Food Policy 25 (2000) 219–224www.elsevier.com/locate/foodpol

Conference report

Ensuring Food Security in Egypt: Food Subsidy, Income Generation and Mar-ket Reform, Cairo Egypt, 25–26 May 1999

Rarely has food policy become an international media event as it did in Egypt in1977 when sharp increases in the price of food staples (bread in particular) and otherproducts ignited riots in the streets of Cairo. Nevertheless, since the mid 1980s thegovernment of Egypt has continued its food policy reform by using a variety ofincremental strategies to reduce food subsidy costs while simultaneously maintaininga safety net for the poor and transforming the agricultural economy from a state-dominated sector to a market oriented one. Upon first glance, these new policyambitions seem to refute each other. But recent research evidence presented in Cairoby the International Food Policy Research Institute (IFPRI) provides testimony toEgypt’s successes linking these policy objectives. The findings give guidance onhow advancements in food subsidy reform, income generation and wheat marketreform can abet each other.

In addressing these issues, IFPRI and its collaborators from the Egyptian Minis-tries of Agriculture and Trade and Supply along with members of the Egyptian aca-demic community presented three years of research findings to an audience of 75Egyptian policy makers and members of the NGO and bilateral donor community.

The first day of the conference focused on the Food Subsidy Reform in Egypt:Politics, Performance and Targeting: How well does the present system target thepoor? How much does the present system cost the Egyptian government? What arethe political and social costs to reforming the system? Day two of the conferenceclosely examined a profile of poverty in Egypt and its determinants as it influencesthe effective targeting of food subsidy reform: How many poor are there? What dothe poor do? What do they own? How and where do they live? The final theme,wheat policy reform, identified obstacles to a complete transformation towards amore efficient private sector-based wheat marketing system including an in-depthanalysis of the effects of reforms upon wheat traders, millers, producers and thewheat pricing system. What are some key characteristics of the wheat sector? Howmight liberalization and privatization affect them?

* Tel.: +1-202-862-8141; fax:+1-202-467-4439.

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Food subsidy reform

Despite achieving significant cost reductions since the mid 1980s, researchpresented suggested that the absolute cost of food subsidies remain high totaling LE3.74 billion in 1996/97 or about US$1.1 billion. Yet how much of this investmentreaches Egypt’s poor? Broadly speaking, food subsidy benefits are about equal distri-bution across income groups. That is to say, that 1 percent of the population receivesessentially 1 percent of the subsidy benefit, despite level of income. Given that theEgyptian food subsidy system is untargeted, the evidence presented that the distri-bution of benefits is not skewed toward any particular income group is not surprising.Yet, what this finding does suggest, is that most of the subsidy benefits the non-needy and is thus an expensive means of trying to improve food security and nutritionfor Egypt’s poor. In fact, the IFPRI analysis revealed that the total benefit of thefood subsidy diverted to the non-needy was equal to LE 1817.9 million or about48.6 percent of the 1996/97 food subsidy cost. This lack of targeting coupled withleakage where subsidized foods are diverted to the private market for sale at higherprices, leaves only about one third of the government’s total food subsidy for theneedy.

How can the government better target food subsidies in Egypt?

The research suggests that food subsidies can more effectively reach the poor ifthe Egyptian government better concentrate subsidized food distribution outlets inpoorer neighborhoods. Second, while 57 percent of the total Egyptian populationlives in rural areas, household survey research showed that only about 30 percentof the total food subsidies went there. Therefore, considerable scope exists for geo-graphic targeting at the regional level.

Two of Egypt’s four subsidized commodities (sugar and cooking oil) use a rationcard system for their distribution. Highly subsidized green ration cards are intendedfor low-income households. Red ration cards are less subsidized and are offered tohigher income households. IFPRI research found that 67% of the top three expendi-ture quintile households hold the highly subsidized green cards and 11% of the needyhouseholds hold the less subsidized red cards. Moreover, 13% of the poor do notpossess any ration card. This misallocation coupled with the 1989 policy decisionto stop issuing ration cards to newborns further skewed the food subsidy benefit towealthier households. The ration cards can be made more progressive by: (1) provid-ing green subsidy cards to low income households who have no cards; (2) convertinghigh-income household green cards to red cards and; (3) changing red cards withinlow income households to green cards.

How to identify the poor and non poor?

