The coronavirus crisis disrupted the global markets for all goods, including food. At the beginning of the crisis, there were scenes of overcrowding at various supermarkets, as the affluent worried about a shortage of goods due to the suspension of air travel and the pandemic’s possible impact on global trade. The government asserted that Egypt’s food reserves would be enough for many months.
Mada Masr spoke with Nader Nour Eddin, an agriculture professor at Cairo University and a former Supply Ministry advisor, to shed light on some of the main features of Egypt’s food economy and the state of the global food market amid the crisis. This interview has been edited for clarity.
Mada Masr: What are basic food commodities or what is referred to as strategic commodities?
Nader Nour Eddin: International food organizations divide food into five main categories. The grain group consists of five main types of grains: wheat, corn, barley, oats and rice. Then, there’s the sugar group, which includes sugar beet and sugarcane. The meat group includes the various types of meat: beef, veal, pork and lamb, as well as poultry: pigeons, ducks, geese and chicken, in addition to fish. Then, there’s the oil group, which includes corn, sunflower and sesame oils. Finally, the dairy group features dried and cow’s milk, as well as yellow and buffalo butter. These five main groups include 55 commodities that enter people’s mouths on a daily or almost daily basis. In addition, there are 255 other commodities we call subsidiary commodities, which a person eats infrequently.
MM: What are the most important food commodities that Egypt imports?
NN: Wheat is our most essential import; we are the largest wheat importer in the world. Last year, we imported 12.5 million tons, and the International Grains Council estimated that we’ll need up to 20 million tons [this year], eight million of which we produce ourselves and the rest we import.
The second most essential food commodity in Egypt’s imports is yellow corn. It’s different from the white corn we eat grilled from street vendors because yellow corn is used as fodder. Last year, we imported 9.6 million tons making us the second-largest importer of yellow corn, jumping up from the fourth position. After corn is fava beans and lentil, which belong to a subsidiary group of grains and are not essential commodities. Nevertheless, they are two of Egypt’s largest food imports. We currently import 85 percent of our fava bean needs and 100 percent of our lentil needs. Next, comes sugar — we import 32 percent of our needs, about 1.25 million tons of sugar every year, and produce some 2.4 million tons.
Then, we have oils: corn, sunflower, palm and soybean. We stopped growing sunflowers and soybeans even though both plants can be grown in Egypt. We need soybeans because the soybean meal left behind after extraction makes up 50 percent of meat products in Egypt, such as hamburgers and sausages, and it’s expensive to import. A single ton costs LE10,000 compared to say cottonseed meal, which we buy for LE3,000 per ton. Following soybean oil in terms of import quantities is sunflower oil because there’s a high demand for using it in cooking, followed by corn oil. We import 100 percent of our oil needs, somewhere between 3 million and 3.5 million tons annually. This is a tragedy because oils are a lot more expensive than grains.
As for dairy products, we import about 60 percent of dried milk and none of the liquid milk. Most of it goes to dairy factories as regulations allow the mixing of liquid and dried milk at a rate of 50 percent in company-produced milk cartons. The rest of the dried milk goes to household consumption, Western bakeries and confectionery manufacturers. We also import 65 percent of our yellow butter.
As for red meat, we import more than 65 percent of our consumption since we don’t have a comparative advantage in raising cattle. Raising cattle in Egypt is a lot costlier than other countries because they feed on planted fodder like alfalfa, not natural fodder that grows with the rain. If we compare Egypt with Sudan and Ethiopia, two countries with a comparative advantage, we’ll learn that Ethiopia’s wealth in livestock is 100 million heads of cattle and Sudan’s is 70 million. Meanwhile, Egypt only has 8.6 million. Most of the red meat we import is fresh meat from Sudan or frozen meat from Brazil and sometimes Romania, Ireland and Hungary.
These are most of Egypt’s imports, which we can say represent 65 percent of our needs for basic food commodities. Last year, this cost us US$13.5 billion according to numbers issued by the Central Bank of Egypt and the General Organization for Export and Import Control. The latter stated that the number could climb to $15 billion this year.
MM: Why did the price of food drop globally in the wake of the coronavirus pandemic and how does this affect us?
NN: Several factors led to reduced prices. Let’s begin with wheat. The price of wheat normally drops at this time of the year because its harvest season is during the months of April and May in most countries. Those countries reduce the price of their older harvests in an attempt to sell them out before offering the new harvest in the markets. Wheat purchasing regulations in many countries, including Egypt, require it to be from the newest harvest. So, if July comes around and the old harvest hasn’t been sold to importing countries, they still have to sell the newest harvest.
So, when July comes around you won’t be able to sell the old harvest and it’ll become wheat fodder sold at lower prices and it’ll lose money. Therefore, global wheat prices drop around the months of May and June so that exporting countries can do away with older wheat.
Then, coronavirus hit and added a new factor that affected the wheat market. Some countries decided to draw from their strategic reserves. So, instead of having enough reserves for five months, they decided to reduce the reserves to two months so that they wouldn’t have to use their hard currency reserves, which they need to confront the economic fallout of the pandemic. This reduced the global demand for wheat and therefore, decreased its price.
