100 Years of Wheat

Wheat is historically the most important crop in Egypt. Today, Egyptians derive one-third of their daily caloric intake and 45% of their protein intake from wheat-based food, mainly in the form of subsidized baladi bread.  Today, Egyptians consume 20 Million Metric tons of Wheat annually where 60% is imported. Between 1995  - 2022 wheat imports ballooned by 448% from 879MN$ to 4.8 BN $ in 2022 and as the currency exchange gap has widened since 2016 , the financial burden has weighed heavy. 

Wheat has consistently been a controversial topic in political & economic circles, and over the past 100 years drastic historical events have influenced how it is regulated, traded & consumed today. Most recently and in the after-math of the Ukraine-Russia War, the Egypt started to look inwards in ways to increase self sufficiency , yet 2 years onwards from stating a target of 65% by 2025 it was readjusted 51% - a mere 6% from the current 45% of 2022 in favor of dedicating agricultural land to export-oriented crops.

Between the majority stake in food security , farm-to-fork subsidies programs, heavy import dependence as well as competing cash crops, the nation is battling to find a middle ground that could weigh between self-sufficiency and agro-economic productivity.

As I explore these complexities from a private sector perspective in my LinkedIn journal, "A Marketer's Take on Bread Economics," I will begin by examining Five key eras of Egypt’s agricultural landscape and the policies and trends that shaped the wheat sector. 

1. Pre-independence  - British Occupation: 1880’s - 1952; 

Key trends : Colonial economy,  Agricultural Prioritization, Land Ownership Concentration, Wheat Import

Egypt had come under the control of the British Empire in 1882 and had remained so till its independence in 1950’s .  Across  70 years of influence, economic policies had been largely steered in the favor of British rule.  In Agriculture, cotton was one of the most widely cultivated cash crops for its export and had been a cornerstone of Egypt’s colonial economy, especially as it fueled the empire’s booming textiles industry. This interest in cotton as an engine for economic growth, led to a massive siphoning of resources towards cotton & other cash crops cultivation.  Ultimately, this shift led to reduced food production, including wheat, making Egypt more dependent on imports to meet domestic consumption, and this marked the onset of the pattern that has persisted for nearly 100 years.

Beyond Agricultural Prioritization the British rule favored the land ownership concentration where agricultural land was largely under the the control of a few landowners who were served with peasants as tenant farmers. These landowners collectively steered the decision making on what crops were to be grown .

Food for Thought: how are contemporary markets, trade & economic dynamics rooted in colonial policies ? How do these economies look today and how is their sovereignty over resources & technology shaped by that?

2. Independence & the Nasser Era 1952 - 1970's 

Key Trends: Land reform & redistribution , Food subsidy Programs & import substitution industrialization  

Economic model : Nasser’s era saw several economic & social programs spanning land reforms in form of massive land redistribution & cooperatives establishment to the launch of  social welfare programs that aspired to democratize education, food and healthcare. Additionally under the import substitution industrialization model several parts of the economy saw nationalization in aim of regaining state control of key industries that directly impacted domestic dynamics - the overall aim was to create a more productive local economy through the increase of the manufacturing sector.

2.1 Land reform & redistribution + state-led agricultural subsidies 

In contemporary agricultural circles many would attribute modern day food fragmentation & fragility to the Agrarian reform policies of the Nasser era, especially land redistribution. Many would argue that they were short-sighted in its focus on social justice over agricultural output  . While this redistribution did indeed alleviate poverty [temporarily] and land concentration, it did indeed lead to the fragmentation of land into smaller plots and decentralization of agriculture . Many of the new landowners lacked the capital and expertise to farm efficiently, leading to reduced agricultural productivity.  

I, myself, usually support that criticism. Beyond the fact that economic policies failed to address Agriculture’s systematic challenges and many would argue exacerbated them, land redistribution saw “land ownership” become a new status symbol  that would be passed onwards into the family by inheritance, eventually leading to chronic fragmentation in the long term. More alarmingly, redistributing land at that scale also meant distributing decision making into millions of micro-level decision makers. It is important to note that although modern day fragmentation is in fact attributable to Nasser’s policy, the fragility of the Egyptian food system today is a symptom of successive agricultural policies [or the lack thereof] .