In any administrative targeting effort, one major challenge facing the policy makeris to develop an accurate system for identifying the poor and the non poor membersof society. Yet what criteria should be used? Reported per capita income could and

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has been used but it is often quite difficult to verify in developing countries due tothe lack of records. As an alternative, measure of household income or expendituresrequires time-consuming and expensive surveys. Therefore, rigorous tests of whetherhouseholds have themeansto be eligible for benefits are rarely undertaken indeveloping countries. An alternative method, proxy means tests, relies on indicatorsthat are highly correlated with household income and are easy to collect, observeand verify. A newly-developed methodology for carrying out a proxy means testwas offered to the Egyptian Ministry of Trade and Supply. They have acceptedIFPRI’s technique for identifying its ration card recipients and will now test theproxy means test on a pilot basis as a mechanism for determining eligibility.

Conference participants agreed that although IFPRI presented compelling evidencefor reforming the food subsidy system, the Government of Egypt can take onlycertain corrective measures considering food’s political significance. Cleaning theration card system was met with little opposition. Redirecting allocations geographi-cally were more politically charged options. At the conference end, Egyptian policymakers and food security specialists were made acutely aware of the costs of theirsubsidy system, identified avenues for further investigation and linkages within abroader social development policy framework. Participants were united in a call todevelop appropriate methods for evaluating and targeting the current system andidentifying government agencies and actors. Given a better understanding of theneeds of the citizens and the proper political climate, participants expressed theircommitment to reforming the food subsidy system as it best benefits the Egyptianpeople.

Poverty and employment

According to the research presented about 15.7 million people, or 26.5 percent ofthe population is considered poor in Egypt. Of these, they deem 5.1 million ultrapoor. To tackle poverty and food security as a problem for the poor, Egyptian policymakers were presented detailed research results that gave an understanding of howpoverty is distributed across geographic and socioeconomic groups and what povertylooks like within Egyptian households and in the workplace. IFPRI then proposeddeterminants that bring it about. The research results emerged from the 1997 EgyptIntegrated Household Survey, a nationwide survey of 2500 households carried outby IFPRI, the Egyptian Ministry of Agriculture and Land Reclamation and the Minis-try of Trade and Supply. Using the data gathered from this survey, it was possibleto carry out a household-level analysis of living standards using multiple variablesand then consider the effects of policy interventions on poverty reduction andfood security.

A profile of poverty

Using region-specific poverty lines, IFPRI found that poverty rates were signifi-cantly higher in the rural sector. Sixty-three percent of the poor and 74% of the ultra

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poor live in these areas. This finding may appear evident but contrary to conventionalwisdom the data showed no significant difference between poverty in upper andlower Egypt. The poor and non poor in Egypt seem to have similar access to publicfacilities. Where the ultra poor however has less access to schools, hospitals andmarkets, they have better access to agricultural extension, and cooperative and villagebanks. Female headed households are poorer than those households headed by males.In fact in urban areas 33% of the female headed households live in poverty comparedwith only 22% of the male-headed households. In the rural sector these figures are36% and 28% respectively.

The poor and the non poor have similar rates of labor force participation butfemale rates are much lower than male. In urban areas, 58% of the males above sixyears of age report themselves in the labor force as opposed to 21% of females. Inrural areas these percentages are 60% and 16% respectively. Non-participation inthe labor force — not precluding work at home — is lower for females (49%) inthe urban areas than the rural (60%) regions. Poor males are concentrated in low-paid casual jobs. Poor employed females are split between casual wage labor andregular salaried employment. The poor are most represented in the construction,agriculture, and trade and service sectors. Within the rural sector, non cultivators aresignificantly poor than cultivators.

Perhaps the most striking findings presented on poverty focused on disparities ineducation. There is a significant schooling gap between the poor and non poor. Onaverage the poor have 2.6 fewer years of schooling, and have a literacy rate 27%lower than the non poor. The inequalities only become more extreme when onedisaggregates the data by gender. Only one-third of the poor females aged fifteenor older can read or write as compared with 60% for poor males. Poor women have2.6 years less schooling than poor men.

Anti-poverty interventions

Education of Egyptians plays a vital role in alleviating poverty. Research showsthat parents completing primary school can increase per capita consumption of Egyp-tian households by 10–13%. Simulations show that a two-year increase in the averagelevel of education lowers the numbers of individuals living in poverty by 18%. Thesefindings hold notwithstanding geographic location or urban vs. rural households. Notsurprisingly, unemployment significantly lowers household consumption. Should anadult male lose his job, a 2% decline in per capita consumption was found. Still,the largest effect is found for urban households with an unemployed female house-hold member (19%). In short, lowering unemployment in Egypt by one person perhousehold reduces the proportion of the population living in poverty by 2% in ruralareas and 3% in urban centers.

