Jump to ContentJump to Main Navigation
Food Price Policy in an Era of Market InstabilityA Political Economy Analysis$

Per Pinstrup-Andersen

Print publication date: 2014

Print ISBN-13: 9780198718574

Published to Oxford Scholarship Online: January 2015

DOI: 10.1093/acprof:oso/9780198718574.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy).date: 18 June 2019

The Political Economy of Food Price Policy in Egypt

The Political Economy of Food Price Policy in Egypt

Chapter:
(p.253) 12 The Political Economy of Food Price Policy in Egypt
Source:
Food Price Policy in an Era of Market Instability
Author(s):

Ahmed Farouk Ghoneim

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198718574.003.0012

Abstract and Keywords

The study focuses on the period 2004–9 during which Egypt experienced food crisis. The political economy context on how the government responded to the crisis is analysed while pinpointing to what extent there was a pass-through effect from international to domestic prices. The complexity of food price policy issues and their entanglement with poverty, agricultural, and economic policies in Egypt together with the structural aspects of the food subsidy policies are discussed and evaluated from a political economy perspective. Prospects for reform or lack thereof are also analysed in the context of the 25 January 2011 revolution and new political set-up. Dramatic shifts in food prices and their significant impact on many variables implied that countries have been experiencing a new situation where the interaction of economic and social policies need to be altered to face this new challenge.

Keywords:   Egypt, food crisis, government response, international food price, domestic food price

12.1 Introduction

This chapter elaborates on the global food crises in the Egyptian context, focusing on the period 2004–9, while highlighting the main features of the period of food crisis of 2006–8 and how it affected the different socioeconomic variables. The chapter’s main focus is on the political economy context of the food price policy formulation. The effectiveness of policies adopted is also evaluated, and the chapter touches upon the 25 January 2011 revolution in relationship to food price policy and anticipating future prospects.

The research utilizes a mixture of data analysis and a number of selected interviews with senior government officials and other main stakeholders to try to understand the political economy dynamics of setting the food price policy in Egypt.

12.2 Setting the Scene: An Overview of the Economic and Political Set-ups, Agriculture Sector, and Food Policies

12.2.1 General Overview

The government of Egypt (GOE) has extended subsidies, especially in the energy sector, as a means to protect the population against rising living costs. (p.254) During the period 2001/2–2010/11, subsidies represented more than 20 per cent of total government expenditures. During the period of the study (2004–9) fuel subsidies reached skyrocketing amounts accounting for EGP 70 billion in 2007/8 (the exchange rate is shown in Appendix Table 12.A1) (Ministry of Finance 2011) leading to a sharp increase in the budget deficit. Food subsidies, relatively less in terms of fiscal burden, have also remained a significant element of the subsidy system. The food subsidy system has been suffering from increasing inefficiencies associated with corruption, waste, and lack of right targeting. Piecemeal reforms undertaken to fix it remained incomplete and insufficient to tackle the roots of the system inefficiency.

Poverty in Egypt has remained high and vulnerable to changes in gross domestic product (GDP) growth rates. By February 2009, it was estimated that almost 21 per cent of the population (approximately 13.5 million) was below the national poverty line (EGP 120 per capita per month).1 According to World Bank (2009), the incidence of poverty decreased between 2004/5 and 2008, whereas the poverty gap and the severity of poverty increased slightly. Moreover, there is a high sectoral concentration of the poor (40 per cent) in agricultural activities, construction, and the informal sector (World Bank 2009). The food subsidy system represents an important pillar in the social safety net and although costly and inefficient, it provided an important indispensable safety net to the poor (Ahmed et al. 2001; Aboulenein et al. 2010).

The political scene in Egypt has remained stagnant over the last twenty years. The remaining of ex-President Mubarak in power for more than thirty years, the revolving of the whole governing regime around him, and the increasing domination of power by the ruling party (the National Democratic Party—NDP) implied that there is a high degree of concentration of power, and little room for real democracy (despite the existence of twenty-four parties before the January 2011 revolution). The domination of power of the NDP was increasing in the last ten years carrying the seeds of the succession procedures of the son of the ex-president and trying to enforce the hegemony of the NDP on both the legislative and local council elections (ECA 2008). The policies committee in the NDP, created in 2006 and headed by the son of the ex-president, dictated policies to the government and influenced all aspects related to economic, social, and political life. The 2010 parliamentarian elections were viewed to be a fraud as the NDP won 81 per cent of the 420 seats (Wikipedia 2011), despite the heavy and significant presence of other political powers, namely the Moslem Brotherhood. Such political turbulences under (p.255) the surface, accompanied by the increasing level of corruption where Egypt’s rank in Transparency International worsened from seventy-second (out of 158 countries) in 2005 to 111th (out of 180 countries) in 2008 (Transparency International 2005, 2008). The feeling of an increased level of poverty and lack of fair income distribution have been among the main reasons that ultimately led to the January 2011 revolution. The fear from social unrest and the desire to push forward with the son of the ex-president as the future president of Egypt implied, at least during the course of our study, that any serious reforms to the food subsidy system (e.g., by better targeting, or reduction) could not be undertaken. Food subsidy has remained extremely important for enhancing political stability in Egypt constituting a powerful symbol for the social contract between the population and any governing regime (Ahmed et al. 2001).

12.2.2 The Agricultural Sector and its Role in the Egyptian Economy

Agriculture contributes around 15 per cent of GDP and provides 27 per cent of employment. However, the agriculture sector is not likely to generate sizeable additional employment due to limited land and traditional methods of production (Abou-Ali and Kheir-El-Din 2010). Nevertheless, enhancing growth in the agriculture sector has an important role to play in poverty reduction due to the concentration of poor in this sector (El-Ehwany and El-Megharbel 2008).

Egypt remains highly vulnerable to international food price risk as it relies on food imports for around 50 per cent of domestic consumption and food accounts for more than 15 per cent of all imports (Aboulenein et al. 2010). Among the important crops for Egypt are wheat, rice, and maize (their importance arises from playing a paramount role in the diet of Egyptian consumers as well as their economic aspects (e.g., significant impact on government budget, exports’ proceeds, etc.)).

