Carbon tax on northern dairy production

Nina Hyytiä, University of Helsinki | 7 October 2024

Agriculture in Finland and especially in North Ostrobothnia region is constrained by northern location, North Ostrobothnia region lies between 64^th and 66^th parallels. In there, dairy production combined with grasslands and feed crop production are economically reasonable choices for farmers.  Yet, especially in Northern Europe public concern on the climate and environmental effects of animal production is growing.

By means of economic modelling carbon tax was imposed on dairy production and dairy exports. The results showed decreases in climate emissions and the use of nutrients and pesticides. However, these positive effects had a flip side to the farmers and to the regional economy. Emission based carbon tax decreased agricultural production, the incomes of farmers and had negative knock-on effect on the regional industries. Environmental effects were neither unquestionably positive, since if the area of grasslands and fallows decreases, their animal and plant habitats will be lost if farming will be replaced by forests or settlements. Accordingly, the impacts on biodiversity can be detrimental.

In the remote area, livelihood of rural areas diminishes and decreases in milk production have negative knock-on effects on local food industry and employment. Finally, part of the local production will be replaced by imports that are exposed on carbon leakages. In terms of emission mitigation, tax on agricultural industry proved to be clearly more efficient in comparison with the tax on dairy exports.

Judging against this complicated set of economic, environmental and social linkages, just and perhaps also effective policy implication instead of imposing a carbon tax, may be the reformulation of the EU Common Agricultural Policy. This denotes a transition towards climate and environmental performance-based support at the expense of the hectare and animal-based support. The concrete measures in Finland may be, for example, environmental and climate protection measures in peat lands, carbon farming in mineral lands, animal welfare measures, use of low- emission feeds and precision farming. This transition would also prepare the Common Agricultural Policy for the future EU enlargements.

Nina Hyytiä is lecturer and agricultural economist at the University of Helsinki

Economic Feasibility and Legal Security for Sustainable Trade?

Christian Häberli, WTI | 30 September 2024

My question to you: Can we ensure that more sustainable food products get market access?

What we see are ever-increasing requirements for greener production and greener trade. The EU, for instance, wants its own manufacturers and farmers to produce more climate-friendly, and without impairing natural resources. What is called the European Green Deal is, in fact, a train of over fifty measures on the way to climate neutrality (“Fit for 55”).

But when you (have to) take this train, do you want to lose market shares? Can you accept competition from less green products (“eco-dumping”), without due diligence? Products originating from deforested areas, or made by forced labor? And what if import tariffs for these products have been negotiated away in trade agreements by the European Commission? (Against low or zero tariffs for your formerly non-green exports? Will the new production requirements imperil those exports and you go broke?) By the way, tariffs are not the main problem. Greener trade is trade with a lesser footprint: less (fossil) fuels for producers, processors, and transporters; no more non-green inputs, and more “due diligence” ensuring compliance by your suppliers along the value chain.

Now, do you take your fuel-driven car or your tractor for a big riot at the European Commission’s Headquarters in Brussels? Or do you tell your lobbyists to stop the bureaucratic red tape built into greener trade, and making your output too expensive? And who pays for all of that?

Carbon taxation is one brilliant idea welcomed by almost all economists. The scheme adopted by the EU is called Carbon Border Adjustment Measures, in Eurospeak, CBAM. Starting in 2026, your non-European competitors will have to buy “emission certificates” supposed to be equivalent to your added production costs. No standards, no equivalence agreements, no results from the OECD and World Bank discussions. Never mind the cost (for your competitors).

But if you discriminate “like products” you can get a ton of WTO problems – even if you claim your carbon taxes are an obligation under the Paris Climate Agreement. Not to mention the impact on developing countries and small and vulnerable producer groups everywhere that the bureaucrats hardly ever bothered to study.

In our MATS project we focus on precisely these countries, markets and producers. Bottom up, product by product, or region by region. Each of our 15 case studies has made numerous change proposals for the whole value chain, starting and ending with policymakers and regulators. We want them discussed and implemented!

