economic literature review
TRANSCRIPT
1
Demand and Supply Challenges of Food
Security in Egypt
Racha Ramadan1
Review No. 2
July 2015
1 Assistant Professor at Faculty of Economics and Political Science, Cairo University. Email: [email protected].
Economic Literature Review
2
Abstract
Egypt is facing high rates of poverty and unemployment, with 17 percent of Egyptians
suffering from food insecurity in 2011. Food insecurity is an important challenge facing
the Egyptian government, especially after the 25th of January Revolution and its second
wave in June 2013. This paper reviews the food security situation in Egypt, shedding light
on the main factors affecting the food situation on both the demand and supply sides.
The paper takes into consideration the food subsidy system that has always ensured food
security in Egypt. The paper concludes that more reform of the subsidy system is crucial
given its increasing budget and its inefficiency. Moreover, Egypt cannot afford to continue
depending on food imports without increasing its local food production as well as exports
to secure the needed foreign currency.
الملخص
بلغت نسبة من يعانون من عدم األمن الغذائي في مصر حيث تعاني مصر من ارتفاع معدالت الفقر والبطالة،
خاصة في ، وعدم األمن الغذائي أحد التحديات المهمة التي تواجه الحكومة المصرية . ويشكل2011 عام في 17%
تناقش الورقة وضع األمن الغذائي ،في هذا اإلطارو. 2013 يونيو يناير والموجة الثانية منها في 25أعقاب ثورة
تأخذ بعين العوامل الرئيسية المؤثرة عليه على جانبي العرض والطلب. كما مع إلقاء الضوء على في مصر
النهاية إلى الورقة فيخلص يكفل األمن الغذائي في مصر. وتما دائما نظام دعم الغذاء والذي كان االعتبار
فضال ، ضرورة تطبيق مزيد من اإلصالحات على نظام الدعم وخاصة في ضوء التكلفة المتزايدة له وعدم كفاءته
على االستمرار في االعتماد على الواردات الغذائية بدون زيادة اإلنتاج المحلي من الغذاء الدولةعن عدم قدرة
.لعملة األجنبيةمتطلباتها من التأمين والتصدير
Keywords: Food Security, Food demand, Agricultural Production, Food Subsidy.
JEL classification: H2, Q10, Q18
1
Introduction
By 2050, the world population is expected to reach around 9 billion, and ensuring food
security for that constantly growing number requires increasing world food production
and reducing food wastage. Food security can be targeted at the international, national,
local and individual levels (Tielens and Candel 2014).
Food security is a complex sustainable development issue, linked to health through
malnutrition, but also to sustainable economic development, environment, and trade. It
is a multi-faceted concept variously defined and interpreted (WHO 2014; FAO 2003).
According to the World Food Summit of 1996, food security is defined as: "when all
people, at all times, have physical and economic access to sufficient, safe and nutritious
food that meets their dietary needs and food preferences for an active and healthy life,”
(WHO 2014; Tielens and Candel 2014). From such definition, we can conclude that food
security is a triple concept reflecting the following three criteria: food availability, food
access and food use.
First, food availability is about the availability of sufficient quantities of food on a
consistent basis. Food availability is satisfied by local production and imports. Second,
food access consists of having sufficient resources to obtain appropriate foods for a
nutritious diet.
Accessibility includes both physical and economic access to food that meets
people's dietary needs as well as their food preferences. High poverty rate is an indicator
of limited access of some income groups to food. Hence, the stability of these two
elements is crucial for food security. As both availability and accessibility mean that
individuals should have access to adequate food at all times without any risk of losing
this access as a consequence of any sudden shocks or cyclical events. And finally, food
use means appropriate use based on knowledge of basic nutrition and care, as well as
adequate water and sanitation (FAO 2003, 2006; Tielens and Candel 2014).
Developing countries, especially African ones, are mainly net food importers
suffering from food insecurity. According to the Food and Agriculture Organization’s
estimates (FAO 2015), 33 countries, including 26 African countries, need external food
assistance due to conflicts, crop failures and high domestic food price.
Egypt is no exception. According to FAO (2015), Egypt is a low income food deficit
country (LIFDC) that faced deterioration in its economy during the previous four years,
accompanied with an increase in poverty, unemployment and food insecurity. High
poverty rate (45 percent of the population lives below 2 dollars a day) and food
insecurity (17 percent of Egyptians suffered from food insecurity in 2011) are two major
challenges facing the Government of Egypt (GoE) (Ghoneim 2014).
Being a net food importer, food security in Egypt is vulnerable to volatility of
international food prices. The pass-through of rising global food prices to domestic prices
has increased the cost of living of the Egyptian population, which contributed to poverty,
undernutrition and other negative social welfare effects (FAO 2003, 2015). It is worth
noting that the impact of rising food prices on farmers differs if they are net consumers
or net producers.
According to UN Egypt (2014), high population growth rates, increasing per capita
income and urbanization are major factors behind rising food demand, especially cereals.
While on the food supply side, Egypt is facing important challenges with diminishing
agriculture potential, water scarcity, climate change, deficit on its food balance and rising
import bills. Hence, a review of food security and its challenges is required for Egypt,
especially in the actual context of rising poverty.
This paper aims to review the food security situation in Egypt in an attempt to
answer the following questions: What are the supply and demand factors affecting food
insecurity in Egypt? What is the impact of the food subsidy system and its actual reform
on the food security situation in Egypt? What are the policies needed to improve Egypt’s
food security?