2.2 Staple Food Crops Subsidies Program :

Although Nasser had retained some colonial economic incentives for the cultivation of export crops such as cotton to sustain the industrialization efforts, he aspired to improve social welfare via  agriculture by introducing a series of agricultural subsidies and price controls to stabilize the production of essential crops like wheat to counter import dependence and steer the agricultural market towards a focus on domestic food crops versus the cash crops. This subsidy program covered a multitude of staple food crops but  had most famously manifested in the Farm-to-fork subsidies for wheat which included subsidies agricultural inputs to farmers as well as the price control of the final output baladi bread for the consumer side. Initially launched as an incentive for staple crop production, these subsidies have persisted for 70 years and have themself become  a structural dilemma in the case of wheat fragility.

2.3 Import substitution industrialization [ISI]:

While I remain a staunch critic of Nasser's agricultural reform policies, I must acknowledge his ambitions with the Import Substitution Industrialization (ISI) program, which aligns with my views on nurturing domestic industries and fostering industrialization. ISI was initially designed to reduce reliance on foreign imports by promoting domestic industries and enhancing economic self-reliance.

Regardless of the debate that ensues on the role & impact of state-led industry and its control of major sectors, including manufacturing, utilities, and agriculture,  the objectives of the ISI economic policy was critical to localizing some backbone industries [cement, steel, and fertilizers] and is still very relevant to this day amidst persistently heavy import dependency and limited value added industries. ISI saw Egypt gain immense strides in economic development via increased economic productivity, share of industry in GDP, as well as employment 

A central aspect of ISI was the protection of domestic industries through tariffs, quotas, and subsidies to shield them from foreign competition. Additionally, currency control measures were implemented to limit imports and support the growth of nascent domestic industries. This protectionism remains relevant today in the context of persistent import dependency and limited value-added industries.

2.4 The case for Wheat in the 50’s & 60’s  : 

Despite numerous social and economic reforms during Nasser's era, Egypt's dependence on wheat imports grew significantly by the end of his tenure. This increased reliance stemmed from a lack of focus on addressing agriculture's structural challenges and developing a robust market system for essential food crops.

During this period, Egypt's emphasis on cotton as a key driver for industrialization led to growing inefficiencies in staple crops, particularly wheat. Factors such as fragmented land, limited farm management expertise, distorting subsidies, and competing incentives for cash crops contributed to declining productivity and diminished appeal for wheat and other staple crops.

The situation was exacerbated by the competition for resources and incentives allocated to cotton production, alongside a skewed market perception influenced by wheat input subsidies.

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Food for Thought :

• There are 1+ Million wheat growers across 3.5 Million acres, with a large majority categorized as smallholder growers , yet due to heavy market distortion due subsidies the growers lack purchasing power that would make them appealing to leaders of the Agrochemicals industry and thus are usually left to utilize outdated & highly toxic inputs ? How can this dynamic shift ? 
• Do economic incentives for cash crops do more harm than good? How is domestic food security guaranteed if cash crops make farmers more money ? How can wheat & other essential food crops become a cash crop?
• Egypt has Africa’s highest wheat productivity , yet across the past 20 years domestic wheat persistently costs 25% more than imported wheat despite heavy subsidies & devaluation ? What is the way forward to improve the economics of wheat production if subsidies can no longer be sustained?

During Egypt's Open-Door Policy (Infitah) in the 1970s and the Structural Adjustment Programs (SAPs) in the 1980s-1990s, the country's economy underwent significant shifts, leading to the rise of certain industries and the decline of others , most importantly agriculture.

The 70’s & 80’s brought wide economic liberalization initially through the open door policy as well as subsequently the Structural Adjustment Programs advocated by the IMF & WB , which saw the restructuring of the economy towards a more market-oriented system. These policies were designed to foster economic growth through 2 key domains: incentivizing import markets and fostering export industries. The policies saw market wide tariff discounts, Foreign investment incentives and mammoth multinational JV’s. 

These 20 years of economic reform saw the rise of trade, retail, & tourism sectors  as well as the construction, banking & Export-Oriented Manufacturing sectors - at the cost of State-owned enterprises (heavy industry & textiles mostly), agriculture, and some other domestic-focused manufacturing sectors. 

As the government geared policies towards promoting sectors that would attract foreign investment and boost economic growth in the short term, domestic industries and especially staple crop agriculture saw critical decline of regulation in favor of export-oriented cash crop production , cushioned by heavy subsidies across the staple crop value chains.

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3. 1970’s : Open-Door Policy (Infitah) 

Very much in the way of a u-turn, The infitah Policies marked a shift away from Nasser’s socialist economic model. The 70’s marked a new era for the Egyptian economy as the doors were flung wide open to the global market.

