Egypt’s food security challenges set to grow in 2023

The disruption to global wheat supply chains caused by Russia’s invasion of Ukraine – a significant player in the global food production industry – is set to intensify into 2023.

Next year, the crisis of affordability that was precipitated by a 41% reduction in wheat exports from Ukraine is likely to be compounded by a crisis of availability, as damage inflicted on Ukrainian storage facilities and arable land will mean that farmers struggle to plant winter crops.

The crises will have significant repercussions for Ukraine’s largest wheat export market Egypt, whose food security is under threat after losing almost a quarter of its wheat supplies. Regardless of the trajectory of the war, the North African country is facing the challenge of preventing soaring inflation and bread prices while managing a fragile economy and the risk of social unrest.

The situation has shocked its government into taking initial steps to diversify its portfolio of wheat import suppliers and overhaul its supply chain management strategy. But in order to guarantee food security long term, it will also need to invest in the development of domestic agriculture, including irrigation and sustainable farming practices.

Ukraine wheat harvest to fall sharply, exacerbating global food supply crisis

As the Russia–Ukraine conflict rolls towards its second year, the outlook for Ukraine’s wheat production is bleak – and likely to worsen.

Prior to the invasion, Ukraine and Russia together accounted for 30% of the world’s wheat exports, with Ukraine alone producing 33m tonnes of wheat per year on average, according to the US Department of Agriculture. In the marketing year 2022/23,^[1] however, this figure is expected to fall to just 20.5m tonnes due to the destruction of arable land and storage facilities, as well as reduced manpower.

Some 30% of the country’s overall wheat production is produced by Ukraine’s southern and eastern regions, which have experienced the heaviest fighting since the war began. The Yale School of Public Health estimates that one in six of the country’s wheat storage facilities has been put out of action since last February. This means that farmers will not only be unable to store all the upcoming harvest but will also be prevented from planting the majority of next year’s crop. Unless the war abates, these challenges will be exacerbated by the continued destruction of arable land due to troop advances on both sides, as well as continued Russian targeted missile strikes on wheat silos located at port and railway transport nodes.

The war’s ongoing impact on Ukraine’s agricultural production will create an availability crisis with global repercussions even following November’s 120–day renewal of the Black Sea Deal, under which Ukraine can continue exporting wheat and other foodstuffs. Russia’s temporary four-day freeze of the deal at the end of October also highlighted the extent to which such agreements are vulnerable to political machinations. Global wheat prices jumped 5% after Moscow declared its intention to withdraw. It could use this lever again, and most likely will – particularly during any future peace negotiations – leaving Ukrainian wheat exports insecure.

Egypt avoids bread shortages and price increases – but is vulnerable to further shocks

For Egypt, reliant on just two suppliers for most of its foodstuff imports, the war has revealed just how exposed it is to food supply shocks. Over the last five years, 82% (63m tonnes) of the country’s wheat has been shipped from Ukraine and Russia. Following the outbreak of war, some 22% of Egypt’s supplies were lost.

Cairo’s dependency on food imports from a narrow set of suppliers means it has no choice but to conduct a delicate balancing act between politics and achieving food security. Following the onset of war, Minister of Supply and International Trade Ali Moselhy began taking steps to diversify Egypt’s portfolio of wheat importers, and in so doing has managed to navigate this year’s supply shocks.

In addition to making new import agreements with countries such as Romania and Australia, last June the minister agreed Egypt’s first wheat deal with India, although New Delhi’s protectionist wheat export policies have hampered efforts to make it a significant supplier: the current deal is for just 180,000 tonnes. Egypt’s grain reserves were also bolstered in the short term by a government move to ban the export of domestically grown wheat and purchase this year’s 4.2m-tonne harvest from local farmers.

The steps taken by Cairo since the war began have prevented bread shortages in the immediate term but only partially filled the supply gap left by Ukraine. In early December, the Egyptian government announced that it had secured sufficient wheat reserves to meet approximately five months of demand – half the stocks it held prior to the Russian invasion. Any future temporary disruptions to its supply chains will quickly eat into these reserves.

Unless Cairo can ensure a more diverse and reliable supply of wheat Egypt will remain exposed to market volatility in both the availability and affordability of wheat stocks. Any future increases in wheat prices, such as those experienced after Russia froze the Black Sea Deal, will put further strain on Egypt’s external finances at a time when its fiscal position is already precarious. At present, the country is at risk of defaulting on its $83bn foreign debt, particularly following the lower-than-expected IMF loan ($3bn) agreed in October 2022, which has left the state with a $16bn funding gap to plug over the next four years. The current political climate, which frustrates Egypt’s ability to meet the conditions of its loan, is also far from secure.

All this could seriously compromise the government’s ability to maintain its bread subsidies programme. The scheme currently provides for approximately 70% of Egypt’s population. This year it was expanded by EGP3bn ($121.8m). If the financial cost becomes too great for the government to bear alone it will have to reassess – which will lead to social unrest.

Egypt needs nimble food import policies and a plan for sustainable agriculture

Egypt’s food security has been severely compromised by the war in Ukraine and it will remain vulnerable for as long as the conflict continues. By developing a more diverse and reliable portfolio of importers Cairo can secure Egypt’s wheat supplies and, by extension, ensure socio-economic and political stability. However, to ensure food security in the long-term, the government must also turn its attention to developing the domestic agricultural sector. This is no small challenge considering the country’s financial difficulties, but it is also an opportunity to develop a more self-sufficient, diversified economy.

Egypt has already taken some steps to increase agricultural production. Over the last two years it has cleared 2.5% of its forested regions to make way for more arable land, according to the OECD. Yet irrigating land acquired for agricultural expansion is problematic: the country faces acute water scarcity, relying on only 560 cu metres of water per capita, per year. The UN defines “absolute water scarcity” as anything less than 500 cu metres per capita, per year. And while Cairo commissioned 17 new desalination plants last year, these were not developed to service new arable areas but to meet water needs compromised by the Grand Ethiopian Renaissance Dam (GERD), alongside a growing population.

In order to expand its agricultural sector, Egypt must first further develop its capacity for desalination, reform agricultural irrigation practices, and negotiate with Ethiopia for real-time data sharing on water availability in the GERD. This would allow both countries to better manage water demand and supply.

[1] The wheat marketing year runs from July 1 to June 30