2
More precisely, the paper starts with a review of both poverty and food security
situation in Egypt. Section II explores the food security challenges in Egypt on both the
demand and supply sides. Sections III describes the food subsidy system and the role it
played in securing food for poor households. And finally, policy options are suggested to
improve food security in Egypt with different possible scenarios in the form of “What If?”
questions.
1. Poverty and Food Security in Egypt
The prevalence of poverty in Egypt reached 26.3 percent in 2012/2013. Poverty varies
across regions in Egypt with the urban frontier governorates witnessing the lowest
poverty rate of 11.4 percent (Figure 1) (CAPMAS 2013).
The poorest region in Egypt is the rural upper governorates with a poverty rate of
49.4 percent. It is almost double the national poverty rate. The second poorest area is
the rural frontier governorates with a poverty rate of 46.6 percent (Figure 1) (CAPMAS
2013).
Egypt’s dependency on food imports increased over the years, especially for cereals
and wheat, with Egypt now being the largest wheat importer worldwide (FAO 2015).
Food inflation rate in Egypt is one of the highest rates in the world; it reached 20 percent
in the early months of 2011. In 2011, the percentage of the population suffering from
food insecurity reached 17.2 percent compared with 14 percent in 2009 (WFP 2013).
Moreover, there is high correlation between poverty and food insecurity in Egypt.
74.3 percent of chronically food insecure households live in the poorest Egyptian region,
i.e., rural upper Egypt, while 43 percent and 25 percent of those who have poor access
to food live in Lower Egypt and Great Cairo, respectively (Breisinger et al. 2013; WFP
2013)
Figure 1. Poverty Rate (%) in the Different Egyptian Regions in 2012/2013
Source: CAPMAS (2013).
In 2012, 5 percent of the Egyptian population was undernourished, meaning that
their food intake was insufficient to meet their dietary energy requirements. According to
the World Bank World Development Indicators (WDI 2014), a measure of the depth of
the food deficit is the number of calories required to lift the undernourished from their
15.7
11.7
17.4
26.7
49.4
11.4
46.6
26.3
0 10 20 30 40 50 60
Metropolitan Governorates
Urban Lower Egypt
Rural Lower Egypt
Urban Upper Egypt
Rural Upper Egypt
Urban Frontier Governorates
Rural Frontier Governorates
Egypt
3
status, everything else being constant. As such, the food deficit in Egypt increased from
9 kilocalories per person per day in 2000 to 13 kilocalories per person per day in 2006.
However, economic growth and improvement of style of life and food consumption have
led to a decrease of the depth of food deficit over the years to reach 8 kilocalories per
person per day in 20132 (Figure 2).
Comparing Egypt with other Middle East and North African (MENA) countries shows
that Egypt is in a good situation compared with other countries such as Iraq and the
West Bank and Gaza with higher depths of food deficit of 217 and 211, respectively
(Figure 3).
Figure 2. Depth of Food Deficit in Egypt: Kilocalories per Person per Day (2000-
2013)
Source: WDI (2014).
Figure 3. Depth of Food Deficit in some MENA Countries: Kilocalories per Person
per day (2013)
Source: WDI (2014).
2 The average intensity of food deprivation of the undernourished is estimated as the difference between the average dietary energy requirement and the average dietary energy consumption of the food-deprived population. Multiplying this estimate by the number of undernourished
population yields an estimate of the total food deficit in the country, which is then normalized by the total population.
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0 50 100 150 200 250
Tunisia
Egypt, Arab Rep.
Libya
Kuwait
Saudi Arabia
Algeria
Jordan
Lebanon
Iran, Islamic Rep.
Morocco
Syrian Arab Republic
Middle East & North Africa (developing only)
Yemen, Rep.
West Bank and Gaza
Iraq
4
Egypt suffers from the triple burden of malnutrition: obesity, stunting and
micronutrient deficiencies (anemia). In 2008, 45.5 percent of children under 5 suffered
from anaemia, 20.50 percent from overweight and 31 percent were stunted (Table 1).
Such burden is very important and economically costly, especially for children. For
instance, child undernutrition alone reduces GDP by around 2 percent (Breisinger et al.
2013; Power 2013; WDI 2014).
Table 1. Malnutrition Indicators for Egyptian Children below 5 Years’ Old
Malnutrition indicator (% of children under 5) Values in 2008*
Malnutrition prevalence, height for age 30.70
Malnutrition prevalence, weight for age 6.80
Prevalence of anemia among children 45.50
Prevalence of overweight 20.50
Prevalence of severe wasting, weight for height 3.80
Prevalence of wasting 7.90
Source: WDI (2014).
* The latest available values for all indicators are for 2008.
2. ROOT CAUSES OF EGYPT’S FOOD INSECURITY
On the spectrum of food security, we find on one end the availability of adequate
supplies at the national and international levels, while on the other end there is the
concern with adequate nutrition and well-being (FAO 2003).
At the micro level, food security in Egypt can be seen as an economic access
problem, given the high correlation between poverty and food insecurity. In 2011, 17.2
percent of the population were income poor and had poor food consumption; this rate
was 14 percent in 2009. The low earnings of different households resulting from
unemployment and low wage jobs are major root causes of vulnerability in Egypt, which
affect food affordability for the Egyptian households (Breisinger et al. 2013; Power 2013;
WDI 2014).
