The Egyptian food subsidy system: Operation and effects on income distribution

World Development, Vol. 24, No. 11, pp. 1777-1791.1996 Copyright 0 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved

Pergamon

0305-750X196 $15.00 + 0.00 SO305-750X(96)0006743

The Egyptian Food Subsidy System: Operation and Effects on Income Distribution SONIA M. AL1 Zazazig University, Egypt and International

RICHARD H. ADAMS, JR* Food Policy Research Institute, Washington DC, U&4.

Summary. - This paper examines the effect of the Egyptian food subsidy system on income distribution. The system now includes only bread, wheat flour, sugar and oil. Even though these four subsidized foods are basically available to all Egyptians, this study finds that the system is “self-targeted” to the poor because it subsidizes “inferior foods.” Results of a new “food characteristic demand system” show that two of the four subsidized foods - bread and sugar - are inferior foods. Egyptian food subsidies thus have a positive impact on income distribution. When food subsidies are not included in expenditures, the Gini coefficient rises by 3.7% in urban areas and by 1.2% in rural areas. Copyright 0 1996 Elsevier Science Ltd

1. INTRODUCTION In many developing countries food subsidy programs are under increasing criticism because of their large contributions to government budget deficits. According to critics, food subsidies pose both an unnecessary burden on the public budget and are economically inefficient because their benefits are seldom received by the poor. These critics contend that because of improper targeting, a large part of food subsidies goes to high-income people. Proponents of food subsidies argue, however, that such programs are necessary to “guarantee” the supply of basic foods to the poor. Proponents claim that since the poor spend higher proportions of their income on food than do the rich, food subsidies are needed to protect the welfare and nutritional status of the economically disadvantaged. How much do food subsidies affect the incomes of the poor? How does the selection of foods to be subsidized affect the distributional impact of food subsidy programs on different income groups? This paper proposes to analyze these, and similar, issues within the context of Egypt. Egypt has a large, and comparatively complex, food subsidy system dating back to WWII. By 1980 this subsidy system had expanded to include a total of 18 foods and to account for about 17% of total gov-

emment expenditures. Since that time budgetary pressures have forced a considerable “downsizing” of the food subsidy program. At present the Egyptian system includes only bread, wheat flour, sugar and oil and accounts for less than 6% of total government expenditures. In theory, subsidizing cheap, “calorie-dense” foods such as bread should help protect the income and nutritional status of the poor in Egypt. In theory, this should also guarantee that the benefits of the Egyptian subsidy program do not leak extensively to high-income groups, thereby reducing the cost to the government budget. In practice, however, since the Egyptian food subsidy system is a general, untargeted one, and the benefits of the system are in much dis-

*An earlier version of this paper was presented in October 1995 at the Egyptian Ministry of Supply and Internal Trade (Cairo). Research for this paper was funded by a grant from the Ford Foundation (Cairo). The authors would like to thank Dr. Ahmed Goueli, Minister of Supply and Internal Trade, and Ali Abdel Rahman for much help in providing data: Jane He for computer work: and Howarth Bouis. Harold Alderman, Patrick Cardiff and several anonymous reviewers for useful comments. Final revision accepted: May 23.1996. 1771

1778

WORLD DEVELOPMENT

pute, there are still considerable pressures to reduce its scope and coverage. This paper attempts to shed light on the distributional impact of Egyptian food subsidies by examining the current impact of the food subsidy system on the poor. At the outset it should be noted that data gaps limit the analysis. For example, the lack of data for individual households on food consumption and expenditures render it impossible to estimate food demand elasticities using standard econome~c techniques. Food demand elasticities are therefore calculated using a new, less data-intensive “food characteristic demand system.” Results show that two of the four subsidized foods in Egypt - bread and sugar are inferior foods, in the sense that as total expenditures increase, expenditures on these particular foods decline. Sections i and 2 present the history and operation of the Egyptian food subsidy system. Section 3 presents details on the four subsidized foods. Section 4 reviews food consumption patterns for the Egyptian poor and nonpoor. And section 5 estimates income/ex~nditure elasticities. Section 6 examines the dis~butional effects of the food subsidy system and section 7 concludes with policy recommendations.

2. HISTORY OF EGYPTIAN FOOD SUBSIDY SYSTEM The current food subsidy system in Egypt has its origins in WWII. In 1941 the Egyptian government introduced food rationing in order to provide certain necessities, oil, sugar, tea and kerosene, to consumers at relatively low prices. This rationing program was not designed as a system to provide low-priced food to the poor. During the 1950s and 1940s the total cost of this food subsidy system remained small. During the 1970s however, the system was extended to include additional foods, such as beans, lentils, frozen fish, frozen meat and chicken (Latif and Kamel, 1993). By 1980 the subsidy system included almost 20 foods, most of which were available on a monthly quota basis to all Egyptians who held ration cards. Since over 90% of the Egyptian population had ration cards, subsidized foods were essentially available to everyone. As a result of these changes, plus the effects of increasing ~pulation and a declining foreign exchange rate,’ the cost of Egyptian food subsidies ballooned. By 1981-82 food subsidies accounted for 19.5% of total government expenditures (Table 1). Since the early 1980s the Egyptian government has been under considerable pressure from international institutions, such as the International Monetary Fund (IMF) and the World Bank, to reduce public expendi-

tures on all subsidies, including food subsidies. In political economy terms, the proximate reason for this pressure is debt. During 1980-87 Egypt’s external debt grew from US $20.9 billion to over $51 billion (World Bank, 1990). As Egypt’s external debts mounted, it was forced to enter into stand-by agreements with the International Monetary Fund, first in 1977 and later in 1987 and 1991. Each of these stand-by agreements called upon the Egyptian government to reduce its debt by reducing its public expenditures on subsidies. To be sure, food subsidies have never accounted for the total sum of explicit and implicit subsidies in Egypt: in recent years food subsidies have only accounted for some 60% of total explicit subsidies.’ Other consumer welfare programs in Egypt have maintained explicit subsidies on items such as transportation and energy and implicit subsidies on items such as education and housing. Food subsidies, however, have always been an explicit part of the government budget, and so since the mid-1980s the Egyptian government has used a variety of strategies to reduce food subsidies. These strategies have included: increasing the price of subsidized food commodities; reducing the number of ration book holders; and reducing both the number and the quantity of subsidized food items available to consumers. In general, these strategies have been implemented on a slow and gradual basis. The reason for this is more political than economic: after the first stand-by agreement with the International Monetary Fund in 1977, Egyptian government efforts to eliminate food subsidies in “one fell swoop” ignited the famous food riots of January 1977.

