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Egypt Food and Drink Report Q3 2008
Business Monitor International, July 2008, Pages: 50
The Egypt Food and Drink Report provides independent forecasts and competitive intelligence on Egypt's food and drink industry.
Food price inflation is continuing to plague Egypt, with concern over these issues growing on a daily basis, as discussed in this recently published Egypt Food & Drink Report for Q308. With the government facing protests from thousands of its citizens, there has been strong pressure to take action against soaring food costs. In fact, the sharp rise in economic unrest will be uncomfortably reminiscent of the 1977 bread riots, in which at least 70 people died, after the government tried to reduce subsidies.
In March the government made the decision to suspend rice exports for six months in an attempt to prevent the price of yet another basic food staple from rising further. Egypt produces around 4.5mn tonnes of rice annually, of which 3.5mn are allocated to the domestic market. It was due to have exported between 300,000 and 400,000 tonnes over the six-month period, which will instead be kept in the domestic market. President Mubarak then ordered the army to help produce more subsidised bread, with the army and government together opening 10 new bakeries in Cairo to produce cheap bread, along with 500 kiosks to distribute this bread and cut queues. The government has also been ordered by Mubarak to use foreign currency reserves to purchase addition wheat on the international market. In addition, the government will add 15mn new citizens to the list of those eligible to receive subsidised cooking oil, sugar and rice, which, along with other new policies, will raise the annual bill for food subsidies by US$3.1bn to a total of US$13.7bn for this year.
Then in April the government decided to remove tariffs on certain basic food products in the face of the mounting protests. While virtually all Middle Eastern governments have been dealing with inflation, many of the smaller, richer Gulf States have attempted to offset this by raising government salaries, a policy which could have the effect of further fuelling inflation. However, in countries such as Egypt, which are far bigger and where a large percentage of the population lives in poverty, this is not a viable option. 'We cannot afford to increase the salaries for our people like the rich countries are doing in the Gulf and we cannot deal with it like in the west' said trade and industry minister Rachid Mohamed Rachid in an interview with the Financial Times.
This social and political unrest has led to us dropping the country’s political risk rating. Since the government will likely be forced to change economic and fiscal policies in response to public pressure, it has lost points in the policy formation category, while the rise in inflation to 14.4% year-on-year (y-o-y, March) has triggered an automatic downward revision in the social stability category. Clearly, despite the strong desire to cut back on food subsidies, given the current rate of food price inflation, it is impossible for the government to do so without suffering a major political backlash, something that it is unlikely to risk given the current climate.
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