High world food prices have hurt Egypt's poor and the complex subsidy system that is meant to protect them. Can Mubarak's regime ride out the political volatility?by Wendell Steavenson / October 25, 2008 / Leave a comment
Published in October 2008 issue of Prospect Magazine
Drive over the bridge from the green Cairene island of Zamalek, from its tree-lined streets, grand embassy mansions and air-conditioned cappuccino cafés with wi-fi access, across the Nile into the grimy neighbourhood of Boulaq: 15 minutes of battered honking traffic to travel from rich to poor. During the pre-war British rule years of cosmopolitan Cairo, Boulaq was a grand quarter. Now its French-oriental wrought-iron balconies are strung with washing, its elegant green shutters are broken and sag over crumbling art nouveau balustrades, and its sandy alleys ring with the clang of metal workers hammering battered hubcaps into resellable shape.
In a side street, one 38-degree morning this summer, a small crowd jostles around a window with a metal grille, wrapping their fingers around the iron bars. This is the local bakery. The crowd—mostly women, conservatively dressed in gallabaya and headscarf—are waiting for the next batch of subsidised bread. Known as baladi, which means “country” with an affectionately derogatory overtone, a loaf costs five piastres, less than 1p. Turist bread from private bakeries, made with finer flour and a bit larger, costs five or ten times as much.
After a few moments the chief baker, Hajj Hussein, appears, weary and with furrowed brow. Through the iron grille, he begins to dispense the flat rounds of baladi, each the size of an outstretched palm, brown and roughly speckled with bran. Coins and mulchy Egyptian pound notes are passed over.
“Give me five loaves!”
“There are ten here,” replies Hajj Hussein.
“Five. God bless you.”
“Take the money.”
Someone pushes, someone elbows.
A girl, no more than four, carefully carries ten puffed loaves away from the crush, and squats by a doorstep. Bent in concentration, balancing the hot rims of each loaf on her fingers lest one fall on to the dusty street, she spreads them out to cool. The women in the crowd by the window cluck approvingly at her diligence.
This scruffy bakery in Boulaq is as good a place as any to observe the effects of the surge in the price of global food staples that began in early 2006. After peaking in June 2008, the UN food price index fell slightly in July and August, but is still up 60 per cent from its value in August 2006. This year there have been food protests all over the world, from Uzbekistan to Senegal to Bangladesh. In Haiti, where people have been reduced to eating mud pies mixed with cooking oil, the prime minister was forced to resign in April. In Pakistan, many blamed the electoral loss of Pervez Musharraf’s PML (Q) faction in February on the rising cost of living. International grain prices rose sharply after bad harvests in 2007. By spring 2008, the global price of wheat had risen 130 per cent and rice 74 per cent in a year, according to UN Food and Agriculture Organisation figures. The impact on the world has been uneven. In rich countries, consumers may grumble at rising food prices, but there is space in household budgets to absorb higher spending. Meanwhile, in the poorest places, subsistence farming and direct food aid have, to some extent, mitigated the impact of commodity price rises. It’s in the middling sort, the second-world countries, in southeast Asia, South America and north Africa—Egypt in particular—that the crisis has hit large swathes of population, shaking their governments in the process.
Despite the great fertility of the Nile delta, once the grain basket of the Roman empire, Egypt’s exploding population—there are now more than 80m Egyptians compared to 20m at the end of the second world war—has made the country the largest importer of wheat in the world, sucking in 6m tonnes a year, roughly half its national requirement. Egyptians are also in the top ten countries for per capita consumption of wheat (which they eat in the form of macaroni and bread), and their government has for decades operated a vast bread subsidy that will cost the Egyptian government 15bn Egyptian pounds (EGP) this year, over 5 per cent of total government spending. Over the past year, wheat and corn prices in Egypt have almost doubled, and rice rose almost 70 per cent in the first four months of 2008 alone. In August, the government declared annual inflation to be running at 23 per cent (a conservative estimate), blaming the rising cost of food and fuel.