3. OPERATION

OF ELYSIAN SYSTEM

FOOD SUBSIDY

In 1995 only four food items, bread, wheat flour, sugar and oil, are subsidized in Egypt. Bread and wheat flour are available to all Egyptians without restriction. Sugar and oil are distributed on a monthly quota basis to consumers through ration cards (serum tmween). In Egypt most subsidized wheat flour is sold to private sector bakeries, which are supervised by the Ministry of Supply and Internal Trade.3 These private bakers pay different prices for their flour, depending on whether the flour is coarse (82% extraction), fine (76% extraction) or very fine (72% extraction). Most bakeries specialize in the production of three types of bread: a coarse, brown loaf called baludi (82% extraction); a whiter load called shami (76% extraction); and finally a longer loaf resembling French bread called firm (72% extraction). Rationed comm~ities include those food items that are supplied through the ration-book system and

EGYPTIAN

1779

FOOD SUBSIDY SYSTEM

Table 1. Total Cost by Commodity of Egypt’s Food Subsidy System, 1970 to 1994-95

Year

Bread and wheat flour

Maize

Edible oils

sugar

Other commodities*

Total food subsidies?

LE Million (Real Terms)

LE Million (Nominal Terms) 197017 1 1972 1973 1974 1975 1976 1977 1978 1979 1980-81 1981-82 1982-83 1983-84 198&85 1985-86 198687 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95

20.9 15.1 79.0 216.0 260.9 171.6 149.1 222.8 588.3 511.0 807.1 758.0 861.5 614.7 448.7 289.8 235.6 543.3 615.4 1.255.0 1.057.0 1,308.O 1,424.O 1,486.O

0.8 0.4 4.4 16.5 31.1 23.1 406.0 53.8 38.5 63.7 160.1 199.1 294.1 264.0 310.3 136.1 8.7

10.4 15.8 16.8 55.3 72.2 43.2 54.6 137.4 200.2 125.4 259.7 201.5 337.5 395.3 331.5 263.6 204.5 243.5 245.2 368.0 629.0 542.3 424.9 433.0

8.0 6.0 19.0 68.9 20.8 6.1 n.a.8 n.a. n.a. 97.8 169.3 133.7 119.5 134.3 195.7 258.5 341.8 470.4 643.8 600.0 698.0 600.4 579.7 573.0

Total food subsidies*

1.7 4.6 17.0 36.5 38.7 37.4 n.a. n.a. n.a. 296.4 431.8 414.7 396.4 1037.7 695.8 723.0 550.4 737.8 242.6 177.0 98.0 (4.7) 57.4

41.8 41.9 136.2 393.2 423.7 281.4 343.2 452.4 996.8 1,094.3 1,828.O 1,707 .o 2.009.0 2,446.0 1982.0 1.671.0 1,341.0 1,995 .o 1,747 .o 2,400.o 2,482.0 2.450.0 2,486.0 2,492.0

Food subsidies as percentage of total govt. expenditure Percentage

0.2 0.7 5.5 16.5 16.9 9.8 10.9

2,918.l 4.415.5 3,586.l 3.639.5 3.786.4 2.707.7 1.860.8 1.248.6 1.578.3 1,139.6 1,162.0 lJ58.2 1,040,s 918.7 865.6

11.9 16.2 16.9 19.5 14.3 16.8 18.4 12.3 10.6 6.8 9.2 7.1 7.4 5.0 5.5 5.3 n.a.

*Other commodities include rice, lentils, chicken, frozen fish and frozen meat. tTota1 food subsidies include financial losses of food marketing companies. $Total food subsidies in real terms calculated by deflating nominal costs by CAPMAS Consumer Price Index for urban areas (1986-87 = 100). 5n.a. = Not available. Sources: Food subsidy data: 1970-71 to 198CHl fromAlderman,vonBraunandSakr(1982,Table2). 198 1-82 to 1994-95 from unpublished data, Ministry of Planning, and Ministry of Supply and Internal Trade. Total government expenditure data: 1970-7 1 to 1979 from Alderman, von Braun and Sakr (1982; Table 3). 1980-81 to 1991-92 from unpublished data, Central Agency for Public Mobilization and Statistics. 1992-93 to 1993-94 from unpublished data, Ministry of Supply and Internal Trade.

sold at fixed monthly

quotas at prices below average market cost. All of these rationed goods are sold in ration shops (tamweens) which are located in private groceries. While not all private groceries have a tumween, those which do sell both subsidized consumer goods (supplied by the Ministry of Supply) and nonsubsidized consumer goods. Registered households pick up their rationed items at a tamween by showing their ration book to the shop owner. During 198 l-89 about 90% of the Egyptian population held ration books and were thus eligible for food subsidies (Table 2). In an attempt to reduce costs,

in 1981 and again in 1994 the Ministry of Supply tried to reduce the number of ration-book holders by cancelling the names of people who were either abroad or deceased. In 1989 the Ministry of Supply also stopped registering new-born children into the system. Despite these changes, the number of ration-book holders declined only slightly, reaching 78.7% of the total Egyptian population in 1994. In another effort to reduce eligibility, in 198 1 the Ministry of Supply divided all ration-book holders into two categories: fully subsidized (green books) and partially subsidized (red books). People in high-

1780

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Table 2. Changes in the number ofparticipants in Egyptian ration books, 1981-94 Number of individuals in ration books (in thousands) Year

Fully subsidized

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Source: Unpublished

38,620 39,65 1 40,709 41,796 42,912 43,942 45,741 46,353 47,055 47,131 46,867 46,569 46,195 45,940

Partially subsidized

Total

Percentage of total Egyptian population

1012 1026 1041 1055 1071 I284 1304 1342 1457 1421 1377 1359 1323 1300

39,632 40,677 41,750 42,851 43,983 45,226 47,045 47,695 48,512 48,552 48,244 47,928 47,518 47,240

91.4 91.4 91.3 91.1 90.9 90.7 91.6 90.2 89.4 87.3 84.7 82.1 80.5 78.7

data, Ministry of Supply and Internal Trade.

