Egypt's unrest tied partly to high food prices
Economists and experts in food security have warned repeatedly in recent years that an unbridled rise in food prices could trigger the very kind of explosion of citizen anger that's now threatening to topple the government of Egypt. Such anger is likely to rise elsewhere, too.
WASHINGTON — Economists and experts in food security have warned repeatedly in recent years that an unbridled rise in food prices could trigger the very kind of explosion of citizen anger that's now threatening to topple the Egyptian government. Such anger is likely to rise elsewhere, too.
A large nation with lots of desert, Egypt must import more than half of its food supply. Since 2008, there's been sporadic unrest there as the cost of staples, from bread to fruits to vegetables, has gone up steadily.
One of those warning about the food prices was Hamdi Abdel-Azim, an economist and former president at the Sadat Academy for Social Sciences in Cairo.
"If the rise in food costs persists, there will be an explosion of popular anger against the government," he told the IPS Inter Press Service in mid-November.
A few weeks earlier, political opponents of President Hosni Mubarak had rallied to protest rising prices and to demand price ceilings on products to protect Egypt's poor.
Soaring food prices aren't the only reason that Egyptians took to the streets to try to topple their long-serving president. But they're a significant factor, and a steady surge in global commodity prices reminiscent of 2008 is sure to bring new battles over food security this year.
Protests against food prices recently rocked Jordan and Algeria. These same rising prices were partly why Tunisia's strongman leader, Zine El Abidine Ben Ali, fled his nation in mid-January. India and China are navigating the difficult waters of trying to control rising prices in their populous nations.
Hoarding under way
In the trading pits of commodity markets, the buzz is that many poor nations are trying to hoard wheat, corn and other staples. Such stockpiling has added to the bullish sentiment that's driving commodity prices even higher.
"Countries are hoarding grain supplies right now because they don't want to see what's happening in Egypt happen to them," said Phil Flynn, senior market analyst for commodities trader PFG Best in Chicago.
The United Nations Food and Agriculture Organization took the unusual step last Wednesday of updating its guide for policymakers in developing nations. It urged nations to avoid "policy actions that might appear useful in the short term but could have harmful longer-term effects or even aggravate the situation."
Such actions in the past have involved export restrictions by food-producing nations, which aggravated tight global supplies in 2008 and led to a spike in prices. By restricting exports, these nations, which included Argentina and Ukraine, drove down domestic prices, discouraging production and causing even tighter global supplies.
The Food and Agriculture Organization compiles an index of basic food prices around the globe, and it peaked in December.
"With this new price shock only two years after the crisis in 2007-08, there is a serious concern now about implications for food markets in vulnerable countries," Richard China, the director of the U.N. organization's policy and program development support division, said last week in announcing the updated guidelines.
U.S. wheat customer
For U.S. farmers, Egypt presents the eighth-largest export market, much of it wheat sales, since the country is the world's leading wheat importer. American wheat and corn are sold across North Africa and the Middle East, prompting worries by U.S. farmers that Egypt's problems will spread throughout the region.
Wheat prices have risen by more than 70 percent over the past 12 months, and corn prices climbed in mid-January to their highest level since July 2008, a period when global food prices soared. They have since dipped slightly, to just under $6.60 a bushel Monday, but they're expected to remain volatile, since corn production is expected to drop 14 percent globally, according to the U.S. Department of Agriculture.
Egypt and Yemen bought 20 percent of the wheat exported from Pacific Northwest during the past eight months. U.S. corn farmers traditionally have had 80 percent of the Egyptian market, although that dipped to 50 percent last year. There's less concern about current shipments, especially since Egypt is thought to have adequate inventories for now. The focus is more on what sort of government emerges there.
"I think, longer term, it is really what's going to happen with the transitional government. Is that some sort of continuation?" said Chris Corry, the senior director of international operations for the U.S. Grains Council, which represents U.S. farmers.
The issues in Egypt right now are basic, he said: "The government must function for banks to be open, for payments to get transacted, for commodities to be purchased."
Weather one factor
A number of factors are combining to drive up the global prices of wheat, corn, soy and other commodities. Some of the story is weather-related. Argentina, Australia and Pakistan have suffered from heavy rains, which have damaged crop production. Russia is recovering from a devastating drought last year.
Another part of the story is demand. Big emerging markets such as China, India and Brazil continue to soak up greater shares of global supplies, and the recovery in the U.S. economy, the world's biggest, is accelerating.
A third explanation that's gaining acceptance is that the U.S. Federal Reserve inadvertently exacerbated the price picture for grains and other commodities. The Fed has been engaged in what economists call "quantitative easing," buying U.S. Treasury bonds to attack the threat of deflation — the phenomenon of falling prices across an economy.
Quantitative easing has the effect of raising asset prices, whether they're the prices of stocks or what traders are willing to pay for commodities such as wheat or corn. One of the side effects of this policy is that the dollar weakens against other currencies, and that has helped push up the global prices of commodities.
"The truth of the matter is that when the Federal Reserve moved on the quantitative easing, it did export inflation to a lot of these emerging markets," Flynn said. "There's no doubt that one of the side effects of the weak dollar and quantitative easing has been rising commodity prices. It helped create this bullish environment for commodities. This is a very delicate balancing act."
Seattle Times transportation reporter Mike Lindblom describes some of the factors that may have led to the collapse of the I-5 bridge over the Skagit River in Mount Vernon on Thursday, May 23.