Egypt’s descent into turmoil was something I understood to be coming and I summarized my thinking over the last two years in Egyptian Crash: My Crystal Ball Was Clear.
The weather events of the last two days, writings from other analysts, and some old news that I dug up permit a more complete picture of what will happen in Egypt in the future.
That prognosis is truly grim, and it applies to a degree to any wheat importing nation.
There are several forces at work that are driving the current turmoil in Egypt, and they should be understood as global forces. They were at work in Tunisia, they are currently affecting Jordan, Yemen, and Syria, and they will become more severe.
Russian fires in the summer of 2010 cost 20% of their crops and resulted in an embargo, which impacted global wheat pricing and supplies. Wheat in Pakistan is a winter crop, but the floods in the summer of 2010 cost them much of the summer staple and cash crops such as rice and cotton, creating an overall food stress on the country. Officials declared that those in distress should not have to fast from sunrise to sunset during the month of Ramadan.
The massive winter storm that struck the United States from Maine to New Mexico has likely affected the U.S. winter wheat crop. News from Australia is mixed, with the recent flooding and this weeks typhoon causing massive damage, but exciting farmers as eastern reservoirs have filled. However the bulk of wheat production is in the west and drought conditions still hold there.
The Federal Reserve’s Quantive Easing II (dollar devaluation) is driving price increases for all commodities. Grains were already rising in value due to scarcity.
"Countries are hoarding grain supplies right now because they don't want to see what's happening in Egypt happen to them," said Phil Flynn, senior market analyst for commodities trader PFG Best in Chicago. - Egypt’s Unrest May Have Roots In Fed’s Quantive Easing
Egypt has a population of over 80 million and the annual gross domestic product of just $500 billion. Half of the population lives on $2 a day and subsidized bread is a large part of their diet. Fully 11% of government revenues come from the shipping industry and I explored the particulars in Holding Suez Hostage.
Disruption of canal operations are unlikely, despite the eye catching title I chose for that piece. Declining revenues however are a future. Some numbers cited for the canal indicate 35,000 ships a year, others indicate 21,000, and recent direct statements from officials involved in the operation indicate that the norm of “forty to fifty ships a day” continue to pass without incident. - just 12,000 to 15,000 vessels at an annualized rate. The Baltic Dry Index, a measure of global freighter costs, is also something of a proxy for canal traffic, albeit an imperfect one as discounts become very deep before ships are simply idled. Even so the downward trend is clearly seen in the annualized graphs available in that Bloomberg report.
Egypt has been a minor oil exporter, but this detailed 1,400 word write up at The Oil Drum entitled What’s Behind Egypt’s Problems does a fine job of exploring their transition from a net exporter to a net importer. The effects of this relatively common event for oil producing countries is known as the Export Land Model, a concept popularized by petroleum geologist Jeffrey Brown. This first graph, lifted from the ELM Wikipedia article, happens to cover Egypt’s 32% export decline from 2006-2007, and the second, taken from The Oil Drum, details a further 29% slide in 2009.
Egypt imports 50% of its grain needs now and domestic self sufficiency is set for a precipitous decline.
A rice export ban had been put in place in 2009 after the near chaos from high oil and commodity prices in 2008. Egypt has restricted domestic rice production, a decision driven by the water demands of the dry highland nations where the Nile originates.
60% of Egyptian food production happens in the Nile delta. The area faces salt water intrusion due to rising sea levels. The delta itself is sinking due to the Aswan dam, which now traps sediment that formerly added to the delta during the famous annual floods.
Reporting on the politics of the situation are obscured here in the U.S. by our poorly run mainstream media coupled with the urge to see the world through the lens provided by the end of days myth and anti-Muslim bigotry.
Bryan Katulis of the Center for American Progress provides this detailed set of observations and recommendations regarding U.S. foreign policy in Egypt. This piece cuts through the chatter of TV sound bites and is worth a careful read.
Despite the hopeful, forwarding looking recommendations of Mr. Katulis regarding domestic Egyptian politics and the assistance the United States should render the long term trends are clear; the Egyptians are trapped by energy, economy, and environment. And not all of them will escape the predicament alive.
The world should prepare in general for the events currently afflicting Egypt to play out again in many of the dryland wheat importers. Tunisia preceded it, Syria is already making moves to limit outside communication, and our sources in Jordan indicate things are about to go sideways there, too, despite the recent reform announcements by the king.
Egypt in particular requires careful handling due to its stewardship of the Suez Canal and its shared border with Israel. The United States needs a rational policy here, not one driven by domestic religious fanaticism, anti-Muslim bigotry, and a desire to trigger some mythic 'final battle'.