Targeting the Egyptian Food Subsidy System the Egyptian Food Subsidy System: Urban Versus Rural Reform Kathleen Oliver1 1 Kathleen Oliver is a member of the Class of 2015 at the University

Targeting the Egyptian Food Subsidy System:

Urban Versus Rural Reform

Kathleen Oliver1

1 Kathleen Oliver is a member of the Class of 2015 at the University of Chicago.

UChicago Undergraduate Business Journal

Spring 2015 1

Abstract

For over 65 years, the Egyptian government has subsidized food for the Egyptian population. While

originally not a system targeted for the poor, since the late 20th century, the system has received increasing

criticism for the financial and political burden it places on the government as it fails to target the poorest in

Egypt. Examining the current income transfers to the poor in rural and urban areas, it becomes clear that while

the rural areas contain the highest number of poor people, the urban areas receive the greatest benefits of food.

In an effort to increase the self-targeting aspect of baladi bread, I suggest that the rural areas increase the

extraction rate of the wheat flour in their bread to make it an inferior good. To reform the ration card system in

urban areas, I analyze a digression calculated by the Task Force for Food Security to measure welfare to

distinguish between urban poor and non-poor households. Suggesting the implementation of two different

policies in a reformation of the subsidy system, I believe the Egyptian government can lower their expenditure

on food subsidies by over 50 million LE and better target the poor.


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Introduction

For over sixty years, the Egyptian government has provided some sort of subsidy to its citizens.

Subsidies range over a variety of items, from food to gas. In 2013, the Egyptian government spent roughly $4.31

billion on food subsidies alone. The food subsidies, issued in the form of green (poor) and red (non-poor) ration

cards for sugar, oil, subsidized baladi bread and flour, are available to virtually all of the 80.72 million Egyptian

citizens.

Unfortunately, as a result of minimal government regulations and weak enforcement policies, the food

subsidy system suffers from costly leakage and targeting issues that have resulted in not only financial but also

political repercussions for the Egyptian state. What policy reforms, if any, can ameliorate the targeting problems

faced by Egypt’s food subsidy system with the greatest economic and political advantages? The precariousness of

the situation must be acknowledged in order to come up with policy reform that balances the fragility of the

current system while enhancing the targeting to the poorest citizens and lowering the total cost.

Background

In 1948, the Egyptian Government established an official food subsidy system to formalize and make

permanent the rationing of wheat and flour that had occurred in response to high inflation during World War II.

During the sixty-five years that followed, the system has changed in both economic structure and purpose.

Originally designed to provide material necessities, such as sugar, kerosene, cotton textiles, oil, and tea to the

entire Egyptian population, the subsidy system was not established or designed to ameliorate the difficulties of

the poor. Instead, subsidized foods, by actual discounted prices (such as for bread and wheat) and ration cards

(distributed in various colors according to income), remain available to 70 percent of the Egyptian population.i

After a period of severe expansion in the 1960s, the Egyptian government was forced to use foreign reserves in

order to pay for increasing quantities of imports as a result of rapid industrialization and population growth.

By 1963, Egyptian wheat imports exceeded agricultural production. For the following twenty

years, dependence on imports continued to grow. In 1983, at the height of Egyptian import rates, Egypt was

producing less than 20 percent of its domestic demand for wheat. Expenditures on food subsidies increased

from LE 3 million in 1970 to LE 1.4 billion in 1980, at which point it made up 14 percent of total government

spending. The massive increase in spending resulted from President Anwar Sadat’s “Open Door Economic

Policy,” in which the subsidy system expanded to involve 18 foods, including beans, lentils, frozen meats, rice

and yellow maize.ii

During the following three decades, Egyptian external debt rose to $40,626 million. In 1976, the

International Monetary Fund (IMF) put forward requirements for economic reforms and subsidy reductions. As

a result of subsidy cuts, the Egyptian population rioted in Cairo, Alexandria and the Nile Valley, resulting in

more than 77 deaths over two days.iii At this point, the IMF offered a $140 million loan to restore peace, and


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government spending and deficit continued to escalate. According to Akhter Ahmed, a senior research fellow at

the International Food Policy Research Institute (IFPRI), “The infamous 1977 riots deeply unnerved Egyptian

policymakers and left a legacy of government caution not only toward food policy reform, but economic reform

more broadly.”iv From this point forward, food subsidies were acknowledged as a vehicle for social equity, a

weapon to fight poverty and an unspoken contract from the government to the people.