12.2.3 Short Historical Review of Food Price Policies

The history of the Egyptian food subsidy programme dates back to the mid-1940s when the first programme was initiated to provide everyone (not just target groups) with necessities such as sugar, kerosene, edible oil, and tea. Since then, the food subsidy system has passed through several changes and remained an integral element of the Egyptian political, social, and economic systems. During Nasser’s regime, budget allocations for food subsidies were modest, and the ration card system aimed at protecting all Egyptians, without targeting, from commodity shortages. The system grew during Sadat’s era where more commodities were introduced to the subsidy system reaching (p.256) eighteen products. The budget allocations for the food subsidy programme increased significantly, and its share in government expenditure soared in the 1970s. In an effort to reduce expenditures, the GOE, following the recommendations of the International Monetary Fund and the World Bank, announced a drastic reduction in food subsidies, including the baladi bread subsidy, in January 1977. This measure resulted in massive popular riots, and as a result the measure was reversed. By 1980/1, total expenditures on food subsidies jumped to 14 per cent of total government expenditures, compared to only 0.2 per cent in 1970/1. During Mubarak’s era several reforms were undertaken, while avoiding any type of political or social unrest similar to the one that took place in 1977 (Ahmed et al. 2001). The reforms included the reduction of the number of commodities on ration cards, introduction of two tier ration card systems (fully subsidized, and partially subsidized), as well as other reforms which continued until the time of the crisis (World Bank 2010). However, reforms remained of piecemeal nature and were never able to tackle the roots of inefficiency. As put by the World Food Programme (WFP) (2008b: 7), ‘It is therefore important to understand that the subsidy system represents a core feature of the entire economy and that removing one element of it can create a very dangerous domino effect, politically, socially and economically’. Moreover, the nutrition aspects of the food policies have not been explicitly considered even though malnutrition was widespread with 26.7 per cent of children suffering from stunting and 10 per cent suffering from wasting in 2007 (WFP 2008a).

The procurement policy is also one of the main policies adopted by the government to preserve food security and reduce vulnerability to food price fluctuations. In fact, the government has been the largest buyer of wheat (around 30 per cent of wheat production) and hence the price it sets is a leading price for other buyers. The General Agency for the Supply of Commodities (GASC), affiliated to the Ministry of Social Solidarity, is the key body in the procurement process. Yet, such practice has suffered from corruption. It was found that influential people (e.g., the secretary of the ex-president) had their private companies engaged in such tenders and was involved in manipulating prices of imported wheat.2 The government does not only subsidize food commodities, but also production inputs such as irrigation water, which is provided free of charge and subsidized or price controlled fertilizers (mainly through subsidizing energy requirements for public factories producing them, and ensuring that they sell them at certain prices). The government provides each farmer with a certain entitlement of subsidized fertilizers, which in turn has affected positively the agricultural output and sustained (p.257) the living of many poor farmers who own small plots of land (WFP 2008b). The subsidized fertilizer scheme has always been suffering from problems associated with distribution bottlenecks, lack of sufficient fertilizer entitlements to farmers, and selling in the black market.

Around 20 per cent of the Egyptian population in urban areas and 24 per cent in rural areas are food insecure (WFP 2011). Following the latest available household budget survey of 2008/9 it was found that the budget share for food is around 53 per cent for the lowest decile and 33 per cent for the richest decile, with an average of 44 per cent. This corresponds to a 40 per cent weight allocated to food in the consumer price index (CPI).

12.3 Food Price Trends (2004–11)

The relationship between food domestic prices and international prices is shown in Figure 12.1. The spikes (downturns) in domestic prices are preceded by significant increases (decreases) in international prices. The correlation is relatively high (correlation coefficient is equal to 0.83) with the international prices being higher than domestic prices. Moreover, the extent of decrease in prices following international price reductions is low. At the domestic level, food inflation increased by 47 per cent between 2005 and 2008 whereas the overall CPI increased by 31 per cent (IAAM1 2009). The extent of integration with the world market prices remains evident although not very strong (Figure 12.2).

The Political Economy of Food Price Policy in Egypt

Figure 12.1 Food inflation in domestic and international markets

Notes and source: FAO food price index data is available at: <http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/>, while CAPMAS CPI Index data is calculated by the author from CAPMAS disaggregated CPI data. Data available at: <www.capmas.gov.eg>.

The Political Economy of Food Price Policy in Egypt

Figure 12.2 Increase in Egypt’s food import prices (percentage change, over the period July 2006–June 2008)

Source: Abouelenien et al. (2010).

(p.258) Yet, domestic price changes are not caused solely by changes in international prices as there are other factors that have contributed to the change of prices in the domestic market. The existence of highly concentrated markets with anti-competitive behaviour prevailing in some markets could have resulted in higher prices at the domestic level. The fact that the pass-through effect is evident in the upturns of prices but less evident in the downturns (Figure 12.3) suggests the prevalence of anti-competitive behaviour3 (for a similar argument, see McCorriston 2011). The heavily subsidized system for a large number of food crops (due to government monopoly in their supply chain) forced the retailers and wholesalers to operate mainly in non-subsidized food products such as vegetables and fruits, and the fragmented nature of the local markets implied significant differences in price levels. Moreover, the subsidized inputs (e.g., irrigation water and fertilizers), as well as subsidizing a wide array of food products, have also affected the price of food staples in the domestic markets sometimes positively by lowering prices of final products and sometimes negatively where inefficiency in the system caused supply bottlenecks and created black markets. Hence, there are two opposing forces, one which contributes to price increases on the domestic level including the fragmented markets and anti-competitive behaviour, and one that could have helped to lower prices such as subsidies for food staples, water, and fertilizers. These forces have contributed to a lower price transmission between international and domestic prices. There is a correlation between international and domestic prices, however not very strong. For example, in the case of rice, during the crisis while world prices were increasing (April 2008) domestic prices were decreasing. This was not the case for wheat where international price increase was followed by domestic price increase. The increase in food prices in the aftermath of the crisis had significant implications. The risk of extreme (p.259) poverty (inability to meet basic food needs) increased by almost 20 per cent in February 2008 and affected about 6 per cent of the population in Egypt (World Bank 2009), hence emphasizing the importance of food prices and their crucial importance in affecting the level of poverty in the country. As evidence of the significance of increased food prices, there has been a limited scale of protests in the aftermath of the crisis, yet with some severe injuries and fatalities (BBC News 2008).

