Tension in Egypt shows potency of food crisis

Already, Haiti's government has been driven from office by violent protests over prices that are 50% to 100% higher than last year. Seven other countries — Egypt, Cameroon, the Ivory Coast, Senegal, Burkina Faso, Indonesia and Madagascar — have suffered food riots.

Global food prices have risen 73% since 2006, but the increase for certain products has been even more dramatic. Edible oils are up 144%; cereals, including wheat and rice, are up 129%; dairy products have doubled in price.

World Bank President Robert Zoellick says the developing world's higher food bill will erase the past seven years of progress in reducing poverty. And prices are expected to remain elevated at least through 2009.

In Egypt, soaring food costs are straining government budgets and threatening to undermine 4-year-old economic reforms. Those market-oriented initiatives have spurred economic growth to an annual rate of 7% but are predicated upon sharp reductions in Egypt's bloated public subsidy bill.

The government was preparing to reduce spending that keeps food artificially cheap, but the global crisis forced Mubarak to reverse course.

Now, instead of cutting subsidies, he's dramatically increased them, staving off public discontent at the cost of a larger government deficit.

A government-fed problem

The WFP has labeled the spreading food crisis a "silent tsunami." But Egypt's food problem is no natural disaster. It's been compounded by government policies that distort markets.

The government keeps bread almost free — one loaf costs less than a penny — by subsidizing the wheat used to produce it.

However, the system is vulnerable to widespread corruption.

In recent months, as the global market price of wheat rose steadily higher, bakers began selling their subsidized flour to private bakeries rather than using it to make bread for the poor. Fifty-pound sacks of flour purchased from the government at a steep discount could be resold on the black market for roughly 10 times the subsidized price.

Diversions of subsidized flour occurred even as rising prices at the private bakeries caused more people to switch from buying their higher-priced bread to the cheaper version sold at the subsidized stores.

Market-priced bread, which had cost about 4 cents per loaf, jumped to almost 10 cents apiece as world grain prices soared. With less flour available to make bread even as more customers demanded it, the result was scarcity and long lines.

In March, Mubarak ordered the army to begin baking bread and distributing it through hastily established kiosks. Officials promised an end to bakery lines by the end of April.

By last week, there were indications that the acute phase of the episode had passed. But with food prices rising across the board at better than 20% annually, grumbling remains.

"The people are angry with the increase in prices. We don't know how to make ends meet," says Om Hashem Shaban, balancing on her head a torn white sack full of fresh bread.

Like the poor elsewhere, Egyptians cope with higher food prices by cutting back on expenditures for education and health care, says Bishow Parajuli, WFP country director.

To cope with fast-rising prices, Shaban says her family, including five children, eats less and occasionally skips meals. Most days, the menu usually consists only of bread.

Rice, Shaban says, "is more of a luxury item."

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