All this has sent tremors through Egyptian politics. The status quo rests on the implicit promise of Hosni Mubarak’s 27-year-old presidency-dictatorship: “forgive us your lack of freedom and we will give you cheap bread.” The ordinary Egyptian’s response to soaring prices, and the government’s response in turn, make up a subtle dance of economics and politics in a country that holds a crucial strategic position in the middle east.
The bakers have found themselves, reluctantly, in the front line of the discord sparked by rising food prices. In February and March this year, the crowd outside the Boulaq bakery was the largest and most acrimonious Hajj Hussein had seen in his 35-year career. In some places, people waited five or six hours for baladi as food prices rose and more and more people became dependent on subsidised bread for an increasing part of their diet. People seethed and shoved and cursed the government, several collapsed with heart failure, and then, as Hajj Hussein put it, “Al Jazeera turned up with a camera” and headlines proclaimed a “crisis.”
Back in 1977, when President Anwar Sadat doubled the price of baladi, the ensuing protests shut the country for two days, and dozens were killed when the army was sent in. No doubt mindful of this history, in mid-March Mubarak called a cabinet meeting to discuss the food problem. Army bakeries were ordered to supply extra bread, kiosks to sell baladi were set up to ease the bottlenecks at bakeries, and the number of families qualifying to receive a basket of subsidised goods was increased. To counter the crisis headlines, the government blamed bakers selling subsidised flour out the back door on to the black market. Journalists taking pictures of bread queues were bullied. The government rounded up the usual suspects: activist bloggers and members of the Muslim Brotherhood opposition. It was a two-handed response: one a helping hand, the other a clenched fist.
A few months on, things have calmed down, but prices remain high and tensions evident. There are still crowds outside Hajj Hussein’s bakery, and the talk is of the outrageous prices of staple foods. When the bread runs out, there is a brief pause in the crowd before one woman begins to chat to another:
“And rice is still so expensive!”
“It was four and a half pounds, even five!” her friend adds, shifting her ample weight to her left leg and re-smoothing her headscarf over her sweating brow.
“That grocer is a thief! He has no concern for the people of his neighbourhood. Why should he when he’s sitting nicely in his air-conditioning!”
While the crowd waits outside, restaurant runners are allowed inside the bakery to load bamboo pallets with 100 loaves or more straight from the clanking oven. A 10-year-old girl with an orange headscarf and a birthmark in the middle of her forehead returns three times to ferry a load of baladi from the bakery to her mother a few blocks away, who sells them on from a wooden cart at double the price. “That woman is poor and her husband is crippled,” explains Hajj Hussein, shrugging. “Yes, she pays us a little extra…” He shrugs again.
In the late afternoon, once the bakery has closed, Hajj Hussein and his cousin sit in the doorway looking out into the street. The door is ancient and covered in old black bubbling paint like tar. Hajj Hussein wipes the sweat from his forehead and lights a cigarette. “This bakery is very old,” he says. “We used to bake bread for the British soldiers before the second war.” As we sit, a relative turns up to count the day’s takings, and the oven whines as it cools. A woman comes to beg and Hajj Hussein wearily gets up to fetch her a few leftover loaves. A man comes in, nods to Hajj Hussein’s cousin, and discreetly collects a 50kg sack of flour.
Hajj Hussein and his cousin patiently explain the cash flow of their business: subsidised flour in, subsidised bread out, black market on the side. The price of gas is going up and workers are demanding higher wages, but the fixed price of five piastres a loaf means there is no margin for profit. A sack of subsidised flour costs them EGP9 (about 90p), but on the black market it is worth ten times that. The only way to make any money at all, they maintain, is to sell one sack of flour a day to a trader and take some extra cash from the secondary vendors, like the woman with the crippled husband and neighbourhood restaurants. “Obviously we sell on the side,” explains the cousin, fingering his frayed shirt collar. “It’s the only way to make money.”