Stay put – or come to our final project meeting in Brussels, on 19 and 20 November 2024

Christian Häberli has been a Fellow of the World Trade Institute (WTI/Berne University, Switzerland) since 2007 and is a lecturer and a consultant for scientific research and outreach activities. He has produced over 70 publications on trade and investment issues related to agriculture, food security and food safety, obesity and malnutrition, water, climate change, employment, multilateral and regional trade, and development. For more info about WTI activities here.

The actual use of crying over imported milk

Fairouz Gazdallah, Oxfam Belgium | September, 2024

At the annual market for local dairy products in Ouagadougou, I witnessed the significant role women play in sustaining the local dairy sector in West Africa. Through workshops, tastings, and exhibitions of locally produced dairy products, I gained a deeper understanding of the cultural, social, and political importance of this sector for many communities across the region. Women, in particular, are the driving force behind many of the stalls selling fresh milk and other dairy products made from cows, goats, sheep, and even camels. These women are farmers, processors, and marketeers, representing a vital yet often overlooked segment in the dairy product value chain.

Women are typically engaged in the transformation phase of the value chain, where they turn raw milk into a wide variety of dairy products. Despite facing challenges such as competition from milk powder imports and ongoing instability in the Sahel region, these women continue to persist, navigating the structural inequalities that have long shaped the dairy sector.

Gapal: keeping traditions alive

One of the products traditionally made by Fulani women is Gapal. Made from fermented local cow’s milk and millet, this creamy, grainy drink is a staple across Fulani communities. It’s not only rich in nutrients but also has a long shelf life. However, the traditions tied to local milk production are increasingly under threat from imported powdered milk, particularly from Europe. Flooding the market with cheaper, lower-quality alternatives, these imports are only possible due to subsidies given to wealthier countries’ dairy industries. As a result, local production is disrupted, making it difficult for small-scale dairy farmers to sustain their livelihoods. With more West African processors turning to imported products to meet demand, the authenticity of Gapal and other local dairy traditions is increasingly threatened.

What does the research say?

The structural causes behind this unfair competition—and possible solutions—are at the heart of our recent research. Gret and Cirad (two French research institutions) supported by Oxfam Belgium, Humundi & CFSI, all European NGOs with close collaboration with partners from West-African campaign “Mon Lait est Local” dived into the numbers. Our study reveals that imported milk powders, often blended with cheaper vegetable fats, are eroding the market for locally produced milk. This poses a significant threat to West African countries, including Burkina Faso, Senegal, and Nigeria, which import nearly 60% of their dairy products, with the European Union being the primary source.

Our research is rich with data that sheds light on the broader implications of global trade on local economies. For example, European milk powders undercut local milk by up to 30%, making it nearly impossible for West African farmers to compete on price. However, there are clear solutions that could reverse these trends. We propose increasing the Common External Tariff (CET)—a tax on goods imported from outside the region—from 5% to 35%. This would reduce the volume of imported milk powders and give local production the space it needs to grow. Additionally, policies like the one in Nigeria, where processors are required to source a minimum of 20% local milk, have proven effective in stimulating local dairy production. Removing VAT on fresh milk, as already done in Senegal, is another promising national strategy.

Farmer’s protest

The farmer protests in the European Union have sparked a renewed dialogue about the future of European agriculture, it is crucial not to overlook the parallel struggles of small-scale farmers and rural workers in West Africa. While the EU grapples with issues such as low farmer incomes and environmental sustainability, it must also take responsibility for the impact its heavily subsidized agricultural sector has on farmers outside its borders. Subsidized European milk powders, floods West African markets at prices local producers cannot match,. As the EU considers reforms to its €300 billion subsidy system, promising to support smaller farmers and encourage sustainable practices, it must also address the unintended consequences of these subsidies on the global majority. West African farmers are calling for a fair and coherent set of policies that protect their rights to fair incomes, food sovereignty, and economic dignity. It is essential that the EU recognizes its role in these structural imbalances and works towards trade policies that do not disproportionately harm small farmers in West Africa, while continuing to support sustainability and equity within its own borders.