As the 1980s brought increasing irregularities in international wheat prices, however, President Hosni

Mubarak was forced to reform the food subsidy system in an effort to fix Egyptian budget deficit and reduce

foreign borrowing and rising inflation. In a series of reforms, Mubarak’s government agencies gradually reduced

the subsidy package without political ramifications or social disruption.v The liberalization of state agriculture in

1987 resulted in a market-based, export-oriented economy supported by agreements from the World Bank and

the IMF. Consequently, the cost of food subsidies decreased from 14 percent of government expenditures in

1980 to 5.6 percent by 1996.

Today, Egyptian food subsidies include coarse baladi bread, baladi wheat flour, sugar and edible oil and

account for around 6 percent of government expenditures. While Egypt’s macroeconomic expansion ranks

among the most prosperous for developing countries, major donors to the government subsidy system, including

the United States Agency for International Development (USAID), have demanded reform of the food subsidy

system to better target the poor and alleviate corruption.vi As a result of sensitive political climate—Egypt has

been in a declared state of emergency for 481 out of the past 564 months—government policy makers resist

reforming subsidy laws out of fear of political unrest.vii

Literature Review

Presently, there is limited contemporary research that suggests realistic outcomes of plausible reforms

within the food subsidy system. Most past research uses dated models to condemn the current political

atmosphere and equity system and to disqualify suggested reformations. Contemporary articles also address the

need for reform as they examine the hindrances of the system, and the implications of its massive economic

demand. Additional research shows that Egypt should be considered a developing country as it is in a relatively

stable state with sensible levels of poverty, unemployment and GDP per capita.viii

Political Implicationsix

Egyptian statistics reveals the country was in fact one of the best performing developing countries

throughout the past 30 years with respect to economic performance, poverty, inequality, corruption and

unemployment. With GDP growing 4.5 times since 1980, Egypt was one of the best performing countries of the

developing world. Because roughly 22 percent of the population lives below the $2-per-day poverty line,

Egyptians are largely dependent upon the existing on the food subsidy system.


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Food prices, poverty, unemployment and authoritarian rule are often blamed as the impetus for the

Egyptian Revolution of 2011. In an examination of the growth of spring 2008 riots and the lead up to the 2011

Revolution, it becomes evident that much of the cause for the Revolution was provided by surges in food prices

and reductions in subsidy levels. On April 6th, 2008, factory workers in al-Mahalla al-Kubra protested the

decrease in living standards being caused by food price growth. This movement, formally established in a

Facebook group as the April 6 Youth Movement, played a pivotal role in the Egyptian Revolution of 2011.

In late 2010, food prices reached a level similar to that of April 2008. In preparation for the rapid growth in

food prices, Mubarak’s regime preserved the price of baladi bread at 130 grams for one pound. Even with less

than $2-per-day, starvation was still unlikely. Unfortunately, corruption in the state-sponsored bakeries meant

that, instead of being used to bake bread, much of the state-subsidized flour was resold in the black market for

over a hundred times the intended state-subsidized price. Consequently, a significantly reduced amount of baladi

bread was produced, leading to food shortages, long queues and worker strikes. To subdue the protestors, the

government again expanded the subsidy system to increase the number of beneficiaries (from 39.5 million to 63

million people) and the list of subsidized ration card products. As a result, the subsidy system expanded to

provide bread to 100 percent of Egyptian people, and ration cards to 80 percent. While this increased

government expenditure to $4 billion, it left 42 percent of necessary food commodities unsubsidized.

The “April 6 Youth Movement” resulted in the overthrow of Mubarak’s government, the 2011 Egyptian

Revolution, and the establishment of the current military government that reigns today. In an effort to promote

democratic reform, the “April 6 Youth Movement” turned the issue of food subsidy in Egypt into a symbol of

the struggle for equity and human rights. As food prices around the world increased, the majority of Egyptians,

even those employed, found themselves below the poverty line. This poverty condition, compounded with the

violent decades of the State of Emergency, the high percentage of young males in the total population, and use

of the Internet, increased the resolve and fervor of the rebellion. All in all, this movement demonstrates that

food subsidies have political implications in Egypt and that the government must proceed with caution when

implementing change and reform. In the battle to preserve political and economic stability, balance is key.

Food Insecurity and Corruptionx

Currently, the food subsidy system faces fiscal, nutritional and targeting problems. Since 2009, the

number of food-insecure Egyptians has risen 21 percent. Even worse, poverty levels increased nearly 25 percent

in the past five years. The 2013 food subsidy bill reached $4.31 billion USD, as Egypt became the world’s third

top importer of wheat (after Russia and China), but was ranked only sixteenth by population. Importing roughly

10 million tons of wheat abroad and purchasing another 3.6 million tons from local farmers, the government

provides loaves for less than $0.01 per loaf—equal to 1/7 of the actual cost to import. Additionally, corruption

within the system is immense as a rampant smuggling mafia illegally sells subsidized flour in the black market.


