Region takes measures to fight food crisis (page 1 of 2)

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.