To sum up, the pass-through effect is difficult to measure due to the existence of several variables that could have affected the domestic price level. This is in line with other studies. World Bank (2011b) estimated a pass-through coefficient of 0.4, and Al-Shawarby and Selim (2012) identified that the pass-through effect is between 12 and 36 per cent. Moreover, and as argued by Abbott (2009) the policy measures adopted by any government could break the link between international and domestic prices which has been the case for Egypt where the wide use of price controls, kind subsidy, and other policy measures have relatively shielded the Egyptian consumer from a full pass-through effect (UNDP 2008).

12.4 Policy Responses to the Crisis

We classify the policy responses undertaken by the GOE into five types including (a) agriculture production policies; (b) trade policies; (c) safety nets; (d) procurement and stocking policies; and (e) other policies e.g., monetary and fiscal policies.

(p.260) 12.4.1 Agricultural Production Policies

The government adopted strict monitoring of land cultivated rice. The government set a maximum area of 1.2 million feddan (480,000 hectares (ha)) where production of rice requires a permission from the Ministry of Water Resources and Irrigation, however, in practice, before the crisis, the area actually cultivated reached 2.2 million feddan (0.92 ha). After the crisis the cultivated area of rice was reduced by 18 per cent between 2009–10 as farmers shifted to other crops due to the ban on rice exports, and the enforcement of a regulation setting a certain quota of water for rice farms. Domestic prices decreased when the government first interfered by restricting exports, at the time when international prices were increasing, but soon started to reverse trend and increase, and in some cases the rate was higher than the rate of increase in international prices. As explained by WFP (2008b), this was mainly due to traders holding stocks, which happened in October 2008 when international prices started to decrease, anticipating that prices would rise again and hence they could profit more by restricting supply.

12.4.2 Trade Policies

Two main trade policies were adopted by the government to deal with the crisis: an export tax followed by an export ban on rice and tariff reductions.

In the case of rice, several decrees by the Minister of Trade and Industry were issued by the end of 2006 and during 2007 and 2008 to impose export taxes (levies). The aim of export taxes was to shield the local market from the soaring world prices, and to reduce the costs incurred by GASC when purchasing rice. When such export taxes proved to be ineffective as they were circumvented by traders, a ban was imposed in April 2008. In fact, prices in the domestic market decreased after the rice export ban and then tended to rise again. The reason was that traders decided to store rice until the export ban ended and then export what they had stored at the international prices which at that time were almost double the domestic price even after the imposition of the export ban (Al Ahram (newspaper) of 2 June 2008; Ghoneim 2008). In 2009 the decision to ban export of rice was relaxed on the condition that an equivalent amount of rice was provided by rice exporters to GASC. Such a system was manipulated by rice exporters, and hence the government introduced a heavy export levy and then a licence auction system for exporters depending on the type of rice. Finally the system of licence auctioning was abandoned in 2011 and a ban was imposed again until October 2012. Up until 2012 the ban was not lifted as the harvest of rice that was supplied to GASC through the Principal Bank for Development of Agricultural Credit (p.261) (PBDAC) was not enough to cover the needs of the food subsidy programme in 2011.

The export ban had negative repercussions on the production and trade of rice since many large private rice mills have specialized in the production of export quality rice, and could not profitably switch to the milling of local rice. Traders also reduced their supply and held large inventories to keep domestic prices high (WFP 2008b). The continuation of imposing such an export ban reduced the incentive for producing rice.

The government abolished import tariffs in April 2008 on a number of food items including soybean oil, cheese, rice, milk for infants, and milk substitutes, and reduced it to 5 per cent on butter and dairy products. Yet such reductions did not have a significant impact due to its low marginal effect having started from an initially low tariff.

12.4.3 Safety Nets

The social safety net schemes ranged from bread subsidies, to ration cards, to school feeding programmes, to cash transfers, to other community support type of schemes. The crisis resulted in an increase in government allocations of food subsidies entitlements for bread and ration cards; the widening of beneficiaries from ration cards; and increase in cash transfers and governmental wages and salaries.

The government allocations for food subsidies increased dramatically in 2007–8 (Figure 12.3) whether in absolute terms or as percentage of total public expenditure or GDP.

The Political Economy of Food Price Policy in Egypt

Figure 12.3 Food subsidies in Egypt during the period 2005/6–2011/12

Note: *Preliminary,**budget.

Source: Ministry of Finance (2010), Monthly Statistical Bulletin, Section Four, Fiscal Sector, October, available at: <http://www.mof.gov.eg/English/publications/Reports%20and%20Indicators/Pages/TheFinancialMonthly-October2010.aspx>.

Beginning in 2004 several reforms of the ration cards were undertaken to reduce fiscal costs. A massive revision to the ration card system was undertaken in light of the food crisis in January 2008, where additional allocations were provided to overcome the negative impact of the food crisis (a significant retreat from the reforms that started in 2004).

Subsidies allocated to ration cards do not constitute more than 25 per cent of food subsidies entitlements (including sugar, rice, and edible oil) and less than 4 per cent of total subsidies provided (ECES 2010). From a food price policy perspective, an increase of the commodity basket for subsidized food and additional beneficiary registration have effectively shielded poor households from the impact of rising international food prices (World Bank 2010). Yet, the system suffers from massive leakages. The poorest quintile gets less than its proportional share in subsidized products, with the exception of wheat (Table 12.1). The system of subsidized food has been inefficient in terms of targeting the rural poor. For example, as put by WFP (2010), 33 per cent of subsidized baladi bread is distributed to low expenditure rural households as compared to 31 per cent to middle and 36 per cent to high (p.262) expenditure households. Similarly, only 28 per cent of the ration card commodities are allocated to low-expenditure rural households compared to around 31 per cent allocated to middle expenditure and around 41 per cent allocated to high expenditure households (WFP 2010). WFP (2008a) found also that 15–20 per cent of the poor do not benefit from the existing system. World Bank (2010) found that in 2008/9 Cairo and other metropolitan governorates received about 38 per cent of bread subsidies, while their share of the poor population was only 14 per cent. Adding to that corruption associated with the value chain of bread production and distribution has been a major concern.

