By the Blouin News Business staff

Food prices to rise with electricity costs in Jordan

by in Middle East.

 

Protests, like this political one in Amman, Jordan, may arise against rising food prices. January 23, 2015. Anadolu Agency/Getty Images

Protests, like this political one in Amman, Jordan, may occur against rising food prices. 1/23/2015. Anadolu Agency/Getty Images

On Monday, Raed Hamadah, the representative of the food sector at the Jordan Chamber of Commerce predicted that food prices would rise by nearly 20% in the desert kingdom this year. He blamed the 15% rise in electricity tariffs that went into effect at the beginning of the year, since it is a major part of operating costs, particularly for refrigeration. (An increase in the tax rate from 14% to 20% for businesses making over $140,000 in annual profits also may drive away hypermarkets that can afford to offer lower-priced food in bulk). Inflation has been mild in Jordan, at about 3% in the first eleven months of 2014, but now will rise.

Supermarkets’ profits were already cut to nearly half in 2014 due to higher operating costs. Despite having electricity that is twenty times more expensive than neighboring countries, according to a board member of the Amman Chamber of Industry, Jordan’s National Electric Power Company ran a deficit of $6.3 billion in 2014 — nearly a quarter of the country’s entire public debt.

An electricity price hike was necessary to plug this hole, but raised legitimate concerns about decreasing competitiveness for Jordanian industries and raising inflation.  After dire warnings from industry leaders and fierce opposition in the lower house of Parliament, however, the government has agreed to compromise and only raise electricity tariffs 7.5%. Since Jordan imports 90% of the food and energy it consumes, the global economic context has a tremendous impact on the country and it has changed since the original 15% increase was proposed. Now that oil has fallen by over half in recent months, a lot of pressure has been taken off for such a large tariff increase, and there is greater consensus for the compromise figure.

So fears of food prices and thus inflation soaring are likely overblown. In any case, the government’s substantially subsidizes domestic farmers and consumers. Domestic wheat farmers receive over twice the prevailing global price per bushel, and the “bread subsidy” has been a pillar of popular support for the monarchy, having remained an unchanged $0.23/kg since 1996.

But if the bread subsidy lessens, there would very likely be food riots, as has happened in the past. In January 2011, echoing protesters in Tunisia, thousands of Jordanians demonstrated against rising food prices and unemployment, causing the government to quickly slash prices and taxes on some foods and fuels. Now, with an additional 1.4 million mostly poor Syrian refugees living in Jordan, out of a total population of 7 million, the socioeconomic situation is even more fragile, and any price increases in basic food staples will cause major hardships and protests. The $375 million annual cost to the government for the bread subsidy is well worth it for domestic stability.

Jordan may still follow through on its pledge made in May 2014 to eliminate all electricity subsidies by 2017, but it would come gradually if at all. Shoring up domestic stability and support for the monarchy will trump economic efficiency as top priority.