Lebanese farmers harvest wheat at a field in the area of Wadi Khaled in north Lebanon. Joseph Eid / AFP Photo
Lebanese farmers harvest wheat at a field in the area of Wadi Khaled in north Lebanon. Joseph Eid / AFP Photo

Arab nations face growing crisis in trying to keep down price of bread



TUNIS // In the days after Tunisia's January revolution, with food lorries paralysed by mounting insecurity, Mourad Ouenniche ran out of flour.

"We tried to explain the situation to customers," said Mr Ouenniche, whose bakery in a working-class district was mobbed by hungry neighbours. "But they just cried that their children needed bread."

Today Mr Ouenniche is back in business. But his scare in January mirrors a deeper problem facing Arab countries that depend on wheat imports to feed growing populations.

For decades they have used export revenues from other products to import grain and cover food subsidies. But analysts say that the model will not be sustainable and has been a cause of the recent violence across the Arab world.

"It may make economic sense, but the trade-based approach also carries risks," said Jane Harrigan, an economics professor at the School of Oriental and African Studies in London. "No matter how many exports you have, you could still be subject to supply-side shocks."

The price of wheat has nearly doubled since last year following a summer drought in Russia, a major exporter. Last month, it jumped 17 per cent in one week because of a dry spell in Europe and wet weather in the US, where rain might have interfered with planting.

Those higher prices squeeze budgets in many Arab countries.

In Tunisia, "wheat imports weigh heavily on the budget", said Assia Boussen, the director of procurement at the country's state grain importer.

Last year, Tunisia forked out Dh1.1 billion for nearly 1.5m tonnes of wheat, and there have been no plans to reduce wheat imports this year, Mrs Boussen said.

The Middle East and North Africa were the breadbaskets of the ancient world. Wheat was first cultivated thousands of years ago in the Fertile Crescent; later, Tunisia was called the "granary of Rome".

Today, however, the region's population has outstripped its capacity to produce food. Arab nations are the world's largest net grain importers, said the World Bank in a report in 2009, and their reliance on food imports has been projected to rise by 64 per cent in the next 20 years.

The imports accelerated in the 1970s, when a hike in oil prices caused incomes to rise in some Arab countries amid rapid population growth.

Tunisia has subsidised wheat since gaining independence from France in 1956. Today Tunisians lead the world in per capita wheat consumption, with 216.82kg per person a year, according to the Food and Agriculture Organisation of the United Nations.

Mr Ouenniche grew up making baguettes with his father in Bab Souika, a ramshackle quarter of Tunis centred on a square where a gate of the medieval city once stood. He opened his own bakery in 1982.

Every day, wholesalers' vans unload 1,700 kilos of flour in waist-high sacks. The flour goes into a pair of vast mixing bowls with salt, water, yeast and enzymes. It is spun into dough by electric mixers.

Workers roll the dough into baguettes, let them rise, then slide them into a gas oven with long wooden paddles.

"I feel secure as a baker," said Mr Ouenniche, who sells hundreds of baguettes daily, warm from the oven and wrapped in paper. At a fixed price of 0.2 Tunisian dinars per baguette, "even people who have no work can afford bread".

Analysts, however, have said that larger problems loom as Mena countries' finances will be squeezed by rising wheat prices, growing populations and dwindling water supplies.

When global financial turmoil in 2007 and 2008 sent food prices skyward, the poor got poorer and violence broke out over the socio-economic malaise in several Arab countries.

In Arab societies, many people spend a large percentage of their income on food, Professor Harrigan said, so that "increase in food prices has a direct impact on living standards, including among the middle classes and in gulf countries".

In late 2010 and early 2011, discontent over food prices and unemployment coupled with political grievances to produce the waves of protest and revolt in Arab countries, Prof Harrigan said.

In response, some beleaguered governments have ramped up subsidies "despite broad evidence that subsidies strain public finances, distort markets and provide only a blunt tool in the fight against poverty", said Clemens Breisinger, a development analyst at the International Food Policy Research Institute (IFPRI), a think tank in Washington.

In some cases, such measures have also failed to appease those bent on revolution. Tunisia's former president, Zine El Abidine Ben Ali, cut baguette prices by 5 per cent days before he was toppled in January.

Algeria hurriedly reversed food price hikes that sparked riots in January, but has since resorted to massive police deployments to smother continuing protests.

In recent years Jordan, Bahrain and the UAE have bought land in sub-Saharan countries for agriculture, Professor Harrigan said. But financial belt-tightening will also be needed.

"Subsidies should target the poor, or be replaced by food-for-work programmes and direct cash transfers," she said. "Financial strain will become a big issue in the next few years."

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The two riders are among several riders in the UAE to receive the top payment of £10,000 under the Thank You Fund of £16 million (Dh80m), which was announced in conjunction with Deliveroo's £8 billion (Dh40bn) stock market listing earlier this year.

The £10,000 (Dh50,000) payment is made to those riders who have completed the highest number of orders in each market.

There are also riders who will receive payments of £1,000 (Dh5,000) and £500 (Dh2,500).

All riders who have worked with Deliveroo for at least one year and completed 2,000 orders will receive £200 (Dh1,000), the company said when it announced the scheme.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”