There are several other reasons for the inefficiency of the food subsidy system including the lack of cash among the poor which implied that not all the commodities considered in the ration cards are bought. Moreover, as mentioned above, the system suffers from weak targeting and lack of coverage where a substantial number (no exact figures available) for poor and vulnerable groups to food insecurity do not possess ration cards due to their inability to obtain the necessary documents to obtain such government assistance. According to El Laithy and Armanios (2011) and following the system adopted by the Ministry of Social Solidarity in identifying the poor who deserve the ration card, 23 per cent of the people who deserve to hold the ration card according to the criteria set by the Ministry of Social Solidarity do not have one, whereas 64 per cent of the people who do not deserve it have a ration card. World Bank (2010) argues that around 28 per cent of food subsidies (EGP 5.5 billion) in 2008/9 did not reach intended consumers, with baladi bread accounting for 68 per cent (EGP 3.7 billion) of the leakage and cooking oil for 20 per cent (EGP 1.1 billion). Table 12.1 shows that the richest quintiles benefit more from subsidies when compared to the poorest quintiles. Finally, the inefficiency of logistics in terms of transport, storage, and handling has been considered a major culprit accused of (p.263) leakages and waste. It was estimated that between 15–35 per cent of wheat and grain losses are associated with inefficient logistics, and the estimates were even higher as put by the government reaching 70 per cent for some perishable products.

Table 12.1 Distribution of total benefits across quintiles, 2008/9

Per capita expenditure quintile (%)

1 (poorest)

2

3

4

5 (richest)

  • Baladi bread

16.69

18.30

19.93

22.31

22.77

Rice

17.08

19.66

20.49

21.10

21.67

Wheat

39.02

25.83

16.64

11.81

6.70

Oil

15.99

18.75

20.40

22.15

22.70

Sugar

18.26

19.72

20.65

21.15

20.22

All subsidies

18.66

19.29

19.85

21.19

21.02

The government introduced a new type of ‘smart cards’ in 2008. Those cards contain data on the household head’s monthly quota of subsidized goods. The new cards allow the government to trace the distribution and consumption of subsidized goods by recording transactions electronically. By December 2010 smart cards replaced paper cards all over Egypt (World Bank 2010; UNDP and MOED 2010).

While school feeding programmes and other social assistance programmes did not experience any significant change in response to the food crisis, cash transfers and governmental and public sector wages did. Regarding cash transfers, the number of beneficiaries4 of social pension schemes has increased from 650,000 beneficiaries in 2005 to one million beneficiaries in 2007 and its value doubled. Moreover the value of the cash transfers provided to families as an education grant increased in 2008. In addition, and as a reaction to the food crisis, and specifically in 2008 the annual increase in salary of public sector employees was 30 per cent, compared to a usual 10 per cent increase in previous years.

12.4.4 Procurement and Stocking Policies

The wheat price GASC used to offer to farmers was less than that offered by private traders. However in 2008 it increased the price over that offered by private traders. This policy has helped to increase the prices of wheat produced domestically. However, many of the farmers still preferred to sell to local traders for three main reasons. The first reason is that private traders collect wheat at the farms whilst in the case of GASC farmers are required to deliver it to the mills. Adding to that the absence of nearby places for collection from farmers set by PBDAC had lowered the positive impact of the announced policy. The second reason is related to the cheap loans for production provided by traders (WFP 2008b). In October 2008 wheat prices started to fall rapidly in the world market. The third reason is related to the delay in announcing the purchasing price by the government which always took place during the harvest or growing seasons, and not before the planting season. The stocking policy did not change in light of the crisis, due to the limited availability of silos used for wheat storage. Yet the government began building new silos in 2010 to allow it to handle more volumes of stored wheat.

(p.264) 12.4.5 Other Related Policies

To overcome the leakage problem of wheat bran which is highly associated with corruption (where the bakeries sell their assigned quotas of subsidized flour from the government in the black market), the government adopted a new system of separating production of the subsidized bread from its distribution. It established a new company to distribute baladi bread in greater Cairo, while in other governorates home delivery for baladi bread is done by NGOs (WFP 2010). The monetary policy was geared to achieve food policy objectives. In light of the food crisis and its negative impact on the balance of payments, devaluation could have taken place to restore the balance of payments. However, the fear from inflationary pressures, which were already significant at that time, made the Central Bank reluctant to undertake any devaluation. The fiscal policy was adjusted to count for the increase in allocations of food subsidies and increase in wages and salaries, where the sources of financing such outlets were financed through reduction of some energy subsidies, increase of taxes on cigarettes, seizing tax exemptions on energy intensive industries in free zones, etc. (Kandil 2010).

Finally, the government during the crisis has asked for the military to help with distribution, while at the same time increasing the capacity of bakeries managed by the military (but owned by the government) to face the increasing demand on bread.

12.5 Political Economy Dynamics of Food Policy in Light of the Food Crisis

The key stakeholder groups include governmental institutions, particularly the Ministry of Social Solidarity, but also the Ministry of Agriculture and Land Reclamation, Ministry of Trade and Industry, Ministry of Irrigation and Water Resources, Ministry of Health, and Ministry of Finance.

The Ministry of Social Solidarity was the main responsible governmental body during the food crisis responsible for handling food subsidies as it oversaw the ration card system, baladi bread subsidy, cash transfers and other consumer subsidy programmes, other than the fuel subsidy (with the exception of liquefied gas cylinders which fell under its mandate). The Ministry of Agriculture and Land Reclamation played an important role in handling the policy of fertilizer subsidy, together with PBDAC which is affiliated with the Ministry. The Ministry of Irrigation and Water Resources played an important role regarding some crops such as rice where it sets the quota of water per cultivated area as well as other irrigation-related rules and regulations. The Ministry of Trade and Industry influences inputs’ (p.265) prices as fertilizers when sold from public firms to the farmers, and finally the Ministry of Finance has an important role in determining the amount of subsidies allocated in the budget whether to consumers or producers. The interaction between such ministries, the level of coordination, and the political influence of their ministers has played a paramount role in formulating and implementing food policy.

