Wednesday, February 9, 2011

The Spark That Lit Egypt

It is an explosive concoction that may ignite combustible conditions around the world.

Two hundred and nineteen thousand: That is how many more people need to be fed today. Tomorrow, the world will need to find food for another 219,000. Population growth, unsustainable farming methods and natural disasters are all taking their toll. But is there another, more sinister reason food prices are soaring?
When food prices rise in America, many people gripe and complain, but for the most part they make budget adjustments, go on food stamps, or otherwise cope. In much of the rest of the world, people don’t have such pleasant options.
In countries like Egypt, Ethiopia, Libya, Eritrea, Sudan and Iraq, the masses are already eating as inexpensively as they can.
Take Egypt, for example. Unemployment may officially be around 9 percent, but consider that one fifth of the population lives on less than $1 per day. People have jobs, but barely make enough money to eat. Conditions are worse in Ethiopia, Eritrea and other countries.
So as food prices rise—and they are soaring—fear can turn into panic, rage and extremism, literally overnight.
In America, people spend about 13 percent of their income on food. In Egypt, the average person spends a gargantuan 40 percent—which means that many people are spending even more than that.
In America, if food prices jump 20 percent (as they have over the last year in Egypt), that means that your food budget might go from 13 percent of disposable income to just over 15 percent—a rise of a little more than 2 percent. But for average Egyptians it means their food budget just went from 40 percent of income to 48 percent.
If it happens again next year, the effects are compounded. The fear and rage is compounded too.
It wouldn’t take long before a person was spending all his income on food alone, never mind shelter, clothing, transportation, etc. But as the world witnessed in Tunisia and Egypt, countries explode long before that point. Food riots can turn into revolutions.
And as the Middle East has proven over and over, it is the radical extremists that come out on top. The shah is replaced by the ayatollah. Lebanon moderates are replaced by Hezbollah. Gaza gets taken over by Hamas. And when Mubarak is forced out, it will be the Muslim Brotherhood’s opportunity.
In many parts of the Middle East, the food crisis is at least partially self-inflicted (if unwittingly).
The roots of Egypt’s food riots go back to 1956 when Gamal Nasser seized the Suez Canal from the British and French. At that time, he said the proceeds would be used to finance the construction of the giant Aswan Dam.
The Aswan Dam, one of the biggest hydroelectric engineering feats of all time, transformed Egypt into a Middle Eastern superpower—but in doing so, it altered one of the world’s most productive agricultural systems forever.
The massive lake created by the dam allowed Egypt to expand its agricultural production like never before. It turned whole swaths of desert into lush, irrigated farmland. Food harvests jumped. Electricity production allowed businesses and manufacturers to expand. Egyptian standards of living rose—and the population blossomed and bloomed.
Since the dam’s completion in 1976, Egypt’s population, which was already rising, has more than doubled, from 40 million to 83 million, making Egypt the most populous country in the Middle East.
But now Egypt has a problem: Its farming practices are destroying its soils.
The problem is twofold. First, irrigation causes salinization. The irrigation water from Aswan carries naturally dissolved minerals and salts. What water is not used by the plants evaporates, leaving the salts behind. Additionally, the mass irrigation efforts have raised groundwater levels, which in desert environments also salinizes the soil. Thirty-five years later, many Egyptian farms are becoming too salty to grow food crops.
The second problem is that the Nile River used to bring new soil and nutrients to Egypt’s farms with each flood season. After the Aswan Dam, floods ceased. Consequently, the soils in the previous flood zones have become less fertile each year. Now, massive amounts of expensive imported fertilizer is required to grow food.
Additionally, the previously super-fertile Goshen region of biblical fame is being depleted. Each year, hundreds of meters of Nile delta are being eroded, since silt is no longer deposited from Nile floods. Actually, very little water from the Nile actually makes it to the Mediterranean anymore. As fresh water levels drop in the Nile delta, and salty seawater intrusion levels rise, Egypt’s breadbasket is shrinking.
The result is that Egypt has become the largest importer of wheat in the world.
But part of Egypt’s food crisis has an origin outside of Egypt.
Back in 2005, with oil setting new all-time records above $50 per barrel, U.S. President George Bush began his Middle East democracy push (see Stephen Flurry’s February 4 column). At the same time, America began a food demand push too with its Energy Policy Act. America began a national program to turn food into fuel and begin mass ethanol production, even though the technology required massive taxpayer subsidies.
The Middle East might be able to blackmail the West with its oil, but America, the world’s biggest food exporter, was able to do the same to the Middle East by restricting wheat, corn and soybean supplies.
As more of America’s food acreage was diverted to produce corn for ethanol, less land was being used to produce food for export.
Unsurprisingly, America’s big ethanol/democracy push was a huge turning point for world food prices. Since 2005, corn prices have risen an astounding 139 percent! Wheat prices are up 100 percent. Soy beans are up over 90 percent. Barley has more than doubled. Sorghum has jumped 110 percent.
But if rising prices due to supply constraints wasn’t explosive enough, America’s weak-dollar policy threw fuel on the fire.
Since 2005, the U.S. dollar has devalued by 14 percent (as measured by the nybot U.S. dollar index). At one point in 2009, the dollar had fallen 20 percent. Since 2002 the dollar has lost more than a third of its value.
With the dollar plunging, everything from orange juice to sugar to oil (things priced in dollars) soared. Rising commodity prices, coupled with the Federal Reserve printing money to devalue the dollar, and the Fed’s willingness to lend money at near-zero percent interest rates, also fueled speculation, further increasing commodity prices.
The table was set for civil unrest and popular upheaval. The drought-induced crop failures in Russia and the droughts and floods in Australia last year only heightened the problem.
And it won’t just be Egypt that is affected. The whole region is desperately trying to cope with these same conditions to one degree or another. The Middle East food crisis is a tinderbox waiting for a spark.
Food shortages are the stuff of revolutions. Unfortunately, the history of the Middle East shows that, contrary to what President Bush might have hoped, moderate democracies do not result. Instead, it is the radical extremists that get power—and that is not good news for America or the little nation of Israel.