Fairouz Gazdallah is a policy advisor of food justice at Oxfam Belgium

Reducing poverty among smallholder farmers through enhanced trade regimes and value chains for coffee in Uganda

Alice Turinawe, Makerere University, Uganda; Rosemary Emegu Isoto, Makerere University, Uganda; Irene Nakamatte, Makerere University, Uganda; John Sumelius, University of Helsinki, Finland; Qiuzhen Chen, University of Helsinki, Finland | 20 June 2024

Coffee is Uganda’s traditional and largest export commodity contributing about 15 percent to the country’s total annual export earnings. In 2023, the country’s coffee exports amounted to as high as 743,517 60-kilo bags, worth US$ 121.64 million. Robusta and Arabica are the main coffee varieties in Uganda, with Robusta dominating production and export. From the 2022 statistics, Robusta made 92.7% of the total shipments, at a growth rate of 50.9% with an increase in value of 84.8%. Exports for the higher-value Arabica increased by 20.3% although its value fell 6.6% compared to 2023. Robusta coffee is grown across the low altitude areas of Central, Eastern, Western and Southeastern Uganda up to 1,200 meters above sea level, whereas arabica coffee is grown in the highland areas on the slopes of Mount Elgon in the East, Mt. Rwenzori and Mt. Muhabura in the Southwestern Region (1500-2,300 m above sea level). Over the years, coffee production in the EAC has been increasing with Uganda being the leading producer followed by Tanzania and Kenya. A substantial amount of coffee produced in Uganda is exported with only about three percent consumed domestically (citation needed here). Europe is the main destination for Ugandan coffee, accounting for over 60% of its total shipments leveraging on her historical ties to European markets from colonialism to date.

To examine the country’s ability to reduce smallholder farmers’ poverty through enhanced coffee trade regimes and its value chains, our case study employed a mixed methods approach. Qualitative data were collected from value chain actors through in-depth and focused group discussions in Wakiso district, central region. A total of 16 key informant interviews were conducted with government bodies in charge of research initiatives, extension, policy making and implementation as well as the private sector involved in the input supply, farming, aggregation, processing and trading of coffee. Two (2) focused group discussions of mixed gender were conducted with coffee smallholders at district level, from the sub counties of Namayumba and Kakiri. Data were used to examine domestic governance measures as well as international standard regimes and practices; assess adoption of fair trade and consideration of human rights perspective for attaining SDGs 1, 2, 3, 5 and 13; and examine the extent and role of actor transparency and digitalization on poverty reduction among smallholder farmers and along the coffee value chain in Uganda. Quantitative data from the Uganda National Panel Surveys (UNPS) 2010/11, 2015/16 and 2019/20 were used to assess profitability of coffee value chain and its effects on the incomes of smallholder farmers and on poverty reduction in Uganda.