The other stakeholders include public companies, cooperatives, and export commodity councils. Several holding companies and public companies exist which play an important role in the production of fertilizers and chemicals, and in commodity trade and storage. The cases of the shortage of fertilizers produced by the public firms and the quota system where every farmer is assigned a limited amount of subsidized fertilizers prove the inefficiency of the system as it led to black market and smuggling. Wheat and maize procurement, as well as fertilizers and certified seeds provision, are functions that cooperatives (semi-governmental institutions) play an important role in and can play an effective role in overcoming the related marketing distribution problems. Such organizations represent the link between the Egyptian farmers and government policies. Finally, so-called export commodity councils are semi-governmental entities financed mainly by exporters and their secretariats and are hosted by the Ministry of Trade and Industry. There are eighteen export commodity councils. One is for agricultural crops and another for processed food products. The members of those commodity councils are major exporters and representatives of small and medium exporters of the products. Among the other stakeholders associated with food policy are many think tanks and research institutions (Handoussa et al. 2009). Among the most important research institutions is the Egyptian Food Security Information Centre which was established in 2007 with the support of Food and Agriculture Organization (FAO) and WFP, and has been affiliated with the Ministry of Agriculture and Land Reclamation. The coordination committee of the Food Safety Information Center consists of representatives from several related ministries and agencies, with involvement of related donors.5 Also among the important research bodies dealing with food security is the Information and Decision Support Centre of the cabinet (IDSC).6 IDSC established the Egyptian Food Observatory which provides tools for monitoring and evaluating the situation of main agricultural crops and food commodities. In addition, the Observatory develops early warning tools which predict future food crises whether they are triggered domestically or internationally. Food security information is also collected by the Ministry of Social Solidarity. (p.266) The ministry has been using Geographic Information System to create vulnerability maps with WFP support. These maps are focused on vulnerability to food insecurity, where wheat quota allocated to bakeries, bakeries locations, as well as population relative distribution to the village level are mapped in several layers, which provides useful information (Handoussa et al. 2009).

There is also a series of international food-related organizations dealing with food policy that operate in Egypt. The most important of these are the WFP, and FAO, in addition to bilateral and multi-lateral donors such as World Bank, United Nations Development Programme (UNDP), World Health Organization (WHO), the International Fund for Agricultural Development (IFAD), United Nations Population Fund (UNFPA), and others (Handoussa et al. 2009). The role of the think tanks and international organizations in influencing food policy has remained substantial yet not always recognized. Different ministries have depended mainly on the studies undertaken by such organizations in drawing policy and initiating reforms.

Finally, several local and international NGOs play an important role, though not highly publicized, in addressing issues of food security and providing help to farmers (Handoussa et al. 2009). Food policy has gained increased importance in Egyptian policy-making circles in the last fifteen years for several socioeconomic and political reasons. Although the governing regime was dominated by one person backed by the NDP, opposing parties represented a real threat. Other important reasons forcing the governing regime to pay greater attention to food policy include the change of the process of choosing the president from national referendum to open elections in 2005 (Transparency International 2009) and the desire of the ruling regime for succession of the son of the president to his father. Hence, reforms were always postponed. The sensitivity of the food subsidies and the alarming signals of long bread queues in streets (associated with violence) did not leave any room for the GOE to reduce the subsidy allocations. In other words, the fear of the governing regime from the political and social consequences of any substantial reform made it always prefer status quo, while undertaking small adjustments that in fact added to the fiscal burden and dealt with the occasional symptoms of the food price policy problems, but never tackled the roots.

As for the role of cooperatives, their role has been disappointing for several reasons including the lack of appointed employees by the governments, the lack of awareness among the farmers involved in its functioning, corruption, existence of black markets (employees in some cases insist on selling additional fertilizers for farmers in order to allow them to obtain their entitlements of modestly priced fertilizers),7 and the extremely insufficient (p.267) capital needed to allow such cooperatives to function properly. During the period of study (2004–9) the private sector was very influential in affecting policy-making. Nevertheless, favouritism was highly evident in the selection of donors’ projects that serve the interests of the private sector (with little attention for its impact on consumers) as well as the lack of enforcement of competition law. Favouritism was also evident where a number of wheat flour mills were owned by members of the parliament. Moreover, influential people (e.g., the secretary of the ex-president) owned private firms which handled the importation of wheat. There was a clear conflict of interest where members of the legislative and/or executive bodies also acted as traders.

International organizations have been influential in shaping the food policy by identifying the main problems and suggesting policies to solve them; and exerting pressure to tackle neglected issues such as the nutritional dimension. The implementation of their recommendations in many cases is undertaken, yet not with the speed expected (due to bureaucracy and slow reactions by the government). Think tanks and research institutions have also been playing an important role in affecting food policy in Egypt.

The media’s role has been significant during the food crisis in two respects; namely, intensifying the pressure on the government to take fast action; and pinpointing the corruption cases, especially in terms of smuggling wheat flour. The media has always echoed the voices of the urban population more than the rural population. Also the military’s role has been evident during the crisis where it has utilized the massive production capacity of the bakeries managed by it to increase its bread production, as well as helping in overcoming distribution bottlenecks. It has been evident that the military was able to handle the crisis. Despite such significant efforts to address food security, a coordinated approach remained lacking which is attributed mainly to the lack of political will to drive the reforms. During the crisis, some institutional set-ups for enhancing coordination emerged including ministerial committees, but the political will remained absent.

