Even Islamists have to eat. It is unclear whether President Hosni Mubarak of
Egypt is the world's largest wheat importer, beholden to foreign providers for nearly half its total food consumption. Half of Egyptians live on less than $2 a day. Food comprises almost half the country's consumer price index, and much more than half of spending for the poorer half of the country. This will get worse, not better.
Not the destitute, to be sure, but the aspiring and frustrated young, confronted the riot police and army on the streets of Egyptian cities last week. The uprising in
Nine out of ten Egyptian women suffer genital mutilation. US President Barack Obama said Jan. 29, "The right to peaceful assembly and association, the right to free speech, and the ability to determine their own destiny … are human rights. And the
In fact, the vast majority of Egyptians has practiced civil disobedience against the Mubarak regime for years. The Mubarak government announced a "complete" ban on genital mutilation in 2007, the second time it has done so - without success, for the Egyptian population ignored the enlightened pronouncements of its government. Do Western liberals cheer at this quiet revolt against Mubarak's authority?
Suzanne Mubarak, Egypt's First Lady, continues to campaign against the practice, which she has denounced as "physical and psychological violence against children." Last May 1, she appeared at
The most authoritative Egyptian Muslim scholars continue to recommend genital mutilation. Writing on the web site IslamOnline, Sheikh Yusuf al-Qaradawi - the president of the International Association of Muslim Scholars - explains:
What does that say about the character of the country's middle class? Only one news dispatch among the tens of thousands occasioned by the uprising mentions the subject; the New York Times, with its inimitable capacity to obscure content, wrote on January 27, "To the extent that Mr. Mubarak has been willing to tolerate reforms, the cable said, it has been in areas not related to public security or stability.
For example, he has given his wife latitude to campaign for women's rights and against practices like female genital mutilation and child labor, which are sanctioned by some conservative Islamic groups." The authors, Mark Landler and Andrew Lehren, do not mention that 90% or more of Egyptian women have been so mutilated. What does a country have to do to shock the New York Times? Eat babies boiled?
Young Tunisians and Egyptians want jobs. But (via Brian Murphy at the Associated Press on January 29) "many people have degrees but they do not have the skill set," Masood Ahmed, director of the Middle East and Asia department of the International Monetary Fund, said earlier this week. "The scarce resource is talent," agreed Omar Alghanim, a prominent Gulf businessman. The employment pool available in the region "is not at all what's needed in the global economy." For more on this see my January 19 essay, Tunisia's lost generation. There are millions of highly-qualified, skilled and enterprising Arabs, but most of them are working in the
Wheat prices 101 and Egyptian instability
In this case, Asian demand has priced food staples out of the Arab budget. As prosperous Asians consume more protein, global demand for grain increases sharply (seven pounds of grain produce one pound of beef). Asians are rich enough, moreover, to pay a much higher price for food whenever prices spike due to temporary supply disruptions, as at the moment.
Egyptians, Jordanians, Tunisians and Yemenis are not. Episodes of privation and even hunger will become more common. The miserable economic performance of all the Arab states, chronicled in the United Nations' Arab Development Reports, has left a large number of Arabs so far behind that they cannot buffer their budget against food price fluctuations.
Earlier this year, after drought prompted
The trouble isn't long-term food price inflation: wheat has long been one of the world's bargains. The International Monetary Fund's global consumer price index quadrupled in between 1980 and 2010, while the price of wheat, even after the price spike of 2010, only doubled in price. What hurts the poorest countries, though, isn't the long-term price trend, though, but the volatility.
People have drowned in rivers with an average depth of two feet. It turns out that China, not the United States or Israel, presents an existential threat to the Arab world, and through no fault of its own: rising incomes have gentrified the Asian diet, and - more importantly - insulated Asian budgets from food price fluctuations. Economists call this "price elasticity." Americans, for example, will buy the same amount of milk even if the price doubles, although they will stop buying fast food if hamburger prices double. Asians now are wealthy enough to buy all the grain they want.
If wheat output falls, for example, due to drought in
That is why the volatility of the wheat price (the rolling standard deviation of percentage changes in the price over twelve months) has trended up from about 5% during the 1980s and 1990s to about 15% today. This means that there is a roughly two-thirds likelihood that the monthly change in the wheat price will be less than 15%.
It also means that every so often the wheat price is likely to go through the ceiling, as it did during the past 12 months. To make life intolerable for the Arab poor, the price of wheat does not have to remain high indefinitely; it only has to trade out of their reach once every few years.
And that is precisely what has happened during the past few years:
After 30 years of stability, the price of wheat has had two spikes into the $9 per bushel range at which very poor people begin to go hungry. The problem isn't production. Wheat production has risen steadily - very steadily in fact - and the volatility of global supply has been muted:
The line in Chart 3 above marked "production volatility" is the five-year standard deviation of annual percentage changes in world wheat supply (data from US Department of Agriculture). During the 1960s and 1970s, it hovered around the 3% to 5% range, but fell to the 1% to 3% range.
It shows an approximately two-thirds likelihood that world wheat supply will change by less than 3% each year. Wheat supply dropped by only 2.4% between 2009 and 2010 - and the wheat price doubled. That's because affluent Asians don't care what they pay for grain. Prices depend on what the last (or "marginal") purchaser is willing to pay for an item (what was the price of the last ticket on the last train out of
A number of economists anticipated the crisis. Reinhard Cluse of Union bank of
Do they want to pass on price rises to end consumers, which would reduce Egyptians' purchasing power and might lead to social discontent?
Or do they keep their regulation of prices tight and end up paying higher subsidies for food? In which case the problem would not go away but end up in the government budget.
Egypt's public debt is already high, at roughly 74% of gross domestic produce (GDP), according to UBS. Earlier this year the IMF projected that
Tensions over food have led to violence in bread queues before and it wouldn't take much of a price rise for the squeeze on many consumers to become unbearably tight."
It might have been the case that
The best thing the