have already imposed export restrictions in response to rising prices. These trends, coupled with disruptions in Russia’s and Ukraine’s exports, will likely add further upward pressures on prices going forward. Even under the most optimistic assumptions, global wheat prices will remain high throughout 2022 and the trend is likely to persist through 2023, given limits on expanding production.

The Egyptian government has been spending about US$3 billion annually for wheat imports. The recent price increase could nearly double that to US$5.7 billion. This, in turn, threatens Egypt’s Baladi bread subsidy program. This program provides millions of people with 150 loaves of subsidised bread per month. About 90% of the production cost is borne by the government at an annual cost of US$3.24 billion. The program requires about 9 million tons of wheat annually about half of the total wheat consumption in Egypt and three-quarters of Egypt’s wheat imports.

Policy options

In the short term, Egypt needs to diversify its food import sources.

The government is actively exploring this option, while also increasing planned procurement from domestic sources by 38% over last year’s figure. The government has just announced a new and relatively higher buying price for domestic wheat from farmers.

In addition, the government has decided to ban exports of staple foods, including wheat, for three months to limit pressure on existing reserves.

In the long term, Egypt needs to explore options for reducing the gap between domestic supply and demand. Here are some of its options.

Boosting domestic wheat production will be challenging, as Egyptian farmers are already achieving high yields, relying on high input and water use. While there are some opportunities to expand arable land, modernise farming systems and improve water management practices, the country’s principal focus should be to adapt the farming system to address imminent water shortages and climate change threats and increase resilience, rather than unsustainably expanding production.

Reducing the high consumption and waste of bread has significant potential. Egyptians on average consume about 145 kg of wheat per capita annually – double the global average.

Improve the efficiency and targeting of the Tamween food subsidy program. This provides beneficiaries with ration cards for various foods. The program absorbs a large share of imported wheat and vegetable oils. Reforming it could reduce inefficiencies in the wheat sector and the cost of running the program.

In conclusion, the Russia-Ukraine war poses a big challenge to global food security and particularly difficult obstacles for Egypt. The short-term and long-term impacts will of course depend on how the war unfolds and affects exports from Russia and Ukraine over the coming months and years. Impacts on Egypt will also depend on other countries’ responses to global price hikes and cereal shortages.

Egypt can mitigate some of these impacts with short-term actions as outlined above, but major global shocks like the Russia-Ukraine war are also reminders of the need of longer-term reforms and solutions.

Kibrom Abay, Research Fellow, The International Food Policy Research Institute (IFPRI) ; Clemens Breisinger, Senior Research Fellow, The International Food Policy Research Institute (IFPRI) ; David Laborde Debucquet, Senior Research Fellow, The International Food Policy Research Institute (IFPRI) ; Joseph Glauber, Senior Research Fellow, The International Food Policy Research Institute (IFPRI) , and Lina Alaaeldin Abdelfattah, Senior Research Assistant, The International Food Policy Research Institute (IFPRI)

This article is republished from The Conversation under a Creative Commons license. Read the original article.