Tunisia’s food crisis will worsen without an IMF deal

To:

Al-Monitor Pro Members

From:

Francisco Serrano

Journalist and analyst specialized in North Africa

 

Date:

Jan. 25, 2023

Bottom Line:

In mid-January, nearly 100 trucks carrying tons of sugar, semolina, rice and cooking oil entered Tunisia through its southeastern land border. The convoy carried food donated by Libya’s Tripoli-based National Unity Government. Tunisia has faced structural food insecurity for several years now, but the problem is being compounded by a fragile financial situation, increased food prices following Russia’s invasion of Ukraine, and political uncertainty. Because of the perilous social and economic situation, solving current food shortages will be key to stabilize the country. 

Background Facts:
  • Tunisian President Kais Saied has attempted to portray food shortages solely as a result of market speculators and the war in Ukraine. But food shortages mainly stem from Tunisia’s dire economic situation and the state’s inability to pay for imports and subsidies that have eased access to essential food staples since the 1970s. 
  • Despite its agro-industrial capacity, Tunisia remains a net importer of agricultural products. Over 2022, its food trade deficit reached TD 2.9 billion ($941.7 million), compared to a TD 1.9 billion ($616.9 million) deficit in 2021, according to figures by Tunisia’s National Agricultural Observatory. Cereals, vegetable oils and sugar amounted to 72.1% of the total food import value for 2022.  
  • With a food system that relies on imports, Tunisia’s weaknesses have been exposed by domestic shortcomings and external shocks. As of December 2022, domestic food production covered 67.4% of consumption, down from 70.2% in 2021. Because of its financial situation, the country is now required to pay upfront for most of its energy and food imports, leading to regular bouts of scarcity and rationing as the budgetary situation has worsened. 
  • The Russian invasion of Ukraine led to a spike in the price of cereals. Tunisia imported 3.4 million tons of cereals (wheat, corn, barley) in 2022, slightly less than the 3.9 million tons imported over 2021. However, the dinar price per kilogram of cereal that Tunisia was accustomed to paying has increased by between 37% and 56% in 2022, according to the National Agricultural Observatory. Tunisia typically sourced 50% of its wheat imports from Ukraine but as of April 2022 had reportedly accumulated arrears of $300 million to Ukrainian exporters. 
  • Through subsidies, prices of key staple foods such as eggs, milk, pasta, coffee and bread have been kept low by the government, which then reimburses producers or importers for the difference. Because of the dismal financial situation, however, the government has been unable to repay domestic and foreign suppliers.  
  • Moving to frame the issue as the result of criminal activities, President Saied announced new prison sentences and fines to combat food speculation and profiteering. Decree law No14, approved in March 2022, now allows for 10-year prison sentences for speculation, 20 years for speculating with subsidized goods, and as much as 30 years in jail for belonging to a cartel of speculators. Images of seizures of stockpiles of food products by authorities have become prevalent on television and newspapers.  
  • The fragmented distribution sector certainly allows some Tunisian food traders to hoard sought-after goods to attempt to take advantage of the scarcity. Some consumers, too, are trying to increase household stocks in anticipation of Ramadan. But high prices and scarcity are mainly caused by a dependency on imports, the weight of subsidies, and the government’s financial predicament. Some economists believe that stronger penalties for market speculation contribute to scarcity by discouraging traders from buying, stocking and distributing certain goods, for fear of judicial reprisals. 
  • A four-year $1.9 billion financial support program from the International Monetary Fund (IMF) to Tunisia was set to be finalized in late 2022. But  final discussions and loan approval have been delayed to March 2023. The IMF’s Risk Management Department believes Tunisia is set to experience “major political upheavals over the upcoming months."
  • The country is in dire need of an IMF deal in order to shore up its finances, and secure loans from other sources. But some of the deal’s requirements – such as the gradual removal of fuel and food subsidies, and reform of state-owned enterprises – are opposed by Tunisia’s main trade union, the Union Générale Tunisienne du Travail (UGTT). 
  • A reduction in subsidies is also on the way. Introducing the 2023 budget, the government stated that subsidies (which include fuel subsidies) would be reduced by 26.4% in 2023, from TD 12 billion ($3.9 billion) to TD 8.8 billion ($2.8 billion) as authorities gradually lift subsidies The government aims to replace subsidies with direct financial aid to low-income families. But details about the new system remain scant. Opposition to austerity measures might lead to economic paralysis and large-scale protests against president Saied’s governing. 
  • Fixed prices for some goods have exacerbated domestic production problems. Milk prices, for instance, have been kept low by the government despite the rising production costs. This has forced some producers out of business, leading to the need to increase imports to make up for insufficient availability of milk in the domestic market.  
  • In the meantime, the tenuous social situation will be exacerbated as the month of Ramadan, set to start in late March, approaches. Increased food shopping for family celebrations will underline high prices and scarcity.  
  • According to Tunisia’s Statistics Bureau, inflation reached 10.1% in December 2022, up from 7.5% in April. Ramadan in Tunisia tends to raise household food consumption by 34%
Alternative Scenarios:

Scenario 1: High food prices and scarcity persists over most of 2023, before starting to subside towards the fall.  

A deal with the IMF in the second half of the year helps to shore up food availability, through the government’s more robust financial situation. Although global commodity prices remain relatively high over 2023 — especially for cereals — a slow improvement in domestic conditions allows for high prices and scarcity to gradually recede. International support, especially additional donations from neighboring countries, partly resolve scarcity of some food staples. However, availability of key staples such as cooking oil, sugar and flour remain volatile throughout most of the year, before beginning to subside towards the end of 2023. The risk of social instability will remain significantly high over most of the year. Agro-industrial export capacity, especially for products that require imported goods for their manufacturing inputs, remains pressured by higher costs and scarcity. But conditions improve towards the second half of the year. Food retail and distribution businesses face high competition in the form of food supplies imported informally from neighboring countries.  

Scenario 2: Access to critical food products becomes even harder as the economic crisis intensifies    

Due to rising political and social instability — as well as a lack of agreement between the government and the UGTT — a deal with IMF is not finalized in 2023. The state’s inability to pay for imports and support prices for food staples remains impaired. Any worsening of the situation would likely lead neighboring Libya and Algeria to increase donations of food staples. Partner Gulf countries would supply some donations, too, but these will still have a limited impact on the larger problem of pricing and availability. Social and labor disruptions will remain predominant over 2023. Political uncertainty increases, as Saied’s legitimacy is further damaged by his inability to secure external financing and stabilize the country’s economy. Besides the overall economic instability that will impact most businesses, agro-industry production and food retailers will suffer from high prices and severe shortages. Lack of sufficient food products would also weaken the tourism sector’s ability to mount a solid rebound over the spring and summer high season.  

This scenario remains the least likely at the moment, given that a failure to secure any IMF deal over the coming months would leave Tunisia in a dire financial situation. This is something that Tunisia’s partners will want to avoid, increasing the chance of an IMF bailout over the coming months. 

Conclusion - Most Likely Scenario:

Food prices start to drop and availability improves in the second quarter of 2023. Given the urgent need for financing, the IMF gives final approval to its $1.9 billion loan program to Tunisia around the first-to-second quarter of 2023. With the country’s ability to pay for food imports restored, availability should improve. Subsidized products, critical for most Tunisian households, will become more available, although their prices might still be too high for large segments of the population, especially as the government is forced to increase prices as subsidies are gradually removed. Tensions are still expected to rise over Ramadan, because prices remain relatively high, despite improved availability. The risk of political or social disruption will remain moderate. Business operations in the tourism and hospitality sector benefit from improved availability, as tourist numbers rebound over 2023. Agro-industry, food distribution and retail also benefit from easier logistics and planning, facing lower competition from informal traders due to higher availability through formal commerce channels. Urgent measures to raise production of cereals, milk and other goods help to improve conditions towards 2024. 

Contributor Background:

Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.

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