THE POLITICAL ECONOMY OF FOOD PRICES IN EGYPT

The poor growth performance of agriculture and the relative failure of industrialization policies in Egypt have led to a change of development strategy and to a liberalization of economic policies. In terms of food policy, the response of the government has been to rely primarily on imports to satisfy the growing urban demand for food resulting from the income effect of rapid growth and from population increase, and to raise farm prices and subsidize inputs to stimulate domestic production. In terms of investment, though, agriculture was neglected and has stagnated. Consumers are protected from increases in food prices by a policy of cheap food and by an extensive system of subsidies. But food subsidies have a high fiscal cost and affect in a significant way macroeconomic adjustment mechanisms.;A dynamic computable general equilibrium model is used to trace out the consequences of price and non-price policies on growth and welfare in the Egyptian economy. The data for the model are presented in an Social Accounting framework. The macroeconomic and welfare implications of growth under different policy scenarios for the period 1979-1984 are examined in several experiments. The results show that growth leads to increased food dependence because it has a strong income effect and because the income elasticity of demand for food is high. Price policies are not effective to increase output in agriculture, and mainly transfer incomes from urban to rural households. Supply response in agriculture is low in the short term because of labor constraints and in the long term because inflation leads to a decline in real investment growth rates. Low agricultural prices benefit the urban population and the rural landless, while high prices benefit farmers. Policies of investment and technical change are effective in reducing food dependence and increasing domestic output, although food imports will continue to rise if rapid growth in other sectors of the economy continues. An elimination of food subsidies would reduce the fiscal deficit and improve the balance of payments, but would have a distributional impact that is too severe to be politically feasible.;The purpose of this dissertation is to examine in a general equilibrium framework what mechanisms are appropriate to reduce the dependence on food imports and the fiscal burden imposed by the food subsidy program, without adverse distributional consequences for the urban population, and to obtain higher growth rates in domestic agriculture without real welfare losses in rural areas.