Overall, the coffee sub sector holds enormous potential to substantially increase government earnings and alleviate poverty among value chain actors. In-depth discussions with stakeholders indicated that liberalization of the coffee sub sector has continuously attracted private sector efforts from advocating for a favourable policy environment to supporting trade expansion, value addition and processing. In line with the National Coffee Act (2021), the Uganda government, through its ministries including Ministry of Agriculture, Animal Industry and Fisheries (MAAIF), Ministry of Trade Industry and Cooperatives (MTIC) and agencies such as the Uganda Coffee Development Authority (UCDA) and National Coffee Resources Research Institute (NACORI) remains fundamental at supporting the increase in production, productivity and quality as well as negotiating and developing markets for Uganda’s coffee within the country and beyond. However, the growth of Uganda’s coffee export business continues to be obstructed by its insufficient and bureaucratic quality control processes but also the delays in adoption of emerging coffee export grades for the increasingly expanding specialty coffee markets. These inefficiencies tend to reduce smallholder farmers’ share of economic benefits from the coffee sub sector. At international level, the EU stringent non-tariff measures in respect to sanitary and phytosanitary (SPS) measures and Technical Barriers to Trade (TBT) have become Non-tariff Barriers (NTBs) for coffee farmers since Europe is still the main destination of Uganda’s Coffee. These measures continue to distort trade of value-added coffee with the EU while promoting export of green coffee through the Multinational Corporations (MNCs). Besides, misinterpretation of the National Coffee Act (2021) clauses to the public especially smallholder farmers and the absence of regulations to implement the Act derails the smoothness of country compliance to both domestic and international standards. This does not only deprive actors the opportunity to participate in competitive international coffee markets but also the advantage of earning fair values through trade to the upstream value chain actors. In Uganda, smallholders dominate coffee production with opportunity to participate and benefit from the downstream value chain activities. Women are more involved at the downstream value chain nodes while men dominate upstream nodes of the coffee value chain.  Individual farmers with as low as 100 kg of dried coffee cherries are able to hull their produce to Fair Average Quality (FAQ) coffee for better earnings from value addition. However, farmer participation at the successive levels of the coffee value chain remains very low, and this is partly explained by the limitations in transparency of information amidst slow digitization and weak institutional governance measures. Majority of the small holder farmers therefore, individually sell low coffee volumes within informal spot market arrangements that are typical of low farmer bargaining ability, use of unstandardized scales and the influence to sell standing crops. While downstream work environments are healthy and safe, driven by minimum operating standards required by law, occupational health and safety remains deprived mainly due to the lack of knowledge about potential hazards and impact of particular labour activities. Besides, Uganda’s coffee production techniques are augmented with adaptation and sustainability measures such as coffee shading, mulching, manure application and irrigation practices. The interplay of these aspects, together with long certification process of fair trade limit the associated benefits to the very few value chain actors who have linkages with MNCs.

Using secondary data sources, the results from the profitability analysis showed that small scale farmers obtain higher returns compared to medium scale producers who tend to face labour deficits to undertake good management practices. More so, coffee producers are better off with comparably higher returns compared to non-coffee producers.

The study therefore recommends that more government efforts should orient towards promoting domestic and international trade of value-added coffee along its agro-industrialization agenda. Such enabling environment can be achieved through increased efficiency of the national quality control and assurance process, adoption of emerging coffee export grades and harmonization of the tax levies imposed on Uganda’s coffee value-added exports to enable increased participation of domestic players into downstream activities of coffee value chain. The upgrade, together with increasing public awareness and sensitization about compliance benefits to the National Coffee Act (2021),  is likely to expedite adoption of fair trade, consideration of human rights and other relevant principles as value chain actors attach economic value to increased access of fair paying market trade. There is need for concerted efforts to rebuild trust among smallholder farmers for collective action, not only focused on production but on also value addition development and marketing activities. To benefit from the UCDA’s immense efforts of improving the coffee sub sector, involvement of the private sector for technological development and circulation to enhance information transparency and digitization remains a priority. This is fundamental at increasing transmission of information from input access, production to investment, pricing as well as access to productive resources especially finance and markets. As a result, leveraging the current developments in coffee research and government efforts to increase production, and access to higher value coffee markets is bound to fetch more commodity earnings for not only the government but also the different value chain actors, even at the upstream end.

Novel Approaches in Sustainable Food Trade

Christian Häberli | 6 June, 2024

What’s this?

