Looking for the root causes of the potato crisis

Approach a vegetable vendor in Cairo in recent months looking for potatoes, and you’ll likely be in for a surprise. For one kilogram of potatoes, a staple food item for many Egyptians, you might pay as much as LE14, more than twice the usual price.

The price of potatoes across Egypt skyrocketed in September, and they are still high two months afterward. A market in Cairo’s Bab al-Louq neighborhood closed last week with a price tag of LE17, while the going rate for a kilogram of potatoes in markets in lower income areas across Cairo is LE10. What started as an immediate strain on the budgets of citizens across Egypt has since evolved into a political episode featuring all the usual characters: state bodies rushing to intervene on behalf of the “suffering citizen,” pontificating state officials quick to promise a crisis averted, the vilified hoarding traders serving as scapegoats, a president defending austerity measures as necessary sacrifice.

But behind much of the political maneuvering, farmers and agricultural insiders that spoke to Mada Masr paint a picture of a sector that has been under strain due to the economic program the government rolled out in coordination with the International Monetary Fund in November 2016. This program’s push for liberalization has left production costs and distribution for the food staple open to market forces, which has invited the formation of monopolies and compelled farmers incurring heavy losses to think more about bottom lines than how the majority of citizens will put food in their mouths. And while the state has held up its intervention as sufficient to remedy the crisis, sources tell Mada Masr that leaving the root causes of the potato crisis unaddressed may leave the door open for a recurring cycle.

This economic program has been a defining feature of President Abdel Fattah al-Sisi’s time in office, and he was quick to defend it in light of hardships that have been exacerbated by the potato price surge.

Speaking at the World Youth Forum in Sharm el-Sheikh in mid-November, Sisi dismissed the crisis, saying the need to “build the country” is more important than “looking for potatoes.”

The president’s rationale appears to be that a potato price tag of LE11, 12, or 13 per kilogram can be overlooked, because countries are built on suffering and “hardship.”

However, the extent of this hardship in real terms has the potential to be quite significant, as, according to data obtained from the Central Agency for Public Mobilization and Statistics (CAPMAS), per capita consumption of potatoes came in at 24.9 kilogram per year in 2016.

Potato consumption per capita per year (in kilograms). Source: Annual Bulletin of Production and Foreign Trade and Agricultural Commodities Available for Consumption Trends (2016) – Central Agency for Public Mobilization and Statistics

Despite Sisi downplaying the severity of the issue, it has received sustained attention from several other state actors. As prices soared, an odd type of competition broke out between political parties and government bodies to see who could be the most effective in “supporting” citizens.

A few weeks after the price increase, the ministries of agriculture and supply began stocking potatoes at their outlets to be sold at LE8 per kilogram. The Interior Ministry then followed suit, offering potatoes for LE6 per kilogram at its outlets and attracting queues of customers hoping to snatch “the interior potatoes,” which remained the cheapest available. The pro-government Nation’s Future Party then entered the fray and began setting up its own outlets at several locations to sell potatoes at LE5 per kilogram.

The editorial line in a press landscape nearly entirely controlled by the intelligence bodies was clear: state actors were not only solving the problem through swift action, but they were stemming the greed of vendors.

A smattering of press coverage makes this clear. The pro-government Al-Mowaten website interviewed citizens from the Gharbiya Governorate who praised the Interior Ministry’s efforts to provide potatoes at low prices. The privately owned Al-Watan newspaper highlighted what it called citizens’ “overwhelming happiness” with the low prices offered by the Interior Ministry, including comments from people saying that “the state has our back.” Youm7 published photos of the stalls and trucks selling produce, stating that “The Interior Ministry fights high prices and monopoly.”

This virtually exclusive focus on hoarding and monopolizing as the root causes of the current crisis could in itself be a contributing factor to the price increases. The Egyptian Competition Authority announced at the end of October that it was forming a committee to investigate the issue.

Ministry of Agriculture spokesperson Hamed Abdel Dayem also attributes the problem to merchants stockpiling potatoes. Speaking to Mada Masr, Abdel Dayem says that the Administrative Control Authority (ACA) and the Ministry of Supply were involved in solving the crisis after seizing stockpiles, which are now being sold at “government outlets to solve the crisis and punish the merchants by selling them at a lower price.”

The introduction of the discounted government potatoes coincided with an announcement by the ACA at the end of the week before last that, in coordination with the ministries of interior, agriculture and supply, several campaigns were conducted leading to the seizure of 3,820 tons of potatoes that had been stockpiled by merchants, especially in the Delta governorates. The statement, of which Mada Masr obtained a copy, added that legal action has been taken against violators and that seized quantities will be sold through outlets of the Holding Company for Food Industries and the Ministry of Agriculture. The Ministry of Interior later announced that it will also intervene to solve the crisis by selling potatoes at a reduced price and a small profit margin.

Distribution of potato production by governorate. Source: Annual Bulletin of Crops and Plant Production Statistics (2015/2016) – Central Agency for Public Mobilization and Statistics

Hatem Naguib, the deputy head of the fruits and vegetables division of the Chamber of Commerce in Cairo, appears to reveal a monopoly with unknown culprits: “Merchants or producers or intermediaries; I can’t say. Especially in the Delta. They stored large quantities, more than the usual stock.” In his opinion, that is what led to the lack of supply in the market.

For Mohamed Ali Khalil, a member of the board of directors of the Potato Producers Cooperative Association — an association that once had a broad regulatory role under former President Gamal Abdel Nasser but has lost ground as a representative body since — indicates that the hoarding of potatoes by merchants and farmers to artificially drive up prices as one of the causes of the crisis. However, he says that another cause has been the low yield of May’s harvest due to farmers’ reluctance to grow potatoes.

