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By Team MEB
The ongoing Ukraine-Russia conflict is a proverbial example of how military crises between two countries spill over to the entire region and beyond their geographical limits. This bi-lateral war – now continuing for months, has not only pushed Europe into a massive energy crisis but has also taken the parts of the Middle East and Africa to its fold unleashing various crises. Most significant among them is the food crisis that Egypt – heavily dependent on Russia and Ukraine for its wheat imports – is grappling with.
The war has enormously impacted Russia’s wheat trade capabilities with supply chains being disrupted amid an upswing in global grain prices. Egypt is the largest wheat importer while Russia and Ukraine are the world’s largest wheat exporters. The war has driven up prices and created nutritional shortfalls, particularly for people who rely on bread for their daily nutritional needs.
Bread is a staple in Egypt with many in the country still relying on heavily subsidized bread given to more than 70m people out of its population of 103m. According to Egypt’s official statistics agency, 32.5% of the country lives below the income poverty line, and 21.4% of children between 6 and 59 months suffer from chronic malnutrition. Continued insecurity may lead to more social unrest as rising inflation and the devaluation of the Egyptian pound have contributed to growing discontentment in the population.
In response to the conflict and a potential food crisis, the Egyptian Government announced its intent to diversify its import sources from Russia and Ukraine – which supplied 80 per cent of its wheat last year fueled by its high quality and competitive pricing and geographical proximity.
At the top of its list was India, but the deal did not go through with Egypt citing quality as a cause for concern. In another development, Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC), announced that it had bought 815,000 tonnes from four countries – France, Romania, Russia and Bulgaria – to combat its food insecurity concerns.
Although France featured as its largest supplier in the deal, it did not exclude Russia – which continues to be the world’s largest wheat exporter.
However, this continued dependence on Russian supplies might prove tricky for Egypt. Despite the news of record crops, Russian exporters are facing challenges. Though the sanction has not directly targeted its agriculture sector, banks have been forced to cut back lines of credit, and ship owners are reducing their exposure to the region. In this situation, it is unlikely that Russian exporters will be able to trade volume in the spot market.
Even the recent purchase by the GASC – its largest grain purchase – doesn’t seem sustainable given the cost at which it was procured. The wheat quantities were purchased at $480 per ton, 41 per cent higher than Egypt’s last purchase before the Russian invasion of Ukraine. According to some estimates, Egypt imports 12 to 13 million tons of wheat per year. Given its economic conditions, the country can barely afford the shot-up food prices. Its Government has already announced that the country has food reserves only for the next five months.
To help Egypt out of this impending food crisis, the World Bank recently announced that it was providing the country with $500m in development funding aimed at restoring food security. The funds have been primarily allocated to support wheat purchases enabling them to keep a stockpile and raise the country’s grain storage capacity. This will ensure a sustained supply of bread for the poor and vulnerable households, and build food resilience while supporting reforms in food security policies, including improving nutritional outcomes. All of these will help offset the impact of the Ukraine war on the country.
However, it is unlikely to completely stop Egypt’s Russian imports of wheat anytime soon. As per reports, Cairo increased its wheat acquisition from Russia by 84% in the March-May period compared with a year earlier. Although some Egyptian banks have refused payments to Russian entities because of sanctions, several traders informed that importers have been purchasing through third-country suppliers including the United Arab Emirates and Switzerland.
If the wheat dependency on Moscow continues, Egypt will likely be faced with the challenge of creating an alternative network of wheat exporters who can supply quality grains at a subsidized rate to keep Egypt’s food security program going.