Egypt’s Bread Subsidies May Bring Millions To The Brink Of Starvation

Authored by Dave Albin via The Mises Institute,

In Egypt, the recent announcement that bread prices, long subsidized for much of the population, would likely have to rise was met with cries of despair. Indeed, over two-thirds of the population of Egypt depend on inexpensive bread for daily sustenance.

In order to understand the current situation in Egypt, it’s imperative to learn how the current situation was created in the first place. First, the word used for bread in Egypt is different from the word common to other Arab countries, and is intertwined with the word meaning “to live.” Also, the most common type of bread in Egypt, consumed by 85 percent of people there, uses a word that means “traditional” or “my country.” Perhaps this sort of nationalism via food is why bread production has been subsidized in Egypt since 1941.

With state reliance for this long, the provision of low-cost bread is “an expected part of the state’s social contract with its public…. Within most people’s lifetimes, they remember cheap bread being available…. It’s something that has always been there.”

This was perhaps never so clear as when bread riots erupted in 1977 in Egypt following the ending of subsidies for flour and other basics, which resulted in the rise of food prices by up to 50 percent. During the riots, at least seventy-nine people died, and 556 were injured, following deployment of the army. The riots only ended when the Egyptian government reinstated the subsidies.

But why had the Egyptian government embarked on this plan in the first place? You have to look at Egyptian president Anwar Sadat’s “infitah” policies, which took Egypt’s “Soviet-style system” and replaced it with different central planners, including the World Bank, which criticized the subsidizing of basic foodstuffs. In order to pay back the loans, which fueled the new policies that largely benefited friends of Sadat, several concessions had to be made, including the subsidy cuts.

Today, we see a similar story in Egypt. The Egyptian government owes the International Monetary Fund billions of dollars, and a condition of these loans was that food subsidies should only reach those who need it most. Also, prices for fuel and electricity must be higher as well. Finally, the currency has been devalued as part of the IMF “reforms” in an attempt to curtail black market activity (i.e., voluntary trade). This also increased the prices of ordinary goods for Egyptians.

The basic underlying problem here is that the state has inserted itself between producer and consumer. In order to “help” the poor, central planners in Egypt have been running this “bread for all” program, which may now make it very hard for the poor to get bread.

The retail price for a loaf of bread in Egypt is currently 0.05 Egyptian pounds ($0.0032), and it has remained at this level for decades. Meanwhile, the cost to produce one loaf is currently greater than ten times the retail price. In the typical style of central planners, in an effort to make the system more efficient, the quota of subsidized bread loaves has remained the same, but the weight of a loaf of bread has gradually been reduced over time. Perhaps this has something to do with the ineptness of the centrally planned scheme of wheat purchasing in order to supply flour for bread making. The government set a wheat price assumption in their budget of $255 per ton but recently was forced to pay $293.74 per ton on the open market. And this is also related to the fact that many Egyptians live in poverty and have poor indicators of health—21 percent of children under age five exhibit stunted growth and 27 percent have signs of anemia, along with 25 percent of women of childbearing age. I guess the whole nationalistic bread idea isn’t such a good plan after all.

If a market system were allowed to work, the right signals would be sent to producers and consumers. In addition, even a country like Egypt, which relies heavily on food imports and doesn’t have good conditions for food production, could find ways to produce more of its own food with the right signals. The Nile Delta has been used for agriculture for thousands of years, with the natural patterns of flooding supplying nutrients to the soil. Unfortunately, but sadly not surprisingly, the construction of the Aswan Dam, a public, centrally planned projected, disrupted this natural fertilization process. While it’s true that wheat yields have increased since the Aswan Dam was completed, likely due to many factors, the real impact of the change has been to grow cotton. In addition, the protein content of wheat has been declining for unknown reasons—not good when it’s supplying nutrients to a large number of people.

Relying on the state for food is a bad idea. Free market actors would coordinate food supplies much better than a top-down, centrally planned approach by people who probably don’t have much problem getting the bread and other foodstuffs that they desire.