The fragile institutional set-up governing domestic trade with no competition law until 2005, and ineffective implementation after that year, implied that anti-competitive behaviour prevailed. The importance of food subsidies arises also from strengthening the Egyptian capability of meeting the Millennium Development Goals, especially those related to poverty and hunger reduction. Relevant food subsidy programmes, if expanded on an efficient basis, can help to achieve such goals (UNDP and MOED 2010). This was reflected in the January 2011 revolution where among its main causes and slogans was achieving social equity and overcoming the proliferated corruption. The establishment of the food security policy advisory board in 2010, affiliated to the Ministry of Agriculture, with the aim of developing a strategy for food security, which includes senior representatives of the ministries involved in food policy (p.268) and other related domestic and international organizations including FAO and WFP, helped to improve the coordination process. The policy advisory board depends on old data for analysis which throws doubt on its ability to draw the right strategy. However, such a board, despite all such negative aspects, still remains a positive step in the coordination process. In addition, the prime minister issued a decree for forming a ministerial committee to deal with food policy in 2007. The Social Solidarity Minister and the Agriculture Minister were on one side whereas the Finance Minister and the Trade and Industry Minister were on another side, which was felt during the crisis when the Social Solidarity and Agriculture Ministers were asking for increasing subsidies’ allocation and imposing a ban on rice exports whereas the Finance and Trade and Industry Ministers were against such demands. Contradictory objectives have been evident and in many cases the overriding concern of the negative effects of the food crisis led to the surrender of the Finance and Trade and Industry Ministers. An incident of conflict was also raised where it was found that rice production in 2012 exceeded the domestic market requirements, and hence there was a suggestion to allow exports based on certain conditions. However, such a proposal by the Ministry of Trade and Industry was not highly welcome by Ministry of Irrigation and Water Supply, implying that conflicts of interests prevail, where in many cases the national interest remains missing. Yet, during the food crisis, no conflict arose (despite strong negotiations between different ministries for increasing food subsidies versus reducing budget outlays and enhancing exports), maybe due to the overriding political importance of the issue at that time. Also the governing regime had to respond in a faster way to urban consumers, which gave the (false) impression of urban consumers being prioritized in the agenda of the government. This has not been the case in reality. However, the relatively stronger bargaining power of urban consumers who can arrange protests, access media channels, and exert pressures on parliament members in a more efficient way when compared to rural producers and consumers, made their voice heard loudly when compared to rural consumers.

The food crisis resulted in food price policy affecting several other policies (agriculture, irrigation, fiscal, monetary, and trade). In the case of agriculture policy, the crisis did not result in conflicting objectives or measures. In fact the decision to ban rice exports was imposed after the crisis coincided with the agricultural and irrigation policies which have for a long while set a limit on the land that can be rice cultivated, yet was not strictly enforced. In other words, at the national level the social and political concerns coincided with the interest of the Ministry of Agriculture. Moreover, the desire to increase self-sufficiency from wheat, which intensified during the crisis, has always been one of the main national goals. Food policy and agricultural as well as irrigation policies might have different objectives, yet they were rarely contradictory. For example, even in the case of the rice planted area which had to be reduced in (p.269) the aftermath of the food crisis, such reduction did not affect the food security aspect, due to the over-supply of rice, and it helped to serve the irrigation policy due to the nature of rice being a heavy consumer of water, which is already scarce in Egypt. However, this has not been the case with other policies such as fiscal and trade policies. In the case of fiscal policy, the food crisis and the widening of coverage of the ration card system to a larger number of households as well as maintaining the baladi bread price implied additional fiscal burden which has been reflected in the allocations of food subsidies in the years 2007 and 2008 that increased dramatically as aforementioned. Such a trend is likely to continue after the revolution where social aspects including achieving social equity remain among the most important indispensable objectives. This has been reflected in the budget set after the revolution for 2011/12 where food subsidies remained high at EGP 18.9 billion compared to EGP 13.6 billion in the 2010/11 budget for food subsidies and to EGP 14.1 billion for food subsidies in the 2009/10 budget (Ministry of Finance 2011). Moreover, the reduction of tariffs on food staples in the light of the food crisis affected negatively the tariff revenues, though in an insignificant manner due to the low tariffs imposed on food products and the wide array of free trade area agreements that Egypt is engaged in. The possibility of lessening the fiscal burden of food policy in the aftermath of the January 2011 revolution is not likely to take place through reduction of subsidies by any means, even though the economy is in bad shape and the government has announced austerity measures where real GDP growth rate has been extremely modest after the revolution.

12.6 Conclusion and Policy Implications

The government’s response to the crisis is deeply embedded in the country’s socioeconomic context. The importance of quick actions undertaken to make the bread available and control its price was evident. The responses to the food crisis have certainly lessened the crisis’ negative social effect on the majority of the population. But this has been costly as exemplified by the increasing outlays for social safety nets. The core of government reactions focused mainly on bread availability and prices, which is by nature the central theme of the food subsidy system in Egypt. Other policies were enacted including the change of the commodity mix in the ration card system while increasing the number of beneficiaries. Moreover, cash transfers and wages of government and public sector employees were increased as were pension holders’ transfers. Given the high correlation between food prices and the level of poverty in Egypt—Egyptians spend on average 44 per cent of their income on food and the poorest spend on average 53 per cent—the poor in Egypt are vulnerable to any increase in food prices. Trade policies were (p.270) changed including the reduction of import tariffs on a number of commodities and the imposition of the export ban on rice. These trade policies, particularly the rice export ban might have helped to solve the bread problem by keeping domestic rice prices lower than they would otherwise have been. Yet, such policies affected negatively export prospects of rice and the price of rice was kept stable and below the international price level. The high fiscal cost and the strong demand for social services raise concerns about the sustainability of such policies and whether from a macroeconomic perspective the current and future governments are able to carry on with the burden of such policies. The relatively small amount of subsidies allocated to food when compared to fuel subsidies could imply that the burden of food subsidies is expected to be contained by the government for a while, especially that the focus of the current regime after the revolution and the future regimes will be on achieving social equity and lessening poverty. However, hard budget constraints could also imply a need for reform, at least to prevent leakage and attain better targeting on income and geographical levels.

