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Food fight unlike any other

Sylvia Westall and Tom Perry (Reuters) / 16 March 2013

With croissants, baguettes and bagels spilling off metal trolleys at the bakery where Mohammed Alif works in central Cairo, food is not scarce, but profits certainly are.

The Egyptian pound has lost more than eight per cent of its value against the US dollar since the end of December as concern deepens about the state of the economy, which is being undermined by political instability and rioting.

This, along with a general rise in global food prices, has pushed up the amount which bakeries like Alif’s have to pay for imported ingredients traded in dollars, which in turn risks feeding back into discontent with the new leadership.

Top IMF official to visit Egypt

WASHINGTON - The International Monetary Fund’s top official for the Middle East will visit Cairo tomorrow to discuss Egypt’s economic programme and the future of a proposed $4.8 billion loan as the country deals with a currency and budget crisis.

IMF spokesman William Murray said on Thursday the fund’s director for the Middle East and North Africa, Masood Ahmed, will “discuss with the authorities their economic programme and the next steps in the IMF’s engagement with Egypt”.

The IMF has raised the possibility of interim funding for Egypt, which would give the authorities access to emergency aid while it negotiates a full-fledged programme with the fund.

The emergency funds on offer could amount to about $750 million, which is roughly 50 per cent of Egypt’s quota share, which determines how much the country can borrow from the fund.

But cabinet spokesman Alaa El Hadidi dismissed suggestions of interim help from the IMF, saying Egypt would not sign any emergency loan and any agreement would be within the framework of the country’s economic programme.

Murray would not elaborate on the upcoming discussions, saying only that “the IMF remains fully committed to supporting Egypt at this critical    time”. – Reuters

The spectre of steep food price inflation driven by a weaker pound is of particular worry to President Mohamed Mursi as he grapples with spasms of unrest two years after the uprising that toppled Hosni Mubarak and was itself partly driven by a sense of mounting economic hardship in a country long steeped in poverty.

Flour and sugar are 50 per cent more expensive than they were a year ago, said Alif, and for now the bakery feels it has no choice but to absorb the increase rather than passing it on to customers.

“I can’t make it more expensive because people cannot pay,” he said, pausing between filling shelves with freshly baked rolls and serving a steady flow of shoppers on the pavement.

Higher prices would drive away customers, and there is a bigger underlying risk: if prices were to rise too quickly or if supply were to start thinning out, there could be even more unrest in a country with a history of bread riots.

That is one reason why, despite a heavy burden on the state budget, Mursi’s government is maintaining supplies of heavily-subsidised flat bread, which is sold for less than one US cent per piece and is aimed at the poor.

But there are no subsidies for products like those sold in Alif’s bakery, which caters to relatively affluent customers, so his and other businesses bear the burden of price rises.

Some bakers have started shrinking the size of loaves and cakes in an apparent attempt to protect margins. As data released by the government this week showed, others have started passing on part of their higher costs to consumers.

Annual consumer price inflation in Egyptian cities leapt to 8.2 per cent in February from 6.3 per cent in January, reaching the highest level since May. Food and drink prices rose 9.3 per cent year-on-year last month.

Nancy Fahim, an economist at Standard Chartered in Dubai, predicted the weakness of Egypt’s economy may limit any rise in overall inflation, however; average national inflation in the current fiscal year to June may yet be lower than last fiscal year’s average of 8.7 per cent, she said.

But Fahim added that inflation coupled with high unemployment, officially estimated at 13 per cent, was likely to pressure the government into maintaining subsidies, despite their increasing burden on state finances.

The government spends over $5.5 billion a year on food subsidies, which also cover items such as rice, oil and sugar. Curbs on bread subsidies triggered severe riots in 1977, and as recently as 2008, Mubarak faced protests over shortages.

Despite the weakness of the currency, bread supplies appear ample. Still, wheat imports are down sharply this year as the economic crisis makes it harder for Egypt to arrange payments; between January 1 and February 20, the country bought around 235,000 tonnes, roughly a third of what it purchased in the same period a year ago.

Wheat traders in Cairo said Egypt appeared to be running down strategic stocks of nearly 2.3 million tonnes to avoid having to use foreign exchange for imports.

For Mohammed Ali, price rises in recent months have left only enough money for basic necessities. “Food prices are rising, the economy is sick and the politicians just sit on their chairs,” he said. “I have just enough money for food, but nothing else,” he said, leaving with a small plastic bag stuffed with rolls to feed his family.

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