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More than 7 million Egyptian pounds of subsidies are wasted yearly due to smuggling. This widespread

corruption has resulted in the appointment of new administrative officials and probing government

investigations.

International Action

A recent conference led by the IFPRI, United Nations World Food Program and Egyptian statistical

Agency, CAPMAS, addressed how to solve Egypt’s growing deficit, nutrition, and poverty issues. Policy

recommendations for the 13.7 million Egyptians who are currently food insecure require ameliorating targeting,

marketing and nutritional issues.xi The plan calls for national action in developing food security and addressing

the inefficiencies of the current program.

Targetingxii

The food subsidy system in Egypt attracts much controversy due to the strain it places on the

government budget. It is argued that the subsidy places an unnecessary burden on the country’s budget and is

ineffective because the bulk of its benefits are not received by the truly poor. The effectiveness of a subsidy

should be measured on the degree to which the subsidy delivers food to its intended target group. Targeting can

occur in two ways, either by administrative targeting or self-targeting. Administrative targeting requires data and

enforcement procedures, whereas self-targeted subsidies are designed so that only the target population elects to

participate.

Today, 61 percent of the benefits from the baladi bread subsidy go to non-needy Egyptians, increasing

the cost of access to poor from LE 1 to LE 2.98. Only one-third of the total food subsidy reaches the poor, with

oil being the least targeted (only 10 percent of which makes it to the poor). While increasing extraction levels to

lower the quality of bread can increase its self-targeting, the current ration card subsidy system is not as simple to

reform or easy to regulate.

Reformxiii

One of the most thorough evaluations of the Egyptian food subsidy system was conducted by the

IFPRI over a three-year period, beginning in 1996. The study conducted a policy research on food security issues

by examining the economic, political and technical feasibility and efficacy of a variety of strategies for reforms

that reduce costs but maintain or even improve the welfare of the poor. The study emphasizes the importance of

balancing the economic benefits and costs of different policy options with their political and social benefits and

costs and focuses on the role of the middle class within the political urban base.


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Targeting of Subsidy Systemxiv

Currently, subsidies are not distributed proportionately to poverty levels (determined by rural or urban

area) [Table A]2. Urban and metropolitan areas receive more shares of total allocation of food subsidy benefits,

even though rural areas contribute more to total poverty levels [Table B]3.

The most cost-effective government funded programs are those that subsidize the foods that are

consumed more in both absolute and relative terms by the poor than by the rich. This requires the subsidization

of inferior foods, whose consumption declines with income, as wealthier households prefer higher quality, non-

subsidized foods. Presently, the Egyptian food subsidy system is targeted more successfully at the poor in urban

areas, where the poor tend to participate more than the rich.

In urban areas, the mean per capita level of expenditures on baladi bread decline sharply with income,

and the main difference in mean expenditures on baladi bread between the lowest and highest quintile groups is

statistically significant [Table C4]. While the poorest expenditure group, which accounts for nearly 22 percent of

the population, spends approximately 20.8 percent of its total expenditures on subsidized food, the top quintile

group only spends 16.8 percent of its expenditures on subsidized food. This data, demonstrating that the poor

spends roughly 20 percent more of their expenditure on subsidized food than the wealthiest quintile, indicates

that baladi bread functions as an inferior good, the reason for this being the poor quality of baladi bread. As

income increases, expenditures on baladi bread decrease in absolute terms as it is substituted for more expensive,

higher quality foods. The other subsidized foods, however, such as baladi wheat flour, edible oil and sugar, are

not inferior goods.

In order to quantify the benefits of the other subsidy foods, the World Bank estimates the amount of

income transfer each subsidized food results in. The amount of income transfer from a food is defined as “the

difference between what a household pays for that subsidized food, and what they would have to pay for that

food in the ‘free market’ in the absence of food subsidies.”xv The Egyptian Ministry of Trade and Supply does

not keep any detailed records on the rate of subsidy for foods, or on the costs of administering this food. As a

2 Table shows the food subsidy allocations and distribution of poverty by region in 1997. Results include Metropolitan: 28.6% (Food Subsidy Allocation Share), 18.5% (Region’s Contribution to Poverty); Lower Urban: 20.8%, 11.1%; Lower Rural: 13.3%, 32.5%; Upper Urban: 20.4%, 7.5%; Upper Rural: 16.9%, 30.3%. From this table, it can be seen that while the rural areas contributed 62.8% to poverty levels, they receive a meager 30.2% of the country’s entire food subsidy allocation. In contrast, the urban areas contribute to 18.6% of poverty levels, and receive 41.2% of the food subsidy allocation. The discrepancy between the two areas boils down to socioeconomic behavior in the two regions and the long travel required in rural areas to reach bread distribution centers. 3 Table B compares the distribution of food subsidy benefits and poverty by region in 1997. Comparing the rural and urban areas, the table demonstrates that while the rural areas contain the majority of the poor population, they receive the smallest percentage allocation of food subsidy benefits. 4 Table C portrays subsidized food as a source of calorie availability by expenditure quintile group for Urban Egypt in 1997. Results show that Baladi Bread and sugar as the only two inferior goods in Urban areas.


