The food subsidy system is an integral part of Egypt’s long-term policy for political stability and social support. A new report has highlighted its faults however, claiming it facilitates leakage and uneven distribution, leaving’s Aaron Priel to ask if the much-needed system will ever actually achieve all it promises.

Egypt’s food subsidy system has been a mainstay of the government’s long-term policy of promoting social equity and political stability. It is a major component of the social safety net for the poor, guaranteeing the availability of affordable staples and mitigating the adverse effects of recent economic reform and structural adjustment.

“The cost of the system has declined considerably from 14% of government expenditures in 1980/81 to 5.6% in 1996/97. The absolute cost, however, remains high: in 1996/97 the total cost was 3.74b Egyptian pounds (LE), or about US$1.1bn,” according to a report entitled The Egyptian Food Subsidy System: Structure, Performance and Options for Reform, published by the Washington-based International Food Policy Research Institute (IFPRI).

The report evaluates the economic, political, and technical feasibility of reducing costs while improving or maintaining the welfare of the poor. The report addresses five questions:

  • How well does the present system target the poor?

  • How much leakage occurs – the pilferage of subsidised foods in the distribution channel?

  • At what cost does the government transfer income to the needy?

  • How can subsidies be better targeted to the needy?

  • What are the politically feasible options for reform?

The subsidy system includes 4 foods: baladi bread, wheat flour, sugar and cooking oil. Baladi bread and wheat flour are available to consumers of all income levels, without restrictions. Sugar and cooking oil are targeted – they are available only to those with ration cards. “In principle, higher-income households should get low-subsidy red ration cards and lower-income households should get high-subsidy green cards,” the report notes.

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Subsidies for the non-needy

The report asserts that the present system does not target the poor as well as it should’ however. Subsidy benefits are distributed almost evenly across income groups: 1% of the population receives, more or less, 1% of the benefits. This distribution pattern is quite similar to that of the early 1980s and reveals that the majority of the benefits accrue to the non-needy. “Poor targeting combined with system leakage led to only about one-third of the subsidy going to the needy. Of this, baladi bread accounted for 65%; wheat flour, 13%; sugar, 12%; and cooking oil, 10%.”

Baladi bread and wheat flour accounted for about 77% of the subsidy in 1997. The untargeted system for these goods allows all consumers to benefit, but the IFPRI argues that it is an “expensive way to improve the food security and nutrition of the poor”. It adds that sugar and cooking oil subsidies are not well targeted. A majority of the wealthy households, about 71% of households in the top three quintiles, carry the high-subsidy green rations cards. “These households receive about 62% of the rationed subsidy benefits. On the other hand, about 10% of needy households hold the low-subsidy red cards, and about 14% of poor households have no card of any kind,” the report says.

Better targeting the poor

IFPRI claims that food subsidies can be better targeted to the poor. For this to occur, several new measures must be implemented. Firstly, baladi bread distribution outlets should be concentrated in poor neighbourhoods. Rural areas, and other areas where poverty is concentrated, should receive higher shares of total food subsidies.  To reduce leakage, the government should mix maize flour with baladi wheat flour at flourmills. Meanwhile, the ration card system for sugar and cooking oil should provide high-subsidy green cards only to low income households, and ensure that the green cards of non-needy families are converted to low-subsidy red cards. To ensure this is properly done, a proxy means test, which relies on indicators highly correlated with household income, should be applied to distinguish poor from non-poor households.

Reforms are feasible

IFPRI maintains that a number of the reforms are administratively and politically feasible. “Because there is no pressing need for far-reaching change, government officials and various stakeholders believe that extreme measures such as increasing the baladi bread price to eliminate the subsidy or targeting bread subsidies by using food stamps or coupons are unrealistic,” the report says.

The feasible reforms can be divided into two groups, based on the degree of political opposition they would probably encounter. IFPRI adds that the policies that are likely to meet little opposition include revamping the ration card system by decreasing rationed food subsidies for the non-needy, and mixing maize flour with baladi wheat flour at the milling site to reduce leakage.

Options that would engender greater opposition are those of eliminating the sugar and oil subsidies, targeting bread outlets to poor neighbourhoods, and reallocating supplies to the governorates? according to their poverty levels. “The losses the non-needy would incur from these reforms do not appear to be large. Therefore, these options are feasible if the political will exists to implement them,” IFPRI concludes.

By Aaron Priel, correspondent