At the micro level, individual food security depends on the households’ purchasing
power determined by income and resources distribution. At the macro level, national food
security means the availability of adequate food supplies through domestic production or
imports for national consumption (African Development Bank 2012; WFP 2013).
National food supply in Egypt is negatively affected by low agricultural production.
According to the International Food Policy Research Institute (IFPRI 2015), the average
annual growth of agricultural output decreased from 4.5 in 1991-2000 to 1.9 in 2007-
2012. This decrease in annual growth can be explained by the decrease of the average
annual growth of total factor productivity (TFP) from 2.1 to 0.9 over the same period.
Added to these is the waste of food supply that resulted in the different stages of
food supply chain. Poor transportation and logistics complicate food accessibility and
availability. The lack of adequate storage facilities and transport infrastructure (roads,
railways and harbors) is a major factor of cereals losses. Inadequate infrastructure is the
cause of 10 percent of the loss in collected grain (Vella 2012; Power 2013; and
MEDITERRA 2014).
Hence, we can summarize the root causes of food insecurity in Egypt into causes
related to the demand side and others related to the supply side.
5
2.1 Demand Side
Egypt faces an important challenge with rising population growth and change in
consumption patterns due to progress in living standards and increasing per capita
consumption reaching 135 kg/year in 2011. The daily per capita calorie intake increased
from 3090 in 1990/92 to 3160 Kcal in 2005/07 compared with 2780 Kcal at the World
level and 2630 in the Developing World.
Egypt is a heavily populated country, with the largest population in Africa. During
the last 10 years, the total Egyptian population increased at an average annual
population growth rate of 1.7 percent. Egypt’s current population growth is 2.6 percent
per year, much faster than the world’s average of 1.2 percent a year. It increased from
approximately 66 million in 2000 to 82 million in 2013, living on 4 percent of the land
(Figure 4). According to CAPMAS estimates, the Egyptian population reached around 87
million in 2014.
Figure 4. Total Egyptian Population in Million (2000-2013)
Source: WDI (2014).
Rising population increases food demand causing pressure on food production in
Egypt, especially with the limitations in cultivated land and the low level of national food
production (Deng et al. 2014; WDI 2014).
Poor and food insecure households are large households, headed usually by an
uneducated or unemployed person or by someone working in the informal sector.
Egyptian households, especially low-income ones, spend an important share of their
expenditure on food making them more vulnerable to price shocks. According to the
CAPMAS (2013), Egyptian households spend on average 37.6 percent of their total
expenditure on food and drink. This share decreases with the household’s income level,
reaching 27.2 percent for the highest income decile compared with 48.9 for the lowest
income decile (Figure 5), and it varies among the different regions. For instance, rural
upper governorates spend 42.8 percent of their expenditure on food and drink, compared
with only 34 percent for urban upper governorates (Figure 6) (WFP 2013; CAPMAS 2013).
60
65
70
75
80
85
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
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20
09
20
10
20
11
20
12
20
13
6
Figure 5. Share of Food and Drink Expenditure by Expenditure Deciles
(2012/2013)
Source: CAPMAS (2013).
Figure 6. Share of Food and Drink in Total Expenditure in the Different Egyptian
Regions (percent)-2012/2013
Source: CAPMAS (2013).
Meat expenditure constitutes an important share of the food and drink (F&D)
expenditure of Egyptian households, with 29 percent in urban and rural areas.
Vegetables are the second important component with 13.5 percent and 15.5 percent of
F&D expenditure of urban and rural households’ expenditure, respectively. Cereals and
bread represent 11.6 percent and 15 percent of urban and rural households’ expenditure,
respectively (Figure 7).
Vulnerable households consume mainly vegetables, local beans, sugar, tea, mixed
oil, rice and subsidized bread. More than three quarters of vulnerable households
consume poultry, yellow lentils, fruits and corn flour from 3 to 5 times per week. They
rarely consume meat and they satisfy their protein consumption by buying eggs, cheese
and milk (Egyptian Food observatory 2013).
48.9 46 44.6 43.8 42.3 41.8 40.2 38.8 36.6
27.2
35.2 34
40.4 42.8 41.3 37.6
Urban Lower Urban Upper Rural Lower Rural Upper FrontierGovernorates
Egypt
7
Figure 7. Share of Different Food items in F&D Expenditure by Regions
Source: CAPMAS (2013).
Since 2006, Egyptian households had faced different shocks that affected
negatively their dietary and consumption patterns. These shocks started with the avian
influenza epidemic in 2006 that destroyed the livelihoods of the most vulnerable
households. This was followed by the food and financial crisis of 2007/2008 that pushed
more households into poverty and affected the diet diversity of the Egyptians, especially
the low income ones. The wheat producer price increased during the crisis to reach 469.9
USD/ton (Figure 8). This increasing price pushed up the cost of bread production by 48
percent, in Egypt. (WFP 2008)
Figure 8. Wheat Producer Price (USD/Ton)
Source: FAOSTAT (2014).
Finally, there was the political instability in 2011 that was accompanied by rising
food prices and a declining macroeconomic performance and static incomes or rather
declining incomes in real terms (WFP 2013). To counter those shocks, Egyptian
households followed different coping strategies, such as rationing strategies and dietary
change.
