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Egypt Pricing Policy
World War II led to shortages of food supplies as a result of
increased demand by Allied troops. The government enforced a system
of grain deliveries, a measure that was tantamount to nationalizing
the grain trade. It also compelled farmers to increase the areas
devoted to grains, and it subsidized fertilizers to appease small
farmers. The revolutionary regime both deepened and broadened these
policy measures in accordance with its objective of industrializing
the country. The new policy sought to extract a surplus from
agriculture to finance industry, an approach that was then favored
by economists in both East and West, and to ensure food supply at
relatively low prices to keep industrial wages down.
Specifically, the policy involved the allotment of areas for
particular crops, compulsory sales by farmers to the government of
a fraction of the output at fixed prices, and, at the same time, a
subsidy on agricultural inputs and on basic food staples for
consumers. Farmers referred to controlled crops as "government
crops." The policy varied by crop type and over time to serve
changing economic, political, and social objectives. The level of
control over crops ranged from total control, at least in theory,
to total absence of control. The pricing system directly affected
the area and output of controlled crops, including cotton, clover,
rice, wheat, and sugarcane. Indirectly, however, pricing had a
chain reaction on all crops.
The impact of the pricing system was difficult to evaluate
because of the multiplicity of other factors--such as the ecology,
crop rotation, land distribution, wages, and trade and other
macroeconomic policies--that shaped agricultural operations. A 1989
study by the
World Bank (see Glossary) concluded
that there was
virtually no connection between subsidized consumer prices and
producer prices--prices paid to farmers; output was affected by the
latter but not by the former.
The relative impact on the various strata of the population and
on rural as opposed to urban dwellers changed over time. In the
1960s, policies were generally biased toward urban consumers: the
low prices for their staples were made possible by the low prices
that were paid to farmers. In other words, the countryside, not the
government, subsidized the city. After 1974 the government, wishing
to keep the social peace and not jeopardize the newly promulgated
infitah, raised producer prices and input subsidies to
disgruntled farmers and simultaneously underwrote the bill for the
consumer price subsidy. Overall, the pricing policy seemed to have
removed the bias against the rural regions.
In the 1980s, the government gradually dismantled procurement
quotas for practically all crops. The two major exceptions were
cotton and rice. The government still bought all cotton and onehalf of the rice output as it did in the 1960s. Cotton remained on
the quota system because it was an important source of foreign
currency; the reason for rice exemption was less clear.
Furthermore, by the end of the 1980s, the state offered prices for
wheat higher than world market prices to encourage expansion of the
wheat area. On the distribution side, the government gradually
raised the prices of all subsidized food items, including sugar,
rice, and cooking oil, and exempted wheat only. The policy changes
in the 1980s probably favored rural over urban areas.
Within the countryside itself, the impact probably differed
according to farm size, because of cropping pattern differences.
Data on the topic were extremely sketchy and contradictory. It
would seem that the upper stratum owning more than ten
feddans was affected proportionally less than the lowest
segment--those owning less than one feddan--because its
members were able to grow more of the uncontrolled crops, such as
fruit trees, and to bend the rules more. The raising of food prices
probably had a more adverse impact on the poorer segments of the
population, irrespective of where they lived, because they spent
larger proportions of their incomes on food.
Data as of December 1990
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