The World Bank has announced that Egypt tops the list of the top 10 countries most affected by global food price inflation, with a rate reaching 36%. This announcement came after Egyptian food industry companies raised their product prices by percentages ranging from 7.5% to 22.5%, leading to a surge in inflation rates in Egypt to record levels.
Reports from the Central Agency for Public Mobilization and Statistics indicate a rise in the consumer price index nationwide by an average of 38.5% for the past October, compared to 40.3% in September 2023. Food and beverage prices contribute significantly to inflation, accounting for 71.7%, driven by the fluctuation in vegetable prices by 101.5%, sugar and sugary foods by 41.9%, grains and bread by 44.6%, meat and poultry by 97%, dairy products, cheese, and eggs by 67.1%, and fish by 80.9%.
Juhayna, one of the major Egyptian food industry companies, implemented a new increase in dairy product prices ranging from 7% to 22.5%, coinciding with the rise in operating costs due to currency mismanagement. Additionally, Egypt’s Domty company raised its product prices by up to 7.5%, as indicated in a notice distributed to traders.
Egypt is facing a severe economic crisis characterized by a significant shortage of hard currency, a plummeting pound value, and consequently, soaring inflation to unprecedented levels. Hussein Abu Saddam, the head of the farmers’ syndicate, stated to Zawia3 that the food price inflation situation will persist due to the devaluation of the pound, coupled with the government’s reliance on importing most essential food items and agricultural and industrial production necessities. He pointed out that the government imports around 50% of grains, 98% of essential supplies like fertilizers, pesticides, agricultural and veterinary medicines, and 98% of oils. He highlighted that the prices of these products increase locally whenever the pound depreciates.
Rising Prices Locally and Falling Globally
Winter is considered one of the best vegetable cultivation and trade periods, but significant price increases are observed for some crops. For instance, the price per kilogram of potatoes has doubled; a search on Carrefour Egypt’s website shows the price per kilogram sold at 23.95 Egyptian pounds (0.78 dollars), compared to an average price of 12 pounds (0.39 dollars) last year. Meanwhile, the price of onions reaches about 30 pounds (0.97 dollars) compared to 4 pounds (0.13 dollars) last year.
Rice prices in Egypt have reached unprecedented levels, with prices for fine rice starting from 4300 pounds (139.019 dollars) per ardeb (300 kilograms) and the ton’s price reaching 14.33 thousand pounds (462.28 dollars). Prices in the previous harvest season ranged between 2200 and 2500 pounds (71.21 and 80.92 dollars) per ardeb, equivalent to 7333 to 8333 pounds (237.36 to 269.73 dollars) per ton.
These prices contradict the Food and Agriculture Organization (FAO) statistics for last October, which reported a decrease in the global price index to its lowest level in over two years. International rice prices dropped by 2.0% due to negative global demand for imports, while international wheat prices decreased by 1.9% thanks to large supplies from the United States and increased competition among exporters. This decline was driven by falling sugar, grain, vegetable oil, and meat prices.
The organization stated that its index, tracking the most traded food commodities globally, averaged 120.6 points in October, down from 121.3 in the previous month.
Sugar Shortage
Despite the global decrease in sugar prices, as reported by the Food and Agriculture Organization (FAO), and despite being one of the essential commodities in Egypt, sugar has disappeared from local markets and is only available on ration cards distributed to the neediest families, as a precursor to an impending price hike after market dehydration.
Following the disappearance of sugar from the market, Hisham El-Deghawy, the head of the Food Division at the Giza Chamber of Commerce, denied a sugar crisis, stating, “There is an abundance of sugar in the country, and there is no disappearance, as claimed by some shop owners.”
The “sugar bag” has reappeared in local markets after its prices soared to unprecedented levels, reaching 50 Egyptian pounds (1.62 dollars) per kilogram on home delivery applications and the local market, compared to 12 to 15 pounds (0.39 to 0.48 dollars) last year.
Last September, the Minister of Supply, Ali El-Meselhi, revealed that Egypt has a strategic sugar reserve sufficient for 7 months. The Ministry of Supply announced the importation of 200,000 tons of raw sugar to boost strategic stocks of essential commodities, covering at least 6 months. Hassan El-Fendi, the head of the Sugar Department at the Federation of Egyptian Industries, stated that the current increase in sugar prices is unjustified, attributing it to manipulation by some traders in the local market. He emphasized that exports are a key determinant of prices, affecting supply and demand dynamics, thereby influencing prices.
