A Food Systems Approach to Agricultural Development in Egypt

Agriculture is crucial for increasing economic growth and reducing poverty (World Bank, 2008; Diao et al., 2007). In 2015, the agricultural sector accounted for 11.7% of GDP, 4.6% of exports, 6.5% of imports, and 14.5% of employment in Egypt. Yet as the country continues its transformation to higher income status, the contribution of agriculture to the economy as a percentage of GDP is likely to decline, while both agro-manufacturing and agriculture-related services are likely to increase in importance. For this reason, the current focus on agricultural policy should be broadened beyond the agriculture sector to include the entire agri-food system.

The agri-food system in Egypt

The food system is defined as “the entire range of actors and their interlinked value-adding activities involved in the production, aggregation, processing, distribution, consumption, and disposal of food products" (FAO, 2013), as shown in Figure 1.

Figure 1 : Agri-Food System (AFS)

In Egypt, with a population of more than 100 million and a society that is increasingly urbanized, the agri-food system is substantial, representing around one-quarter of GDP, as illustrated by Figure 2 (Breisinger et al., 2019). The agri-food system comprises three categories; 1) the primary production of both agricultural and agro-processed products, which, at 15.5% of GDP, constitutes the largest part of the system, 2) the production of intermediate inputs that are used to produce these primary products, such as fertilizers and seeds, energy, and packaging materials for agro-processed products and 3) trade, transport, and marketing of both agricultural and agro-processed goods.

Figure 2: Agri-food system in Egypt (% of GDP)

Source: AIDA-RIAPA model

Regionally, Lower Egypt contributes by around 71.6% of total GDP, and its governorates are home to most agro-processing factories; Upper Egypt governorates are responsible for almost 30% of primary agricultural production (Breisinger et al., 2019). Disaggregated by sub-sector, crops account for the largest share of GDP (6.3%), followed by livestock (4.3%) and fishing (1.1%).

Agricultural policy should be designed with wider economic and developmental objectives in mind, such as higher economic growth, lower poverty rates, and improved nutrition and dietary diversity. But how can we identify those agri-food value chains—such as cereals, fruits, vegetables, various livestock, and fisheries, among others—that promise the best economic outcomes? And as agriculture serves multiple purposes, what are the trade-offs between different goals and value chains? Moreover, how can we tailor policies that can best help Egypt reach its development objectives?

Analyses focusing on the development of agri-food sectors are typically business-oriented with a narrow eye on investment, but our study considers possible areas for development using an economy-wide approach. The expansion of agricultural value chains may have economy-wide impacts, including: spillover effects in other value chains and the whole economy; resource competition in land, labor, and capital; and commodity price shifts and subsequent changes in consumer purchasing power, among others. To capture these effects, we developed a computable general equilibrium (CGE) model, which is better able to consider agri-food’s role in the economy. CGE modeling allows an analysis on the sub-national and regional levels, shows the trade-offs between different goals (growth, poverty, and nutrition) and provides estimates of expected economy-wide impacts of policies and interventions.

CGE modelling addressed the following crucial questions: How can key value chains of the agri-food system in Egypt contribute to achieving development goals? Which agricultural value-chains, if scaled-up, are most effective at promoting agricultural and national economic growth, reducing poverty, creating jobs, and improving nutrition by diversifying diets?

An innovative modeling tool: AIDA

IFPRI has built an innovative CGE modelling tool to support the prioritization of agricultural policies and investments: AIDA. The Agricultural Investment for Development Analyzer (AIDA) is an economy-wide, regionalized CGE model developed by IFPRI in collaboration with and with support from IFAD and CGIAR-PIM (see Diao and Thurlow, 2012).

Figure (3) shows the circular flow of goods, factors, and financial transactions between economic agents—producers and consumers in different regions, government, and the rest of the world—operating in national and international product markets and regional factor markets.

Figure 3: Stylized Agricultural Investment for Development Analyzer (AIDA) model

Source: Authors’ compilation

The AIDA model separates Egypt’s economy into 62 sectors in three sub-national regions: Lower Egypt, Upper Egypt, and the Suez Canal zone. The 62 sectors are made up of 20 agricultural, 11 agro-processing, 2 trading and transport (see Figure 3), and 29 industrial and service sectors.