According to Khalil, one of the reasons behind this reluctance was a decrease in the quantity of imported seeds from previous years. He explains that the amount of seeds available in the market is about 100,000 tons, after 10,000 tons were destroyed when they were found to be defective. This is a marked decrease from the 160,000 tons usually yielded. Moreover, he adds, the price of 700 euros per ton of seeds, which is now approximately LE14,255 after liberalization, was too costly for farmers.

Evolution of potato prices since currency liberalization. Source: Monthly Bulletin of Consumer Price Index – Central Agency for Public Mobilization and Statistics

Sobhy Samir, a potato farmer and exporter, tells Mada Masr that the cost of importing seeds doubled after the government’s decision last year to raise the insurance cost for import certificates. As a result, the number of Egyptian importers declined, and citizens and farmers vied for the same crops, with one seeking food and the other seeds for the next harvest.

“Each feddan of potatoes needs about one ton of seeds, and each feddan produces 15 tons of potatoes. So every time you sell a ton of potatoes, instead of saving it for future cultivation, you risk losing 15 tons that could have been harvested four months later,” Samir says.

Evolution of size of potato harvest (in thousand feddans). Source: Annual Bulletin of Crops and Plant Production Statistics (2015/2016) – Central Agency for Public Mobilization and Statistics

Samir and Khalil’s voices aren’t the only ones that point to a larger issue at the heart of the potato crisis.

In the 70s, liberalization wrested the seed market away from governmental oversight, which made seeds available to farmers at affordable prices, and placed it in the hands of import agents, who have formed monopolies, says a source in the agricultural sector with knowledge of the processes undertaken by farmers and the government. It is the import agents who determine the countries from whom Egypt will import seeds — the Netherlands, Germany, England and France — and they are the ones who determine the price.

The source, who spoke to Mada Masr on condition of anonymity, explains that, in the past, the cooperative association was the importer of seeds in the country. Because it is a quasi-governmental and non-profit entity, it sold seeds at reduced prices to farmers, before its role dwindled due to privatization policies. After the liberalization of the exchange rate, import agents took advantage of the situation and raised the price of seeds to between LE14,000 and LE23,000 per ton. The source clarifies that local potatoes are not fit for use as seeds for climate reasons, forcing farmers to either buy the imported seeds, or grow other crops that are less expensive.

The head of the Agricultural Farmers Syndicate, Emad Abu Hussein, tells Mada Masr that the farmers have nothing to do with the crisis and that it is they who bore the increased cost of production, especially with the increased prices of seeds. According to Abu Hussein, the cost of producing one feddan of the crop currently on offer was about LE20,000, and each feddan produced between 10 to 15 tons. They were sold for LE900 each, or about LE7,000 in total, which means a 40 percent loss.

Number of potato seeds used per year (per thousand tons). Source: Central Agency for Public Mobilization and Statistics

According to Naguib, these low market prices extend to last year, and are a major factor causing farmers to refrain from growing potatoes.

The Potato Producers Cooperative Association recently submitted a memorandum to the Ministry of Agriculture, a copy of which Mada Masr obtained, stating that the cost of potato production this season reached LE50,000 per feddan, causing losses for farmers due to the sharp drop in market prices. The association warned that this would result in a reluctance to grow the crop.

According to the agriculture sector source, production costs range between LE20,000 and LE50,000, depending on the quality of seed and whether or not it is bought from the black market.

The memorandum also noted that hundreds of thousands of farmers were hoarding potatoes for the purpose of selling them to processed food manufacturing companies, or to sell them gradually to consumers, or regrow them in the winter season in November and December.

The government’s decision to seize potatoes from hoarders may not fix the situation, however. Naguib tells Mada Masr that he advised the authorities not to flood the market with all the potatoes that were seized and to introduce them gradually, so as not to cause another crisis.

But while state figures see the measures they have undertaken as a definitive resolution of the crisis, other industry insiders see the problem as being more systemic.

Both the Ministry of Agriculture spokesperson and Khalil, the board member of the Potato Producers Association, agree that the crisis will reach a definitive end with the introduction of the new potato harvest starting at the end of November.

On the other hand, the source working in the agricultural sector says that the government’s response will not end the crisis. He considers the measures enacted by the government to be mere pretense designed to appear as an intervention. As seized potatoes were released at the end of October, weeks after government intervention began, the empty storage refrigerators will have to be filled with new crops. At the same time, consumers will also begin to store potatoes in fear of rising prices, which will in itself lead to a price hike.

Evolution of total potato crop production and exports. Source: Annual Bulletin of Production and Foreign Trade and Agricultural Commodities Available for Consumption Trends (2016) – Central Agency for Public Mobilization and Statistics

The source states that the state should have stopped exporting potatoes while there was a shortage in the local market. He believes that the state has not played its proper role in organizing the cultivation, sale and export of the crop as it should, leaving matters instead to the market and the monopolists, despite resulting interference with the production and distribution of other equally important crops, such as rice.

According to CAPMAS statistics for the year 2015/2016, 377,000 feddans were allocated to potato cultivation, from which more than 4.11 million tons of potatoes were produced. From this haul, 413,000 tons were exported, a 25 percent decrease from the previous year. The Ministry of Agriculture announced in February its intention to increase the yield to five million tons this year.

Abu Hussein, the head of the Farmers Syndicate, agrees with the source working in the agricultural sector. For him, the crisis will recur for both potatoes and other crops, as long as there are no strong government mechanisms in place to control prices or manage the markets.

Hadeer El-Mahdawy 

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