Rising Wheat Prices: Does Morocco Need to Rethink Its Economic Model?

Morocco wanted to turn the page of health crisis and revive the economy, especially the tourism sector, by reopening the border on February 7. The indicators are very good, with growth of 6.3% in 2021 allowing for increased tax revenues. Russia’s attack on Ukraine and soaring grains and hydrocarbons have reorganized cards and put the country in new challenges: rising prices, rising deficits, and rising public debt.

“The blockade by the Russian Navy has disrupted the Black Sea ports through which most grain exports from Russia and Ukraine pass,” stressing a recent note from Coface. Shipping companies have voluntarily shut down because insurance companies are hesitant to cover the risks. Broader consequences could be felt if Russia used grain weapons to respond to Western sanctions and Ukrainian farmers were forced to reduce their production.

The effects of this conflict are of particular concern to the Kingdom, a major importer of oil, gas and wheat. This extrinsic shock also occurs when agricultural campaigns are bad and one of the worst droughts recorded in 30 years.

According to recent estimates by the New South Policy Center (PCNS), the war is expected to cost 1% to 2% of Morocco’s national income. Think tanks rely on raw materials and the prices of wheat, oil and hydrocarbons, so they anticipate a shrinking national economy. Kingdom economists have revised 2022 growth to less than 1%, compared to the initial forecast of 3.5%.

“Energy products make up almost 12% of total imports, and wheat accounts for more than 3% in peacetime. It will explode when the prices of these products triple.”

“arbitration”. Larabi Jaïdi, Principal Researcher at PCNS, said: It will explode when the price of these products triples. The situation is becoming more and more tense as rainfall is low and grain yields are declining this season. The kingdom procures products from Russia and Ukraine. Due to the turmoil, countries have to import from alternative markets, which should lead to additional costs to replenish security stock. He currently has a stockpile of grain until summer.

Butane gas and flour are subsidized, which will put a heavy financial burden. “Current events cast doubt on our agricultural policy model and the choice of subsidies allocated to different sectors,” continues Larabi Jaïdi. As droughts are structural and price fluctuations, strategic autonomy must be considered from a food security perspective. Trade-offs will also have to be made between the financial support provided to export agriculture (fruits and vegetables) and food production. »»

Morocco has already begun efforts to better rationalize its water resources by promoting medium-sized dams, irrigation, wastewater reuse and seed adaptation. The country has also begun reforming its compensation fund, which has remained half-hearted. Butane gas absorbs 80% of the subsidy. In particular, it is used to pump from increasingly scarce groundwater. Larabi Jaïdi recommends using other processes such as solar power.

“Before the conflict in Ukraine, there were already protests against rising living costs.”

fire. Soaring prices are fueling social protests. “Before the conflict in Ukraine, protests against rising living costs had already occurred in Morocco, Cofas warns. About 10 years ago, rising food prices had already protested against the Arab Spring. Some people are now calling for the resignation of the head of the government, Aziz Afnauchi (formerly the Minister of Agriculture, whose family group is supplying fuel). The team is on fire. I’m working to erase it.

The government will continue to subsidize basic necessities such as gas, sugar and soft wheat, even if the bills are much higher. Family groups in the food industry are also called upon to reduce margins to mitigate inflation. The state can also request the Cherifiendes Phosphates office, one of the few beneficiaries of the crisis, to contribute to its financial efforts. The public group, the world’s largest exporter of this ore, should have a good year as prices rise.

When fuel is no longer subsidized, transportation professionals can provide targeted assistance to reduce costs. Sector unions are seeking price caps. Discussions with the government have begun. Ultimately, pedagogical work needs to be done to explain the price increase.

“To avoid already high external and budget deficits, and increased debt, the government may have to fund increased subsidies by reducing public investment,” Coface fears. For now, Moroccan executives don’t want to touch public investment. The Kingdom has announced a record € 23 billion in aid for employment, education and health. Ambition: Create 250,000 jobs and help 50,000 young people create businesses in two years.