Using these parameters, the AIDA model is used to simulate the effects of expanding farm production within existing agricultural value-chains

Model results

In theory, increasing the productivity of agricultural sub-sectors positively affects all value chains. The size of the positive impact is largely determined by several transmission channels such as inter-sectoral backward and forward linkages, changes in relative prices, the degree of tradability of commodities, and changes in income generation and employment across sectors. Rising productivity across agricultural value chains leads to an increase in both output and supply, which is reflected in lower domestic prices. The extent of the fall in domestic prices mainly depends on the tradability of the agricultural goods, as reflected by each commodity’s export orientation. For example, increasing the supply of commodities geared toward international export markets, such as rice, fruit, and nuts, will not entail a significant decline in their relative prices in the domestic market. Conversely, relative prices tend to decline in sectors that mainly produce for the domestic market and have low export potential (for example, because of lack of demand or quality issues).

On the other hand, the stronger the economic linkages of a value chain (i.e., the more sectors are interlinked and intertwined with each other), the stronger the economy-wide growth effects from sector-specific productivity gains. For example, for the vegetables value chain, most of the value added is generated by linkages related to the demand for intermediate input goods like fertilizers and other chemical products. There are also forward linkages to the transport sector and inputs to vegetable-processing activities.

Figure 4: Impacts on economy-wide growth

Source: AIDA-RIAPA model

The results of our model showed that agricultural growth is good for economy-wide growth for all value chains, but, as illustrated by Figure 4, the impact varies across the three different regions. Vegetables perform the best in all three regions (Lower Egypt, Upper Egypt, and the Suez Canal). This high GDP growth elasticity is the result of the strong linkages of vegetables to other sectors—52% of total input demand is for secondary inputs—and high trade margins.

Rice, where it is grown, as well as root crops, maize, wheat, and livestock sectors are also growth enhancing, with slight differences between regions.

Concerning the impact on poverty reduction, the key mechanisms through which changes in agricultural productivity translate into changes in household welfare are net employment, income effects, and relative price changes. According to the literature on development economics, a policy intervention is considered pro-poor if the consumption level for households in the lowest two expenditure quintiles grows more than the average expenditure of all households. The results of the AIDA model show that agricultural growth is pro-poor for all value chains and all regions, as the real income of the poor grows faster than average household incomes. The leading value chains at reducing poverty are poultry and root crops in Lower Egypt, sugarcane and poultry in Upper Egypt, and root crops and vegetables in the Suez Canal zone.

With regard to employment effects, as the agricultural sector grows, driven by a rise in productivity and hence efficiency, it becomes less labor-intensive. However, as can be observed in many countries undergoing economic transformation, our model results suggest that the creation of better jobs beyond the broader agri-food system can compensate for the decrease in farming jobs.

Agricultural growth is good for dietary diversity for all crops, mainly through lowering prices, especially through growth led by the fruit value chain.

Conclusions and policy recommendations

Findings clearly demonstrate that the expansion of agricultural value chains across all agro-processing and food-related services leads to higher economic growth. To create more job opportunities, this policy should be accompanied by other policies that stimulate the growth of non-agricultural sectors. In addition, the development of most value chains is pro-poor and improves nutrition, but there is no single agricultural value chain that achieves all positive macroeconomic outcomes at once.

References

• Breisinger, C., Raouf, M., Thurlow, J., & Wiebelt, M. (2019). Beyond the business case for agricultural value chain development: An economy wide approach applied to Egypt. MENA RP Working Paper 18. International Food Policy Research Institute (IFPRI).

• Diao, X., Hazell, P.B.R., Resnick, D., & Thurlow, J. (2007). The role of agriculture in development: Implications for Sub-Saharan Africa. IFPRI Research Report 153. International Food Policy Research Institute.

• Diao, X. & Thurlow, J. (2012). A recursive dynamic computable general equilibrium model. In X. Diao, J. Thurlow, S. Benin, and S. Fan (Eds.), Strategies and priorities for African agriculture: Economy-wide perspectives from country studies. International Food Policy Research Institute.

• FAO (Food and Agriculture Organization of the United Nations). (2013). Climate smart agriculture sourcebook. FAO.

• World Bank. (2007). World development report 2008: Agriculture for development. World Bank.