The grain of the problem

Soaring grain prices are causing poorer populations to go hungrier, writes Sherine Nasr

Of all the grains, wheat is Egypt's master seed. The good news is that this country can maintain self-sufficiency not only of wheat, but of any other crop or grain it chooses to grow. Or at least this is what foreign farming experts believe.


"Egypt can produce almost any crop it wants," announced Dick Prior, regional vice-president of US Wheat Associates (USW). "It has the climate, the soil and the water; it can grow self- sufficient if it so chooses." USW is a private, non-profit organisation representing American wheat farmers which promotes wheat sales to over 100 countries. Prior was asked to examine the feasibility of desert reclamation in Egypt, and came to these positive conclusions.

But good potential is irrelevant since for years the country has lacked clear agricultural policy. As a result, wheat import recently reached some 7.5 million metric tonnes (mmt), almost equal to the same quantity grown in 2007 estimated at 8mmt.

"There is no doubt that Egypt is one of the major wheat importers," asserted Prior, citing that wheat consumption per capita is among the highest, similar to that in Turkey and Yemen which are two major wheat consumers. In fact, consumption per capita in Egypt is estimated at 180kg to 200kg -- a significantly large figure. Although Egypt managed to increase its wheat production by eight folds since the 1980s, when production was estimated at 1.8mmt, it has continuously failed to meet ever growing demand thanks to excessive population growth, among other factors.

During 20 years of cooperation, USW has positively contributed to the wheat industry in Egypt. A total of $220 million was invested to grow better wheat varieties, to establish a number of silos in Safaga, Alexandria and the district of Shubra in Cairo. It also funded the establishment of a milling technology centre, in addition to improving wheat-related policy standards.

As the largest wheat exporter worldwide, accounting for 34.6mmt of wheat exports in 2007- 2008, the US has made no wheat donations to Egypt. "Egypt is a wheat buyer," noted Prior. "It has paid in cash for every tonne of wheat it bought. It also has certain specifications which we have to meet when we deliver."

In recent years, Egypt's heavy dependency on importing US wheat has changed drastically by seeking other wheat exporters including France, Ukraine and Australia. While Hassan Abdel-Ghaffar, regional marketing director of USW argued that it "is an open and competitive market", it is not only competition among exporters which caused the change. Some drastic transformations are taking place in the grains market, causing prices to rise which poses unprecedented pressure on grain importers such as Egypt. For example, world market prices for grains and vegetable oils leapt sharply to record highs of more than 60 per cent last year.

Underlining some of these changes, Prior explained that as the world's population continues to grow, demand is outpacing supply in most grains and lowering stocks while increasing volatility. In the meantime, bad weather conditions in some countries negatively affected grain production, such as in Australia which is the world's second largest wheat exporter, accounting for 21.2mmt of exports in 2007-2008. Two successive years of drought almost halved wheat production there.

Other leading factors include the growing demand associated with phenomenal economic growth seen in China and India, a weak US dollar which contributes to higher world prices, and export bans and restrictions imposed by some countries. Yet another predominant factor is the use of grains to produce biofuel. According to Shannon Schlecht, USW assistant regional director, the production of biofuels tripled between 2000 and 2007, from 4.8 billion gallons in 2000, to 13.5 billion gallons in 2006, up to 16.0 billion gallons in 2007. This is equivalent to three per cent of global fuel supplies.

"Biofuel production is expected to rise," said Schlecht explaining that the political instability in some oil countries, the uncertainty of energy supplies, high oil prices and biofuel's ability to reduce air pollution are all reasons to continue producing this alternative energy source. Other strategic factors are related to expanding economic opportunities in the form of increased wages, taxes, employment and farmers' returns.

Although the trend is led by Brazil and the US, over 34 countries are producing biofuels, including China, India, France, Russia, and South Africa to name some. While there are plans to increase the use of cellulosic material to produce biofuel, corn remains the main crop used in production in the US.

According to the International Grains Council, maize represents the main grain for the production of biofuels, with consumption increasing from almost 75mmt in 2003 to 160mmt in 2007. Corn used in the US to produce ethanol jumped from 10mmt in 1992 to more than 80mmt in 2007. "However, we should note that the corn we produce is for livestock and not the corn used on our tables," stated Prior.

The explanation, nevertheless, does not give any relief to poorer countries nor does it provide an answer to continuous grain shortages or price jumps. The fact remains that an increase in corn prices negatively impacts wheat prices, and also affects the cost of livestock, poultry and milk products which have become unaffordable luxuries for the less privileged.

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