According to the WFP (2013), one important coping strategy has been to rely on
less expensive food. This was the main strategy used by 88 percent of the Egyptian
households surveyed in 2011. Other strategies included reducing daily intake of meat,
poultry and fish, buying food on credit and reducing meal portions. These coping
strategies reduce the dietary diversity, and hence affect negatively Egyptian food
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Urban Rural Egypt
11.6 15 13.4
29.5 29 29.3
7.5 6.1 6.8
15 11.5 13.2
6.1 7.1 6.6
7.2 6.8 7
13.5 15.5 14.6
3.8 3.7 3.7 1.9 1.7 1.8 4 3.4 3.6
Others
Drinks
Sugar Products
Vegetables
Fruits
Oil Products
Dairy Products
Fish
Meat
Cereals and Bread
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
8
security and increase obesity rate. In 2011, 35.1 percent of the total population were
found to have poor dietary diversity. This rate reached 58.3 percent among income poor
households.
Moreover, poor nutritional awareness, bad dietary habits, increasing waste in food
preparation and access to clean water are other factors negatively affecting Egyptian
food security. It is worth noting that subsidies negatively impact the nutrient diet of the
poor households, as the subsidized products are energy rich but nutritionally poor.
Increasing consumption of such products leads to obesity and malnutrition (World Bank
2012; and Smulders et al. 2013).
Moreover, Egyptians use subsidized bread as animal feed, as it is cheaper relative
to the price of animal feed. For instance, the use of wheat as animal feed as a
percentage of its total use increased over the years from 7 percent in 2000 to 11 percent
in 2011 (Figure 9).
Figure 9. Different Uses of Wheat and Wheat Products in 1000 Metric Tons
(2000-2011)
Source: WDI (2014).
2.2 Supply Side
Food supply comes mainly from local agricultural production and imports. Around 96
percent of the Egyptian land is a desert with scarce precipitation. More precisely, Egypt
has 7.5 million feddans3 of irrigated agricultural land, of which 75 percent is the “old
lands” in the Nile Valley and Delta and 25 percent is newly reclaimed desert land. About
229,000 ha is rain-fed cultivation along the Mediterranean coast (WFP 2013; Deng et al.
2014; USAID Middle East et al. 2014). Therefore, local agricultural production in Egypt is
mainly concentrated along the Nile Valley and Nile Delta given its high fertility, making
expanding agriculture in the rest of Egypt more challenging for water scarcity and lack of
fertility.
The agricultural sector is a key sector in the Egyptian economy; however, its
contribution to the economy is limited, estimated at only 13 percent of GDP in 2014. The
share of agriculture and irrigation sector in total investments is only 4.8 percent in the
socio economic plan of 2007-2012 (Tanyeri-Abur and Elamin 2011). From 1995 to 2012,
the ratio of agricultural expenditure to agricultural GDP (%) declined from 8.427 to 6.097,
while the per capita agricultural expenditure (2005 constant US dollars) declined over the
same period from 13.518 to 11.912 (IFPRI 2015).
3 1 feddan=0.42 hectare.
0%
20%
40%
60%
80%
100%
120%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Food Feed Seed waste
9
Industries related to agriculture such as processing and marketing and input
supplies account for a further 20 percent of GDP. According to IFAD (2014), agriculture
contributes 20 percent of total exports and foreign exchange earnings.
After the service sector, the agriculture sector is the second highest employer in
Egypt. In 2011, 29.2 percent of total employment was in the agriculture sector,
compared with 47.10 percent and 23.50 percent for the service and industrial sectors,
respectively (Figure 10).
Figure 10. Employment Rate (Percent of Total Employment) in the 3 Sectors of
the Economy (2011)
Source: WDI (2014).
The most widely planted crops in Egypt are rice, wheat, maize, and sorghum. The
important economic crops are cotton, sugar cane, and sugar beet. Onion, tomato, and
mango are the most popular horticulture plants. The major imported items are cereals,
mainly wheat with 27 percent of total imported value (US$1000) in 2011, followed by
maize and soybeans with 18 percent and 8 percent, respectively (Figure 12). While for
exports, orange is the most exported item, with 16 percent of total exported value (US
$1000) in 2011, followed by cotton lint, sugar refined and cheese of whole cow’s milk
with 8 percent for each (Figure 13) (FAOSTAT 2014).
Figure 11. Percentage Shares of Different Products in Total Imported Values
(US$1000) in 2011
Source: FAOSTAT (2014).
Employment in agriculture
29%
Employment in industry
24%
Employment in services
47%
Wheat, 27%
Maize, 18%
Soybeans, 8% Palm oil, 7%
Sugar raw centrifugal; 7%
Meat-cattle boneless (beef &
veal); 5%
Soybean oil, 4%
Sunflower oil, 4%
Cake of soybeans; 3%
Tea, 3%
Others, 14%
10
Figure 12. Percentage Shares of Different Products in Total Exported Value (US
$1000) in 2011
Source: FAOSTAT (2014).
Agriculture production in Egypt is facing different challenges. Climate change is one
of these challenges. Warmer temperature is expected to reduce production of several
crops (e.g., wheat is expected to be down by 15 percent by 2050). Other challenges
include soil desertification, salinization and urbanization. Construction on agricultural land
is threatening land availability. Between 2010 and 2011, the total cultivated area
decreased by 1 percent because of such construction, particularly in Greater Cairo and
Nile Delta (WFP 2013; Deng et al. 2014). Hence, decreasing available land for agriculture
production negatively affected food production over the years, making it more difficult to
face the increasing food demand.
