According to experts, the main reason behind this hike in vegetable and fruit prices is a shortage of supply resulting from a long hot summer which damaged the harvests of many crops. Nader Noureddin, professor of agricultural resources at Cairo University, said that due to high temperatures, the productivity of a feddan of tomatoes has fallen from an average of 50 tonnes to just five. Results included a drop in supply during two simultaneous seasons characterised by high demand, namely the holy month of Ramadan and the beginning of a new school year.
Experts have also blamed the government for not taking action to help farmers reduce their losses. Noureddin said that changes in weather patterns are forecast five days in advance, giving Ministry of Agriculture officials enough time to inform farmers of steps to take during such emergencies and to help minimise damages to the harvest. "If the agricultural advisors at the ministry had done their homework in time, losses would have been cut by 75 per cent," Noureddin added. The professor also believes that the government should consider increasing the currently minimal budget the Ministry of Agriculture allocates for scientific research.
Meanwhile, head of the Agricultural Production Committee at the Shura Council Hussein Mohamed Hegazi agreed that the Ministry of Agriculture is to blame for high vegetable and fruit prices, though for different reasons. Hegazi explained that the high prices of inputs such as seeds and fertilisers discourage farmers from cultivating vegetables to begin with.
According to Hegazi, the ministry should provide seeds and fertilisers at reasonable prices to encourage farmers to grow vegetables. He went on to say that farmers themselves have not benefited from price hikes, but rather that it is the middlemen who purchase harvests from farmers and wholesalers who end up making large profits in such situations.
Further, Hegazi said the government should reconsider its policy towards the agricultural sector. "It is better to subsidise farmers to help increase the cultivated lands and raise productivity, than to depend on imports," he said, adding that this is particularly important for strategic crops. "The ministry should make a plan to determine which areas are to be cultivated with what product, depending on the types of land and product consumption," Hegazi added.
On the whole, experts are dissatisfied with the marketing process of vegetables and fruits, whose poor organisation is causing price hikes. Hegazi said the government should allow agricultural cooperatives to play an active role in marketing the harvest, and meanwhile limit the role played by the private sector, if it wishes to minimise shelf prices for the benefit of consumers.
Experts also recommend boosting investments in the agricultural sector, to help increase production and cut prices. Hegazi believes the government should provide incentives to investors to start up new agricultural projects. It should also establish cattle farms to raise meat production, given that meat prices are rapidly rising.
Speaking to Al-Ahram Weekly, butcher Adbullah Ali said he has had to raise the cost of meat at his store as he is currently purchasing cows and buffaloes at high prices. "I used to buy a cow at LE6,000 to LE7,000 but now the price is between LE10,000 and LE15,000," he said. "Consumers refuse to buy meat at high prices. We are facing a clear state of recession," Ali added.
In an attempt to reduce meat and poultry prices which, according to the Central Bank of Egypt (CBE), have each risen by 40 and 25 per cent respectively in 2010, the CBE decided on 2 October to exclude meat and poultry importers from having to provide a cash cover in banks for their imports. Officials said they hope that by reducing the cost of financing for importers, the decision will ultimately result in reducing meat and poultry prices for consumers.
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The article describes the causes and effects of the October 2010 food crisis in Egypt. Shortage of supply of fruits and vegetables due to a long hot summer damaged the harvests of many crops while experts have also blamed the government for not warning the farmers about the bad weather, not providing enough subsidies to the farmers as well as marketing fruits and vegetables poorly. The article also offers prospective solutions which the government can implement.
Demand represents the quantities of a particular good or service that an individual consumer or a group of consumers is willing and able to buy, at various prices over a period of time, ceteris paribus. Supply represents the quantities of a particular good or service that a producer or supplier is willing and able to produce and sell, at various prices over a period of time, ceteris paribus. When demand and supply are equal to each other, the economy is said to be in equilibrium. When the quantity demanded is not equal to the quantity supplied, the economy is said to be in disequilibrium.
Figure 1
Figure 1 illustrates how prices of meat are increasing and their effects.
The original equilibrium is in green, when quantity of meat supplied is indicated by Q1 - 1kg,and price is indicated by P1 - LE45. Supply curve S1 is seen shifting to the left, to S2 due to the fact that butchers are unable to produce much due to a shortage of cows. This causes the equilibrium to shift, and price to increase from P1 to P2 and quantity to decrease from Q1 to Q2, which can be seen in blue. However, the market price of meat is set at P3 instead, which is in red.
At price P3, the quantity of meat the butchers wish to supply is indicated by Q3. However, at P3, the quantity the consumers are able to buy is at Q4, which is lesser than Q3. Hence, too much meat is being produced while the consumption is comparatively lesser. This excess supply is known as producer surplus and can be seen in the yellow area of Figure 1. The butchers are trying to sell meat at this price in order to increase profits, but the consumers find meat “less attractive”, and therefore buy less.
The reason why butchers have to increase profits and supply meat at this high price is because cows (cost of production) have almost doubled in prices, from an average of LE6500 to and average of LE12500.
Price hikes in fruits and vegetables also affects both producers and consumers alike and in my opinion government intervention will be the most effective way to tackle this problem and control prices. The government should set up various price ceilings for the different foods as a method of price control. The objective of a price ceiling is to stop prices from increasing too greatly as the supplier/producer cannot sell the good at a price greater than the ceiling, which is the maximum price. The price ceiling should be set reasonably and in the case of meat, it could be set at LE60 per kg.
The benefit of this application mainly benefits the consumer since they have peace of mind that they would be able to buy meat and in the long run and short run, since prices can only increase so much and they will not have to worry about not being able to afford it. A consequence of implementing a price ceiling is that if the demand is high then a shortage is possible, however it is unlikely that it will lead to greater problems like illegal underground markets for meat etc.
What this solution fails to do is to benefit the suppliers/producers hence a second intervention by the government will be needed. In the case of agriculture, difficulties that farmers faced were high temperatures, high prices of seeds and unavailability of fertilizers. Firstly, the government can provide subsidies for seeds, fertilizers and other raw materials to farmers which will directly raise the productivity and harvest of cultivated lands. Secondly, from an entrepreneurial scope, the government can provide agricultural firms with technology and can handle nationwide marketing which will not only draw interest and provide incentives to investors to set up new agricultural projects but also limit the role played by the private sector thereby controlling prices.
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