Region takes measures to fight food crisis

Following the trading of foodstuffs at incredibly high prices in the global markets, most Middle Eastern countries have taken measures to subsidise food.

Relying heavily on imported food, the United Arab Emirates spends some $4bn per year on food imports.

This has forced the country to take a decision of buying farms in Africa and Thailand.

All the more so when India, one of the major global rice providers (300,000 tons of non-basmati rice and 100,000 tons of basmati every month), banned exports of rice and wheat flour.

Such a decision is likely to decrease the country's dependence on exports, but won't help people in the Middle East cope with high prices.

To help with this, the UAE Ministry of Economy has joined forces with a number of hypermarkets, including Carrefour, Spinney's and Lulu, to fix prices of basic food commodities.

Memorandums of Understanding were signed, maintaining last year's prices of around 52 basic commodities in the country.

Following the same path, Saudi Arabia also announced its intention to buy farms outside the kingdom.

It also lowered tariffs on 280 commodities to 5%, while cutting duties on wheat imports.

Elsewhere, Jordan has announced a $540m package to compensate government employees for the rising prices, which also resulted in the elimination of fuel subsidies starting February 2008.

Government aid

In Egypt, where about 60-70% of the population lives on subsidised food, the rise in wheat prices shifted demand to subsidised bread and away from higher-priced bread.

The instantaneous increase in demand for subsidised bread resulted in long queues for which the government was heavily criticised and which increased the level of social unrest.

'President Mubarak had to make a move and he did. He asked the army and the police to bake bread in order to increase supply, and the government increased budget subsidies for bread by $870m, bringing total spending on food subsidies to $2.8bn,' says Mohammed Abu Basha, economist at EFG Hermes.

He adds that the Egyptian government has increased the supplies of wheat to the bakeries which sell subsidised bread. It increased fuel subsidies by $900m, while expanding the ration card system to cover about 55 million citizens.

Egyptians were not allowed to add their children to the ration cards from 1988. The government has now allowed people to add close relatives to the cards, which saves around $9.50 for a family of four per month.

The government has also removed tariffs on a number of food items and put an export ban on rice for six months, which started in April 2008.

Salary increases

Raising the salaries of public sector employees was a further step adopted by the governments of Jordan, Egypt and Syria, with the latter two being the most aggressive.

Abu Basha thinks the rise in salaries will provide only a little help to government employees because prices have been rising much faster that their salaries. But the move may result in additional inflationary pressure, which would be self-destructive.

'I see the increase in wages only as a short-term solution. In the medium-term the government of countries like Egypt and Syria should increase investments in agriculture and better target subsidies to those who need them most. For the long-run, governments need to increase the productivity of the average worker and decrease unemployment so that people can be resilient to external shocks instead of depending on the government.'

Biofuels blamed

According to Abu Basha, two main trends can be blamed for the present situation. One lies in decades of under-investment in agriculture, the other is the increased consumption of biofuels, produced from plant crops.

In the US, the biofuel industry will consume around 30% of US maize production next year, according to the US Department of Agriculture.

Increasing land space is being allocated for biofuel production around the world. Between 2000 and 2008, use of cereals in biofuel production has risen by a quarter.

The method may be greener than drilling for oil - and biofuels burn cleaner - but experts see that such high levels of investment in plant crops is taking a lot away from the food crops industry. It is also causing a tragic rise in food prices that is likely to hurt the poor.

Increased energy costs

Also the rise in energy prices (crude oil traded at $126 at the time of writing) has a great impact on food prices. And to Abu Basha, the rise in inflation, which reached 14.4% year-on-year in March, is also a reflection of very high prices of building materials, especially steel and cement.

The increase in the prices of the building materials in addition to high levels of demand sent real estate prices to record levels.

'Food prices, which are the main driver of inflation in Egypt as they constitute around 44%, grew 20.5% year-on-year in March 2008. The increase in food prices was broad-based and it touched almost every single food item.

'The strongest to rise were bread and grain and cooking oil, which rose 48.1% year-on-year and 45.2% year-on-year respectively in March 2008. Moreover, prices of meat increased 17% year-on-year, fish 13.2%, dairy products 16.3%, fruits 20.4% and vegetables by 21.3% in March 2008,' Abu Basha says.

Time will tell whether the extra measures taken by governments around the Middle East will help reduce people's suffering and ease food prices. But if they don't, then maybe a change in dietary habits would be required, a thing that Abu Basha considers a fair argument considering the quality and quantity of food consumed in this part of the world.