On 24 May 2024, a Joint Webinar on the evaluation and possibilities for more sustainable agri-food trade took place at the Environment House in Geneva. The three organisers (two EU Horizon2020-funded projets Making Agricultural Trade Sustainable (MATS) and Trade for Sustainable Development (Trade4SD) and the International Institute for Sustainable Development (IISD)) shared and discussed several new topical databases and modeling approaches. They also noted that SDG 2 (“End Hunger”) was failing, and that the two last Ministerial Conferences on Trade (WTO MC 13) and on Climate (UNFCC COP 28) had concluded without tangible progress. In a Joint Statement, the participating experts agreed that the new techniques and insights into agricultural trade policy analysis allow a more realistic impact assessment of trade and investment policies on sustainable development, and that our projects can better inform and interact with policy-makers, operators and stakeholders.

My Questions

My contribution tried to answer the following questions: Are we really committed to working for a more sustainable and equitable food system? Do we recognize the vital role of agri-food trade in global food security and economic growth? Do we agree that SDG2 (“End Hunger”) shows dismal progress? And that Global Food Security is regressing, and famine increasing? Is this so mainly because of the new, existential threat added by Climate Stress especially for the Food Value Chain? Can our Case Studies, data modelling and research results say something about the adequacy of the climate and the trade treaty rules, commitments, and policies? Or do we have to recognize that governments and international organisations fail to address the problems by revisiting the present rules and engaging in multilateral negotiations?

My Sad Analysis of the Multilateral Stalemate

The ground impact of international governance failures, especially with regard to food security, appears in our MATS Case Studies now being published on our website. Virtually all 15 found non-sustainable food trade in their products and countries, and SDG getting out of reach for small producers and poor consumers.

In the short and medium term, no multilateral or unilateral improvements look possible or even wanted. In fact, both trade and climate rules are inadequate. Nevertheless, governments still fiddle on the roof while New York, Geneva and Paris are burning.

The SDG Mid-Tem Review in the UNGA, in September 2023, found general failure to achieve any SDG by 2030. Moreover:

• COP28 for the Climate Agreement was a further step back from the standard-setting task called Koronivia Joint Work on Agriculture (KJWA), initiated in 2017 in Fiji. Climate ministers still refuse to set binding climate footprint reduction standards and procedures.

• MC13 was yet another result-free WTO event. Trade ministers claiming “mutual supportiveness” with non-trade rules balk at a negotiation to define WTO-compatible, climate-friendly energy or food subsidies.

In short, governments refuse to engage in multilateral negotiations, especially about global food security. It seems they will ‘talk the talks’ for many more years, and in many international fora. (Just for once, agriculture is in good company with many other progress blockers – not least with fossil fuel subsidy addicts.)

Agricultural policy reforms and market access improvements for more climate and trade friendly food security have become a remote target. Investors also need standards – not guarantees like Bilateral Investment Treaties condoning land grabbing and contracts with “stabilisation clauses” against higher environmental regulations or minimum wage increases.

In 2023, the number of people on the brink of famine almost doubled to over 700’000. The symbol of the winner is the big tractor rolling in the streets of Brussels, Paris, Berlin, and Amsterdam – and not only in Europe. Farmer protection, ‘green’ subsidies and trade restrictions such as ‘mirror clauses’ for imports of ‘like’ products topple the cake – and thus upset the multilateral apple cart. Ministers refuse to switch into negotiation mode for production subsidies, price support, stockpile management, safeguards, and dumping rules – let alone in-built climate footprint and mutual recognition of equivalent production and processing methods.

Year-long ‘conversations’ failed to take on board the views of NGOs, scholars, stakeholders, traders, and investors in more food secure ventures. Policymakers ignore sustainability impact assessments of the various tools at hand in the light of new challenges to global food security and global warming.

Making a list of what all others should do has not brought progress. The double intergovernmental impasse in this rapidly warming world clearly requires novel approaches. Inaction discourages operators and investors; it is simply not a defendable option.

In my view, collective governance failures are the main reason for the impasse of the multilateral rules framework today. Both for trade and climate rules, especially those contradicting each other. I see the main challenge as navigating the abyss between the differentiation obligation of the Climate Agreement and the non-discrimination mantra of the multilateral trading scheme enshrined under WTO Law.

Any Way Forward out of the Impasse?