The difference between the subsidised and market price of bread is exploited at every stage of production and sale, by importers, millers, warehousers, traders, bakers and consumers alike. Baladi is not just used to feed the poor, but as feed for chickens and goats (especially since the price of animal feed, recently freed from subsidy, has rocketed). Meanwhile, millers and bakers have little incentive to produce more in times of hardship, as bread is not profitable. They do, however, have a very strong incentive to skim the subsidised wheat and flour they receive and sell it on private markets. Millers, for instance, are supposed to grind subsidised flour to an 82 per cent extraction (the proportion of the raw wheat that becomes flour), but many grind to a coarser 85 or even 90 per cent, and sell the “extra” on the black market. Bakers bribe the clipboard inspectors to over-count the numbers of loaves delivered to the new kiosks, they fiddle with the official 10 per cent allowance for wastage in the baking process, or they bake loaves that are smaller than the prescribed 120 grams. Traders add sand to sacks of raw wheat before it is passed on to the millers and then make deals with bakers to falsify the amount of flour that has been recorded as delivered. Little wonder then, that when times are hard and consumers turn to their bakers for baladi, there is not enough to go round.
Earlier this year, as food prices continued to rise, the government said it would pay domestic farmers more than twice the previous year’s price for wheat to encourage more planting. Not a bad idea—but the announcement was made after the winter crop had been sown. Then, in March, the government imposed a six-month ban on the export of rice, Egypt’s number one agricultural export and a trade worth almost $300m in 2005.
In the neighbourhood of the grain wholesalers in Cairo, Mohammed Sayed Suleiman sits behind a lop-sided desk at the front of his warehouse filled with sacks of rice and dried beans. Traders like him have been stockpiling rice in warehouses since March, waiting for the ban to be called off. Consequently, the price has fallen back just 10-15 per cent, not enough to return it to the levels of the year before. Now there is talk of the ban being extended to next summer, and there is a possibility of the price of rice collapsing as traders are forced to sell their stocks. It was, said Mohammed, the craziest year he had ever seen. With international rice prices rising, why not export it illegally? I asked. “There has to be smuggling,” Mohammed conceded, but no, he was not involved. It was too difficult, he sighed. He would have to find another commodity to trade with as cover, and to pay off all the officials, “it’s not really cost-effective.”
On the wall was a portrait of Mohammed’s father, surmounted with the gold eagle of the Nasserite party and the words “Revolution of the People” printed beneath. This was the poster for his father’s candidacy as a Nasserist in the 1953 parliamentary election, just after Nasser took power from the king in a coup. Before the revolution, the family had owned hundreds of acres of agricultural land, rice mills and a trading operation, but Nasserist or not the Suleiman family were designated feudal lords and their land and mills were nationalised. For decades they had to watch bureaucrats mess up the business. The liberal reforms of the 1990s gave them back control, but Mohammed—out of choice or fear, it is hard to say—is a government loyalist. The export ban on rice, he says, is a good thing. “These are my people. This is my country.”
There are a lot of poor people in Egypt—40 per cent of the population gets by on less than EGP10 (£1) a day. Yet for all the public spirit shown by people like Mohammed Suleiman, it is not clear that the poor do benefit from the government’s food policies. They endure on subsidy and subsistence welfare. I spent one morning with a widow who lived in two small cracked plaster rooms with her divorced daughter and a grandson. I asked them about their household budget. The widow receives a government pension of EGP70 a month, while her daughter gets EGP80. They pay no rent because they live in a government house that was part of a slum-rebuilding scheme after the earthquake of 1992. Almost their entire income goes on food.
