The price of wheat to be delivered in March 2008 reached a record high on international commodity markets on 14 December. Governments that have subsidised wheat for decades will find it politically impossible to pass on the cost to consumers.
GCC states will use record oil revenues to pay for more expensive wheat without running up debt. States in North Africa and the Levant face an altogether greater challenge. Their wheat crops are dependent on winter rains, and most do not have the same level of oil receipts to pay for grain imports.
Egypt, the world’s largest wheat importer, will buy 7.5 million tonnes of wheat before the end of June 2008, according to the UN’s Food & Agriculture Organisation.
Morocco will import 3.5 million tonnes after a drought in the winter of 2006 caused domestic production to plunge from 6.3 million tonnes a year to 1.5 million. Only late rains enabled Tunisia to escape the same fate.
There are several policies government’s could pursue to limit the problem. They could remove import tariffs on wheat to reduce domestic prices and the need for subsidies. They may also want to copy Iran, which has transformed itself into a net exporter of wheat, after stimulating domestic production.
But they should also pay close attention to Jordan. In January, Amman will remove all subsidies for barley, another staple cereal crop. The poorest will receive targeted benefits so that they can continue to buy barley. If it works, Jordan will prove that life without subsidies is possible.