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result, in order to calculate the income transfers consumers receive from different subsidized foods it is

necessary to calculate cost, insurance and freight (CIF) import prices and add in estimated costs of handling,

transportation, distribution and baking expenses. The World Bank’s most recent calculation of the income

transfer (measured in 1997) was: 8.74 percent for the lowest quintile, 6.2 percent for the second quintile, 4.81

percent for the third, 3.1 percent for the fourth, and 1.43 percent for the highest quintile.xvi For the urban

population, baladi bread makes up 74 percent of the total income transfers to the poor, and the total subsidized

food accounts for 42 percent of total calorie consumption.

For the rural areas, however, the targeting data reveals different results. While the poorest quintile group

spends 19.5 percent of its total expenditures on subsidized food, the top quintile group spends a slightly larger

share, 21 percent. The mean per capita level of expenditure on subsidized baladi bread in fact increases with

income, where as it clearly falls in urban areas. Adams states, “In rural Egypt the only subsidized food that

transfers more income to the poor rather than to the rich is baladi wheat flour” which they use to bake their own

bread. While the reasons for the discrepancies between rural and urban areas is still under investigation, it is

proposed that the wheat acts as an inferior good in the rural areas because of high unemployment rate for

women, who have the time to cook the bread themselves. Bread, according the Adams, does not act as an

inferior good because the rural bakeries are harder to get to. For this reason, families tend to buy bulk flour (in

one or two trips) to bake throughout the week, rather than making daily trips to collect fresh bread. This results

in baladi wheat being the only food that acts as an inferior good in the rural governorates. Looking at calorie

consumption in rural areas, it appears that the rural rich are actually consuming more subsidized food than poor

(1,195 calories compared to 1,089).xvii

Possible reforms

Literature reviews and comparable countries’ data have been used to hypothesize possible reforms for

the present food subsidy system. Some of the most popularized suggestions include the addition of maize flour

or an increased extraction rate of subsidized flour, the use of food stamps, better targeted rationing cards and

eliminating the oil subsidy. Each option includes economic, political, targeting and social implications that must

be considered and weighed before implementation [Table D].

The addition of maize flour in some areas would result in reduced leakage and cost of wheat imports,

while making baladi bread less attractive to the poor and an inferior good in more areas. Unfortunately, domestic

maize production is not presently sufficient enough to expand this initiative throughout the entire country.

Increasing the extraction rate of subsidized wheat flour, another option with similar results, is a positive option

because it does not require any government intervention. This option has higher associated costs however; it

reduces the amount of bran the government can sell separately for a price higher than baladi bread, and would

require a significant cost for reconfiguring flourmills.


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Another option would be to instigate a regulated food stamp system to replace the ration cards.

Currently, food stamp systems have proven to be successful in targeting the poor in a variety of countries,

including the United States, Jamaica and Peru. Unfortunately, this option has serious political ramifications for

strife and equity riots, and the current environment in Egypt is not stable enough to implement such a system.

Additionally, there is no annual census or accurate data to use to establish a basis for the program, and regional

implementation would prove difficult.

Perhaps the most costly difficulty faced by the current subsidy system is the ration card distribution.

Presently, the ration cards are divided into two different categories: green (for the poorest quintiles) and red (for

everyone else). Due to infiltration within the system, however, over 60 percent of wealthiest Egyptians currently

receive green card subsidies, while only 21 percent hold actual ration cards, and over 11 percent of the poorest

quintile do not hold any card [Table E]. While this option has the possibility for positive and plausible results for

low overall cost, it too faces problems. The Egyptian government is not systematized for this sort of model, and

this elaborate structure has a large time requirement and strict administrative demands.

