Social Unrest Rises With Food Prices
Here’s a helpful reminder as we begin the week: Out of every $100 Uncle Sam spends, 52 cents buys this:
Every year, Washington sends $2 billion in aid to the regime of Hosni Mubarak; $1.3 billion of that is for his military. Egypt is the No. 2 recipient of foreign aid, after Israel. Right now, the return on investment doesn’t look very good.
Rising food prices were the catalyst that set off long-simmering anger over repression and corruption. But what exactly set off the food prices?
“I believe this depicts a major aspect of Egypt’s problem,” says Outstanding Investments editor Byron King of the graph below:
“As of 2010, Egypt began consuming all the oil that it extracts. Egypt no longer exports oil. Interesting timing for social unrest, don’t you think?
“Here’s what the numbers show. Egypt’s net oil exports have been falling each year since the mid-1990s. So for the past 15 years or so, Egypt’s government has been raising less and less income with which to offer food and fuel subsidies to the teeming masses in the country’s expansive slums.”
Without those subsidies, huge numbers of people in Egypt – population 85 million – would not eat. As we mentioned last week, Egypt is the world’s biggest wheat importer.
“In the past few years,” Byron continues, “Egypt has imported about 40% of its food overall and 60% of its wheat. Egypt buys the food on world markets, paying world prices.
“In the past year or so, as net oil exports shifted down to zero, the food problem became even worse for Egypt. World wheat production is down, and global export markets are tightening.” You know the story: drought in Russia, floods in Australia and so on. And at the very moment Egypt has less oil revenue, it’s shelling out more for food. And the subsidies go only so far.
“The bottom line is that energy is a problem for Egypt, compounded by revenue shortfalls, compounded by large and growing population, compounded by the need for food imports.
“It’s an explosive mix, and now the fuse has burnt down. I don’t doubt that this all is why we’re seeing riots in the streets.”