income professions - such as investors, owners of shops or buildings or cars and landowners with more than 10 feddans - were all assigned to the partially subsidized program. Despite these efforts, the number of participants in the partially subsidized group remained very small (Table 2). Beginning in the mid-1980s the Ministry of Supply began increasing prices for subsidized food commodities. Figure 1 summarizes these price changes. In this figure it is instructive to consider the way in which Egyptian policy makers have handled price increases on the most important subsidized food in Egypt: bread. After 30 years of no price increases for bread, the price for all three types of bread was increased in 1983-84 and then again in 1988-89. Without any announcement, policy makers also began gradually decreasing the weight of subsidized bread: from 150 to 130 grams, and finally to I25 grams. At the same time, the government began producing larger, unsubsidized loaves of shami and fine bread. Finally, in 1991-92 the government stopped subsidizing the price of the most desirable bread,fino (72% extraction). To their credit, Egyptian policy makers achieved all of these bread price increases without any repetition of the 1977 food riots. One important reason for this success lies in the fact that baludi and shami bread is still heavily subsidized. When subsidy is defined as the percentage of cost per unit, baladi and shami bread is still subsidized at a rate of 67%. In 199495 baladi bread was sold at LE 0.05 per loaf, while the actual average cost of a loaf of such bread was LE 0.152. Given the size of this subsidy, it is no wonder that bread and wheat have come to dominate the costs of the food subsidy system, accounting for 60% of the

cost of total Egyptian food subsidies in 1994-95 (Table I). It should be noted however, that other rationed food items in the Egyptian food subsidy program such as extra sugar have negative subsidies. In 1995 extra sugar was sold by the Ministry of Supply at LE 1.6 per kilogram, even though its actual cost is only LE 1.4 per kilogram. This means that rations in Egypt do not necessarily mean subsidies. For those rationed commodities with a negative subsidy the Ministry of Supply makes a profit; this profit is used to offset the sale of those food items with a positive subsidy and to regulate the market.

(a) Subsidizedfoods:

bread and wheatflour

Egyptians consume a lot of bread. Calculations from the Household Income and Expenditure Survey (HIECS) of 1990-91 done by the Central Agency for Public Mobilization and Statistics (CAPMAS) suggest that urban Egyptians consume on average 2.44 loaves of bread per person per day.4 Calculations from this same study show that rural Egyptians consume less bread - on average 0.78 loaves per person per day - but they consume more wheat flour than their urban counterparts. Rural Egyptians use this wheat flour to bake bread at home. While large, these figures for bread consumption are similar to those reported in other studies. For example, a household-level study conducted by the International Food Policy Research Institute in 1981-82 found that bread and wheat flour accounted for 42% of total daily calorie consumption in urban households and 23% of such calorie consumption in

1781

EGYPTIAN FOOD SUBSIDY SYSTEM

Year 81/82

82/83

Baladi Bread (82% extraction) Shami Bread (76% extraction) Fino Bread (72% extraction) Rationed

83/84

84185

85186

87188

Sugar?

Rationed

Oil

90/91

91192

92193

93194

)

-0

rLl

w

co

-0

) w *o-o-o

*o--i

*o----+0-o-o* CO

Rationed

-0

Tea

Regular Tea

-0. CO CO

Price increase in subsidized

_I End of distribution *Rationed

Cl--,

*o---we*II-0

Rice

tRegular

94195

co

Regular Rice

ti *

commodity

by Ministry

of Supply

sugar is locally produced sugar is imported

Source: Unpublished Figure

89190

EO

Regular Oil

0

88189

Sugar*

Regular

Rationed

86187

data, Ministry

of Supply and Internal Trade.

1. Time sequence of changesin prices and availability of commodities in Egypt’s food subsidy system, 1981-82 to

1994-95.

rural households (Alderman and von Braun, 1984, Table 14): In light of these figures, the Egyptian government heavily subsidizes wheat flour and bread. In 1994-95 the government paid out an annual subsidy of LE 1.5 billion to lower the price of baladi (82% extraction) and shami (76% extraction) breads. In 1995 the selling price to bakers for the 82% wheat flour for making baludi bread was LE 29 per hundred kilograms. In that year private consumers could also purchase 82% wheat flour from government warehouses at the price of LE 50 per hundred kilograms. In 1995 the selling price to bakers for the 76% wheat flour for making shami bread was LE 30 per hundred kilograms.

subsidized quota and for LE 0.75 for partially subsidized quota. This means that the subsidized price for oil is about one-third of the market price, but the quality is also lower. For sugar, until the end of 1992 the monthly quota per head was 1.5 kilograms (0.75 kilograms at LE 0.10 and 0.75 kilograms at LE 0.30). In 1993 the quota was reduced to one kilogram per head, at 50 piasters for fully subsidized persons and LE 0.75 for partially subsidized persons. This means that at present about 50% of total sugar consumption is subsidized by the government.

4. FOOD EXPENDITURE PATTERNS FOR THE POOR AND NONPOOR (b) Subsidizedfoods: oil and sugar In 1994-95 about 40% of the cost of the food subsidy system was used to subsidize the price of edible oil and sugar. These two commodities are distributed on a monthly quota basis through the ration-book system For oil, the monthly quota per head differs between governorates and cities. Before 1993 the monthly quota was 450 grams for LE 0.10 plus 100 grams for LE 0.30. It has now been reduced to 500 grams for each ration-book holder in metropolitan Cairo, Alexandria, coastal cities, and frontier governorates, and 300 grams for participants in other urban and rural areas. The half kilo quota is sold at LE 0.50 for fully

Tables 3 and 4 present data on the food expenditure patterns for Egypt as calculated from the 1990-91 Household Income and Expenditure Survey (HIECS) done by the Central Agency for Public Mobilization and Statistics (CAPMAS). The data reveal two important ways in which food expenditure patterns differ between poor and nonpoor Egyptians. First, both tables show that the poor devote a higher percentage of their total expenditures to food and beverages than do the nonpoor. For example, Table 3 shows that while urban households in the lowest expenditure interval spend 57.7% of their total expenditures on food and beverages, urban households in the highest expenditure spend only 28.0%.

1782

WORLD DEVELOPMENT

Table 4 reveals that this same pattern holds for rural households; however, since rural households have lower mean total per capita expenditures than urban householdsP on average rural households tend to spend proportionately more on food and beverages than their urban counterparts (57.6 versus 48.6%). In both tables, the percentage of total expenditure devoted to food and beverage tends to fall monotonically with expenditure. This latter result is consistent with Engel’s Law, which states that the poor spend a higher proportion of their expenditures (income) on food. Second, in Egypt as in other countries, the poor spend a higher percentage of their food expenditures on cheap, calorie-dense “inferior foods” - such as grains (bread) and starchy foods - than do the nonpoor. This can be seen in Tables 5 (urban areas) and 6 (rural areas). Columns (1) and (2) of these tables show the percentage of total food and beverage expenditures going to bread and wheat flour for different expenditure intervals. In both urban and rural Egypt, the percentage of total food and beverage expenditure devoted to bread and wheat flour falls as level of expenditures on food and beverages rise. Conversely, as expenditures increase, households put a greater premium on taste and variety, and thus spend more of their food budget on “expensive” foods, such as milk and fresh meat. This can be seen in columns (3) and (4) of Tables 5 and 6. In urban areas (Table 5) expenditures on milk and fresh meat rise

almost monotonically with level of food and beverage expenditure. Table 6 shows that this same relationship holds for milk in rural areas. In rural areas however, there is no particular relationship between food and beverage expenditures and expenditures on fresh meat. The reasons for this are unclear, and may reflect problems in the data set.