Today, multilateralism is deadlocked and formal agri-food trade and climate negotiations are indefinitely suspended. This seems to preclude binding multilateral standards or plurilateral agreements. It also impairs unilateral measures protecting green producers at home and thus discriminating foreign competitors. Who wants to lose market shares when foreign e-vehicles, solar panels and cows and soybeans from deforested areas are cheaper?

True, we can see many governments starting to act at the national level – for whatever reason and never mind their climate commitments or multilateral and regional trade obligations. Some such reforms are more than greenwashing. But unilateralism and industrial policies fail to reassure small and big producers, investors and traders. Instead, they bring about carbon leakage and market share losses for greener food.

Is there a novel and beneficial approach for ‘climate pioneers’? Allowing domestic greening with carbon taxation including imports à la CBAM? When not everybody goes greener at the same time and for the same products? Without new climate-friendly multilateral rules and SDG changes?

Personally, I posit that unilateral reforms, reciprocally agreed and WTO-guaranteed, can bring about “Greener and Freer Trade” for climate pioneers. Put in technical speak, a safe way out of this complex stalemate is to endow the often heard ‘climate club’ proposals with reciprocal, scheduled trade preferences and investment guarantees, secured and based on mutually agreed equivalent, sustainable climate footprint reduction schemes, and new rules of origin – including even agriculture. Regrettably, reciprocity is a big step back from the Voie Royale of multilateral rulemaking. Only ‘climate pioneers’ will benefit from this proposal. But when the multilateral road is closed – and its rules are not enforceable – this second best option is perhaps the only way forward. Better than fiddling on the roof, anyway. Or playing the blame game, again and again.

Christian Häberli is a Fellow of the World Trade Institute (WTI). The WTI is one of the 14 MATS partners and plays a key role in producing deliverables such as discussion paper on the political economy on trade regimes and discussion paper on the feasibility of changes in trade regimes.

Reducing poverty among smallholder farmers through enhanced trade regimes and value chains for coffee in Tanzania

Neema Kumburu, Moshi Co-operative University, Tanzania, John Sumelius, University of Helsinki, Finland & Qiuzhen Chen, University of Helsinki, Finland | 27 May 2024

Tanzania is one of the largest coffee growing countries in Africa, with an annual production of 66,042.0 tons according to 2020/2021 data. Coffee accounts for nearly 5% of Tanzania’s total exports with an average annual export value of 100 million USD. Statistics show that most of the coffee produced in Tanzania is exported and local consumption is estimated to be only 7% of total production.

In order to examine how to reduce smallholder farmers poverty through enhanced coffee trade regimes and its value chains in Tanzania, our case study has surveyed a total of 150 coffee smallholders in the Kilimanjaro, Mbeya and Songwe regions of Tanzania, which are the traditional coffee growing areas (Kilimanjaro, Mbeya) and emerging coffee growing area (Songwe), as well as 15 officials from the Ministry of Agriculture, Tanzania Coffee Board, Farmers Kilimanjaro Coffee Company Limited (FAKICO), Ministry of Industry and Trade, farmers, exporters and processors as key informants, and conducted five focus group discussions with representatives from the surveyed primary co-operative societies, namely Mruwia and Mamsera in Kilimanjaro, and Makandara and Isansa in Mbeya, and Songwe regions, respectively.

Using content analysis and narratives for qualitative data and descriptive statistics and gross margin analysis for quantitative data, the study explored the roles, interests and responsibilities of key actors, their involvement in pricing,  and how they respond to the risks and impacts of power inequalities, participation and public interest, and assessed the profitability of coffee value chain and its effects on smallholder income and poverty reduction, and also analysed domestic government measures and international standard regimes and practices that have a bearing on reducing poverty among coffee smallholder farmers. Meanwhile, the study evaluated the adoption of Fair-trade Schemes and consideration of human rights perspective in the Tanzania coffee value chain and strategies to attain SDG1, 2, 3, 5 and 13, and examined the transparency and roles of coffee value chain actors in agri-food chains and the impact of digitalization on poverty reduction among smallholders in Tanzania.

