Political unrest in Egypt strains food supply chain

by Jay Sjerven
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CAIRO – Days of upheaval in Egypt brought much of the economy of that country to a halt. While food stocks, especially wheat, were adequate, getting the food to the people often was difficult because of chaos in the streets, a breakdown in truck logistics, makeshift roadblocks and curfews, according to media reports. Long lines of people stood outside grocery stores and bakeries in Cairo, Alexandria and other cities large and small. As often takes place during natural or manmade disasters, there were incidents of food hoarding and price gouging.

In Egypt, a nation of 80 million people, one in five persons lives on an income of less than $1 a day. The government of Egypt provides 14.2 million of its poor citizens with subsidized bread. The bread subsidy constitutes the underpinning of the Egyptian social safety net.

While world food prices were on the rise worldwide and may emerge as a threat to security as in 2007 and 2008, the events in Egypt and other nations in North Africa and the Middle East were not tied directly to escalating food prices. There were many factors and grievances involved in bringing millions onto the streets of Egypt’s cities.

Liliana Balbi, a senior economist at the United Nations Food and Agriculture Organization, said in The Wall Street Journal, “Definitely this unrest is not related to soaring food prices in general. It’s not like high international food prices have been transmitted to all the countries in the world as happened in 2008.”

Ms. Balbi said bread and cereal prices rose 2.42% in Algeria between November 2009 and the end of 2010, and bread and cereal prices in Tunisia, where the current wave of unrest was launched, rose only 3.5% in 2010.
Those increases, while worrying, were not deemed sufficient to ignite the current political tumult. Indeed, in the case of Egypt, the government absorbed the increased cost of procuring essential imported foodstuffs, and the price advances seen in international commodity prices were not passed on to the nation’s most vulnerable. The bread subsidy remained intact.

Roger Janson, assistant vice-president of Cargill, Inc.’s grain and oilseeds supply chain for Europe, noted there recently has been an increase in wheat demand across Northern Africa but said this may not be attributed directly to political upheavals given crop shortfalls and heavy needs in the region that existed in any case.

“Egypt’s policy toward international companies, particularly in grains, won’t change at all,” said Ali Sharaf El Din, head of Egypt’s Chamber of Grain Industries, in a Dow Jones story. Mr. El Din said the country’s ports were open and shipments were being processed as usual. Mr. El Din said the country’s mills and bakeries were among the nation’s key institutions that remained open in recent days.

At the same time, there were scattered interruptions of port activities at Alexandria and Suez, said a spokesman for the U.S. Grain Council, the market development arm of the U.S. corn, sorghum and other feed grain industries. But he agreed the chief difficulty was transporting grains from the ports to where they were required. Feed grain-consuming industries such as the nation’s poultry industry were working with inventories that for the moment were adequate but over time would need replacement.

Egypt is the world’s largest wheat importer. It imports about 60% of its wheat needs each year. That nation to date this marketing year has imported 9,800,000 tonnes of wheat compared with a record 10,300,000 tonnes in 2009-10.

Egypt in many years was ranked as the largest importer of U.S. wheat, but in recent years, Egypt increasingly purchased less expensive wheat from Russia and Ukraine, leaving the United States with a diminishing share of the Egyptian import wheat market.

With Russia and Ukraine months ago suspending wheat exports for the rest of the marketing year, Egypt again has turned to the United States for a significant portion of its wheat import requirements. Exports and undelivered sales of U.S. wheat to Egypt to date this marketing year (through Jan. 20) totaled 2,087,400 tonnes compared with 455,600 tonnes around the same date a year earlier. The U.S. agricultural attaché in the American embassy in Cairo in late December forecast Egypt to import 3.5 million tonnes of U.S. wheat in 2010-11. This would amount to around one-third of the nation’s forecast wheat imports.

The agricultural attaché estimated Egyptian wheat production in 2010 at 8.5 million tonnes, nearly unchanged from the previous year. Wheat consumption in 2010-11 was forecast at 18.3 million tonnes, up from 17.6 million tonnes in 2009-10 with the increase partly attributed to greater wheat use for food because of a shortfall in rice supply.

The Cairo office of U.S. Wheat Associates, which oversees the U.S. wheat industry’s export development activities across much of Africa and the Middle East, was closed during the disturbances. A spokesman said U.S.W.’s principal concern was the security of its eight Cairo employees, including two Americans. The U.S.W. staff was to return to work once it was determined it was safe to do so. Americans on the staff were in regular contact with the U.S. Embassy in Cairo and U.S.W. headquarters in Washington, D.C.

The wave of unrest ignited in Tunisia and Egypt gave signs of spreading to other Arab nations in the Middle East and North Africa, many of which are heavily dependent on imported foodstuffs including wheat. Already, King Abdullah of Jordan replaced his entire cabinet, and President Ali Abdullah Saleh of Yemen, who has ruled his nation for 32 years, indicated he would not seek reelection in 2013 nor will his son stand for election to take his place.

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