5. EXPENDITURE ELASTICITIES FOR URBAN AND RURAL EGYPT A more sophisticated way of identifying inferior foods is to econometrically estimate income/expenditure elasticities for the various food commodities. Such estimations can identify if the four subsidized foods - bread, wheat flour, sugar and oil - have negative elasticities. Negative income/expenditure elasticities for these subsidized foods would show that these foods are indeed inferior and are more proportionately consumed by the poor. Unfortunately, it is not possible to estimate such elasticities by using data collected by the various Household Income and Expenditure Surveys done by the Central Agency for Public Mobilization and Statistics (CAPMAS). Data from these surveys are not available for individual households; moreover, these surveys contain no information on the level of household expenditures on subsidized versus nonsubsidized foods.

Table 3. Food and beverage expenditures by expenditure intervalfor urban Egypt, 199&91* Expenditure interval (per capita household expenditure per year) (LE)

Mean food and beverage expenditure? for interval (LE)

Mean total food and nonfood expenditure for interval (LE)

Percentage of total expenditure to food and beverage for interval

99.8 173.8 220.3 297.1 393.5

173.0 274.8 354.7 510.1 698.6

57.7 63.2 62.1 58.3 56.3

800-1000 1OOck12Oo 120&1400 140&1700 1700-2000

487.3 573.2 638.5 751.6 845.1

891.9 1094.8 1288.4 1539.6 1832.0

54.6 52.3 49.5 48.8 46.1

200&2500 25Ct&3000 3000-3.500 3500-

959.2 1142.7 1196.1 1502.3

2224.4 2722.3 3227.1 5364.9

43.1 41.9 37.0 28.0

528.8

1088.8

48.6

O-250 250-300 3w

Total

*In 1990-91.1 Egyptian LE = US $0.38. tFood and beverage expenditure includes expenditures on bread. Source: Calculated from Central Agency for Public Mobilization and Statistics (CAPMAS), Household Income and Expenditure Survey, 1990-91 (Table 1-3).

EGYPTIAN

1783

FOOD SUBSIDY SYSTEM

Table 4. Food and beverage expenditures by expenditure interval for rural Egypt, 199&91* Mean food and beverage expenditure$ for interval (LE)

Mean total food and nonfood expenditure for interval (LE)

Percentage of total expenditure to food and beverage for interval

600400

114.0 175.1 224.0 309.9 419.0

175.8 276.1 352.5 496.9 694.7

64.8 63.4 63.5 62.4 60.3

800-1000 1000-1200 1200-1400 1400-1700 1700-2000

518.4 614.5 712.8 811.9 986.0

890.9 1087.8 1289.1 1540.7 1835.7

58.2 56.5 55.3 52.7 53.7

2000-2500 2500-3000 3000-3500 35w

1131.0 1361.3 1576.6 2244.6

2218.4 2716.1 3258.4 4964.1

51.0 50.1 48.4 45.2

417.1

724.3

57.6

Expenditure interval (per capita household expenditure per year) (LE) O-250 250-300 3oo-400

Total

*In1990-91,lEgyptianLE=USSO.38. tFood and beverage expenditure includes expenditures on bread. Source: Calculated from Central Agency for Public Mobilization Expenditure Survey, 1990-91 (Table l-3).

and Statistics

(CAPMAS),Household

Income

and

Table 5. Expenditures on various foods by expenditure interval for urban Egypt, 1990-91 Expenditure interval (per capita household expenditure per year) (LE)

Percentage Bread*

of total food and beverage expenditure Wheat flour Milk

to: Fresh meat

(1)

(2)

(3)

(4)

10.5 16.2 15.5 13.2 10.8

8.6 4.1 4.6 3.8 2.7

1.8 1.8 1.9 2.2 2.8

7.8 8.1 10.4 12.7 13.5

800-1000 l@OO-1200 1200-1400 1400-1700 1700-2000

9.7 8.4 7.7 6.6 5.8

1.7 1.2 1 .o 0.9 0.8

3.5 4.3 4.5 4.4 4.9

13.4 14.0 14.0 14.9 15.2

2000-2500 2500-3000 3000-3500 350@

5.4 4.5 4.3 3.5

0.6 0.4 0.9 0.3

4.9 4.6 4.7 4.3

15.8 15.5 16.7 16.8

O-250 250-300 3OOXtO 600-800

*Bread includes bakdi, shumi andfino bread. Source: Calculated from Central Agency for Public Mobilization Expenditure Survey, 1990-91 (Table 1-19).

Given such data limitations, expenditure elasticities in this study can be calculated using a new “food characteristic demand system” proposed by Bouis (1996). This new system uses a hedonic demand system to compute a complete demand matrix of own-price, crossprice and expenditure elasticities for food and nonfood goods under specific restrictive assumptions.

and Statistics

(CAPMAS),

Household

Income

and

A valuable property of this new food characteristic demand system is that the data requirements for estimating this system are much less demanding than those for other food demand systems. Specifically, this new system can be calculated using published aggregate data (such as the 1990-91 CAPMAS data) because it only requires data on: (a) per capita quanti-

WORLD DEVELOPMENT

1784

Table 6. Expenditures on various foods by expenditure intervalfor rural Egypt, 1990-91 Percentage

Expenditure interval (per capita household expenditure per year) (LE)

Bread* (1)

O-250 250-300 3oo1u10

of total food and beverage expenditure Milk Wheat flour (3) (2)

to: Fresh meat (4)

4.6 4.5 4.6 3.1 3.5

8.5 8.4 6.7 6.3 5.8

1.4 1.6 1.7 2.1 2.3

14.5 14.7 13.8 14.0 14.2

800-1000 1Bo&1200 12w14oo 140&1700 170&2OOO

3.2 3.5 2.7 3.3 3.0

5.5 4.9 5.2 4.6 4.6

2.3 2.4 2.4 2.4 2.4

13.8 14.2 15.4 14.6 14.6

200&25OO 2500-3000 3ooo-3500 350%

2.9 2.8 3.2 2.1

4.2 4.5 4.1 3.6

2.3 3.2 2.8 2.6

15.1 15.4 15.2 14.5

6oc-800

*Bread includes baladi, shami andfino bread. Source: Calculated from Central Agency for Public Mobilization Expenditure Survey, 1990-91 (Table 1-19).