The shift towards globalization began in earnest under President Anwar Sadat in the 1970s with the "Infitah" (open-door) policy. This policy marked  significant economic liberalization, opening Egypt to foreign investment, reducing state control over the economy, and encouraging private enterprise. This period also saw increased integration into the global economy through trade, foreign aid, and investment. 

Under the Infitah policy, Egypt shifted focus from heavy, state-controlled industries toward light industries such as textiles, consumer goods, pharmaceuticals as well as service sectors such as tourism & retail that were more attractive to foreign investors. The energy sector also grew as Egypt capitalized on its oil and gas resources. 

On the agricultural front; economic liberalization saw the wider agriculture market taking on a more commercial dynamic , as this era marked the rise of export/industry oriented cash crops, commercial farms & agricultural investment.

It is important to note that SOE’s during this time had either became largely inefficient and thus their industries were open to new private sector entrants or were incentivized to pursue export markets , in both cases the driving currency was USD . In the case for fertilizers the SOE's shift to export saw inflationary cost surges for the domestic crop production market , coupled with an increasing share of imported pesticides meant that the situation of export-oriented crops was further exacerbated in aspiration of USD-denominated gains to balance the increasing costs .

As cash crops appeal surged, incentive to grow staple crops dwindled immensely. In the case of wheat Egypt’s Import dependency deepened to meet domestic demand. In efforts to cushion the nation against the inflationary effects of imports and safeguard available wheat land, the government maintained heavy subsidies and dug further into its budget to cover the difference and continued to incentivize export revenues to make up the balance.

4. 1980’s - 90’s 

Trends : Structural Adjustment Programs

Following the global oil & gas crisis of the 80's and the growing debt bill, Egypt economic landscape In the 1980s and 1990s was profoundly reshaped by the Structural Adjustment Programs (SAPs) advocated by the International Monetary Fund (IMF) and the World Bank.

Central to these SAPs reforms were policies aimed at reducing government deficits, which included reducing state subsidies, liberalizing trade, and privatizing state-owned enterprises. As a result, Egypt experienced a wave of economic changes, including currency devaluation and shifts in subsidy allocations, which profoundly impacted various sectors, including agriculture.

One of the most notable consequences of these economic reforms was the reduction of subsidies on essential goods and services. Subsidies, particularly those on wheat and other staple crops, had been a cornerstone of Egypt's economic policy to ensure affordable food for the population. However, under SAPs, the government significantly cut these subsidies in an effort to reduce fiscal deficits. This reduction in subsidies led to higher prices for agricultural inputs and staple foods, including wheat, which in turn placed additional financial strain on both farmers and consumers.

Furthermore, The devaluation of the Egyptian pound, a necessary step in the SAPs to improve export competitiveness, further exacerbated the economic challenges. Currency devaluation led to increased costs for imported agricultural inputs, affecting the cost of production for wheat and other crops [and in effect incentivizing growers towards more export-oriented crop production to offset the difference]

Despite these challenges, the 1990s also saw efforts to modernize and expand agricultural practices, including the introduction of new technologies and improved farming techniques. However, With the absence of localized inputs production to serve the agricultural sectors and more concentrated government regulation of the crop production landscape dynamics , the modernization of the sector brought about unintended impact that furthered deepened the Egypt's food security fragility:

• The modernization favored the financially advantaged commercial farms as the majority of inputs were imported.
• The impact of these new technologies hardly reached the staple crops farmers, whom till today mostly rely on outdated & highly toxic inputs which are mostly outlawed by EU + USDA
• Cash crops competition vs vs staple crops in resources surged immensely
• Inequality between commercial farmers & smallholders widened as higher-tier agricultural became unattainable to smallholders who lacked the means to obtain increasingly expensive inputs

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Food for thought :

All in all these massive shifts of economy did indeed foster immense gains and swiftly positioned Egypt on the global stage as a powerhouse of trade across a plethora of  industries . Yet the Question remains , at what cost ? How did incentivizing export crops shift farmer decision making processes when it came to domestic production ? With the widening exchange gap , how is this perception still manifesting today and what does it mean to Egyptian food security ? and last but not least, how do the economics of wheat today look in light of all that ?