Breakfast is fool: bean stew (EGP1), pickles (50 piastres) and ten loaves of baladi bread (50 piastres). For lunch they used to eat macaroni with tomato sauce, but macaroni was now too expensive. They buy cooking oil in little plastic bags (EGP2.50 each) containing a quarter of a litre of foul-smelling grease that solidifies in winter (“we don’t even know what is in it”). They used to buy cheese when it was EGP5 a kilo, but it has gone up to EGP10. Meat is chicken wings and scrap bones perhaps once a month, or charity during Ramadan. These days they shop in the market at the end of the day when the vegetables are cheaper. Good-quality tomatoes cost EGP2 a kilo, against 70 piastres for ones that are bruised and half rotten. Even despite this scrimping, there is virtually nothing left over for clothing, medicine or anything else.
The widow’s second daughter was worried about her own daughter, who was eight years old and too ill to go to school. She was tired and listless. The doctor had diagnosed anaemia from iron deficiency, a common problem in the slums, and prescribed tablets. Her husband, who sold canisters of gas door-to-door and was having a thin summer, said there was not enough money for pills and food, but she had bought the pills anyway.
Here was another unintended consequence of the stifling Egyptian bread subsidy. I noticed that even in the poorest slums, people were overweight. One doctor who worked in a slum district and dealt with the consequences of a bulky carbohydrate diet, poor exercise and poor sanitation, used the words malnutrition and obesity in the same sentence. Egyptian’s dependence on cheap carbohydrates means that, according to the World Health Organisation, 69 per cent of Egyptians are overweight, not far behind America’s 74 per cent.
Of course, when there are losers in the food chain, there should also be winners. And one group of Egyptians that ought to be benefiting from rising global food prices is surely the farmers. But this is Egypt and, as usual, the simple economic model is quickly muddied.
The Fayoum oasis, an hour into the western desert from Cairo, is a wide irrigated expanse of green rectangular fields. Rice paddies glow neon green in the sunlight, buffalo twitch at flies under shade trees, kids work in the fields, sheep herd along the highway and donkey carts lumber under mounds of freshly cut alfalfa.
Alaa Mohammed is a farmer with eight acres of land, making him the largest landowner in his village. He is a tall, handsome, intelligent man, with two years of agricultural college behind him. He is also the local mayor, a government honorific that comes with a small stipend. But these are not happy times for Alaa Mohammed. Whatever prices in the wider world may be doing, they do not reach Fayoum. Take last year, when he grew onions—a labour-intensive crop that needs a lot of fertiliser. When it was time to sell, there was only one trader in town, who offered a measly price. Alaa Mohammed stored the onions to sell at a later date, but half the crop had rotted before he could get them to a better market. This year, trying to recoup, he had planted rice because the cost of fertiliser had doubled (rice needs less fertiliser) and the price of rice, he could see, was rising. He would have planted wheat, he said, shaking his head, had he known the government was going to double the price it offered—but, as we have seen, the news came after the planting season. Alaa Mohammed had already plumped for rice, and no sooner had the seed gone into the ground than the government imposed the export ban.
If that were not enough, arbitrary officialdom is threatening to make things even worse. So many farmers in Fayoum have planted rice this year that irrigation water is being stretched. The governor has proposed a fine for those planting over a certain number of fields with rice. As the fields have already been sown, this is effectively a retrospective tax. Alaa Mohammed does not know whether the minister in Cairo will allow this, but if so, the fines will be another blow to rice farmers who should be enjoying a year of high international rice prices.
Alaa Mohammed understands his market impotence only too well. The village has internet access, but international prices are irrelevant. The local traders he deals with are more like agents for bigger traders. Alaa Mohammed thinks that co-operatives might be an answer, but he is cautious. Co-operatives are independent, with the potential to acquire a political voice—something the government is wary of, especially when they concern sensitive areas. “I can’t do it on my own,” he concedes, thinking of the local power-brokers. “I would need support from the government. But it is very much on my mind to have a co-op here.”
In Egypt, price and cost never seem to connect. Three or four years before, for example, Alaa Mohammed made about 40 per cent of his income from his animals, but the price of feed has gone up and the price paid for animals has not matched it. I observe that this is strange, because meat prices in Cairo had doubled. “Not for the animal,” said Alaa Mohammed. “The butcher charges double but the farmer isn’t getting it.”