ties consumed for each (in this case 12) food group; (b) prices paid per kilogram for each food group; (c) calorie conversion rates per kilogram for each food group; (d) total nonfood expenditures; and (e) the ratio of adult equivalents over total household members. Fortunately, the 1990-91 CAPMAS Household Income and Expenditure Survey provides data to meet all of these requirements except calorie conversion rates and the ratio of adult equivalent units. These latter data, however, can be accurately estimated from other sources.7 According to the food characteristic demand system, food acquisition behaviour is motivated by (i) demand for energy to alleviate hunger; (ii) demand for variety in the diet; (iii) demand for food-group specific tastes; and (iv) demand for tastes inherent in particular foods. By specifying utility as an explicit function of these four characteristics, an entire matrix of price and expenditure elasticities can be derived for n foods and one nonfood from the prior specification of a minimum of some combination of four elasticities and/or utility function parameters8 (In this paper, a total of six elasticities and/or utility function parameters need to be assumed, because two food groups wheat and meat - are specified.) In the model, total utility derived from food and nonfood purchases is the weighted sum of their individual utilities, expressed as follows:

u =wJJeu3+ W,U”(v)+

; i=l

W,P,,(q,) +

and Statistics

(CAPMAS),

Household

Income

and

(1) where:

u 9

j E V UP U U,, (4,)

cI,(G,) U., (a.,) .B

We

W” w,; wni wnf

‘..,,

= total utility from all food and nonfood goods, = quantity of a good. = 1, ., n are the n foods consumed. = 1,. . .,karethekfoodgroups. = a measure of energy in the diet. = a measure of variety in the diet. = utility derived from energy. = utility derived from variety. = utility derived from the food-specific taste of q units of individual food !. = utility derived from the group-specific taste of G units of all foods in food group =

J.

utilitv derived from nonfoods. = weight placed on utility from energy. = weight placed on utility from variety. = weight placed on food-specific taste from individual food i. = weight placed on utility from the groupspecific taste of all foods in food groupj. = weight placed on utility from nonfoods.

Table 7 provides summary data for food consumption and prices for computing the food demand elasticity matrix. As expected, column (5) of the table

EGYPTIAN

1785

FOOD SUBSIDY SYSTEM

shows that bread (baludi, shami andfino) is the most important source of calories in urban Egypt, accounting for over 37% of total calories.9 In rural Egypt bread is not so dominant, with rice and wheat flour accounting for 15% and 13%, respectively, of total calories. In both parts of Egypt, however, column (4) shows that bread is the cheapest source of calories, far cheaper than the product (wheat flour) which is mainly used to make bread.iO In both parts of Egypt maize represents the second cheapest source of calories, followed closely by the other two subsidized foods: sugar and oil. In both urban and rural Egypt meat represents the most expensive source of calories and of variety (column 4). Meat, however, is not a homogeneous category: fresh meat is a far more expensive source of calories than frozen meat. On the basis of the figures in Table 7, total average daily per capita calorie consumption was calculated at 2,492 for urban Egypt and 2,500 for rural Egypt. As noted above, one key requirement for estimating equation (1) is prior knowledge of some combination of six elasticities and/or utility function parame-

ters. Table 8 shows the six assumptions made to estimate the equation. These six assumptions can be explained as follows. First, making a prior assumption as to aggregate food income elasticity in the model is equivalent to making an assumption as to the nonfood income elasticity which can be solved for using the Engel aggregation condition and the observed data on budget shares from the 1990-91 CAPMAS Household Income and Expenditure Survey. Second, values for the remaining five utility function parameters (e.g. E um, wee,, w,, wg,, wg2) are similar to those used by Bouis (1991) in his application of the food demand model to seven other developing countries. Table 9 presents the results of the model. The calculated expenditure elasticities are quite plausible. Among the commodities subsidized in 1995, bread and sugar have negative elasticities for both urban and rural areas and thus are inferior foods. In other words, as expenditures increase by lo%, expenditures on bread will fall by 0.1 and by 1.1% in urban and rural areas, respectively. The other two subsidized com-

Table 7. Per capita consumption, price and calorie conversion rates for 11 aggregate food groups for urban and rural Egypt, 1990-91

Urban/ Rural Urban

Rural

Food

Per Capita Consumption* (1)

Market Price? (2)

Calories/ Kilogram (3)

Calorie Pricet (4)

Calorie Share (5)

Food Budget Share (6) 0.078 0.019 0.004 0.041 0.002 0.034 0.013

Breads Wheat flour Wheafl Rice Maize Sugar Oil Milk Frozen Meat Fresh Meat Others

1.713 0.198 0.043 0.406 0.023 0.335 0.059 0.276 0.017 0.154 1.300

1.000 2.122 1.951 2.233 1.623 2.217 4.950 3.325 14.722 23.370 10.000

2,800 3,500 3,000 3,500 3,500 4,000 7,750 600 1,500 1,500 2,700

0.357 0.603 0.650 0.638 0.464 0.554 0.639 5.542 9.815 15.580 3.704

0.373 0.054 0.010 0.111 0.006 0.104 0.036 0.013 0.002 0.018 0.273

Breads Wheat flour Wheafl Rice Maize sugar Oil Milk Frozen Meat Fresh Meat Others

0.500 0.494 0.529 0.574 0.413 0.301 0.048 0.177 0.002 0.129 1 .OOo

1.000 2.227 2.005 2.127 1.590 2.053 4.253 2.807 13.550 22.373 9.000

2,800 3,500 3,000 3,500 3500 4,000 7,750 600 1,500 1,500 2,700

0.357 0.636 0.668 0.608 0.454 0.513 0.549 4.678 9.033 14.915 3.333

0.119 0.134 0.123 0.156 0.112 0.093 0.029 0.008 0.001 0.015 0.209

0.011 0.164 0.592 0.031 0.062 0.060 0.069 0.037 0.035 0.010 0.002 0.162

Source: Calculated from CAPMAS Household Income and Expenditure Survey, 1990-91. Notes: *Kilograms per capita per week. tMarket price calculated relative to price of cheapest grain calorie source (bread). $Calorie price calculated relative to price of cheapest grain calorie source (bread). §Bread includes baladi, shami, andfino bread. Bread is assumed to be 20% moisture; thus, the calories/kilograms are 80% those for wheat flour. wheat includes wheat grain on-farm and purchased.

Staple? (7) Yes Yes Yes Yes Yes No No No No No

No Yes Yes Yes Yes Yes No

No No No No No

for bread

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WORLD DEVELOPMENT

Table 8. Sixassumptions

Urban/ RUGi

Aggregate food income elasticity

Urban Rural

0.512 0.530

3.600 3.600

a.03 -0.03

0.60 0.30

0.50 0.50

0.50 0.50

*-%X is the level of calorie consumption where the marginal utility from energy intake is zero. tw,e, is one of two parameters which determine the weight placed on utility from energy. SW, is the weight placed on utility from variety. $wB, is the weight placed on utility from the meat food group. Jwg2 is the weight placed on utility from the wheat food group.

modities in 1995 - wheat flour and oil - have small, but positive, elasticities for both urban and rural areas. For wheat flour, the positive elasticities in urban areas may reflect the diversion of subsidized flour into the production of higher-priced, and more desirable, baked goods and pastries. The positive elasticities for wheat flour in rural areas seem reasonable, however, in light of consumer preferences for baking their own bread. In Table 9 the positive elasticities for oil may reflect limitations in the data set: as noted above, the expenditure data do not distinguish between expenditures for subsidized as opposed to nonsubsidized oil. Thus, the positive elasticities for oil may reflect the tendency of higher expenditure groups to purchase more expensive, nonsubsidized oil.