5. 21st century - Now: 

Trends: 2008 financial crisis , Covid19, and Russia- Ukraine war

Since the start of the century and across the past 24 years, several global events have taken place that impacted the local economics of wheat in Egypt significantly ; the most notable are :

The 2008 Global Financial Crisis :

• Global Price Surge: The 2008 financial crisis led to a sharp rise in global commodity prices, including wheat. This price surge increased the cost of wheat imports for Egypt, which is highly dependent on foreign wheat.
• Increased Import Costs: As a major importer of wheat, Egypt faced higher costs for its wheat purchases, exacerbating the financial burden on the government’s subsidy programs and impacting consumer prices.
• Government Response: To mitigate the impact, the Egyptian government had to increase subsidies and expand its budget for wheat and bread, further straining its fiscal resources.

COVID-19 Pandemic (2020 - 2022 )

• Supply Chain Disruptions: The COVID-19 pandemic caused global supply chain disruptions, affecting the import and distribution of wheat. Egypt, heavily reliant on imports, faced delays and shortages.
• Price Volatility: The pandemic led to price volatility in the global wheat market, affecting Egypt’s ability to secure stable and affordable wheat supplies.
• Economic Strain: The pandemic's economic impact further strained Egypt’s budget, making it challenging to maintain or increase subsidies amidst rising costs and decreased revenues.

Russia-Ukraine War ( 2022 - Now )

• Supply Dependence: Egypt sources a significant portion of its wheat from Russia and Ukraine. The war disrupted these supply routes, leading to a sharp decrease in available wheat and increasing prices.
• Price Surge: The conflict drove wheat prices to record highs, both globally and locally. Egypt, which relies heavily on imports, saw a dramatic increase in wheat costs.
• Subsidy Strain: The government faced immense pressure to maintain its bread subsidies amidst soaring wheat prices. This resulted in increased expenditure on subsidies and further strain on the national budget.
• Diversification Efforts: In response to supply disruptions, Egypt has sought to diversify its sources of wheat and explore possibilities of increasing domestic sufficiency measures.

The case for Egypt today :

• Import dependency : Egypt consumes 20 Million Metric tons of Wheat annually - 60% is imported ,  85% of those imports come from Russia and Ukraine 
• Self-Sufficiency : Egypt has a 50% wheat self-sufficiency rate and in 2020, Egypt had initially set a 65% self-sufficiency target for 2025, but has since amended it to 51% in aims of redirecting increase of agricultural land towards export-oriented crops
• Farm to Fork subsidy program : Egypt maintains a 75 year old farm-to-fork subsidy program that covers agricultural inputs for the farm side but also the end consumer price of bread
• Wheat Subsidies Bill; As of 2024, 25% of Government subsidies budget is exclusively allocated to wheat production & bread 
• Subsidies - Consumer Price : in 2023 the government subsidized 96% of those costs of wheat . as of 2024 the government expends 91 Billion EGP on Bread Subsidy program 
• In May 2024 , Egypt raised the price of subsidized bread loaf to 20 piastres, up from 5 piastres, marking the first increase in the cost of the staple in three decades.
• Domestic vs International wheat production : The price of wheat globally : since 70’s the price of wheat has on average been 220 USD except in cases such as 2008 Crisis & 2022 War that it surged to 330 USD per MT and as high as 440 in the heat of the crises . On the other hand For the past 20 years, Local wheat has cost 25% more than imported wheat [despite subsidy support ] this figure has persisted up till 2024 & post devaluation

Whats Next ?

As Egypt navigates its complex relationship with wheat and bread subsidies, the path forward will require a careful balancing act between food security, economic productivity and social welfare. The challenges posed by global crises, domestic economic pressures, and fluctuating commodity prices underscore the need for a strategic reevaluation of contemporary economic policies & initiatives .

Food for Thought on the path forward :

• The Farm-to-fork subsidies program & its impact on market perception for staple crop growers. To what extent are subsidies sustainable ? What are the corrective economic measures needed to adjust market perception for staple crop producers and incrementally include them into the wide market system ?
• Domestic vs Export - Can we reach a point where domestic staple crops are as commercially appealing as cash crops ?
• Rural economies and farmer security : what is the path forward in making sustainable agricultural practices inclusive to smallholders ,especially the staple crop farmers? what is the role of the rural economy stakeholders in this ?
• Currency exchange & the export competitiveness . What is the impact of currency exchange in incentivizing export products/services at the cost of domestic market ? is it sustainable to incentivize export to cover import?
• Industrialization & technological sovereignty : What role could the local agrochemicals manufacturing sector play in improving the cost economics of crop production , especially those catering to the domestic market ? What are the economic measures promoting / hindering nascent industries? What is the rate of science-to-industry partnerships locally ? what is the path towards technological sovereignty ?

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*this post is part of the LinkedIn Journal Series : A Marketer's Take on Bread Economics and represents my personal views.

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