€150 million loan to buy wheat and modernise grain silos will help Tunisia improve its food security

In the spring of 2022, international wheat prices rose to their highest level in 20 years. In Tunisia, the official price of a baguette remained the same as it had been for more than 15 years – 0.19 Tunisian dinars (about 6 euro cents).

A subsidy programme kept official bread prices low for all Tunisians, but the cost of those subsidies was spiralling. Supply disruptions caused by the COVID-19 pandemic and Russia’s invasion of Ukraine had pushed wheat prices to more than $430 per tonne  by May 2022, more than double the level a year earlier. Tunisia, which imports about 95% of the soft wheat used in its bread, suddenly spent $250 million more on purchases in 2022.

That’s a lot of money for a country struggling economically. “It’s true that the Ukraine war is at the origin of more expensive, and less regular, imports of cereals as well as other basic food,” says Nabil Zarouk, the deputy general director of Tunisia’s Office des Céréales, which manages the country’s grain supply. Tunisia typically imports about one-tenth of its wheat from Russia, and about 65% from Ukraine.

To better resist future food price crises, Tunisia plans to expand and improve is network of grain silos throughout the country, with the mid-term goal of doubling its reserves from two to four months of supply.  “It’s a huge objective,” says Giovanni Munoz Castaneda, a senior engineer working on the project in the European Investment Bank’s bio-economy division.

The European Investment Bank signed a €150 million loan for the project in December 2022. Of that, €82 million is dedicated to grain purchases.

Stocking up on food

The new grain silos will also help Tunisia avoid food waste by securely preserving locally grown grains after harvest. While Tunisia only produces about 5% of the soft wheat it needs, it covers about 50% to 60% of demand for hard wheat, or durum wheat. Hard wheat is used in couscous and pasta, staples of the Tunisian diet.

The project consists of:

  • The construction and/or renovation of field silos to store grains and cereals, including additional infrastructure to link silos via railway transport.
  • The construction and/or renovation of silos at major ports that receive cereal imports, including railway infrastructure. The new silos will enable Tunisia to unload imports arriving by boat faster, helping the country avoid penalties for delays.
  • Funds for technical assistance to help the Office des Céréales meet European Investment Bank quality standards on environmental and social impact issues, and to improve digitalisation at the government agency.

Designs for the new silo infrastructure are expected to take a year, but construction should happen quickly once they are finalised.

Zarrouk of the Office des Céréales says that new capacity will enable Tunisia to buy up wheat when prices are low, which a lack of storage sometimes prevents. “It will also reinforce Tunisia’s resilience in the face of shocks – in the face of food crises,” he added.

Bread as a staple

15 % of Tunisians live under the national poverty line. Bread subsidies help poorer people get the calories they need. Poverty and malnutrition in many countries is on the rise again after declining steadily for 15 to 20 years, the European Investment Bank’s Munoz Castaneda says. “The overall economic situation has deteriorated in the last five years,” he says, “and that has led to an increase in food insecurity.”

High bread prices led to the “bread riots” in Tunisia during the 1980s, and they were a factor behind the Arab Spring, a series of anti-government protests that swept the Arab world in the early 2010s. “Countries like Tunisia and Egypt have seen in the past the consequences of instability and social unrest, so they are trying to do everything to avoid that situation again,” Munoz Castaneda says.

But he adds that providing subsidised bread to all Tunisians – compared to a similar programme in Egypt, which covers about 70% of the population – leads to waste. The Tunisian government is studying how to reform the programme while still providing subsidies to the poorest households.  

Zarrouk says Tunisia managed to keep local markets supplied with grains last year, thanks to earlier purchases at advantageous prices. “That enabled us to dodge a little bit the effect of the war,” he said. But finances are increasingly tight. “This liquidity problem makes it difficult for us to meet our imported cereal needs.”

Reaching out for help

The cash-strapped Tunisian government has difficulty borrowing on international financial markets. The wheat purchases and grain silos project are being financed by the European Investment Bank along with the European Bank for Reconstruction and Development, the African Development Bank, and the International Bank for Reconstruction and Development.

In addition to its €150 million loan, the European Investment Bank is requesting the European Union provide a €20 million grant for infrastructure and technical assistance to help guide the project. The European Investment Bank loan benefits from a guarantee provided under the Neighbourhood, Development and International Cooperation Instrument, which aims to eradicate poverty and support sustainable development outside the European Union. The EU bank’s €82 million loan for grain purchases was disbursed in record time, just three months after being signed.

The project would not have been possible without money from international development banks. Tunisia is currently negotiating with the International Monetary Fund for a $1.9 billion loan, and its beleaguered finances make borrowing on international markets almost impossible. “Most of the taps are closed,” says Sébastien Valleur, a loan officer  at EIB  Global, the European Investment Bank’s arm for operations outside the European Union.

“This crisis is part of the reason the Office des Céréales came to international financial institutions last year” he says. “They had never done it before."