May 07, 2008
Bread & Riots
If you follow MENA news (and indeed news generally) rising food prices, coupled with rising petrol prices, have provoked for the first time in years serious concerns about food availability to the poorer segments of the population. And demos and riots. And when mass demos occur in the Middle East and North Africa, fear of regime stability gets in the air. Serious challenges for a region where the emerging free(er) markets are yet fragile. Nevertheless, the FT's arty today, Mideast reels as hunger outgrows oil earnings is bothersome.
Perhaps the lead is what is the most irritating:
For years, food policy in the Middle East and North Africa was very simple: hydrocarbon exports paid for carbohydrate imports.
A quote that then segues into issues of the non-oil exporters. My irritation is always raised when all MENA is written about as if it were the Gulf. This is not merely sloppy, it leads people, even Sr. persons, to dangerously misconstrue developments.
Nevertheless, the article highlights some of the issues and challenges involved, if terribly superficially:
Massive dependence on imports:
The FAO estimates the region’s cereals import bill will hit $22.6bn this year (£11.4bn, €14.5bn), a 40 per cent increase on 2007. Since 2000, it has jumped almost 170 per cent. The rising bill is the latest signal of the looming food crisis hanging over the Middle East and north Africa, the region of the world most dependent on imports of food staples.
Of course that headline figure does disguise rather large intra-region disparities.
As to the "hydrocarbons" deal:
In the past few months, food riots have hit Egypt, the United Arab Emirates and Yemen as prices jumped almost 60 per cent in a year. A general strike, demanding action on rising prices, has been called in Lebanon on Wednesday. The discomfort over food price hikes is aggravated by a huge dependence on the international food market. Middle East and north African countries buy almost a quarter of all the cereals traded globally.
One can add Morocco, for an observation most places suffering instability are non-hydrocarbon exporters (Egypt of course does export some, although very marginal).
Two countries in the region, Morocco and Jordan, have an even more acute problem because not only are they facing higher food prices rises, they are also net importers of fuel.Queer this observation, insofar so is Lebanon and Yemen. Why the writer singled out Morocco and Jordan (the later of which has rather more serious challenges) escapes me.
Again, we segue into non sequiturs:
The dependence on imports is a consequence of the meagre agricultural supply – a result of paltry land and water resources – and booming demand – the upshot of fast rising populations and strong economic growth courtesy of high oil prices.
Well... no. The statement is fine for the Gulf but meaningless for Yemen, Morocco and arguably Lebanon. Jordan and Egypt might be benefiting more oil price spillovers, due to expats and out-sourcing, but economic growth in most of the non-hydrocarbon states is certainly not courtesy of high oil prices. Indeed in Tunisia and Morocco, to take two clear examples, one might reasonably argue higher economic growth has come despite pricing (although given market distortions via domestic market subsidies, this is harder to tease out.
This being said, the following is spot on:
Despite the challenge, policymakers have taken a short-term view of the crisis and are pursuing quick-fix solutions, such as raising salaries, as in Egypt, to increase affordability or imposing price controls as adopted by the UAE. Nevertheless, four long-term trends are emerging: food subsidies, seen only a couple years ago in retreat, are on the rise, strategic stocks are been considered, the countries are trying to diversify their imports and there is renewed efforts for agriculture self-sufficiency.
Sadly, they do not throw the Moroccans a bone for a recently announced set of developments for long term structural market reforms for their otherwise basket-case rural / ag sector - to move towards better market and climate adjusted production. As well as invest in basic infrastructure to allow more production to get to market in a timely fashion (and in good condition - the primitive levels of basic rural infrastructure and investment are major handicaps across the region even where - as in Morocco - the climate and soil are perfectly reasonable for serious ag production - contra the insanity of Saudi Arabia growing wheat).
Akhter Ahmed, at the International Food Policy Research Institute, a Washington-based think-tank, says that in the current environment of rising food prices, “politically it is very difficult to make any substantial change in the subsidies policy” even though, he argues, most result in wastage of public funds.
Alarmed by the potential for social unrest, Egypt will spend an estimated $2.4bn this year on bread subsidies, up from $820m last year.
Honestly, one can understand basic subsidy to bread in Egypt - yes more sophisticated programs may theoretically deliver more value to the poor, but one doubts that the bureaucracy would be capable of administering say bread cards without massive corruption and I don't know that comparative analyses build in enough corruption...
On the other hand, while Egypt one can understand, UAE is simply blinkered:
Price controls, mostly eliminated during the 1990s’ economic liberalisation, are back. The UAE, for example, has imposed them through agreements with big supermarkets, such as the French retailer Carrefour, to maintain food costs at last year’s level.
This makes... well no sense at all.Well UAE is living in magical land, and one can guess at a desire to control basic costs for all the indentured labour paid dirt... Easy way to try to ineffectually address the issue.
Governments have also returned to the idea of building strategic food stocks, which were common in the 1980s. Sultan al-Mansouri, UAE economy minister, said strategic inventories are a “formula to control prices once they are out of control”. In Oman, the government has announced the purchase of 200,000 tonnes of rice, enough for two years.
Diplomats say the region’s policymakers have realised that relying entirely on the global market without a cushion is a flawed idea.
Actually not inherently unreasonable - although panic buying now to build up stocks is likely to push up the near term costs, probably forcing a price spike. I would expect, however, if there are better growing conditions for the upcoming production seasons, one will see a serious fall off.
At the same time, governments are also looking to diversify imports through bilateral government-to-government trade agreements such as that recently reached between Libya and Ukraine. They are also trying to increase local agricultural production, particularly in north Africa, but also in Iran and Syria, but with limited success.
However, more long-term policies are necessary, particularly to battle the impact of climate change in the region, experts said. In a context where food price shocks are already a big concern, changes in temperature and precipitation will only add to the stress on agricultural resources.
Saudi Arabia’s plan to halt wheat production by 2016 because of concerns about the kingdom’s scarce water resources is the starkest sign of the troubles the region faces. “The big challenge for the region is water,” says Mr Abbassian.
Maghreb rather than North Africa, but leaving that aside, the error in the above strikes me in not addressing the domestic internal market issues that hit both investment needed to address declining and more variable rainfall and in boosting production - bizarre anti-market "social" policies that rather than boosting Farmer attractiveness, do the opposite in chasing out good money, subsidizing primitive production over more efficient and successful farms (fetish of the small farmer, poor useless fuckers).
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The UAE's economic freedom score on the Heritage Foundation's rankings has plummeted in recent years. The government's futile efforts to control inflation have included plenty of steps that curb the normal functioning of a market, ranging from rent caps to raiding bakeries accused of raising prices. But between high oil prices, a housing shortage, and no control over interest rates or exchange rates, they're spitting in the wind. And while the dirt-poor laborers you mentioned are obviously hardest hit by rises in food prices, double-digit inflation is hitting just about everyone.