Inflation rises: Food prices surge

Al Ahram Online

June 9 2011

Michael Gunn, Salma El-Wardani

A weak government, falling currency and Egypt’s historic reliance on imports are all behind 2011’s surge in food prices.

Egyptian food prices have rocketed more than 12 per cent over the last year, with analysts pointing to a ‘perfect storm’ of problems, including stalled domestic production, poor market regulations and spiralling import bills, fed by a faltering Egyptian pound and soaring global energy costs.

Urban consumer price inflation, the most closely watched indicator of prices, rose to 114.6 points in May, making for a 12.2 per cent increase year-on-year, up from 10.8 per cent in January, Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS) announced on Thursday.

A bulletin published on CAPMAS’ website shows a spike in Egyptian food prices, with staples rising an average of 18.9 per cent year-on-year, up 0.4 per cent from April.

“The difficult economic situation and a mismatch in demand with local supply are fuelling the rise,” says Omneya Helmy, professor of economics and political science at Cairo University, who believes Egypt’s reliance on imports make it especially vulnerable.

“Egypt is a net-importer of food but the depreciation of the Egyptian pound and high energy costs are making them increasingly expensive. Importers are passing the cost on to the consumer.”

Concerns about security are also leading Egyptians to stock up on essentials, further squeezing tight supplies, says Helmy.

Vegetables saw the biggest price hike, up 38.4 per cent compared to last May, and 9.9 per cent from April. Bread and grains were next, soaring 32.8 per cent year-on-year, and 2.3 per cent on last month.

Meat and poultry have also climbed 12.5 per cent in a year.

Some items more than doubled in price between May 2010 and 2011, with lemons leaping 188.46 per cent and tomatoes up 119.5 per cent in the course of the year.

Also surging — and affecting consumer bills at the supermarket — is the price of domestic food production. Productivity is still a fraction of its pre-revolution rate with a limited agricultural subsidies programme failing to cap ever-increasing overheads.

“A hike in prices of agricultural materials and the increase in farmers’ wages have contributed to the inflation of food prices,” says Ahmed Hassan, professor of agriculture at Al-Azhar Assyout University. “For instance, ammonium nitrate fertiliser has doubled in prices in the space of month — from LE 70 in April to LE140 at the end of May.”

Government, he adds, should supervise producers and intervene to determine the prices of raw materials.

Egypt’s producer price index rose 20.61 per cent in the 12 months to April, compared to a rise of 20.44 per cent in the year to March, a government website showed on Sunday.

On Tuesday, the Ministry of Finance posted on its website a document entitled ‘Egypt’s Economic Program’, stating that “inflation will remain broadly stable in the coming fiscal year, albeit at a relatively elevated level”.

Previous figures show urban inflation increased by 2.4 per cent in January 2011 after falling by 1.9 per cent in December 2010 and 2.2 per cent in November 2010.

The January 25 revolution which led to the toppling of former president Hosni Mubarak was largely triggered by the soaring price of food protests, unemployment and demands for democratic reforms.

But while Mubarak is long gone, demands for affordable food are still far from being met.

“During war there’s something known as ‘war profiteering’ – well, now we’ve got revolution profiteering,” says Reda Eissa, an economic expert and chairman of the economic studies unit at Citizens Against Increasing Prices, a consumer watchdog. “This time we can’t just blame the hike on global food prices.”

Omneya Helmy agrees. “We have the middle-men in control of the market, buying from farms at low prices then taking advantage of higher demand to inflate them,” she says.

The situation is leading Eissa and others to demand government supervision of production and distribution.

“We can’t just leave things alone to be determined by market forces because the poor are not part of this dynamic,” he adds. “We need some structural adjustments to the whole system of food production and the current government is too weak to do that.”

Eissa believes Egypt should enact Fair Trade principles to improve trading conditions and promote sustainability. Fair trade advocates the payment of a higher price to producers as well as higher social and environmental standards.

In the short term, however, further inflation and price hikes are likely.

“We have consumption growing in the summer with the holiday season and Ramadan approaching, while the new minimum wage will encourage spending,” says Magda Qandil, executive director of the Egyptian Centre for Economic Studies.

“The upward trajectory looks like continuing given the fundamentals.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s