Finally, Egyptian policy makers should also consider investing in infrastructures.Data from rural areas only, suggested that distance to railways and supply of irri-gation are insignificant by themselves but are important variables as they interactwith other variables such as years of schooling, where better education and infrastruc-ture complement one another. Policy simulations show that the presence of a second-

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ary school, a hospital or a police station can lower the poverty headcount by 3percent. Reducing the distance to the nearest rail station to 4 kilometers would alsolower the incidence of poverty by 3 percent. If all communities had access to irri-gation, the proportion of rural people living in poverty would decrease by 10 percent.

Reducing poverty in Egypt remains a high priority for policy makers and membersof the donor community. Still, the key poverty question remains. Is the number ofpoor increasing or decreasing? Does the Egyptian government have a consistent andaccurate method for measuring this population? Poverty, unemployment, food secur-ity, nutrition and the status of health for Egyptian society are all interrelated in thegrand umbrella of social welfare. The manner in which poverty is estimated anddetermined, aggregated and disaggregated, grouped and calculated, became the focusof discussion and led to an additional working group day devoted to sampling andmeasuring poverty and prioritizing welfare interventions.

Wheat policy reform: adjustment of local markets and options for futurereforms

The main goal of agricultural reform policies in Egypt is to transform the agricul-tural economy from state-dominated to market-oriented. Beginning in 1987, thegovernment of Egypt began a program of liberalizing prices, removing productioncontrols and introducing market forces into the provision of agricultural goods andservices. For the wheat system there still remains the large task of moving to aprivate sector-based marketing system without jeopardizing food security to lowincome groups.

The final session of the Cairo conference onEnsuring Food Security in Egyptpresented a series of studies that identified obstacles to the complete transition towarda more efficient private sector-based wheat marketing system while addressing thegovernment’s concern for food security. The studies examined the effects of reformson wheat producers, millers, traders and the pricing system and on the economy asa whole.

IFPRI research found that the agricultural and economy-wide reforms have had asignificant impact on the wheat sector in Egypt. Despite some disagreement onmethods used for measuring wheat production, conference participants agreed thatthe removal of area allocation and compulsory delivery, the increases in producerprices and the introduction of high yielding wheat varieties have all led to an increaseyield and the total areas dedicated to wheat production. The liberalization of wheatgrain markets has increased the participation of the private sector and the entry ofthis sector into the milling and flour market has induced new investment in wheatmills. Conference participants noted that privatization of the wheat milling sectorhas not come without costs. Surges of investment in wheat flour milling have ledto some loss due to overcapacities. Milling overcapacities aside, greater domesticflour production, has led to a drastic reduction in wheat flour price, to the benefitof all consumers. Yet some restrictions remain. The government’s interventions inmarketing and restricting the movement of wheat products has helped to create a

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hesitancy among private sector traders to expand their activity to include long dis-tance trading. This market segmentation has led to a highly volatile wheat priceenvironment. In addition, excessive government intervention makes wheat millingvery costly and has delayed updating old small mills into more efficient and costeffective processing facilities. Finally, Egypt’s current wheat pricing policies that donot attempt to adjust domestic to international prices are not only costly, but evidencesuggests that they have dampened trade. IFPRI suggested the following changes toaid in the transformation to a fully liberalized wheat marketing system.

1. Adopt a more systematic and transparent rule in setting domestic producer prices;2. Target consumer subsidies at the consumer level rather than at the levels of the

wheat marketing channel. Such a shift would raise productive efficiency and thusproduction, could lower budgetary costs, discourage the diversion of subsidizedproducts to non intended uses while protecting food security for the poor;

3. Remove regulations that impede inter-governorate and long-distance trade; and,4. Direct government revenues toward projects that are likely to increase wheat pro-

ductivity (i.e., research and infrastructure) rather than subsidize producer pricesto achieve self sufficiency in wheat.

While Egypt can be commended for the transitions they have completed to date,there is more work to be done. Much debate still surrounds the gathering and analysisof numbers — numbers of poor, costs of safety nets, tons of wheat. The conferencepresented much evidence of the economic and social costs of the current systemsand suggested roads to transform inefficiency to opportunity. At the conference end,an additional challenge emerged from the research presented, the need to continueto produce sustainable, timely and accurate information to supply Egyptian policymakers with the tools to formulated policies that ensure food security for its popu-lation.

Bonnie McClafferty*The International Food Policy Research Institute, 2033 K. Street, N.W.,

Washington, D.C. 20006, USA