Egypt takes fresh approach to food shortfall

Arab Spring economies: Egypt, the world's largest net importer of wheat, faces the prospect of runaway inflation as food and energy prices continue to rise and demand for commodities persists. But boosting domestic food production to compensate comes with costs.

An Egyptian woman walks trough an alley in the al-Azhar quarter carrying a tray of fresh bread, in Cairo, Egypt. AP Photo/Bernat Armangue
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CAIRO // Every year the Egyptian government spends about US$5.5 billion (Dh20.2bn) on food subsidies for three quarters of the country's population.

In the 30 years that Hosni Mubarak ruled Egypt, the country started importing more than half its total caloric consumption, making Egypt highly vulnerable to global food price volatility and putting great stress on its finances.

Urban consumer inflation hovers at about 9 per cent, down drastically from 16 per cent in December 2010, the month before the uprising that forced Mubarak to resign from the presidency. But food prices have kept rising on a monthly basis, and Egypt's fiscal situation continues to deteriorate as the pressure escalates. Delays on signing a $3.2bn loan with the IMF threatens to deepen Egypt's troubles and cash reserves.

This month, Momtaz El Saieed, the finance minister, said an agreement with the IMF to unlock financing would be signed by next month. But the country's parliament last week overwhelmingly rejected the cabinet's plan to cut the country's spending, a further setback in attempts to secure the loan.

Now the government is revisiting far-reaching plans to boost domestic food production, after years of neglecting farms and focusing on imports. "Definitely, the forefront is increasing domestic production in addition to reaching out to strategic neighbours. I have in mind Sudan," said Gouda Abdel Khalek, the minister of supply and domestic trade, who oversees the government's subsidy system and commodity purchases.

Mr Abdel Khalek said the two countries recently hashed out a plan to cultivate about 420,000 hectares on the Sudanese-Egyptian border to grow strategic crops, mainly wheat, for Egyptians.

"Given today's technology, it will be very costly in economic terms to aim for full self-sufficiency in terms of wheat, because we have a limited area of cultivated land. This was the idea behind looking outside Egypt," Mr Abdel Khalek said.

Sudan is an important ally for Egypt both in terms of its agricultural potential and in Cairo's efforts to secure an acceptable agreement with upstream Nile countries about the future of its vital water supplies. However, there have been delays on completing a 360-kilometre canal that would carry water from Sudan to Egypt because of lack of financing and political insecurity on the border.

The government has also pledged other incentives to encourage farmers to boost production. For one, there are plans to increase tenure on land to at least three years. Currently, a farmer can be told at any time to leave the land he is tending. "I can kick the tenant out in a year or even less. That's very serious," said Mr Abdel Khalek.

The government has also given farmers seeds to grow high-yield crops. A third of the seeds needed for harvest this year are high-yield, Mr Abdel Khalek said. And for the first time in years, Egypt has increased the price it pays farmers for their wheat. Under the plan, wheat farmers will receive more "guidance" and "counselling" on producing healthy crops, Mr Abdel Khalek said.

This multi-stage plan is a turnaround from years of neglect of farmers at home, as the government banned agricultural labour unions, reduced subsidies for agricultural products, and pushed farmers into accepting high-interest loans.

"During the last year, there were major changes in the authorities but no plan to mitigate for this [in agricultural policy], there was a marginalisation of agricultural rule," said Ayman Abou Hadid,a former minister of agriculture.

Mr Abou Hadid said limited budget allocation and lack of political will for improving agricultural production has sidelined the domestic industry for decades.

"It needs investment, and the situation is that the private sector is very hesitant about putting in investment until the [political] situation is clear," he said.

So it is up to the government to lead the way, he said, with an initial investment of about 6bn Egyptian pounds (Dh3.64bn) to prevent wheat losses that are estimated at about 20 per cent, caused by poor storage and transportation.

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