Middlemen are easy targets whenever prices are going up. It is the job of traders, after all, to speculate, and producers (as well as consumers) always argue that they get a raw deal. But in Egypt, the proximity of big merchants to government interests means that the word “trader” often carries a political connotation. “Neomercantilism,” pronounces a former American University of Cairo political economist, describing a business class he characterises as monopolists who have carefully married into the Mubarak political elite.
It is easy to get lost in the vagaries of Egypt’s artificial markets. You get a headache just trying to follow the effects of export subsidies for vegetables destined for Gulf state supermarkets and the rollback of subsidy on fertilisers, or the way the private wheat mills in Egypt buy wheat from the government at special fixed prices and then sell the government back wheat at special fixed prices. And it wasn’t just me that was puzzled. It was also the dry goods seller in the market who had let half his employees go because business was down so much, and the Muslim Brotherhood MP leafing through files of government budget statistics and deploring the lack of transparency. These Egyptians shake their heads in commiseration at our shared confusion. It makes no sense, it is a financial shell game, Egypt is an economy based on bread and circuses. The government, half police state, half western-educated technocracy, needs to appease its World Bank advisers with market reforms while simultaneously keeping its networks of patronage secure with exploitable loopholes in the budget.
This has been Egypt’s hallmark patchwork pragmatism for the past decade and a half, and to some extent it has served the regime well. The economy is growing at more than 7 per cent a year and whole chunks of Nasser’s socialist state, from textiles to transport to bakeries, have moved into the private sector since economic liberalisation began in 1991. But the inward investment in property development and tourism that has fuelled this growth figure has not trickled down to the poor. That 40 per cent underclass has been passive until recently, but the higher prices have started to quicken tempers.
Since the excitement of Egypt’s first ever multi-party presidential election in 2005—Mubarak won amid myriad allegations of vote-rigging and subsequently imprisoned the runner-up, who had dared to complain—there has been a wave of protests and strikes. These were initially confined to the middle classes: lawyers, physicians, real estate tax officials and university professors protested against government interference in their professions. Then state-sector textile workers (cotton is a major export) went on strike repeatedly, extracting concessions and promises about pay, working conditions and fairer union elections.
Then, this year, the food prices and bakery queues finally broadened the disaffection to the masses—something Egyptian political activists have long dreamed of. Late in March, workers at the country’s largest cotton mill in the run-down city of Mahalla asked for baladi bread to be handed out in the factory, and planned a strike for 6th April. Simultaneously, middle class students in Cairo seized the opportunity of the bread crisis to exhort—through Facebook, instant messages and text messages—a widening of the Mahalla strike into a national movement to stay at home on 6th April.
The strike was forestalled by detentions, co-opting strike leaders, and state security menacing workers on their way home. On the morning of 6th April, Mahalla was full of police. Karim, a skinny, nervy young activist, perched his narrow black shades on his forehead and told me about leaving the factory early that day to find a huge impromptu crowd, tens of thousands strong, of workers coming off their shifts, unemployed youths and supporting wives and families gathering in the main square. The ensuing crackdown was unlike anything Karim had seen. The city was cordoned off and journalists turned away at checkpoints. Knots of protesters escaped down side streets and tried to erect barricades, but were tear-gassed and beaten. A teenage boy was killed after being shot with rubber bullets and hundreds were arrested. The protests continued sporadically the following day. It was the largest and most violent protest Egypt had seen since the 1977 bread riots.
Karim himself was arrested and held for 55 days. Electricity, beatings. He shrugged it off with a wan smile and didn’t want to tell me about the circular scar, like the indentation from the sharp end of a cartridge casing, on his right temple.