Smallholding characterizing old lands in Egypt is another challenge for agricultural
production. In Upper Egypt, extra smallholding (less than 1 feddan) represents more
than 78 percent of farms in that region (Kheir EL Din and El-Laithy 2008). This prevents
the use of advanced farm practices and the benefits of scale economies required for
increasing production.
Water shortage and the degradation of water quality is another major challenge
facing Egyptian agriculture. According to the Ministry of Water Resources and Irrigation
(MWRI 2014), agriculture consumes the largest amount of available water in Egypt, with
a share that exceeds 85 percent of the total demand for water. 4 Therefore, water
shortage has a negative impact on agricultural production. Egypt’s annual share of Nile
water is constant at 55 billion cubic meter (BCM). However, this share may decrease
after the construction of the Ethiopian Renaissance Dam, adding more challenges to
Egyptian agricultural production and food security.
The gap between the needs and availability of water is about 20 BCM/year. These
requirements are expected to increase by 20 percent (15 BCM/year) by the year 2020.
Moreover, the present rate of deterioration of surface and ground water quality will
certainly increase the severity of the water scarcity problem or add to the cost of its
treatment (MWRI 2014).
In terms of national food security, Egyptian agricultural production is not able to
cope with the increasing population. Estimates indicate that agricultural production has to
increase by 70 percent by 2050 if food security is to be achieved (USAID Middle East et
al. 2014). Hence, the widening gap between local food supply and demand leads to rising
dependence on food imports and decreases self-sufficiency. For instance, the cereal
import dependency ratio increased from 35 percent in 2000 to 46 percent in 2011 (Figure
14) (MWRI 2014; USAID Middle East et al. 2014)
4 The production of 1 Kg of wheat requires 1300 liters of water.
Oranges, 16%
Cotton lint, 8%
Sugar refined;
8%
Cheese of whole cow milk; 8%
Potatoes, 7% Processed cheese; 7% Onions, dry, 6%
Grapes, 6%
Sunflower oil, 5%
Vegetable frozen; 5%
Others, 29%
11
In 2011, the self-sufficiency ratio of wheat was 43 percent, 51 percent for maize,
54 percent for cereals and 36 percent for vegetable oils. However, there are production
surpluses for sugar crops, vegetables and fruit. While the production of meat, milk and
eggs were sufficient for local utilization (WFP 2013).
Figure 13. The Cereal Import Dependency Ratio (2000-2011)
Source: WDI (2014).
The rising dependence on imports makes Egypt more vulnerable to the volatility of
international food prices. The volatility of world markets is transferred to food importing
countries through the price impact of cereals. This impact depends on the share of cereal
imports to the total imports; price elasticity of imports and the capacity to finance the
imports via export earnings (FAO 2003).
Financing the rising import bill requires the availability of foreign exchange reserves,
which may be a binding constraint for food security in a net food importer such as Egypt.
Financial constraints can limit the role of imports in filling the gap between local
production and consumption. A one percent growth in food imports requires around 2
percent increase in foreign exchange availability. And here comes the importance of the
country’s exports in providing foreign exchange (FAO 2003).
Comparing the values of Egyptian exports of agricultural production (without
cotton) and food industries with the imported values during the last four years (2010-
2013) reveals a decrease in the total value of exported agricultural products by 3 percent
from 2010 to 2013 while imports increased by 42 percent over the same period (Figure
15). For food industry, exports increased by 4 percent from 2010 to 2013, while imports
increased by 50 percent (Figure 16).
Figure 14. Total Value of Exports and Imports of Agricultural Products without
Cotton from 2010 to 2013 (in Million US$)
Source: CAPMAS (2014).
0
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20
30
40
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
2000
4000
6000
8000
10000
2010 2011 2012 2013
Exports Imports
12
Figure 15. Total Value of Exports and Imports of Food Industries from 2010 to
2013 (in Million US$)
Source: CAPMAS, 2014.
Such trends show the decrease in the agricultural production due to the different
challenges explained above in addition to the weak performance of the Egyptian
economy and the political and social instability post January 2011. Hence, agricultural
exports decreased while dependence on imports increased leading to an increase in the
food trade balance deficit.
Wheat is a strategic crop for Egypt and an important component of the Egyptian’s
diet. It occupies the largest area among the grain crops with 32–48 percent of the
cultivated area. Its high level of consumption increases Egypt’s dependence on wheat
imports, making Egypt the world’s largestwheat importer, with a share in total world
wheat imports of 10 percent (WFP 2013; Observatory of Economic Complexity 2014).
From 2002 to 2011, wheat production in Egypt increased at a rate higher than the
average of all other cereals. However, in 2010, wheat production decreased to 7,177,000
metric tons, compared with 8,523,000 metric tons in 2009 (Figure 17). This decrease
was due to climate shocks (severe cold in winter and heat wave in summer) in addition
to the fall in global prices (WFP 2013; WDI 2014).
This decrease in production was accompanied by an increase of imported wheat
from 9,130,000 metric tons in 2009 to 1,0607,000 metric tons in 2010. Local production
increased in 2011 to reach 8,407,000 metric tons; this was accompanied by a decrease
in imports by 7 percent (Figure 16). Egypt imports wheat mainly from Russia (39 percent
of Egypt’s total imports), the United States of America (28 percent) and France (11
percent) (Figure 17).