Additionally, the coronavirus hit at a relatively convenient time in terms of local agricultural conditions. It began before the wheat harvest season, allowing us to secure quantities that reinforce our reserves to last for six months.
Grain prices generally dropped during March and April by up to two percent from February. Other commodities saw drops in global demand due to the lockdown measures. This led to a reduction in the prices of oils by more than 17 percent during those two months, and those of meat by more than three percent. The price of sugar fell in April by more than 35 percent compared to February.
Egypt benefited from the decrease in the prices of these commodities except sugar. The drop in its price could have led to a loss for the two local manufacturers if it wasn’t for the government’s intervention when it imposed dumping fees. Sugar in the global market is LE3 per kilogram and the Supply Ministry charges an extra pound on every kilogram for the Price Stabilization Fund. Therefore, its price in the factory would be LE6 and it wouldn’t be able to compete with cheaper imported sugar.
MM: We frequently hear the term “strategic reserve.” How are the quantities of these reserves determined? How do we obtain and store them?
NN: The thinking behind strategic reserves is that every country must have a stockpile of basic food commodities that’s enough in case of any global disturbance. For instance, a war could suddenly break out in the region, followed by a ban on air travel and the passage of ships. The global average of secure strategic reserves was from only 60 to 70 days during which a country would use those reserves until the measures affecting global trade are lifted.
Also, countries build their strategic reserves based on its available storage space in granaries and barns, whether they’re open or closed or made of cement or dirt. In the past, our strategic wheat reserve was enough for 60 to 70 days. But during the Sadat era, when the United States threatened to suspend wheat exports to Egypt, Egypt increased its strategic reserve to 90 days instead of 70. Then, there was a surge in building granaries during the Hosni Mubarak era. So, it extended to five to six months because the space in storage facilities allowed for that.
Of course, the type of commodity also determines its strategic reserve. Some commodities can be stored for longer periods than others. For instance, grains can be stored for a year after which they’re spoiled as insects infiltrate them and harmful fungi grow all over them. Meanwhile, commodities like red meat and poultry spoil after six months.
So, if we determine that Egypt consumes 20 million tons of wheat every year and we divide this quantity by 12 months, we’ll get a six-month strategic reserve of 1.5 million tons. So, a strategic reserve that lasts us for six months is nine million tons. And so on and so forth for every type of grain according to our consumption of it.
MM: What about the local market and production? How were they affected by the pandemic?
NN: Generally speaking, the price of food dropped whether it’s imported or locally produced. The pandemic caused a significant slowdown in food consumption. We can say that food consumption dropped by 50 percent compared to before the pandemic. That’s because many of the high food-consuming facilities are shut, such as hotels or dormitories, because universities are shut just like schools. So, Egypt’s 22 million students no longer get breakfast at fuul and taamiya sandwich shops or buy other goods such as biscuits and chips.
Due to the recession, people changed their spending patterns; their incomes were affected, and they have become more concerned with disease than they are with food. I find it surprising when a study like the one issued [in May] by the Institute of National Planning warns of a rise in prices due to the coronavirus crisis even though there’s a global recession. If they had looked at the global stock exchange, they wouldn’t have issued such a report.
Egypt should never hurry to import additional commodities because that would lead to a rise in prices. Instead, Egypt should ease on buying because prices are dropping. But this would be good for the consumer, not the producer.
MM: Does this mean that there are losses among food producers, such as potato producers who can’t export as demand significantly fell abroad?
NN: Yes, the price of potatoes collapsed. This year, farmers are selling a kilogram of potatoes for a mere LE1. And it’s sold to consumers at LE3 per kilo compared to LE6 last year. Potatoes are one of the most popular commodities in closed facilities whether at hotels or as a side dish in restaurant meals. Children want them in the form of chips and university students eat them daily in their meals. Therefore, potatoes were greatly affected by the lockdown measures. The same goes for abroad, which is why demand for them declined in Europe and other places.
Egypt’s agricultural system helped the consumer, but it hurt the farmer. When farmers had to sell potatoes at LE1 per kilogram, they couldn’t even collect the cost of seeds because a single ton costs them LE10,000. For such situations, some countries allocated aid to farmers, such as the United States, which allocated US$19 billion in aid to farmers to compensate them for their losses. Egypt should have provided farmers with more aid than that which was given to informal workers to help farmers as the prices of many food commodities, such as potatoes, tomatoes and vegetables in general, falls apart due to the recession.
MM: Generally speaking, should we worry about our food security?
NN: If the pandemic has shown us anything, it’s that we don’t produce a large portion of our food. If we weren’t self-sufficient in fruits and vegetables, we would’ve had to spend our much-needed hard currency to import them. This happened, for instance, in Gulf countries, which resorted to importing vegetables by plane when some started disappearing from the shelves because buyers hoarded them. This cost them a lot. We lost about US$8 billion of our strategic reserve in the Central Bank in two months and we wouldn’t have been able to bear an expensive food import bill. The fact that we’re an agricultural country provided us with a great deal of security. We were also helped by the drop in the price of the food commodities we import. So, there’s no need to worry.