The final policy suggestion to be mentioned is the elimination of the food subsidy on edible oil. An

elimination of the oil subsidy would eliminate nearly 22 percent of the cost of the food subsidy system. Oil has a

small, yet positive, expenditure elasticity, but is less important in calorie and health consumption than sugar and

bread for the poorest quintiles, making it the most ideal food to eliminate. This elimination, however, would

cause an 11 percent decline in the value of income transfers to the urban poor in Egypt, and a 14 percent decline

in the value of such transfers to the rural poor.xviii

In an individualized metric system ranking cost, implementation feasibility, research demand, political

acceptability and targeting impact, each policy option has been quantified to determine the most feasible and

beneficial policy recommendations [Tables D & F]. Based upon these calculations, in which each policy

recommendation is ranked on a scale from one to five in previously stated categories, increased extraction rates

and better targeted ration cards appear to be the best options, with respective scores of 21 and 18.5

Discussion and Policy Recommendation

As evidenced from research, professionals and most importantly, history, any adjustments to the food

subsidy system must be implemented cautiously and with careful consideration. It can be concluded that there

are four criteria that must be followed in any policy recommendation. These include: 1) Policy recommendations

must differ between the rural and urban poor, 2) Food subsidy system must be specifically pro-poor and self-

5 Scoring based on above mentioned methodology, with guidance from Akhter U. Ahmed’s writing, The Egyptian Food Subsidy System, pg 90-91.


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targeting6, modeled off of the Chilean, Peruvian and Jamaican systems, 3) Government expenditure must be

adopted as an investment in human capital and nationally coordinated, 4) Any and all changes must occur

gradually and over time with sufficient input from various political parties and socioeconomic classes.

The first complication in separating policy from rural and urban areas is distinguishing between the two.

CAPMAS (a collection of five governorates: Cairo, Alexandria, Port Said, Ismailia and Suez) uses generalized

administrative criteria to define urban the five frontier governorates (Al Bahr al Ahmar, Al Wadī al Jadīd, Janūb

Sīnā’, Matrūh, and Shamal Sīnā’), capitals of governorates and district capitals (markaz). This leaves all areas

occupied by less than 20,000 inhabitants classified as rural.

A study performed by Sonia Ali from Zazazig University and Richard Adams of the IFPRI proves that

rural households spend proportionately more of their income on food and beverages than their urban

counterparts (57.6 percent versus 48.6 percent). Consequently, the policy recommendations between rural and

urban areas should differ. For areas in which the population is less than 20,000 residents, the best policy

recommendation is to increase the extraction of wheat flour in baladi bread by another 3 percent, to total an

extraction rate of 85 percent.xix This suggestion would result in more purchased flour (which is already self-

targeted), increased self-targeting of baladi bread and a one-time cost of remanufacturing the flourmills at

approximately 17.8 million Egyptian pounds per mill. xx

While baladi bread is for the most part an inferior, self-targeted good in urban areas, the area most in

need of reform is the rationing cards system. Presently, 11 percent of the poorest quintile and 16 percent in the

second poorest quintile do not hold ration cards, while 9 percent of the richest quintile holds red-ration cards.

61% of households that hold the green ration cards, intended for the most poor, belong to the three richest

quintile groups.

A reformation of the ration card system would require a regular census and regulation in order to

identify the poor and non-poor households. Perhaps the most cost-effective, politically feasible and sustainable

method for reform in this regard would be to create an additional government entity to screen the poor from

non-poor. This is a policy recommendation that will not be expanded upon further within this paper, but simply

an idea for future research to investigate.

Urban Targeting Methodologyxxi

Perhaps the greatest difficulty in the suggestion to reassess the systematization of the urban rich and

poor is the creation of a method by which to distinguish the two. The main points of analysis for this assessment

have been taken from the statistical evaluation of Egypt Integrated Household Survey for the IFPRI Food

Security Research Project (IFPRI-FSR) in Egypt. In a questionnaire administered to 2,500 households in 20 6 I suggest modeling a subsidy system off of the Chilean, Peruvian, and Jamaican food subsidy distribution centers. These policies are not described in this article, but provide an opportunity for further research and policy recommendation. Look at Adams, 20 for more info.


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governances, the survey used a two-stage, stratified selection process to review contestants based off of the 1986

Egypt census frame and 1993 listing of households. The frame consisted of 492 primary sampling units (296

urban and 196 rural) and collected information on income, expenditures, food consumption, nutrition,

education, employment, financial status, migration, farming and the use of the food subsidy system.

This data with standard errors corrected for the two-stage, stratified sample design, used ordinary least-

squares regression to predict the parameters for per capita household consumption. Consumption was

determined as the most reliable measurement of household welfare because it reflects both permanent income

and typical consumption behavior (with more consistency than income data). Using the sum of total food

expenses, total nonfood nondurable good expenses, use-value of durable goods and an input rental value of

housing, the survey was able to calculate consumption expenditure to estimate household welfare.