It is worth noting that the Ministry of Agriculture and Land Reclamation (MALR)
announces the prices before the planting season in order to boost wheat production (WFP
2013). During the 2013/2014 season, the government procurement price was
LE420/ardeb compared with LE380/ardeb in 2012/2013. Such increase in the
procurement price leads to an increase in wheat production to reach 8,800,000 tons in
2013/2014 compared with 8,500,000 tons in 2012/2013. The government of Egypt is
expected to purchase 4.25 million tons of wheat from local farmers in the marketing year
2014/2015 compared with 3.7 million tons in 2013/2014 (FAO 2015; USDA Foreign
Agricultural Service 2014).
Being a large wheat importer may enable Egypt to be a price maker in the
international market. This depends on different factors such as wheat exporting countries,
wheat stocks and contract types. However, this is beyond the scope of this paper.
0
500
1000
1500
2000
2500
3000
3500
2010 2011 2012 2013
Exports Imports
13
Figure 16. Local Production and Imports of Wheat (1000 Metric Tons)
Source: WDI (2014).
Figure 17. Major Wheat Exporters to Egypt and their Shares (2011)
Source: FAOSTAT (2014).
The declining value of exports and rising value of imports of major products
represent an important challenge for covering the food gap. Therefore, an important
issue when studying the supply challenge of food security in Egypt is the food trade
balance and the role of trade policy. Trade policy plays an important role in food security,
as it affects food availability at both the international and national levels.
In this context, the question arises as to which approach a country like Egypt
should follow to achieve an adequate level of food security. The first approach, known as
Food Self Sufficiency, consists of providing sufficient domestic production to meet a
substantial part of domestic consumption. Another approach, known as Food Self
Reliance, reflects the set of policies where the sources of food are determined by
international trade. The latter approach requires shifting resources to the production of
non-food exports, which allows paying the food import bill. Both approaches depend on
how local producers will react to price incentives and the efficiency of using income gains
(FAO 2003). The food self-reliance approach increases the dependence on international
trade, making the country more vulnerable to international price fluctuations.
FOOD SUBSIDIES AND FOOD SECURITY IN EGYPT
Between 2000 and 2014, the domestic food price index increased by 36 percent (Figure
18). Such an increase had a negative impact on poor households given the important
share of food in their total expenditure. However, this negative impact was mitigated by
0
2000
4000
6000
8000
10000
12000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Production Imports
Others 1%
Romania 2%
Canada 3% Ukraine
4% Argentina
4% Australia 8%
France 11%
United States of America
28%
Russian Federation
39%
14
the Egyptian food subsidy system. The Egyptian food subsidy system is used to protect
Egyptian households from rising food prices by securing the basic food nutrients at low
prices for the Egyptian population, especially for lower income households.
Figure 18. Domestic Food Price Index (2000-2014)
Source: FAOSTAT (2014).
Food subsidies that represented around 1-2 percent of GDP over the past decade
were always seen as a favored policy measure, especially in times of crisis, as they help
keep poverty and food insecurity levels lower than they would otherwise be. However,
the food subsidies budget has been increasing, in absolute value, over the years to reach
EGP 35,493 million in the FY 2013/2014 (Figure 19). In case of removal of food subsidies,
without any other measures to mitigate this impact, this will lead to an increase in the
national poverty estimates from 25.2 percent to about 34 percent (WFP, IFPRI, and
CAPMAS 2013; Breisinger et al. 2014).
Figure 19. Food Subsidy Budget to General Authority of Supply Commodities in
Million EGP (2005-2014)
Source: Ministry of Finance, Financial Monthly Bulletin (December 2010; December 2014).
The General Authority for Supply of Commodities (GASC) is the institution
responsible for the supply of subsidized commodities. Subsidized commodities can be
decomposed into two sub-groups: ration card–based commodities and “baladi” bread
constituting most of the food subsidy budget (Figure 20). Subsidized food accounts for
nearly a fifth of poor households’ food expenditure, whereas subsidized “baladi” bread
accounts for 71 percent of bread consumed by poor households.
0
0.5
1
1.5
2
2.5
3
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
9,407 9,406
16,445 21,072
16,819
32,743 30,282
32,551 35,493
0
10,000
20,000
30,000
40,000
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
15
Figure 20. Share of Baladi Bread and Ration Commodities in Total Food
Subsidies (2013)
Source: Breisinger et al. (2013).
The ration card program offers a fixed monthly quota of some commodities per
person per households holding the cards. These products are sold to the cardholders at
specific outlets at a fixed price lower than the free market price. In 2014, there were
66,794,568 Egyptians holding ration cards (CAPMAS 2014). The commodities included in
the card system varied over years; however sugar, cooking oil, rice and tea have always
been available through the cards. Starting from July 2014, the system included 20
different subsidized products, including meat and poultry.
The eligibility criteria for ration cards include level of income, household head’s
education and employment, household size, dependency ratio, number of rooms in the
house, availability of durable goods (like electrical appliances and car) and instances of
suffering from chronic diseases in the household (WFP 2013).
The baladi bread is the major commodity of the system; it used to be a universal
subsidy available to all consumers without restrictions, on a first-come-first-served basis.
The price of subsidized baladi bread is very low, typically less than 1 cent a loaf. Most of
the wheat used in the production of the subsidized bread is imported. This makes the
bread subsidy budget vulnerable to volatility of the international wheat price (Ramadan
and Thomas 2011; Center for Economic and Social Rights 2013).
