Bread and Oil: Rising Food Prices and Riots
by Yair Wallach, The Oil Drum, on March 3, 2008
Bread and Oil: Rising Food Prices and unrest in the Middle East
Yair Wallach is completing his PhD in Cultural History in Birkbeck College, the University of London. He currently makes his living by writing articles of economic analysis on the Middle East.
Abstract
The use of food crops for biofuels is one of the key factors driving a dramatic increase in the global price of cereals. This trend is set to intensify. This article will look at the potential implications of rising wheat prices for countries in the Middle East, taking Egypt and Morocco as examples. Government food subsidies in both countries have so far protected the poor urban population from much of the global hike in cereal prices. However, as food prices continue to spiral, subsidies will demand a growing share of national budgets. Subsidies cuts seem inevitable, leading to riots and political instability.
The further development of biofuels could make food too costly for millions of poor in the Middle East, and destabilise the region which supplies most of the world`s oil exports.
Introduction
Stuart Staniford`s article "Fermenting the Food Supply" exposed the dangerously rapid manner in which food crops have been diverted to biofuels in the USA, and the likelihood that this pattern will be copied elsewhere. Staniford attempted to gauge the impact of price rises on the global poor. Looking at the elasticity of food expenditure, he suggested a grim possibility of 60% of the globe`s population priced out of the food market within the next five years. In a later article, "Death Rates and Food Prices" he considered the mitigating effect of subsistence farming, which could support a considerable part of the global poor.
Staniford established convincingly that the impact of biofuels on food crops will be almost immediate - that is, within the next decade or even five years. However, within such a short time span, assessment based on universal parameters will give a very limited picture. I believe that a more detailed attention needs to be given to specific regions and countries. Which ones are most at risk?
The Middle East is my home region, with which I am familiar personally and professionally. It is natural for me to be interested in the dangers for the region`s population. But furthermore, a food crisis in the Middle East may have far reaching consequences, due to the importance of the region for oil and natural gas exports.
...The vulnerability of the region also lies in the fact that wheat-based bread is the main staple. Without bread there is no life - indeed, in Egypt the same word is used for both (~aish). The global commodity price of wheat has gone up most drastically, tripling between 2000 and 2007. Maize and rice prices have doubled during this time. Countries in which wheat is the main cereal are likely to be more severely affected.
Outside the rich pockets of wealth in the Gulf, poverty is widespread in the Middle East. In Egypt, 45% of the population are estimated to live on US$2 per day or less (2007). The population in the region spends on average a third to half of its income on food. Poor urban households are in a precarious position to begin with, and they will be affected badly by any prices increases. However, the price of bread is not dictated directly by global cereals prices, because of generous government subsidies. Before examining the possible implications of the crisis by looking at the specific cases of Egypt and Morocco, a few words on the economics and politics behind food subsidies in the Middle East.
... Middle Eastern governments have been wary of eliminating food subsidies or replacing them, as it is clear that the issue is politically explosive. Subsidy cuts lead to riots. This has been the case in Egypt (1977), Sudan (1979), Morocco (1981, 1984, 2007) Jordan (1989, 1996), and Tunisia (1984). The riots are perceived as serious challenge for the regimes. In some cases (Morocco 1981) hundreds of demonstrators were killed. After clampdown of arrests and emergency measures, governments usually back down from the subsidy cuts. We have seen this happen in the last bread riots in Morocco (September 2007). This scenario will become increasingly unlikely as the subsidy bill becomes much more costly. As prices of oil and food go up, removing subsidies will become politically impossible, but sustaining them could become economically unviable. Whatever happens, subsidies are unlikely to be eliminated completely, and global price rises will be mitigated and not hit the population in their full toll. Famines are therefore not to be expected in the immediate future. Yet political unrest is unavoidable. Even if governments succeed in repressing food riots, popular disapproval will remain and the political situation will be much more volatile.
... In the recent Davos conference, Egypt was hailed as a success story for liberalisation reforms, and as one of the next emerging economies.
But in 2008 things are set to change. Egyptian oil production peaked in the mid 1990s. Oil consumption is growing strongly, due to economic growth. In 2008, Egypt is set to become a net importer of oil for the first time. From a dwindling source of income, oil will become a substantial fiscal burden. The government would have to import oil and sell it at a subsidised price - which would be a heavy burden, since fuel subsidies already made 20% of the government budget in 2005/6 (source: IMF).
Conclusion
Cereal prices in the Middle East are mediated through state subsidies. So far, the urban poor have not been exposed directly to the rise in prices. It seems inevitable, however, that at some point the price rises will be passed on to the public through subsidy cuts, either in 2008 or in 2009, in countries such as Egypt, Morocco, Tunisia, Iraq, and Jordan. Subsidy cuts will, without doubt, result in immediate riots. The urban poor will not wait until they reach a starving point: they will act immediately, as they have done before, against what they will see as the government betraying its fundamental duty to provide affordable food prices.
Egypt and Morocco are among the US`s closest allies in the region. Belonging to the so-called "moderate Arab/Muslim countries", they have been the most accommodating in terms of supplying the US with intelligence and military cooperation against Islamist groups. In return the US has supported these regimes militarily and economically, through direct support (Egypt) or Free Trade Agreements. Political instability in these countries will put in serious risk the position of the US in the Middle East. The notion that food prices have gone up because of American (and other developed countries`) use of biofuels will not make the US more popular among people in the region.
... If this short article dealt with the problem in strategic terms, in grand summaries of numbers (population, oil, food), it is important to remember that behind all these are people, real people, and many of them. Poor families in Egypt and Morocco, for whom life is already very difficult, and who survive on the bare minimum, are going to be badly hit in the next two years, when even a pita bread will become too expensive. The important issue here is not the survival of certain political regimes, but rather the survival of these families.
This is a guest post by Yair Wallach. Originally from Jerusalem, he is completing his PhD in Cultural History in Birkbeck College, the University of London (writing about Palestine/Israel between 1858 and 1948). During his five years of study in London he has lived in precarious conditions, spending many months without electricity or hot water. These experiences have made him aware of issues of environmental sustainability, especially relating to energy, water, waste and the global food market. He currently makes his living by writing articles of economic analysis on the Middle East.
(3 March 2008)
Economic woes ignite strife in portions of Egypt
By PAUL SCHEMM | The Associated Press
April 7, 2008
MAHALLA EL-KOBRA, Egypt - Thousands of demonstrators angry about rising prices and stagnant salaries torched buildings, looted shops and hurled bricks at police who responded with tear gas Sunday in a northern industrial town as Egyptians staged a nationwide strike.
About 150 people were arrested and 80 were wounded in the gritty Nile Delta town of Mahalla el-Kobra, where riots broke out among residents and disgruntled workers at the largest textile factory in Egypt. Protesters stormed City Hall, burned tires in the streets, smashed chairs through shop windows and ran off with computers. At least two schools were set ablaze and facades of banks were vandalized, police said. Nearly 100 others were arrested elsewhere across Egypt, officials said, as thousands skipped work and school and hundreds protested over the rising cost of food and deteriorating working conditions.
A call for a nationwide strike Sunday was the first major attempt by opposition groups to turn the past year's labor unrest into a wider political protest against the government of President Hosni Mubarak. The strike and riots in the north came two days before key elections for local councils, causing jitters in the government, which last week lifted import duties on some food items in an effort to soften economic discontent. Strikes and protests are illegal in Egypt, and protesters are often detained by Egyptian security forces. Nearly 40 percent Egypt's 76 million people live below or near the poverty line of $2 a day.
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