The Task Force for Food Security, which included members of the Ministry of Trade and Supply,

USAID and IFPRI-FSR research staff, selected seven categories of variables most correlated with capital

consumption to measure per capita household consumption (household demographic makeup, education, utility

use, dwelling characteristics, ownership of assets, occupation and location). They then estimated two regression

models, one using monthly per capita consumption as the dependent variable, and the other using natural

logarithm of per capita expenditure in a semi-log functional form as the dependent variable. In the first model,

they found that 31 out of 56 variables were significant determinants of household consumption, and calculated r-

squared as 0.58.

In order to predict the use-value of durable goods, the Task Force used a questionnaire about 22 durable

goods, resulting in formula:

Use-value for household j of durable good i:

Use-valueij=Current Valueij * (r + δi) / (1- δi)

Where:

r = nominal rate of interest

δi = the average rate of depreciation for good i

In the second, more accurate model, they dropped most statistically insignificant variables to end up with an r-

squared of 0.63. In spite of increased accuracy, however, the Task Force suggested using the first model to

increase simplicity of calculations (using log of the sum of scored rankings).

The logarithmic calculation followed:

lnRi= α + β’(Urban)I + γ’(Gov)I + δ(Tenant)i + η’Xi + θ’(Tenant * X)i + εi


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Where:

Ri=monthly rent

Urbani=dummy variable for urban areas

Govi=a vector of dummy variables for individual governorates

Tenanti = a dummy variable with a value of 1 if the rent observation is reported by a tenant, and 0 if self-

imputed by the owner

Xi=a vector of dwelling characteristics, including number of rooms, type of walls, type of floor, roof, toilet and

water source

α, β’, γ’, δ, η’, θ’ are estimated parameters

and εi is an independently distributed error term

To further enhance the accuracy and feasibility of the model, the Task Force dropped the variables that

would require calculations by field staff (e.g., dependency ratio, rooms per capita, squared household size, etc.),

would require judgment of a field staff to define (e.g., female-headed household, urban or rural residence), or

would cause more resources to gather and increase calculation errors (e.g. asset variables).

The final model resulted in nine household-level variables (household size, education, electricity and

telephone bills and ownership of certain assets), and 19 location dummy variables to control for governorate-

level fixed effects. The resulting model, which allowed for different allocations of average per capita benefits

among governorates, was adjusted again, in an effort to simplify. Afraid that the governorate-specific targeting of

ration card benefits would lead to political discontent, the Task Force made a suggestion to disregard the dummy

variables and use an average instead. This scenario would have been applied to the entire country as a whole.

This policy recommendation, however, suggests leaving the dummy variables in, since applying this

system only to urban areas should result in a narrower range of results that will not cause political eruptions over

issues of equity [Table G]. The dummy variables allow for a factoring of the interaction between governorate and

urban rural residences in order to account for local political, economic and structural differences in food

distribution and poverty.xxii More information regarding the calculation of governorate dummy variables can be

found in Elbers et al. (2002) and Roushdy et al. (2007). In short, these calculations were done using non-linear

functions of per-capita consumption as estimations of population parameters and deriving them from the full

unit level distribution of that variable.xxiii

The previous survey, when proxy-testing is implemented nation-wide in both rural and urban areas,

results in 4.9 million green cards being held by non-needy being replaced with red cards (saving LE 117 million

annually), 640,000 red cards being held by the needy being replaced with green ration cards (costing an additional

LE 15 million), and 536,000 new green cards being issued to the needy who currently have no cards (costing an

additional LE 48 million annually). All in all, the net savings for the government would be LE 54 million.


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According to IFPRI-FSR research, current staff at the Ministry of Trade and Supply would require a one-time

cost of LE 14 million to train and coordinate the new system.

Implementation and Conclusion

The IFPRI-FSR found difficulties with implementing this new rationing plan due to political turmoil and

extenuating economic difficulties. This article suggests that the Egyptian government should establish an

additional government enterprise to monitor the census and distribution ration cards. With an investment of LE

18.5 (adjusted from LE 14 million from 2002 levels), the government could run a program quite similar to what

occurs with Social Security in the United States today. The enterprise would promote middle class participation,

allow for lower costs, better quality, greater efficiency, and even risk mitigation, as it would be guided by local,

regional, and federal regulation.

The fundamental question of how to avoid corruption as a new system is implemented may still be left

open for discussion. It has long been argued that education is the vehicle for peace. In fact, many historians

credit the low death rates and relatively peaceful 2011 Egyptian Revolution to the steadily increasing education

level in Egypt. The education system in Egypt lags behind in GDP expenditure on education and literacy rate.