(a) Distributional effect offood subsidies: expenditure intervals It now becomes useful to examine the distributional impact of the Egyptian food subsidy system on consumer incomes. In particular, it becomes important to examine the question: does the Egyptian food subsidy system benefit the poor? Because of the lack of data for individual households, the analysis here is conducted using grouped data from the 1990-9 1 CAPMAS Household Income and Expenditure Survey. This survey provides detailed data regarding the expenditures on and quantities consumed of approximately 50 food items for 14 different expenditure groups (urban and rural). To pursue this part of the analysis, two steps are taken. First, the distribution of food subsidies by commodity is estimated between urban and rural areas for the year of the 1990-9 1 CAPMAS Household Income and Expenditure Survey. In that year seven foods were subsidized: wheat flour, rice, oil, sugar, tea, frozen meat, and frozen fish. Subsidy figures by commodity were supplied by the Ministry of Supply, but the breakdown of subsidy figures between urban and rural areas was estimated using the equation:

where Sir = percent of subsidy share for commodity i in rural sector. E, = mean per capita expenditure on commodity i in rural area. B, = total beneficiaries of food subsidy in rural area. E, = mean per capita expenditure on commodity i in urban area. B, = total beneficiaries in urban area. The results of equation (2) are shown in Table 10. As might be expected, when ranked in terms of total value, the subsidies on three food commodities bread and wheat flour, oil and sugar - were the most important. The second step in the procedure involves using grouped data from the 1990-91 CAPMAS Household

Table 9. Expendirure elasticitiesfor II subsidized and nonsubsidizedfoods, urban and rural Egypt, 1990-91 Expenditure

elasticity

Food

Urban

Rural

Subsidized foods* Bread? Wheat flour Sugar Oil

-0.015 0.091 -iJ.223 0.187

a.108 0.114 -0.092 0.154

Nonsubsidized Wheat$ Rice Maize Milk Frozen meat Fresh meat Others

0.111 0.35 1 0.169 0.584 -0.164 0.384 0.702

0.114 0.356 0.136 0.736 -0.297 0.409 0.803

foods

*Subsidized foods include those commodities which are subsidized in 1995. tBre.ad includes bakzdi, shumi, and@ bread. *Wheat includes wheat grain on-farm and purchased.

EGYPTIAN

1787

FOOD SUBSIDY SYSTEM

of their total food expenditures from subsidized food commodities than do higher expenditure groups. The reasons for this have already been presented above, namely, that the Egyptian subsidy system tends to subsidize inferior foods. According to Table 9, bread and sugar are inferior foods which are more proportionately consumed by the poor than by people at higher expenditure levels.

Income and Expenditure Survey to estimate the effect of food subsidies for different expenditure intervals. Since these grouped data do not contain information on the level of expenditures on subsidized versus nonsubsidized foods, one key assumption was made to estimate the level of subsidized expenditures on food commodity i. For each expenditure interval it is assumed that the proportion of subsidized expenditure to total expenditure for food commodity i is equivalent to the “share of total subsidy figure” given in Table 10. For example, for bread and wheat flour in urban areas, it is assumed that within each expenditure interval that 52.8% of all expenditures for bread and wheat flour are subsidized. In all likelihood, this assumption probably underestimates the share of subsidized food going to the poor, because people at lower expenditure intervals tend to consume higher proportions of subsidized food commodities than people at higher expenditure levels. Tables 11 and 12 summarize the results of the twostep procedure for urban and rural subsidies, respectively. Each table presents the results for the four most important subsidized food items in 1990-91: bread, wheat flour, sugar and oil. Table 11 reveals that for urban consumers, the share of each subsidized item in total food and beverage expenditure declines by expenditure group. Table 12 produces similar results for rural consumers. This means that for both groups of consumers, subsidies on bread, wheat flour, sugar and oil have a positive effect on the poor. In all cases lower expenditure groups receive a larger percentage

(b) Distributional effect offood subsidies: inequality measures

Another way of examining the distributional effect of Egyptian food subsidies is by comparing the impact of such subsidies on different expenditure groups in two ways: first, when food subsidies are included in the calculations; and second, when food subsidies are excluded. Table 13 does this by comparing the changes in total food and beverage expenditure which occur when food subsidies are included in expenditures to when such food subsidies are excluded from expenditures. The data used are from the 1990-91 CAPMAS Household Income and Expenditure Survey. In Table 13 changes in the expenditure are compared using two standard measures of inequality: the Gini coefficient and the Theil entropy measure. The Gini coefficient is more sensitive to measuring changes in the middle range of an expenditure distribution, while the Theil measure is more sensitive to

Table 10. Distribution offood subsidies by commodity between urban and rural Egypt, 1990-91* Mean per capita household expenditure on commodityt Subsidized food commodity

Total subsidy on commodity (LE Million)

(LE per year) Urban

Rural

Bread and wheat flour Rice3 Frozen meat Oil Sugar Tea Frozen fish

1255 74 11 368 600 71 21

54.2 18.7 5.2 6.1 15.4 11.2 2.3

44.6 26.1 0.7 4.3 12.9 9.5 2.1

Total

2400

113.1

100.3

Share of total subsidy$

Value of subsidy

(percentage)

(LE Million)

Urban

Rural

52.8 39.8 87.2 56.6 52.5 51.9 49.7

47.2 60.2 12.8 43.4 47.5 48.1 50.3

Urban

Rural

662.6 29.5 9.6 208.3 315.0 36.8 10.4

592.4 44.5 1.4 159.7 285.0 34.2 10.6

1272.2

1127.8

*In 1990-91.1 Egyptian LE = US $0.38. tMean per capita household expenditure on commodity calculated from CAPMAS Household Income and Expenditure Survey, 199@91. @hare of total subsidy for urban and rural areas calculated from equation (2). See text. §Rice includes purchased rice only (no auto consumption). Sources: Central Agency for Public Mobilization and Statistics (CAPMAS), Household Income and Expenditure Survey, 1990-91. Unpublished data, Ministry of Trade and Supply.