The main findings suggested that there is a lack of integration and synergy among actors in the coffee value chain to participate in decision-making. Small-scale farmers are the least privileged because of their passive position in major decision-making. The study also found that although small-scale farmers have positive operating margins, such margins are still not competitive enough to compensate for the farmers’ efforts. Each actor in the value chain appears to maximize its own interests at the expense of smallholder farmers, who continue to be mistreated and thus unable to improve gains from the coffee sector. The national and supranational legal and policy frameworks are also complex and they have failed to create a conducive environment for small holder farmers to realize better returns, although much has been done at the national level including the establishment of the coffee industry stabilization fund, coffee research institute, the production and distribution of free coffee seedling, the promotion of co-operative institutions and public-private partnerships in the coffee industry, the creation of political will for the development of the coffee industry, and other efforts including ensuring laws and regulations that govern coffee production, processing, transportation, marketing, and other related activities in Tanzania. However, these efforts have not been sufficient to bring the desired benefits to smallholder farmers. Coupled with the complexity of international coffee trade standards and marketing procedures, smallholder farmers are unable to realize the potential benefits from the international coffee market. In addition, the study also indicated that fair-trade schemes are expected to lead to, and ultimately benefit, smallholder farmers by making consumers pay a premium for social and economic change and environmental sustainability. However, the schemes are often based on a lack of understanding of production realities, leading to a gap between producer and consumer countries. Lack of transparency and information asymmetry are some of the factors that inhibiting smallholders from benefiting from fair-trade schemes and, as a result, they have limited access to human rights considerations at the lower end of the coffee value chain and are unable to enjoy the benefits of digitization in the modern world.

Therefore, based on the above key findings, it is recommended that the government establish farmer profiles to identify the various information and advisory needs of smallholder farmers in order to provide tailored services. Public-Private Partnerships (PPPs) can be established to revitalize the coffee industry through improved recommended agricultural practices, marketing efficiencies, and technological changes to promote production growth in order to address the constraints affecting the effective participation of smallholder farmers in Global Value Chains (GVCs). Certification organizations should provide opportunities for producing and consuming countries to establish the necessary supportive environment for producers in international value chains to operate in a more sustainable manner. Governments and other actors should ensure that standards are tailored to local realities (“institutional adaptation”) and prioritize this for the adoption of global sustainability standards. This also includes measures to level the playing field between international players and local farmers, such as fair pricing mechanisms and market access. In addition, local government and other actors should strengthen farmers’ digital innovation capacity and make farmers aware of available digital services to obtain information on coffee prices and international market trade, while improving the physical infrastructure for digital access and lowering costs associated with access to the internet and digital devices to increase participation by smallholders. Digital services providers should integrate digital communication into multimodal services to expand inclusive activities such as financing, inputs, weather, pricing and international trade opportunities.

For more information, click here to view the full case study

Continued high food inflation a result of Egypt’s failed food security policy

By Saker El Nour, Mohamed Ramadan, and Sylvia Kay | 24 May 2024

Egypt made international headlines when the official inflation rate reached highs of over 40% in September 2023, driven primarily by inflation in food prices. To address these challenges, the Egyptian government announced decisions to ban the export of a number of agricultural commodities, including onions and potatoes, following on from an earlier ban on the export of rice.

These measures did not work: inflation for some commodities, such as onions, exceeded 423.1% on an annual basis. Food inflation rates stood at 63.9% on an annual basis, reaching 71.1% in October 2023, placing Egypt first among the ten countries in the world most affected by food price inflation. According to the World Bank‘s recently published Food Security Update report (table below), from April 2023 to March 2024, Egypt’s food inflation rates showcased a turbulent economic landscape, with significant monthly fluctuations.