The CIA World Factbook defines the literacy rate as the percentage of children aged 14 and over that has ever

attended school. Looking at literacy rate, Egypt (73%) falls below Jamaica (87%), Chile (99%), and Peru (90%)—

all countries that have peacefully reformed their subsidy systems.xxiv As education levels in Egypt continue to

improve, peaceful reform seems more plausible. They key factors will be balance, patience, and the garnering of

support of the middle class.

The most important factor is making sure that the subsidies reach the right people. In order to measure

the successes of this new campaign, regular reports should be taken on poverty and employment levels and

compared to successful systems abroad. For example, perhaps the most similar country of comparison, Jamaica,

has gradually removed individuals who no longer qualify for benefits under reformed food subsidy programs.

While their distribution is a little different, through a government entity and in the form of food stamps, over

nine years Jamaica has achieved great success. Since implementation, 75 percent of benefits for the system

targeted the poorest 2 quintiles of the population, while only 2 percent reach the wealthiest [Table H]. These are

goals that Egypt can hope to achieve in the span of a decade.


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Change 50.2 (2002): 339-63. JSTOR. Web. 02 June 2014.


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Adams, Jr. Richard H. "Self�Targeted Subsidies: The Political and Distributional Impact of the Egyptian Food

Subsidy System." Economic Development and Cultural Change 49.1 (2000): 115-36. JSTOR. Web. 15 Apr.

2014. <http://www.jstor.org/stable/ 10.1086/452493?ref=search-

gateway:9af3c60abbd56c7fe5d08395e59edef0>.

Ahmed, Akhter U., Tamar Gutner, Hans Lofgren, and Howarth Bouis. "The Egyptian Food Subsidy System:

Structure, Performance, and Options for Reform." International Food Policy Research Institute 119th ser.

(2001): Viii-148. International Food Policy Research Institute. Web. 15 Apr. 2014.

<http://www.ifpri.org/sites/default/files/ publications/rr119.pdf>.

Ahmed, Akhter U., and Howarth E. Bouis. "Weighing What’s Practical: Proxy Means Tests for Targeting Food

Subsidies in Egypt." Food Policy 27.5-6 (2002): 519-40. Print.

Al Sayegh, Hadeel. "Egypt's Flour Mills Face a Struggle | The National." Egypt's Flour Mills Face a Struggle | The

National. The National, 23 May 2011. Web. 06 May 2014.

Al-Khāliq, Jūdah ʻAbd, and Karima Korayem. Fiscal Policy Measures in Egypt: Public Debt and Food Subsidy. Cairo,

Egypt: American U in Cairo, 2001. Print.

Asfaw, Abay. "The Role of Food Price Policy in Determining the Prevalence of Obesity: Evidence from Egypt."

Review of Agricultural Economics 28.3 (2006): 305-12. JSTOR. Web. 02 June 2014.


gateway:1cd1abfe2ab19dbd5e95d9a34d26f541>.


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"Egypt : EGYPT'S Food Subsidy Bill Reaching $4.31 Billion." Mena Report. Reuters, 20 Mar. 2014. Web. 15

Apr. 2014.

Elbers, Chris, Jean Lanjouw, and Peter Lanjouw. "Micro-Level Estimation of Welfare." Policy Research Working

Papers (2002): n. pag. World Bank. Web. 2 May 2014.

<http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-2911>.

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Institute, 25 June 2013. Web. 15 Apr. 2014.

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< http://www.un.org/esa/agenda21/natlinfo/wssd/egypt.pdf>

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n. pag. Entelequia: Revista Interdisciplinar. Web. 14 Apr. 2014.

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APPENDIX Table A:xxv

Food subsidy allocations and distribution of poverty, by region, 1997


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Table B:xxvi Distribution of food subsidy benefits and poverty, by region, 1997


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Table C:xxvii Subsidized food as a source of calorie availability by expenditure quintile group for urban Egypt, 1997


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Table D:xxviii Implications of possible reforms [scale for policy recommendation]

Score: Cost (LE): Implementation

Feasibility Research Demand

Political Acceptability

Targeting Impact

5 Negligible Proven easy No research/data required

Proven high Complete self-targeting (serves only poor)

4 0-24.99 million

Should be easy Research already acquired will be used

Medium Moderate self-targeting (serves mostly poor)

3 25 million-49.99 million

Depends Update of previous research will be needed

Neutral Ambiguous

2 50 million-74.99 million

Should be difficult New census needed

Low Serves some wealthy and some poor

1 >75 million Proven difficult Complete reform of research model required

Proven intolerable

Serves more wealthy and little poor


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Table E::xxix Share of households holding ration cards, by expenditure quintile


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Table F. Policy recommendation comparison

Policy Cost (LE) Implementation Feasibility

Research Demand

Political Acceptability

Targeting Impact

Score:

Addition of Maize Flour/Increase Extraction Rate

30 million (3)

Proven easy (4) Research already acquired will be used (4)

Proven high (5) Complete self-targeting (serves only poor) (5)

21

Reallocate Subsidized Food Supply Among Governorates Using Poverty as a Criteria

18 million (4)

Should be difficult (2)

New census needed (2)

Medium (4) Moderate self-targeting (serves mostly poor) (4)

16

Use Food Stamps

46.97 billion (1)

Should be easy (4)

Complete reform of research model required (1)

Proven intolerable (1)

Moderate self-targeting (serves mostly poor) (4)

11

Better Target Ration Cards

18 million (4)

Depends (3) Update of previous research will be needed (3)

Medium (4) Moderate self-targeting (serves mostly poor) (4)

18

Eliminate Oil Subsidy

Negligible (5)

Should be easy (4)

No research/data required (5)

Low (2) Serves more wealthy and little poor (1)

16


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Table G.xxx Per-capita consumption expenditure

Variable Name

Coefficient t-Statistic Mean Minimum Maximum

Cairo 81.533 6.37 0.09 0 1 Alexandria 79.668 5.78 0.06 0 1 Suez 125.448 13.15 0.01 0 1 Damietta 41.747 3.28 0.03 0 1 Dakahlia 21.519 2.04 0.06 0 1 Sharkia 45.407 4.66 0.05 0 1 Kalyoub 33.419 3.44 0.10 0 1 Kafrshkh 14.194 0.98 0.03 0 1 Gharbia 21.866 1.93 0.05 0 1 Menoufia 68.778 6.08 0.04 0 1 Behera 36.451 3.08 0.05 0 1 Ismailia 51.341 4.06 0.02 0 1 Giza 79.092 7.47 0.12 0 1 BeniSuef 69.873 7.28 0.02 0 1 Fayoum 85.046 10.48 0.04 0 1 Menia 43.912 3.48 0.06 0 1 Assyout 60.940 5.42 0.05 0 1 Sohag 42.474 5.04 0.05 0 1 Quena 51.304 5.21 0.06 0 1


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Table H:xxxi An international comparison of the income transfers from Egyptian food subsidies with those of food

subsidy programs in other countries


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i States News Service, "Food Subsidies in Egypt: A Help or Hindrance?" ii Ahmed, Akhter U., and Howarth E. Bouis. "Weighing What’s Practical: Proxy Means Tests for Targeting Food

Subsidies in Egypt," 520. iii Korotayev, Andrey V., and Julia V. Zinkina. "Egyptian Revolution: A Demographic Structural Analysis." iv Ahmed, Akhter U., Tamar Gutner, Hans Lofgren, and Howarth Bouis. "The Egyptian Food Subsidy System: Structure, Performance, and Options for Reform,” 7. v Ibid. vi Ibid., 11. vii Strauss-Kahn, Dominique. "Mideast Unrest Shows Need to Consider Bigger Picture." viii Hurewitz, J. C. “EGYPT,” 6. ix Korotayev, 5-25. x "Egypt : EGYPT'S Food Subsidy Bill Reaching $4.31 Billion." Mena Report. Reuters. xi "Food Subsidies in Egypt: A Help or Hindrance?" xii Adams, Jr. Richard H. "Self Targeted Subsidies: The Political and Distributional Impact of the Egyptian Food Subsidy System." xiii Ahmed, 68. xiv Adams, 34. xv Ibid., 15. xvi Strauss-Kahn, 28. xvii Adams, 18. xviii Ibid., 22. xixAhmed, "Weighing What’s Practical: Proxy Means Tests for Targeting Food Subsidies in Egypt." xx Al Sayegh, “Egypt’s Flour Mills Face a Struggle” xxi Ahmed, 13. xxii Roushdy, Rania, and Ragui Assaad. "Poverty and Geographic Targeting: In Egypt: Evidence From a Poverty Mapping Exercise."


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xxiii Elbers, Chris, Jean Lanjouw, and Peter Lanjouw. "Micro-Level Estimation of Welfare." xxiv Central Intelligence Agency, “The World Factbook.” xxv Ahmed, 23. xxvi Ibid., 27. xxvii Adams, 35. xxviii Akhter U. Ahmed’s writing, The Egyptian Food Subsidy System, pg 90-91. xxix IFPRI xxx Ahmed, 538. xxxi Adams, 39.

Targeting the Egyptian Food Subsidy System the Egyptian Food Subsidy System: Urban Versus Rural Reform Kathleen Oliver1 1 Kathleen Oliver is a member of the Class of 2015 at the University

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