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WORLD DEVELOPMENT

Table 11. Distribution of Egyptian food subsidies by commodity among expenditure intervals in urban areas, 1990-91 Expenditure interval (per capita household expenditure per year) (LE)

Bread subsidy* as percentage of total food and beverage expenditure in interval

Wheat flour subsidy as percentage of total food and beverage expenditure in interval

Sugar subsidy as percentage of total food and beverage expenditure in interval

O-250 250-300 3w-4ixl

5.2 8.1 7.7 6.6 5.4

4.3 2.0 2.3 1.9 1.3

2.8 2.8 2.3 2.0

800-1000 1~2~ 1200-1400 1400-1700 1700-2000

4.8 4.2 3.8 3.3 2.9

0.9 0.6 0.5 0.4 0.4

1.5 IA I .3 1.2

0.6 0.6 0.6 0.5 0.5

2ooo-2500 2500-3000 3000-3500 3500-

2.7 2.3 2.2 1.8

0.3 0.2 0.4 0.2

1.2 1.1 I.1 1.o

0.5 0.4 0.4 0.4

*Bread subsidy includes subsidy on baladi, shami and&o bread. Source: Calculated from Central Agency for Public Mobilization Expenditure Survey, 1990-91 (Tables l-3 and l-19).

Oil subsidy as percentage of totaf food and beverage expenditure in interval

1.o 1.4 1.3 0.7 0.6

1.7

1.4

and Statistics

(CAPMAS),

Household

Income

and

Table 12. Distribution of Egyptian food subsidies by commodi~ among expenditure intervah in rural areas, 1990-91 Expenditure interval (per capita household expenditure per year) (LE)

Bread subsidy* as percentage of total food and beverage expenditure in interval

Wheat flour subsidy as percentage of total food and beverage expenditure in interval

Sugar subsidy as percentage of total food and beverage expenditure in interval

Oil subsidy as percentage of total food and beverage expenditure in interval

600-800

1.7

4.2 4.2 3.3 3.2 2.9

800-1000 1000-2000 1200-1400 1400-1700 I 700-2000

1.6 1.7 I .4 1.7 1.5

2.8 2.5 2.6 2.3 2.3

1.4 I ‘4 1.5 1.5

0.5 0.5 0.5 0.5 0.5

2000-2500 2500-3OtlO 3000-3500 3.500-

1.4 1.4 1.6 1 .o

2.1 2.2 2.0 1.8

1.3 1.3 1.3 1.2

0.4 0.5 0.5 0.5

O-250 250-300 3cS400

2.3 2.2 2.3

1.8

*Bread subsidy includes subsidy on baladi, shami andfino bread. Source: Calculated from Central Agency for Public Mobilization Expenditure Survey, 1990-91 (Tables l-3 and 1-19).

I .7 1.9

I .5

0.6 0.5 0.5 0.5 0.5

1.6 1.7

1.6

and Statistics

(CAPMAS),

Household

Income

and

1789

EGYPTIAN FOOD SUBSIDY SYSTEM

Table 13. Effects of Egyptianfood subsidies on household expenditure distribution in 199&91 as measured by Gini coefficient and Theil Entropy Measure*

Gini coefficient7

Percentage change

With food

Without food

Percentage change between

With food

Without food

subsidies (1)

subsidies (2)

columns (1) and (2)

subsidies (3)

subsidies (4)

between columns (3) and (4)

0.350 0.401

0.363 0.406

+3.71 +1.24

0.184 0.225

0.203 0.238

+10.32 +5.78

Urban Rural

Theil Measure*

*Calculations based on changes in total food and beverage expenditure include 8,354 households; rural calculations include 5,881 households. tThe Gini coefficient of inequality can be represented as

with and without food subsidies. Urban calculations

n-l G=

1-

Z F,+, - FJ (@,+I + $I). ,=O

where: n = number of households F, = cumulative population shares corresponding $ = cumulative expenditure shares corresponding $Theil’s entropy measure can be written as: 1 T=

;

,=I

-

n

YI -

c1

Y, log

-

to household,, and to household,.

)

CL

where: n = number of households, Y, = expenditure of household,, and p = mean expenditure. Source: Calculated from Central Expenditure Survey, 1990-91.

Agency

for Public Mobilization

changes at the tails (Tsakloglou, 1993). Each inequality measure is scaled to lie between zero (perfect equality) and one (perfect inequality). The results of Table 13 suggest that food subsidies do have an important positive effect on urban and rural welfare. When food subsidies are not included in total food and beverage expenditures, the Gini coefficient for urban areas rises from 0.350 to 0.363, and the Gini coefficient for rural areas increases from 0.401 to 0.406. Columns (3) and (4) report even larger increases in the Theil entropy measure when food subsidies are excluded from total food and beverage expenditures. Because the Theil measure is more sensitive to changes at the bottom end of a distribution, column (4) of the table shows that the Theil measure increases by 10.3% for urban areas and 5.8% for rural areas when food subsidies are excluded. These data suggest that food subsidies are important in improving income/expenditure distribution in urban and rural Egypt because these food subsidies go mainly to the lower expenditure groups.

and Statistics

(CAPMAS),

Household

Income

and

6. CONCLUSION AND POLICY RECOMMENDATIONS Confronted with budgetary deficits and pressure from international institutions, the Egyptian govemment has since the mid-1980s successfully reduced the size of its food subsidy program. By reducing the number of subsidized foods from 18 in 1980 to only four in 1995, the Egyptian government cut the total real cost of food subsidies from LE 2,918 million in 1980-81 to only LE 865 million in 1994-95. This paper has attempted to analyze the effect of these food subsidy cutbacks on the poor. As noted at the outset, data gaps limit the analysis. For example, the lack of data for individual households on food consumption and expenditures render it impossible to estimate food demand elasticities using standard econometric techniques. In this study food demand elasticities are therefore calculated using a new, less data-intensive “food characteristic demand system.” Despite these data problems, results from this

