FEATURE: Middle East marks Eid holiday as food becomes more costly

The Middle East is celebrating the Eid holiday with food a centerpiece of many gatherings, but as Russia's war on Ukraine pushes prices higher for all kinds of basic ingredients, the gatherings this year will pack a wallop on family budget, and have governments nervously eyeing their economies.

The Eid holiday marks the end of the Ramadan fasting month for Muslims and is marked by family gatherings and large meals.

Prices for Russian wheat exported from the Black Sea have climbed 45.9% in the past year to $394/mt as of April 29, according to Platts assessments from S&P Global Commodity Insights. Expensive wheat has resulted in rising prices for flour and bread.

Assessments for Argentinian FOB Up River soybean oil have climbed 53.61% over the past 12 months to $1,864.67/mt, while sunflower oil FOB Black Sea Ukraine gained 28.75%. High cooking oil prices mean more expensive fried chicken and cookies.

Some of the countries most at risk in the Middle East and North Africa are Oman, Lebanon, Egypt, Libya and Tunisia because they are more reliant on Russia and Ukraine for their food resources, according to Lee Bridgett, food retail and manufacturing analyst at S&P Global Commodity Insights.

Egypt gets 50% of its cereals and 75% of its wheat from Russia and Ukraine, Bridgett estimated. Lebanon has also become heavily reliant on wheat imports from Russia and Ukraine since the country's economic crisis began in 2019 and the port explosion in 2020 destroyed some grain stocks, he noted.

To make matters worse, more countries are putting export restrictions in place. Tunisia has banned exports of fruits and vegetables, which could especially hurt Libya which is Tunisia's largest export market, he said.

"The question becomes how much longer does this war go on, but as things stand now food prices are going to go up some more certainly for the rest of the year," Bridgett said. "It just depends on how bad the situation becomes. If it gets really bad, and countries are dealing with their own crisis, I'm not sure how much help they can or will provide each other."

Farmers, too, are dealing with price shocks, with natural gas a major component of fertilizer.

Food 'crisis'

The UN's World Food Programme called the food situation in the Middle East and North Africa right before Ramadan a "crisis" that has pushed people's resilience to a "breaking point." World food prices were already at a record high in February at the start of the Ukraine war, with vegetable oil prices rising as COVID-19 rules crimped the ability of workers to harvest crops.

High food prices in 2011 led to Arab Spring protests that toppled some of the region's governments, and preventing a repeat is high on the minds of leaders.

Wealthier nations -- particularly oil and gas exporters that have benefitted from the boom in energy prices and have allied with Russia in the OPEC+ coalition -- have built up food stockpiles. But by and large the Middle East and North Africa remain vulnerable, due to their high reliance on imports from as far away as Australia.

For now, global supplies are adequate, said Monika Tothova, an economist with the UN's Food and Agriculture Organization. However, as supply chains become increasingly crimped, Western sanctions prevent transactions with Russia, and key exports from Ukraine fall, the outlook looks dicey.

Iraq has seen several protests over the past few years over economic conditions, while Libya, Lebanon and Egypt have been similarly volatile. Sri Lanka is already experiencing riots over food shortages, while Peru has seen similar protests over high fertilizer prices and other grievances, Tothova noted.

"The relatively cheap supplies accounting also for shipping costs are gone," Tothova said. "The Gulf has traditionally been getting most of its food wheat from Australia but Ukraine has been supplying the feed grains, so the animal protein prices are going to go higher. But we don't see any global shortages at this point."

Middle East countries for years have made secure food supplies a national priority.

Saudi Arabia used to be a wheat exporter in the 1990s but the high cost of irrigation made imports more practical. Saudi Arabia is currently benefiting from both high oil prices and plentiful grain stockpiles, with wheat reserves sufficient to meet domestic demand for 11 months, according to the US Department of Agriculture estimates. Libya, Oman, Lebanon and Iraq are on the low end for stockpiles.

Grain stockpiles were already falling around the world, including in the Middle East. China has been buying more animal feed, more agricultural commodities have been going to biofuels and there have been more production challenges over the last two years such as bad weather and COVID-19, Bridgett said. "If we have a bad year for production in other countries for whatever reason, it could definitely become a problem for the Middle East. As long as current production estimates aren't wildly off I think wealthier countries will be able to manage."

Richer Middle East nations are taking steps to assure their own supplies, with Saudi Arabia recently lifting a ban on poultry imports from Thailand and making commitments to Ireland for beef imports, he said.

Supply security

Abu Dhabi's investment company ADQ in 2020 established Silal, an agritech company, to increase locally grown, raised and manufactured food and manage strategic food reserves. That same year it bought a 50% stake in Al-Dhara Holding Co., which specializes in animal feed, grains, fresh produce and dairy, and in 2021 acquired a 45% stake in commodities trader Louis Dreyfus Co., including a long-term commercial supply agreement for the sale of agricultural commodities to the UAE.

"When you think about food security in the Gulf the focus is always having sufficient availability so there are enough stockpiles," the FAO's Tothova said.

Egypt, the biggest wheat consumer in the region, has continued to tender for grains for future deliveries from Russia but the national food subsidy amounted to $5.56 billion in the fiscal year 2021-22 (July-June) and is "likely to be quite an outlay to the economy," Tothova said.

Wealthy Gulf allies have provided billions of dollars in aid for Egypt to boost its economy. Most of its grain imports originate in Russia, Ukraine and Romania.

However, with no end to the Russia-Ukraine war in sight, food security will remain a precarious priority for the Middle East governments.