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Already struggling Middle Eastern countries fear price hikes after Russia pulls out of grains deal

CAIRO (AP) — Ahmed Salah became anxious when he heard the news that Russia had suspended a crucial wartime grain deal. The owner of a bakery in the Egyptian capital worries that global food prices will skyrocket.

“There may not be an immediate impact,” the 52-year-old said last week as he supervised workers baking bread at his shop in Cairo, “but if they don’t find a solution as soon as possible, things will be very difficult. ”.

Russia withdrew from the UN-Turkey-brokered deal to allow grain from Ukraine to flow during a global food crisis. He helped stabilize food prices spiked last year after Russia invaded the Ukraine, two countries that are main suppliers of wheatbarley, sunflower oil and other foods to developing countries.

Egypt, the world’s biggest importer of wheat, and other low-income countries in the Middle East, such as Lebanon and Pakistan, worry about what comes next. struggling with financial problems that have pushed more people into poverty, they fear rising food prices it could create even more pain for households, businesses, and government bottom lines.

Many have diversified their sources from wheat, the main ingredient in flatbread that is a staple of diets in many Middle Eastern countries, and expect no shortage. Pakistan has even seen a bumper crop despite unprecedented flooding last year.

But the end of the grain deal is creating uncertainty about rising prices, a major driver of hunger.

It is “an unnecessary shock to the 345 million acutely food insecure people around the world,” said Abeer Etefa, a spokeswoman for the UN World Food Programme.

Russia has also launched Attacks on Ukrainian ports and agricultural infrastructure. following the collapse of the agreement, which led to world wheat prices zigzagging. Despite volatility, costs are below what they were before Russia invaded Ukraineand there is enough production to meet global demand, said Joseph Glauber, a senior fellow at the International Food Policy Research Institute.

But for low-income countries like war torn yemen or Lebanon which are big importers of wheat, finding suppliers further away will add costs, he said. Besides, his currencies have weakened against the US dollar, which is used to buy grain on world markets.

“It’s one of the reasons you see food price inflation persist in many countries, because even though the world prices I mentioned are at pre-war levels, that’s in dollars. And if you put it in, say, the Egyptian pound, you’ll see that Egyptian wheat prices have actually gone up,” said Glauber, a former chief economist at the US Department of Agriculture.

“They are certainly as high as they were during the high points of 2022,” he said.

This increases the pressure on governments, which will have to pay more to continue to subsidize bread at the same level and avoid raising costs for households, he said. With many also seeing their foreign currency reserves dwindle, it could put countries in the Middle East and elsewhere in a more precarious financial situation.

Salah, the owner of the bakery, fears that if wheat prices rise, the government of Egyptian President Abdel Fattah el-Sissi could hit back. rising bread prices.

“Such a move would come at a high cost to ordinary people,” he said.

El-Sissi and other leaders expressed concern about rising food prices in a summit hosted by Russia for African nations last week. He called for reviving the Black Sea deal through an “agreed solution” that takes into account “the demands and interests of all parties and puts an end to the continuous rise in grain prices.”

Homegrown cereals do not meet even half of Egypt’s demand, especially wheat and corn. It buys more than 10 million tons of wheat, mainly from Russia and the Ukraine, and it is expected to increase.

Local wheat production is expected to remain at 9.8 million tons while consumption increases 2% to 20.5 million tons in 2023-2024, according to an April USDA report.

However, the government said the impact of the end of the grain deal is minimal so far. Supply Minister Ali Moselhi said last week that Egypt had diversified its sources of imported wheat and that its reserve would cover the country’s needs for five months.

Its wheat purchases from Ukraine have fallen 73.6% over the 2021-2022 period as Egypt turned to other sources, the USDA said.

Any increase in wheat prices would further strain Egypt’s economy, which has struggled from decades of mismanagement and external shocks such as the COVID-19 pandemic and the war in Ukraine. That could force the government to cut unsubsidized spending and increase inflation, Capital Economics said.

Food costs are already fueling a cost-of-living crisis. annual inflation hit a record 36.8% in Junewith food prices skyrocketing by 64.9%.

In Lebanon, the collapse of the grain deal could be an additional hurdle as the tiny Mediterranean country depends on Ukraine for at least 90% of its wheat, flour millers say.

The agreement helped resolve Shortage of supply that shocked the market. during the start of the war, which led to large bread lines and rationing. Acting Economy Minister Amin Salam said any negative impact on wheat prices following the collapse of the deal will “certainly” affect prices in the country.

The country of some 6 million is in the the agony of an economic crisis that has impoverished three quarters of its population. Its main wheat storage silos were destroyed in the Explosion in the port of Beirut in 2020, so its grain reserves are entirely in the storage of private mills.

“We currently have two months’ worth of wheat in stock, and we have a month’s worth on the way,” said Wael Shabarek, owner of Shahba Mills. “While I expect a price increase, it will not be the same as before, like the beginning of the war, when it was a complete shock to us.”

Yet Lebanon’s economy continues to contract, its currency has lost 90% of its value since 2019, and the World Food Program says local food prices are among the highest in the world.

Meanwhile, Pakistan is a bright spot. It was a major importer of Ukrainian wheat, but this year it had the highest domestic production in a decade despite disastrous floods in 2022. The bumper crop is attributed to seed supplies and other support to farmers.

The government keeps asking grain deal restoration to ensure global food security and avoid rising prices. Pakistan, whose battered economy is receiving a $3 billion investment International Monetary Fund bailoutit was hit hard when food prices rose after the invasion of Russia.

“The Ukraine conflict has also brought difficulties for developing countries and the Global South, particularly in terms of fuel, food and fertilizer shortages. Pakistan is no exception,” Foreign Minister Bilawal Bhutto Zardari said.


AP reporters Kareem Chehayeb in Beirut; Munir Ahmed in Islamabad, Pakistan; and Courtney Bonnell in London contributed.

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