In Cairo, activist bloggers and the Muslim Brotherhood opposition alike tried to figure out how to harness the new mood of disaffection that the food crisis had stirred up. Another day of stay-at-home protests was called for 4th May, Mubarak’s birthday. This time, the Muslim Brotherhood, quiet during the April protest, joined the call for civil disobedience. The regime countered with a mix of threats, bribes and short-term palliatives. It threatened to dock the pay of those public sector workers who failed to show up for work that day (6m Egyptians work for the government), and more people were arrested. Then, on 1st May, Mubarak announced a 30 per cent pay rise for all government employees. The crisis was averted. The president’s birthday passed quietly, despite the fact that a day earlier the government had wiped out its wage rise by announcing a 35 per cent hike in petrol prices.
Mubarak cannot afford to throw money at the problem. Next year the bread subsidy alone will cost EGP20bn, double what it was two years ago. Egypt’s petrol subsidy is three times that amount, and subsidies as a whole cost more than the health and education budgets combined. It is a tricky balancing act to co-ordinate economic reforms and manage a precarious weight of national debt and the vested interests of a well-connected business elite, while dealing with the spectre of mass disaffection and economic hardship fuelled by rising food prices.
Meanwhile, expensive food is not just disturbing domestic politics. It is making Egyptians rethink their view of the wider world. In particular, the relationship with the US has come under fire. Many still grumble that Egypt sold out when it signed the Camp David accords with Israel in 1978, its consent purchased with military aid and cheap wheat supplies. Some observers—including the Muslim Brotherhood MP who told me, “imported food has been used as a weapon against Egypt”—drew explicit links between Egypt’s dependence on US wheat and Mubarak’s pro-US and, by extension, pro-Israeli stance. Greater self-sufficiency in wheat is for many Egyptians a geopolitical issue. And political repression breeds bizarre views—a recent international poll found that 43 per cent of Egyptians thought that the 9/11 attacks were organised by Israel. (Only 19 per cent of Palestinians shared this view.)
During Ramadan this year, even more Egyptians than usual have had to break their fast without a chicken in the pot. Meanwhile, their government continues its dual policy of market manipulation and strong-arm tactics to dull the effect of food prices. The ministry of information spent the summer trying to pass a new law to extend government control over more of the country’s print and broadcast press.
Back at the bakery in Boulaq, Hajj Hussein echoed the lament of many businessmen, small and large, at the arbitrariness of government policy. He would like to decide what kind of bread to bake and what price to sell it at—to operate a normal business. Looking around, lest any of his poor customers overhear, he said that he thought many people would be able to absorb an increase in the price of bread, and that those who couldn’t should be helped by direct welfare assistance. “But the government is afraid of change.”
Egyptians are not starving, but they have had a bellyful of the government’s larcenous subsidy system, which seems to benefit no one but the well connected. The blogging activists have quietened for now. One I talked to, Ahmed Maher, who was arrested after the 6th April events, said he could feel progress but it was slow. During the 2005 election, he had gone into the poorer neighbourhoods of Cairo to urge people to vote, and found only apathy and indifference. Now you could hear people complaining everywhere—in cafés, on buses—about the regime, corruption, food prices, even the president, now 80 and without a successor (Many suspect his son, Gamal, is being groomed for the role, although such an outcome would be likely to ignite fierce opposition from other political factions.) In late July, Maher was arrested again. The Muslim Brotherhood, facing mass detentions, remain cowed for the moment. In many Cairo conversations, from Boulaq to the grand apartments of Zemalek, there has been a drawing back after the exhilarating and shocking events of April, but also an underlying sense that the national mood has changed, that a new era of voluble discontent has begun after decades of passivity, and that the food crisis has provided the impetus.
Hisham Kassem, a human rights leader and former independent newspaper editor in Cairo, believes that “the only way to challenge Mubarak is through the economy. He is not challenged by any political forces. My apartment is opposite the prime minister’s office. I moved here six years ago and it used to be quiet. But see the amount of sit-ins and protests over the past month! If I had known, I wouldn’t have moved here! There is a feeling of quicksand, that anything can happen.”