In the latest update, Egypt remains among the top ten most affected countries, ranking fifth in April 2024 with a real food inflation rate of 12%.

A structural agricultural trade deficit

Egyptian officials maintain that a combination of local and global factors have exacerbated the country’s economic difficulties. However, record food inflation is indicative of a more profound systemic problem with the country’s agricultural and food policy.

For over four decades, Egypt, with the support of major institutions like the International Monetary Fund, the World Bank, and the United States Agency for International Development, has been resolutely pursuing a programme of agricultural liberalization with production geared towards the export of high-demand crops such as fruits and vegetables to consumer markets in Europe and the Gulf region. This strategy, aimed at enhancing the country’s hard currency reserves, placed Egyptian agriculture at the forefront of national development.

However, this export-led growth model has yet to yield a trade surplus with agricultural exports lagging behind since the 1980s and currently not exceeding 30% of the country’s import needs. Egypt faces an enduring deficit in its food trade balance, with self-sufficiency rates for critical crops such as grains progressively diminishing. The focus on shipping out raw, unprocessed goods has not kept up with the substantial grain imports needed for food security. Consequently, Egypt has become the largest importer of wheat globally, underscoring its deepening reliance on international markets to feed its population—a reliance that persists despite the contributions of local, small-scale farmers.

Egyptian small famers lose out

This export led policy was touted as a means to enhance farmer incomes and improve agricultural production and sustainability via international trade agreements. However, as a recent study published by the Transnational Institute shows, rather than delivering for the vast majority of Egyptian small farmers, the current agricultural trade model has only worsened their situation.

This is exemplified in the case of potatoes – Egypt’s second largest export crop to the EU. With rising input prices since the beginning of 2022 resulting from the liberalisation of the exchange rate and the devaluation of the local currency, many farmers have been forced to sell their potato crops at a loss. According to field work with Egyptian potato farmers carried out for the study, a farmer can earn an estimated maximum profit of EGP 2,375 per feddan (an Egyptian agricultural land unit equivalent to about 0.42 hectares): below the minimum wage of EGP 3,000 per month. According to farmers, the cost of production per feddan in the old lands and the Delta was almost EGP 40,000 in 2020 and has increased in recent years. These additional costs are passed on to the consumer, leading to higher prices of potatoes in urban areas.

All of this has resulted in significant food security challenges for both the urban poor and for over half (57%) of the Egyptians that live in rural areas. Egypt is a food-insecure country ranking 77 out of 113 countries on the 2022 Global Food Security Index.  Inflation of grain prices has affected the living standards of most Egyptians who rely on bread and grains to meet 35–39% of their daily caloric intake. From 2014 to 2020, about a third of the population suffered from malnutrition and 20-25% of under-fives were affected by stunting. Poverty increased from 16.7% in 2000 to 29.7% in 2020, and undernutrition also grew from 14% in 2009 to 25% in 2018.

A new approach is needed

The intricate interplay between economic policy and food security is particularly pronounced in developing nations, where strategies often intertwine neoliberal tenets with localized forms of crony capitalism. In Egypt’s case, this combination has exacerbated both the broader economic fragility and the specific vulnerability to debt crises. This is attributed to the country’s dependency on imports to meet its basic food security needs.

This situation underlines the urgency of revitalizing local food systems that are resilient, sustainable, and inclusive, particularly for marginalized and vulnerable populations. There’s a growing need for Egypt to re-evaluate its approach to agriculture, shifting away from large-scale exports that offer minimal added value to the economy or its people. Instead, a pivot towards bolstering small-scale farming and shortening supply chains could enhance self-sufficiency and ensure food sovereignty.

Saker El Nour is Program Director at the Action Network for a Just Transition in North Africa and the Middle East (RESEAU TANMO).

Mohamed Ramadan is an independent economic researcher and financial analyst. His research interests focus on inequality and poverty and processes of financialization in Egypt and the Global South.

Sylvia Kay is a Project Officer at the Transnational Institute.