The food subsidy system is inefficient, suffering from leakage and poor targeting.
Leakage can be due to the existence of a black market where subsidized products are
sold at higher prices, in addition to the inclusion and exclusion errors. For instance,
around 16.4 percent of vulnerable households did not hold a ration card in 2013. These
shares differ among the different Egyptian governorates; in Alexandria this share
reached 33.3 percent compared with 25 percent in Sohag and 23.8 percent in Suez
(Center for Economic and Social Rights 2014). Moreover, the leakage rate differs for the
different ration products; for instance, in 2008/2009, the highest leakage rate was for
cooking oil at 31.4 percent, followed by sugar at 20 percent and finally rice at 11 percent
(World Bank 2010).
For “baladi” bread, waste and leakage take place in the different stages of the
bread supply chain; pre and post wheat harvest, storage, transportation, conversion of
wheat to flour and bread consumption. According to the Food and Agriculture
Organization (FAO 2013), 43 percent of purchased wheat is not converted into bread and
the annual losses of locally produced and imported wheat are estimated at more than
EGP 6.6 billion.
The system structure induces smuggling and corruption, given the difference
between the subsidized price and the market price. This price difference gives incentives
to the different agents of the supply chain to sell the subsidized wheat products in the
black market at a higher price. Therefore, subsidies do not reach the intended consumers
(World Bank 2010; Ramadan and Thomas 2011).
Baladi bread 61%
Ration card based commodities
39%
16
The lack of adequate transport infrastructure (roads, railways and harbors) is a
major factor of wheat losses. The high cost of inland transport in Egypt increases the
grain bill by 21 percent. Other main factors behind wheat losses are the lack of storage
facilities and the open storage bunkers (MEDITERRA 2014).
Finally, at the consumption level, waste occurs because of Egyptians’ consumption
habits and the low subsidized price of bread. Egyptian consumers buy more bread than
what they actually need and they use the remainder as animal feed (World Bank 2010;
Breisinger et al. 2013)
Therefore, food subsidy reform became a necessity given the high poverty rate and
food insecurity, in addition to alarming budget deficit. Better targeting of the poor can be
attained through household’s geographical location or other household’s characteristics.
Liberalizing the bread supply chain and removing government interventions from
the different stages was one of the most important reforms of the system in recent years.
Such reform reduced smuggling and leakage to black market.
In March 2014, a new bread system was implemented, starting with Port Said as a
pilot governorate. The new system provides 150 loaves of subsidized bread per month
per person in household using ration card. For individuals who are not ration cardholders,
they can get smart cards for bread by providing a photocopy of their national ID number
(Ministry of Supply and Internal Trade 2014).
According to the Ministry of Supply and Internal Trade, in this new system, when
individuals consume less than their quotas (5 loaves per day), they get points that can
be exchanged with other subsidized products from the specific outlets, in addition to their
specific quotas of ration products.
This new system was part of the new reforms of the subsidy system in order to
reduce its budget, increase its efficiency and improve targeting. Given the different
rationed products provided in the system, in addition to the bread, the system aims to
provide more balanced diets to the poor by extending choice of commodities and
contributing to fiscal consolidation (FAO 2015). In addition, this new bread system
permits to follow the individual’s consumption pattern and reduce corruption and waste
related to the bread supply chain.
A gradual reform of the subsidy system to make it more efficient would lead to
savings that could be invested in more targeted food security and nutrition interventions
as well as job-creating initiatives in poorer areas (FAO 2013; Ghoneim 2014). According
to the World Bank (2010), if leakages are eliminated and coverage is narrowed, the GoE
would save up to 73 percent of food subsidies cost.
3. HOW TO ENHANCE FOOD SECURITY AND NUTRITION IN EGYPT?
This paper reviews the food security situation in Egypt shedding light on the main factors
affecting the food situation on both the demand and supply sides. Food security in Egypt
has long been ensured through food subsidies. However, these subsidies cannot continue
as they are, given their high cost and inefficiency; in other words, the reform of the
subsidy system has become crucial. Moreover, Egypt cannot afford to continue depending
on food imports without increasing its local food production as well as exports to secure
the needed foreign currency.
Addressing food security in Egypt requires addressing the root causes of the
problem at both supply and demand sides. The GoE has to work on increasing its food
production, especially wheat, and/or reduce consumption and all waste related to bad
habits and leakage. This could lead to an increase in self-sufficiency.
17
On the production side, in 2014 Egypt prepared several laws related to the
support of farmer associations, contract farming, crop insurance schemes, and health
insurance for farmers. The government has also supported the cultivation of new land,
with the aim of producing more food and creating jobs. To encourage new production
efforts, Egypt introduced higher government procurement prices for wheat during 2014.
New measures should be implemented to increase water, land productivity and the
share of agriculture in total investment. Improving agricultural production can be
achieved by investing in research and innovation for new grain types, mainly high yield
grains with high persistence for climate change (FAO 2015).
Increasing farmers’ access to credit and markets as well as support to agribusiness
in rural areas is required for increasing agricultural production. Moreover, improving
farmers’ access to weather and price forecast would lead to an increase in production.
This is what happened after the poor harvest of 2009/2010, when the Ministry of
Agriculture introduced price forecasting for strategic crops during the planting season of
2011/2012 (WFP 2013).
