Food is one of the three basic requirements necessary to survive. This is why it is no surpise that the rioting that began more than a week ago in Egypt was primarily tied to food prices.
However, it appears that the underlying action that caused the Egyptian people to be unable to purchase food at an affordable price was the change in policy from subsidizing food to subsidizing fuel. The consequences of this policy led directly to the original rioting in the streets of Alexandria and Cairo, which later escalated to a full fledged demand for the President to step down.
In an recent article by the publication, The Oil Drum, the problems in Egypt all began when the government threatened to reduce food subsidies.
We have all been reading about Egypt in the newspapers, and wonder what is behind their problems. Let me offer a few insights.
At least part of Egypt’s problem is the fact that in the past the government has threatened to reduce food subsidies. Now it is planning to hold food subsidies level and raise energy subsidies, but it is not clear that the dollar amount of subsidy will be enough. The government is taking steps to make food and energy affordable for most, but there is worry that the steps being taken will not be enough.
Egypt’s Declining Financial Situation
There is a good reason why one might expect Egypt to start running into problems with energy and food subsidies. Its own financial situation is declining at the same time that the cost of food imports is soaring.
When a nation is poor, and relies on government subsidies to feed itself, then the entire powder keg sits on the edge of a knife. Any small change in the ability to provide those subsides (welfare), will leave a majority of impoverished people with nothing to lose when food prices become out of reach.
In America, we also stand on the crux of being able to afford food subsidies to tens of millions of Americans. Over 47 million people rely on food stamps (subsides), at a cost in the tens of billions ($79) to the government. Any policy change where those subsidies cannot be given will affect tens of millions of people who will experience problems purchasing food.
Then we must add in another factor, and that is fuel. Food costs have now become parallel with the cost of fuel usage. Recent statistics show that it takes 10 calories of fuel to create one calorie of food. As fuel costs rise, and are expected to go much higher, so too have we seen food prices follow the same track.
This means that the goverment must provide more subsidies to the poor just so they can eat, causing the deficit and debt to rise accordingly.
See chart in the slideshow to how food and fuel prices are tied together.
The events in Egypt are a foreshadowing of what may take place in the United States if food prices continue to rise. Trends forecaster Gerald Celente coined the phrase, "when people have nothing left to lose, they lose it." With nearly one-sixth of the American people requiring food subsidies each month to survive, the ticking time bomb is closing in as the government looks to make drastic changes to its budget, and food subsidies may have to be addressed, especially as price inflation skyrockets for food.
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