The political economy of food policy in Egypt has proven to be highly complex. The negative social and political repercussions that can arise from any serious economic reforms implied a preference of the political leadership for the status quo. The interaction of poverty aspects with food security dimensions and the high vulnerability of a relatively large portion of the population to fall into the poverty trap if food prices increase added to the difficulty of undertaking any reforms. Lack of sincere political will, weak coordination among different stakeholders, proliferation of corruption, inefficient pricing system, modest logistics, and heavily distorted market because of the subsidy system all implied more difficulties for reforming the food security system.

A policy towards reducing the waste and leakages resulting from production and distribution inefficiencies is highly needed. This can be achieved by reforming the pricing system and improving the logistics. The government should also start applying hedging for the strategic commodities, which is in fact applied by some of the large private corporations importing directly in Egypt by taking the necessary monetary measures in case of exchange price change. The institutional set-up (laws and regulations) is not conducive to including this type of activity, implying the need for an institutional reform. Changing the mix of commodities considered on the ration cards can help to avoid problems associated with obesity and improve the nutritional requirements (WFP 2011). Yet, there is also a need to simplify the registration process to make the system more effective in terms of reaching the needy people.

Diversification of main suppliers of wheat by relying on other main producers, besides Russia, can help in securing wheat procurement from other countries such as the Netherlands, from which Egypt should increase its wheat imports. However, GASC remained constrained by its organizing law (p.271) that does not allow it to trade in futures, and hence it has to buy wheat on the spot market (where delivery takes place within two months from the date of purchase). Reducing leakages and shortcomings of the subsidy system cannot be attained by substituting cash transfers for in-kind transfers due to the absence of a full database of poor people, and fear from induced inflation (WFP 2008a, 2010). In order to pursue better coordination, a supreme council of food policy security should be established. It should not be under a specific ministry, and should have overriding power over related ministries and agencies. It could be headed by the prime minister or his deputy and should meet on a frequent basis. It should be guided by a serious political leadership providing it with clear signals on directions of reform.

Finally, announcing purchasing prices by the government of major commodities such as maize and wheat has always been problematic. For example, regarding maize, the Ministry of Agriculture and Land Reclamation has tried to encourage maize production by expanding its cultivated area through announcing a purchasing price set prior to the plantation time only in 2010 and set on a par with the price of rice (the competing crop). Yet, such policy suffered from similar drawbacks to those associated with wheat where farmers still preferred to sell to the private sector and not the government due to transport facilities offered by the private sector and avoiding problems associated with PBDAC. Hence, the change of maize policy can be considered a long-term policy in light of the crisis that was enacted after a relatively long while.

The features of the Egyptian political system after the 25 January 2011 revolution are still unclear. There has been a rising trend of new parties which represent all ideological backgrounds, and the NDP was dissolved. The role of Islamic-oriented parties, and especially the Moslem Brotherhood affiliated party, has been evident. Yet, and concerning the focus of this chapter, it is clear that all parties are refusing the adoption of the free market economy policies as has been the case in the previous era where free market policies were adopted without establishment of the right institutions that monitor anti-competitive behaviour and conflict of interest. Reviving the role of the government in achieving social equality and reaching better income distribution is widely discussed, yet without a clear strategy still announced. Despite the fact that the government as well as the existing parties emphasize such aspects, it is still not clear how the modalities and polices needed to achieve such goals will be designed and adopted. One of the main issues that has been raised lately has been the subsidy system and the need to reform it. More emphasis has been put on energy subsidies, but less emphasis has been devoted to the issue of food subsidy reform. What is clear is that any political system that will evolve will pay considerable attention to social aspects including equity and income distribution, while creating the right institutions that avoid conflict of interest and fight corruption.

Appendix Table 12.A1 Exchange rate between the EGP and US$, 1985–2010

Year

  • (EGP per US$, period average)

Year

  • (EGP per US$, period average)

1980

0.70

1996

3.39

1981

0.70

1997

3.39

1982

0.70

1998

3.39

1983

0.70

1999

3.40

1984

0.70

2000

3.47

1985

0.70

2001

3.97

1986

0.70

2002

4.50

1987

0.70

2003

5.85

1988

0.70

2004

6.20

1989

0.87

2005

5.78

1990

1.55

2006

5.73

1991

3.14

2007

5.64

1992

3.32

2008

5.43

1993

3.35

2009

5.54

1994

3.39

2010

5.62

1995

3.39

2011*

5.93

Notes: *Average for the period (Jan 2011−Nov 2011).

(p.272) References

Bibliography references:

Abbott, P. (2009). ‘Development Dimensions of High Food Prices’. Food, Agriculture and Fisheries Working Paper No. 18. Paris: OECD Publishing.

Abou-Ali, H., and H. Kheir-El-Din (2010). ‘Economic Efficiency of Crop Production in Egypt’. Working Paper No. 155. Cairo: Egyptian Center for Economic Studies.

Aboulenein, S., H. El-Laithy, O. Helmy, H. Kheir-El-Din, and D. Mandour (2010). ‘Impact of the Global Food Price Shock on the Poor in Egypt’. Working Paper No. 157. Cairo: Egyptian Center for Economic Studies.

Ahmed, A., H. Bouis, T. Gunter, and H. Loefgren (2001). ‘The Egyptian Food Subsidy System: Structure, Performance and Options for Reform’. Research Report 119. Washington, DC: International Food Policy Research Institute.

Al-Shawraby, S., and H. Selim (2012). ‘Food International Price Pass-Through in Egypt’s Inflation’. Paper presented at the Economic Research Forum Annual Conference, Cairo, 25–27 March 2012.

BBC News (2008). ‘Egypt Army to Tackle Bread Crisis’, 17 March. Available at: <http://news.bbc.co.uk/2/hi/middle_east/7300899.stm> (accessed 23 February 2012).

Economic Commission of Africa (2008). ‘Governance Report on Egypt’. Unpublished Report. Addis Ababa: Economic Commission of Africa.

Egyptian Center for Economic Studies (ECES) (2010). ‘Policy View Point 25’. Cairo: ECES.

(p.273) Egyptian Food Safety Information Center (2011). Available at: <http://www.efsic.com/index.html> (accessed 14 January 2012).

El-Ehwany, N., and N. El-Megharbel (2008). ‘Employment Intensity of Growth in the Egyptian Economy Growth with focus on the Manufacturing Industries’. Working Paper No. 130. Cairo: Egyptian Center for Economic Studies.