Given Egypt’s water security concerns, applying new irrigation methods, recycling
agricultural drainage water and decreasing areas allocated to rice production would save
water and allow expanding agricultural production using the saved water. It is also worth
noting that dialogue and cooperation among the Nile Basin countries is required to secure
Egypt’s future water supply (Power 2014).
In the short and medium terms, food self-reliance may be a possible strategy
toward food security, given the challenges faced by Egyptian agricultural sector. And
here appears the importance of increasing the production of crops with comparative
advantage and low amount of virtual water for exportation, such as onion, olive, potatoes,
tomato and citrus in addition to adding value to Egypt’s food exports (e.g., processing
fruits into jams, etc…). Such policies would increase Egypt’s foreign currency stock
required for paying imports’ bill.
Reducing post-harvest waste and leakage, especially for cereals, requires adequate
logistical infrastructure and improving storage facilities through building new silos and
covering open bunkers. Such measures would increase cereals’ availability required to
face increasing demand. It is worth noting that, recently, a national silos construction
project has been launched to increase wheat’s storage capacity from 1.5 million tons to 5
million tons by the end of 2015 (Breisinger et al. 2013; MEDITERRA 2014; Ramadan
2014; FAO 2015).
On the demand side, reducing population growth through family planning and other
measures is necessary. Moreover, as food security in Egypt is mainly related to income
level rather than food availability, reducing poverty and raising income level can improve
Egyptians’ access to food. This can be achieved through pro-poor job creating growth
(WFP 2013) and other social protection programs, such as conditional cash transfers.
Reforming Egypt’s food subsidy system is a relevant strategy given its role in
securing food for poor households. As mentioned by the International Food Policy
Research Institute (IFPRI), reforming food subsidy in Egypt would achieve the triple
benefits of fiscal saving, reaching the most vulnerable, and improving nutrition. Reform
should involve better targeting; this can be achieved using proxy means tests and/or
geographic interventions (Power 2014).
Replacing the current in-kind transfers with a conditional cash transfer program
(CCT) is another possible strategy for reform of the subsidy system. CCT programs were
applied by different developing countries, such as Argentina, Mexico and Brazil, and were
successful in achieving food security and reducing poverty. But cash transfers should be
linked to the consumer price level to counter the effect of inflation (WFP, IFPRI, and
CAPMAS 2013; Power 2014)
Furthermore, the GoE, in collaboration with civil society, should work on raising the
awareness of Egyptian households, especially poor ones, concerning adequate, healthy
18
and nutritious food to improve their food diversity. Finally, more food security programs
and nutrition interventions, focusing particularly on maternal and child nutrition, are
required to achieve dietary diversity (WFP, IFPRI and CAPMAS 2013).
Finally, from all the above, we can propose different scenarios regarding, Egypt’s
food security future:
Potential scenarios—what if Egypt:
1. does nothing concerning the actual trends of food supply and demand?
- the wheat dependency ratio would increase to reach 62 percent and 68
percent in 2016 and 2020;
- actual wheat imports would increase by 15 percent and 26 percent
respectively5 in 2016 and 2020. Assuming the international price would not
increase, the imports bill would increase by these rates leading to an
increase in budget deficit;6
- the food subsidy’s budget would increase by around 64 percent by 2020,
adding more pressure on the government budget.
2. reforms the actual food subsidy system by improving targeting using proxy
means and other targeting measurement such as geographical targeting?
- better targeting would add 6 million poor households, with no ration cards,
to the system, while 20 million would be removed as they are not eligible
anymore;
- food subsidies budget of 2013/2014 would be reduced by 21 percent
- imported wheat would decrease, leading to an increase in the available
foreign currency required for other imports;
- Government resources would increase by the amount saved from subsidies;
- the amount saved would be used in other social protection programs, such
as conditional cash transfers, to mitigate the negative impact of reforms.
3. builds new advanced silos and the Cereal Hub in Damietta.
- Egypt would benefit from its situation as a large wheat importer and impose
its terms of reference;
- wheat waste would be reduced by around 11 percent (amount of waste of
wheat utilization in 2011);
- storage capacity would increase from 70,000 tons to 7.5 million tons;
- wheat imports would decrease by 17 percent;
- food subsidies budget and government budget deficit would decrease.
4. faces a decrease in wheat production because of climate change. (As 1
kilogram of wheat needs 1000 liters of water, the warmer temperature is expected to
reduce production of wheat by 15 percent in 2050).
- wheat imports would increase by 13 percent, assuming that demand would
not change; - food subsidy budget and government’s budget deficit would increase;
5. decides to completely remove the actual in kind food subsidy (politically unaccepted scenario)
- government revenue would increase by around EGP 35,494 million;
- poverty rate may increase to 34 percent, if no other mitigation policies are
applied.
5 These estimates are based on data presented in this paper. 6 This is a strong assumption, but is required for simplification.
19
6. lowers population growth rate?
- food demand would decrease;
- local production would be sufficient for local demand;
- food imports would decrease reducing budget deficit;
- fiscal space would be created for investments in other sectors such as education
and health.
7. effectively bans/removes construction on agricultural land? And Allocates
more investment (including foreign investments) to the agriculture sector (in
new methods of irrigation, research and development to boost productivity,
etc…)?
- available agricultural land would increase;
- local production would be sufficient for local demand;
- food imports would decrease reducing budget deficit;
- fiscal space would be created for investments in other sectors such as education
and health.
20
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