Running out of rice

A shortage of rice on the market has led to an unprecedented increase in prices and a crisis for exporters. Mona El-Fiqi investigates
Another blow to the rice market is a hard thing to deal with -- especially in a country whose primary activity is agriculture, whose number one export commodity -- by a sizeable margin -- is rice, and whose main aim is increasing exports. A blow to the rice market, therefore, is a matter of grave consequence.
The problem is that it is not, it seems, short-term. Rice millers, exporters, and in consequence consumers, are facing a bad season given the shortage.
"It is better to take some stock of rice because you will not find it in the markets," a shopkeeper advised a housewife buying five kilos of rice.
The result, as always, falls back on the price. Rice is one the nation's main food commodities, and a basic staple food of the nation's population, but rice prices have increased from LE0.9 to LE1.9 per kilo, with some of the more refined brands selling for LE2.2 per kilo in local supermarkets.
In recent months, consumers have faced 10 to 20 per cent price increases in all commodities ranging from tea packets to cars as a result of the Egyptian pound's devaluation against the dollar. Many of the goods are things they can do without, but when it comes to rice it is an entirely different story. The Egyptian consumer, it is common knowledge, can never stop buying rice. "It is too much," one housewife said. "I bought a 25-kilo packet at LE42, which I used to buy at LE28."
She was lucky, in a sense. Not everyone can afford the new sky-high rice prices. Macaroni, shoppers complained, would have to be their compromise.
Given its pivotal place in the nation's agricultural arena, it key place at Egyptian dining tables, and its strategic position amidst international food commodity markets, one would assume that the government has a well-defined strategy to capitalise on its weighty potential. Analysts, however, shake their heads in dismay at the lack of a clear government rice plan -- a need that only arises in the case of a crisis.
Market analysts say that the rice market is a chronic problem -- facing either too much harvest one season, or too little the next.
In the 1999/2000 season, for example, the rice crop was relatively small given the government's imposed plantation-area limitation -- a measure taken to conserve water. The prices, in consequence, were high.
Rice -- a major Egyptian summer crop occupying 10 per cent of Egypt's total crop area -- requires a special irrigation regime, with its cultivation being largely restricted to the northern part of the Delta. Given that irrigation water is provided free of charge, and rice returns are usually much higher relative to other summer crops, farmers tend to overstep government-set land-area boundaries for rice cultivation. In its effort to force farmers to commit to quality cultivation -- and hence water conservation -- it imposes fines of LE600 per feddan on those who violate their targeted areas.
The government, however, does try to satisfy farmers.
Following the dire 1999/2000 season, farmers saw a complete turn-around. In reaction to commitment from farmers, the plantation-area restrictions were removed, and planted areas were expanded extensively. Harvest doubled in 2000/2001, and supply, consequently, was almost one and half times that of the previous year.
The government was quick to set a non- obligatory price for the short grain at LE500 per ton, and LE430 for medium grain. The price was welcomed by the farmers and the door was opened for the sale of rice to the public sector mills in September 2000. Naturally, rice became widely available
on local markets during the entire season, with both the Holding Company for Food Industries (HCFI), and the private companies being able to export rice surplus. Average annual rice consumption for an individual is estimated to total slightly over 40 kilos.
The dividends on the more vibrant 2000/ 2001 season was the snatching by most rice exporters of contracts with Syria, Libya and some African countries -- a reflection not only of renewal, but also of the opening of new markets for Egyptian rice. Rice exports for that season were estimated at 755,000 tons -- a figure never previously achieved in the nation's rice history.
This year, however, the story is different.
Adel El-Shehawi, chairman of the HCFI, told Al-Ahram Weekly that the Ministry of Agriculture decided to buy the rice at last year's prices: LE500 for short grain per ton, and LE430 for medium grain.
At the start of the new season, October 2001, the public mills opened doors to buyers for the new harvest of rice.
El-Shehawi said that last October, 200,000 tons of rice were sold to the mills, but since November, the amount of rice delivered by farmers was reduced in tandem with the rise in price.