El-Laithy, H., and D. Armanios (2011). ‘Targeting of Poor in Egypt: Identifying the Alternative Means of Living: with Application on Ration Cards’. Cairo: Social Contract Center, the Observatory of Development Justice.

Ghoneim, A. F. (2008). ‘Can Trade Policy Save Egypt from the World Food Crisis?’. Paper submitted to Social Contract Center Project, Information and Decision Support Center. Cairo: Cabinet of Prime Minister.

Handoussa, H., D. Abdou, A. T. Awny, and V. Kirk (2009). ‘Exploring Research Options on the Impact of Food Price Fluctuations in Egypt’. Scoping Survey Final Report submitted to IDRC. Ottawa: International Development Research Centre (IDRC).

IFPRI (International Food Policy Research Institute) (2008). ‘High Food Prices: The What, Who, and How of Proposed Policy Actions’. Policy Brief. Washington, DC: IFPRI.

Kandil, M. (2010). ‘Reforms of Public Finance in Egypt: Energy and Food Subsidies’. Price Subsidies in Egypt: Alternatives for Reform. Presentation delivered at the Egyptian Center for Economic Studies, Cairo, 5 October.

McCorriston, S. (2011). ‘Commodity Prices, Government Policies and Competition’. Paper presented at the WTO-CUTS Symposium on Trade in Primary Product Markets and Competition Policy, Geneva, 22 September.

Ministry of Finance (2010). ‘Monthly Statistical Bulletin’. Section Four, Fiscal Sector, October. Available at: <http://www.mof.gov.eg/English/publications/Reports%20and%20Indicators/Pages/TheFinancialMonthly-October2010.aspx> (accessed 10 September 2011).

Ministry of Finance (2011). ‘The State’s General Budget for the Fiscal Year 2010–2011’. Available at: <http://www.mof.gov.eg/MOFGallerySource/Arabic/Mwazna2010-2011/Financial_statement10-11.pdf> (accessed 10 September 2011).

Transparency International (2005). ‘Corruption Perceptions Index’. Available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2005 (accessed 15 September 2011).

Transparency International (2008). ‘Corruption Perceptions Index’. Available at: <http://www.transparency.org/policy_research/surveys_indices/cpi/2008> (accessed 15 September 2011).

Transparency International (2009). ‘National Integrity System Study: Egypt 2009’. National Integrity System Assessments: Reports by Country’. Available at: <http://www.transparency.org/policy_research/nis/nis_reports_by_country> (accessed 15 September 2011).

UN Inter-Agency Assessment Mission on Soaring Food Prices: Government of Egypt, FAO, WFP, World Bank, IFAD, and NEPAD (IAAM1) (2009). ‘Macro-economic Analysis and Review of Poverty in Egypt’. Working Paper 1. Available at: <http://neareast.fao.org/Publications> (accessed 6 November 2011).

(p.274) UNDP (United Nations Development Programme) (2008). ‘Food Security and Agriculture in Arab Countries: Facts, Challenges and Policy Considerations’. Cairo: UNDP and League of Arab States.

UNDP (United Nations Development Programme) and MOED (Ministry of Economic Development) (2010). ‘Egypt’s Progress towards Achieving the Millennium Development Goals’. Cairo: UNDP and MOED.

Wikipedia (2011). ‘Egyptian Parliamentary Election, 2010’. Available at: <http://en.wikipedia.org/wiki/Egyptian_parliamentary_election,_2010> (accessed 5 February 2012).

World Bank (2009). ‘Economic Growth, Inequality, and Poverty: Social Mobility in Egypt between 2005 and 2008’. Report No. 48093. Washington, DC: World Bank.

World Bank (2010). ‘Egypt’s Food Subsidies: Benefit, Incidence, and Leakages’. Report No. 57446. Washington, DC: World Bank.

World Bank (2011a). ‘World Development Indicators CD-ROM 2011’. Washington, DC: World Bank.

World Bank (2011b). ‘MENA Facing Challenges and Opportunities: Regional Economic Update’. Washington, DC: World Bank.

World Food Programme (WFP) (2008a). ‘Vulnerability Analysis and Review of the Food Subsidy Program in Egypt’. Cairo: World Food Programme.

World Food Programme (2008b). ‘Marketing of Food in Egypt’. Cairo: World Food Programme.

World Food Programme (2010). ‘Analysis of Consumer Profiles and Behavior Patterns of Food Subsidy Recipients: An Approach to Targeting’. A study prepared for the Ministry of Social Solidarity, Cairo.

World Food Programme (2011). ‘WFP Strategy in the MENA Region 2011–2014’. Cairo: WFP Regional Bureau for the Middle East, North Africa, Eastern Europe, and Central Asia.

Notes:

(*) The research assistance of Asmaa Ezzat, Noura Abdel Wahab, and Heba El Deken is highly acknowledged. The author would like also to thank Per Pinstrup-Andersen, Kenneth Thomas Baltzer, Danielle Resnick, Robert Paarlberg, Finn Tarp, Phil Abbott, and Henrik Hansen for comments on earlier versions of this chapter.

(1) World Bank (2009) puts the figure of poor in Egypt at 28 million people in 2005 representing 40 per cent of the population. World Bank (2009) considers 13.6 million (19.6 per cent) in absolute poverty or ultra-poverty (spending less than the minimum to cover their basic food requirements or less than EGP 1,423 per year per capita) and 14.5 million (21 per cent) in near poverty (spending between EGP 1,424 and 1,854 per year per capita).

(2) See Youm El Sabia (newspaper), 12 February 2012.

(3) For example, the Minister of Social Solidarity announced in September 2011 that trade in a number of food products including rice and oil has been controlled by a handful of traders. This has also been confirmed by interviews with senior government officials.

(4) Ministry of Social Affairs programmes available at: <http://www.mss.gov.eg>.

(6) The IDSC is an influential research institute as it feeds data to the cabinet, and accordingly helps in shaping the decision-making process.

(7) Al Ahram (newspaper), 19 December 2011.