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Prices in crisis
Published in Al-Ahram Weekly on 13 - 09 - 2007

The government is rushing to control spiralling market prices, but Mona El-Fiqi finds out that experts and consumers are doubtful of this strategy's success
During the past few weeks, consumers were shocked by soaring price hikes on basic commodities such as bread, cooking oil, macaroni, tea, milk, cheese, sugar, butter, soft drinks, eggs, vegetables, meat, fruits and chicken. "The prices of everything at this store were raised without justified reasons," pointed out Osama Sayed, manager of a supermarket in Nasr City. Sayed's theory is that the greedy traders are hoarding commodities to raise and manipulate prices. "I am doing my best to look for other sources and selling products at reasonable prices to maintain the trust of our clients. Otherwise, this continuous increase in prices may badly affect our business."
According to this supermarket manager, prices have gone up between 10 and 25 per cent. For example, the price of butter rose from LE18 to LE22 per kilo; milk from LE4.75 to LE5.5 per litre; a 500gm packet of locally produced macaroni from LE2.20 to LE2.90.
The timing of the price hikes is particularly crippling because it coincides with the beginning of the school year, when families are stretching their budgets to pay for uniforms, books and stationery, in addition to tuition fees. While the burden of higher food prices weighs heavily on many households, it is particularly difficult on low income families. "What is happening is unbearable," protested Samiha Ali, a housewife and mother of two. "Prices are rising in a way we cannot afford." Ali's family of four mostly ate beans, potatoes and bread during the month on her husband's salary of LE600. "But because of the price increases of cooking oil, beans and potatoes we are no longer able to afford them. What are we supposed to eat?" she wondered in frustration.
In response to the public outcry over inflated prices, Prime Minister Ahmed Nazif's cabinet decided last week to raise the budget allocated for subsidies from LE9.7 billion to LE14.4 billion for fiscal year 2007/2008. The decision aims at alleviating the burden on consumers, and will soon be submitted for approval by the People's Assembly.
The extra LE4.7 billion will subsidise essential foodstuffs, particularly wheat which witnessed a high price jump in international markets two months ago. Officials further explained that subsidies will also extend to traditional baladi bread, an indispensable staple food for most, which will be sold at the same price and of good quality.
Moreover, Minister of Trade and Industry Rachid Mohamed Rachid announced last week that the government will subsidise the cost of white feno bread, commonly used to make sandwiches for schoolchildren. A loaf of bread would weigh 90gm and cost PT10.
Farag Wahba, chairman of the Bakery Owners Division at the Egyptian Federation of Chambers of Commerce (EFCC), said that bakeries are challenged by the difficult problem of hikes in wheat prices. An ardabb (a dry measure of weight) of Egyptian wheat has gone up from LE180 to LE220, while imported wheat rose from LE180 to LE300 per ardabb. Consumers felt this notable price rise because Egypt imports 50 per cent of its annual wheat consumption, added Wahba.
But Wahba also blames consumers for buying more than their need of bread and causing unnecessary shortages, while families in villages stopped baking their own bread and now rely on buying the subsidised staple food. As a result, the price of a regular baladi loaf weighing 70gm stands at PT25, while a subsidised loaf weighs 130gm and is sold for PT5. Naturally, it has become commonplace to see long queues outside bakeries selling subsidised bread.
Experts believe the reasons for spiralling prices are many, and that measures taken by the government to tackle are insufficient. Hamdi Abdel-Azim, professor of economics and former chairman of Al-Sadat Academy for Administrative Sciences, argued that the primary reason is shortages in the local production of essential ingredients, such as wheat. "Egypt's self-sufficiency in foodstuffs is very limited, ranging between 30 to 50 per cent," stated Abdel-Azim. Therefore, a notable increase in international prices causes a problem in local markets. Since the government is unable to bridge the price gap completely, consumers continue to feel the price pinch.
A second reason, according to Abdel-Azim, is the absence of government control and supervision over the market, which is left to the dynamics of supply and demand. "Thus, there are obvious monopolies of some products such as sugar, cement and steel," explained the expert. "Consumers feel the market is chaotic, especially because the performance of the newly established Consumer Protection Authority [CPA] is weak."
In its defence, officials claim the CPA is currently understaffed to do a good job in controlling the market and protecting consumer rights.
Other reasons cited by Abdel-Azim include the large number of Arab tourists and Egyptian expatriates visiting the country during the summer, as well as illegal price manipulation by some traders.
As a short-term remedy for recurring price problems, Abdel-Azim suggested that the government continue to raise subsidies of essential products, such as foodstuffs and medicine. The government should also reduce custom duties on imported foodstuffs such as milk and flour, as well as pharmaceuticals.
Moreover, government cooperatives should be more active in balancing out market prices, since they "have the privilege of selling directly to consumers without mediators who cost a lot in a product's final price," he explained.
In the long term, local agricultural and industrial production should be raised in the coming years to cover local needs, Abdel-Azim proposed.


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