The holding company, however, decided to buy the rice at the government's price in an attempt to keep the prices moderate, El- Shehawi added. It was an effort made in vain, for November saw just 13,000 tons of rice being sold to the mills, after which farmers stopped selling their rice to them at all.
Since that period, the holding company has faced stormy waters given that it still needs an additional 100,000 tons to meet its exports commitments.
"To meet our commitments and keep our foreign markets, we will buy the rice at any price -- even if we make losses," El- Shehawi told the Weekly.
The country's aim is to increase its exports volume in an effort to gain foreign currency. "The Holding Company for Food Industries lost a contract to export 200,000 tons of rice to an African country due to the shortage and high prices of the rice in the market," El-Shehawi said.
El-Shehawi said that the company presented a memo to the Minister of Public Enterprise explaining the rice crisis and asking for permission to import rice to meet the company's commitments. This is a dire situation for such a large public company. For the private sector, the situation looks just as severe. Rice exporters complain, however, that it is even worse.
"We lost our foreign markets due to the rice shortage," said Ashraf El-Atal, chairman of Egyptian Traders Company (ETC), which exports rice.
Rice exporters are anticipating that the exports volume will drastically drop this year. El-Atal forecasts that it will not exceed 200,000 tons.
El-Shehawi said the cost price of a ton of white rice (processed rice, not a paddy rice) stood at $300 this week, while the international prices ranged from $200 to $250 per ton.
Last year, the price set by the government was considered fair for the farmers, but total cost price for exporters was higher than international prices. The government, in reaction, implemented a new rice subsidy programme in an attempt to encourage exports.
The programme saw the government paying an export subsidy of LE100 per ton of medium, round-grain varieties, and LE200 for long grain varieties. At present, it is unclear whether the government will renew the rice export subsidy this year. El- Shehawi said the situation is unclear given that the company had not been paid for its exports since November 2001.
Owing to the instability of rice prices, setting an export price is a sizeable obstacle for the nation's exporters.
"I can never decide a price when I get a rice export contract," El-Atal says. "So there should be a rice bourse to set a price close to the international prices in order to boost the exports."
Samir El-Nagari, deputy chairman of Fresh Fruit Company Egypt -- also a rice exporter -- said that the rice price, as with any other product, was controlled by supply and demand; not enough of the supply to meet the demand meant a price rise.
Local industry analysts report that wholesalers are carrying increased inventories in an effort to keep prices high. Wholesalers are also piling up on their stock in anticipation of another export subsidy programme for 2002. Consequently, local rice prices have increased from an average LE450 per ton during September 2001 to a present rate of LE950 per ton.
Rice exporters talked about an additional cause for the shortage, citing the misleading figures announced by the government concerning rice production. The government announced that production fell 400,000 tons short of last year's output, but El-Shehawi said the shortage was actually well over this figure.
"If there were accurate figures saying that the production is short we would have a chance to keep stock at the beginning of the season, when rice was available at LE500 per ton," he said. "That way we could have still fulfilled our commitments." He added that next year he intended to buy all the company's needs at the beginning of the season.
El-Nagari is also sceptical about the government's figures regarding harvest, productivity, consumption and the rice plantation area. He noted that according to data released by the Ministry of Agriculture, rice production this year will total 5.2 million tons, compared with 6 million tons last year.
El-Nagari blamed the government for not setting a clear strategy to boost rice exports and capitalise on its potentially competitive place amidst international markets.
To overcome the shortage in the markets, El-Shehawi suggested that the Ministry of Supply and Internal Trade should import rice to fulfil the local market needs. The imported shipments should be exempt from tariffs in order to allow their sale to consumers at LE1.5 per kilo.
By feeding the market with rice, he theorised, a consequent reduction in its price will occur, thereby obliging wholesalers -- who hog stocks of rice -- to put it on the markets for sale.
Whether or not his advice will be taken remains to be seen. In the meantime, an entire nation waits for an answer. Rice, after all, is considered the Egyptian populations' fuel of choice.
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