1790

WORLD DEVELOPMENT

study suggest one important finding, namely, that even though the Egyptian food subsidy system is still a generalized, untargeted system not designed to help the poor, the system is effectively “self-targeted” to the poor in the sense that it subsidizes “inferior foods.” According to the food characteristic demand system used in this paper, two of the four subsidized foods bread and sugar - are inferior foods in the sense that as total expenditures increase, expenditures on these foods decline. For example, as total expenditures increase by lo%, expenditures on bread fall by 0.1% in urban areas and 1.1% in rural areas. Since bread and sugar are inferior foods, this study finds that Egyptian food subsidies as a whole have a positive impact on income distribution. Results suggest that when food subsidies are not included in food and beverage expenditures, the Gini coefficient for urban areas rises by 3.7% and by 1.2% for rural areas. Food subsidies in Egypt help to improve income distribution because they go mainly to people in the lower expenditure groups. These results suggest that future efforts to change the Egyptian food subsidy system would be well advised to pursue the following. First, efforts to reduce the number of ration-book holders should be continued. At present, 80% of Egyptians hold ration books and are thus eligible to draw monthly quotas of subsidized sugar and oil. From the standpoint of cost efficiency, this figure is too high. It is therefore recommended that the govemment consider cancelling the ration books for partially subsidized holders and redouble its efforts to cancel the names of people who are abroad and/or deceased. Second, future efforts to reduce the cost of food subsidies should present subsidy

be very circumspect regarding the on bread. Bread is an extremely

important part of the Egyptian diet; in the urban areas bread alone accounts for over 37% of total calories. Unfortunately, given the character of the data, it was not possible to estimate the dependence of the Egyptian population on different kinds of bread: baladi, shami andfino. The subsidy on fine bread (72% extraction) was eliminated in 1992, however, and any attempts to end the subsidy on either shami (76% extraction) or baladi (82% extraction) are likely to have an adverse effect on both income distribution and nutrition. Third, future efforts to reduce the food subsidy bill in Egypt might wish to consider reducing the present subsidy on oil. According to this study, oil has small, but positive, expenditure elasticities in both urban and rural areas. While these results may be a reflection of the lack of distinction between subsidized and nonsubsidized oil in the data, oil is certainly a far less important part of urban and rural diets than either bread or sugar. For example, while sugar accounts for about 10% of total calories in urban Egypt, oil accounts for less than 4% of such calories. Fourth, from the standpoint of future food policy research, it would be most useful if the Central Agency for Public Mobilization and Statistics (CAPMAS) would begin releasing individual household consumption and expenditure data from its various Household Income and Expenditure Surveys (HIECS). It would also be useful if CAPMAS would start collecting data on the level of household expenditures on subsidized and nonsubsidized foods. If more disaggregated data on the level of household expenditures on subsidized and nonsubsidized bread, sugar and oil were made available, the impact of Egyptian food subsidies on the poor could be delineated with greater precision.

NOTES I. In July 1995 1 Egyptian pound (LE) was equal to US $0.29. In 1986 1 Egyptian pound was valued at US $0.73. During 1978-80 the Egyptian pound equalled US $1.43. Prior to 1977 the Egyptian pound was equivalent to more than US $2.50. Unfortunately, there are no figures on the total cost of 2. implicit subsidies in Egypt. In the words of one former Egyptian Minister of Finance: “Calculating the total cost of implicit subsidies in Egypt is quite difficult not only because these subsidies vary from year to year but because many of the implicit subsidies are hidden in the government budget. These hidden subsidies are still a major burden for the Egyptian economy.” 3. For example, in 1995 of the 6.424 bakeries making buladi bread, 96% (6,159 bakeries) are in the private sector. 4.

According

to the

1990-91

CAPMAS

Household

Income and Expenditure Survey (HIECS) (Table l-19). urban Egyptians spent a total of 1.945 million LE on bread (bnhdi, shami andfintino).According to this same survey, rural Egyptians spent a total of 0.550 million LE on bread. This 1991 survey includes 43.614 urban and 38.495 rural respondents. If it is assumed that an average loaf of bread costs 0.05 LE. then these data suggest that urban Egyptians consume 891.9 loaves per person per year, while rural Egyptians consume 285.7 loaves per person per year. 5. Other sources have stressed the importance of bread in the diets of urban and rural Egyptians. In a series of low-cost, balanced diets designed by the Egyptian Institute of Nutrition, baludi bread alone accounts for 27.3% of the total calorie intake for urban families, and 39.4% of such intake for rural families (Korayem, 1987). 6. According to the Income and Expenditure

199&91 Survey

CAPMAS Household (HIECS), while mean

EGYPTIAN

FOOD SUBSIDY SYSTEM

annual total per capita household expenditures in urban areas are 1319.4 LE, such expenditures are only 976.1 LE in rural areas. In other words, mean annual total per capita household expenditures are 35.1% higher in urban than rural areas. 1. Estimates of per kilogram calorie conversion rates for different food groups can be. obtained from country-specific food composition tables and dietary surveys. 8. In his 1996 paper, Bouis demonstrates that the price and expenditure elasticities generated by this food characteristic demand system are broadly consistent with those generated by demand systems using more standard methodologies, such as direct econometric estimation using an almost ideal demand system (AIDS) framework.

1791

According to Table 7, bread and wheat flour account 9. for 42.7% of total calories in urban areas. This figure is almost identical to the 42% figure recorded for bread and wheat flour in urban households in the 1981-82 survey done by Alderman and von Braun (1984,~. 31). 10. In urban and rural Egypt bread is cheaper than wheat flour for two reasons. First, the Ministry of Supply sells wheat flour to consumers at a price which is less subsidized than that for bread. For example, in 1995 wheat flour was sold to consumers at LE 50 per 100 kilograms, while wheat flour was sold to public bakeries at LE 29 per 100 kilograms. Second, consumers who buy wheat flour in Egypt tend to buy it from private traders, who add their own mark-up.

REFERENCES Alderman, Harold, Joachim von Braun and Sakr A. Sakr, Egypt’s Food Subsidy and Rationing System: A Description, (Washington, DC: International Food Policy Research Institute, Research Report 34, October 1982). Alderman, Harold and Joachim von Braun, The Effects ofthe Egyptian Food Ration And Subsidy System on Income Distribution and Consumption (Washington, DC: International Food Policy Research Institute, Research Report 45, July 1984). Bouis, Howarth, “Food Demand Elasticities by Income Group by Urban and Rural Populations for the Philippines,” (International Food Policy Research Institute, Washington,DC, 1991). Bouis, Howarth, “A food demand system based on demand for characteristics: If there is curvature in the Slutsky Matrix, what do the curves look like and why?” Journal of Development Economics, November 1996. Central Agency for Public Mobilization and Statistics,

Household Income and Expenditure Survey, 1990-91, (Cairo, Egypt: 1993) (in Arabic). Korayem, Karima, The Impact of Economic Adjustment Policies on the Vulnerable Families and Children in Egypt, Report prepared for the Third World Forum. Middle East Office and the United Nations Childrens Fund, (Cairo, Egypt: 1987). Latif, Abla Abdel and Amina Kamel, Application of Targeting Options to Egypt: Background Study for the Egyptian Social Welfare Program, (Cairo, Egypt: Center for Economic and Financial Research and Studies, March 1993). in Greece: Tsakloglou, Panos, “Aspects of inequality Measurement, Decomposition and intertemporal change, 1974, 1982,” Journal of Development Economics, Vol. 40 (February 1993) pp. 53-74. World Bank, World Bank Debt Tables (Washington, DC: World Bank, 1990).