Ibrahim Ashmawy, the Assistant Minister of Supply, attributed the increase in sugar prices to two reasons. First, food industries and traders increased sugar stock before Ramadan (March 2024) as it is an essential component in many food products. The second reason is the end of the sugarcane and beet harvesting season. He confirmed that the quantities supplied match the high demand after importing 100,000 tons of sugar to bridge the gap in local production, covering 90% of consumption. Ashmawy pointed out that these reasons led to an increase in sugar demand, resulting in price hikes. He stated that Egypt is 87% self-sufficient in sugar, importing the remaining percentage.
Ashmawy explained that there are three sugar prices: the first within the supply system, at 12.60 pounds (0.41 dollars), the second within the price reduction initiative at about 27 pounds (0.87 dollars), and the third is the free market price ranging from 34 to over 40 pounds (1.29 dollars). However, Ashmawy did not address the actual sugar prices in the local market, which reached 50 pounds (1.62 dollars).
Mohamed Raafat, the head of the Sugar and Confectionery Department at the Federation of Egyptian Industries, stated that one reason for the sugar price increase is “within the consequences of inflation and the rise in prices that affected almost all commodities.” He added that “some practices by traders, storing goods to dehydrate the market, cause sudden price increases without clear justification.” The annual inflation rate in Egypt reached 39.7% last month, according to official data.
The Central Agency for Public Mobilization and Statistics reported an annual increase of 71.9% in food prices. Additionally, the global price of raw sugar has increased to $737 per ton, compared to $539.20 in November of the previous year.
The rise in sugar prices in Egypt could cast shadows on several local industries that heavily rely on this essential component. In the confectionery industry, the increase in sugar prices could lead to higher production costs, forcing manufacturers to raise product prices. It could also affect the soft drink and juice industry, where large amounts of sugar are required for production.
Furthermore, the impact of rising sugar prices extends to the condensed milk and sweetened condensed milk industry, essential ingredients in many traditional Egyptian foods and sweets. It could also affect the bread and bakery industry, where sugar is widely used in some types of bread.
Regarding local cafes that serve coffee, tea, and juices, the increase in sugar prices could lead to an increase in the cost of basic ingredients used in preparing these beverages. This impact may be reflected in the prices of beverages consumed by customers, affecting demand and patronage for these cafes.
Cigarettes… Recurring Crises
At the end of October, the Egyptian House of Representatives approved a bill amending certain provisions of the Value Added Tax Law No. 67 of 2016 to increase taxes on cigarettes and tobacco. The new prices, implemented in September, categorized cigarettes into three tiers. The first tier has a maximum price of 31 Egyptian pounds, a 7-pound increase from the previous price, led by the popular Cleopatra brand.
The second tier, including LM cigarettes and similar brands, has a maximum price of 45 Egyptian pounds. The highest tier ranges from 45 to 65 Egyptian pounds.
The cigarette crisis in Egypt has recurred after prices increased thrice this year. Despite government assurances of market control and new investors entering the industry, price hikes continue to negatively impact the “mood of Egyptians.”
According to some Egyptian economists, cigarettes are a basic commodity for smokers, and price increases may put pressure on smokers and affect their income. The Ministry of Health and Population in Egypt reported in October 2022 that the number of smokers in Egypt reached 18 million, advising them to quit smoking to protect themselves from its harmful effects.
According to a previous report by the Eastern Company, Egyptians consumed about 70 billion cigarettes during the fiscal year 2021-2022. Egypt, Jordan, and Saudi Arabia topped the list of Arab countries with the highest tobacco consumption, with Egypt having the highest annual expenditure on tobacco at $9.7 billion, compared to $2.5 billion in Saudi Arabia and $1.3 billion in Jordan.
Egypt’s Wheat Reserves
Egypt has intensified its external purchases of wheat over the past month and a half, either through international tenders or direct purchases. The total agreed-upon quantities since early September have reached around 1.6 million tons, compared to only about 120,000 tons agreed upon during the same months in 2022. This marks a tenfold increase in wheat purchases compared to the previous year.
The reasons for Egypt’s current expansion in wheat purchases are primarily twofold. Firstly, global prices have fallen by 32% during the current period compared to the previous year. Given Egypt’s severe economic crisis, this is an opportune time to buy wheat, especially as prices may rise significantly due to the Israeli aggression on the Gaza Strip.
The second reason is Egypt’s concerns about political instability in the region resulting from the same war. Egypt fears potential international sanctions on countries it imports grains from. For years, Egypt has funded wheat import deals from its own resources, managing dollar resources for the Ministry of Supply and Internal Trade and the General Authority for Supply Commodities to open import credits.
Recently, modifications have been made to this mechanism, and the government is relying more on external loans to finance a significant portion of wheat and other grain imports. Egypt considers itself the world’s largest wheat importer, relying heavily on external loans to purchase grains, food, and fuel. Egypt typically buys up to 12 million tons of wheat annually from abroad.
Despite being the largest wheat importer, Egypt does not rely solely on external sources for wheat stock. The Ministry of Supply and Internal Trade continues to receive local wheat from farmers in some provinces, providing facilitations to ensure increased supply rates.
The Ministry has upgraded and increased the efficiency of 21 silos owned by milling companies with a storage capacity of about 530,000 tons at a cost of approximately 60 million Egyptian pounds. This is part of the state’s plan to increase production capacities of local and premium flour to meet the country’s needs for subsidized bread production, estimated at a daily production of 250 to 270 million loaves.
The ban on feed factories and their officials from using or possessing local wheat for use remains in effect. Fish farm owners and officials responsible for managing them are also prohibited from using or possessing local wheat for use. Private sector owners producing free flour and those responsible for managing it must procure their needs from imported wheat. They are prohibited from using local wheat during the marketing season without permission from the Ministry of Supply.
Egypt’s wheat production ranges between 8 to 9 million metric tons annually, while its wheat consumption is approximately 18 million metric tons. The gap, amounting to around 9 to 10 million tons annually, is imported. According to the latest report from the U.S. Department of Agriculture, Egypt’s total annual wheat consumption is expected to rise to about 21 million metric tons in 2021/2022.
IMF Lowers Growth Outlook for Egypt
The International Monetary Fund (IMF) has reduced its growth projections for Egypt in 2024 from 5% in its “World Economic Outlook” report released in April of this year to 4.1% in its latest report for July. Meanwhile, it raised its inflation forecasts for the current and next years.
Although the IMF maintained its growth forecast for the current year at 3.7%, the same as in April, it lowered expectations for the next year. This adjustment is primarily attributed to the “weakness in the exchange rate flexibility, resulting in a shortage in the foreign exchange market, impacting import dynamics and dampening investor confidence,” as explained by Betia Kovács Brooks, Deputy Director of the IMF’s Research Department, to journalists.
In a significant shift in its future inflation outlook, the IMF now anticipates Egypt’s average inflation to reach 24.4% in 2023, rising to 32% in 2024. This contrasts with the April report, which suggested an average inflation of 21.6% in 2023, with an expected decline to 18% in 2024.
Brooks attributed most of these changes, especially for the next year, to the devaluation of the local currency.
In June, inflation hit its highest rate ever, with food prices continuing to rise due to a series of pound devaluations and increased seasonal demand. The general annual inflation rate in Egyptian cities surged to 35.7% during that month.
Brooks emphasized that the IMF sees it as imperative for the Egyptian government to adopt robust policies to rebalance the overall economy, control inflation, and, importantly, allow more flexibility in the foreign exchange market.
The release of the IMF report coincided with positive economic data in Egypt. A report from the Central Bank of Egypt on Tuesday showed a decline in the current account deficit in Egypt to $5.3 billion from July 2022 to March 2023, compared to $13.6 billion in the same period of the previous fiscal year. This was driven by a significant increase in tourism revenues and the toll collection in the Suez Canal.
However, remittances from Egyptians abroad declined by 26.1% to $17.5 billion compared to $23.6 billion in the same period of the previous fiscal year. Bankers told Reuters that a larger number of Egyptians abroad were making transfers through the informal market, at a time when the country faces a severe foreign currency crisis, causing the pound to lose half its value against the dollar.
Tourism revenues reached $10.3 billion, up by 25.7% from the same period in the previous fiscal year. Meanwhile, revenues from Suez Canal tolls recorded $6.2 billion, compared to $5.1 billion in the same period of the previous fiscal year.
