Egyptian Food Subsidy System

Structure, performance and future perspective

World Bank Conference Dr Anwar M. El Nakeeb

June 2009

Contents Background Main components of food subsidy system in Egypt Key Data of Subsidized Bread Structure of Subsidized Bread industry (Supply Side) Demand Side of Balaldi Bread Key Data of Ration Cards Ration Card system Egypt and Food Price Crises Government response to the food price crisis (Current reform) Future plans

Background
The Egyptian governments involvement in consumer food subsidies started as early as the years following World War I. The food subsidy program is one of the key safety nets implemented by the GoE, and has been an important source of food security for a large portion of the population. Implemented since WWII. Food rationing began as a temporary measure in Egypt in 1941, designed to help Egyptians cope with scarcity and inflation resulting from World War II. The initial system was not targeted to the poor or subsidize price but was set up to provide everyone with necessities such as sugar, kerosene, coarse cotton textiles, edible oil, and tea . The food subsidy system expanded in the 1960s and 1970s, becoming part of a broader set of consumer welfare programs that also subsidized transport, housing, energy, water, health, education, and some nonfood consumer products, such as soap and cigarettes. In the mid-1960s, ration cards were introduced for a small number of goods in response to rising domestic prices and shortages.

Main components of food subsidy system in Egypt

The current food subsidy system in Egypt covers: 1- Baladi bread (Country Style): available to everyone 2- Ration Card: that allows families to obtain predetermined monthly quotas of subsidized commodities, especially cooking oil, sugar, tea and rice

Key Data of Subsidized Bread

Total amount of required Wheat = 13 Million (MT/year) Total amount of procured Wheat = 6 Million (MT/year) Total amount of imported Wheat = 7 Million (MT/year) Coverage = +75 Million Number of bakeries = 18,000 (92% are privately owned). Number of mills = 145 mills ( 70% of them are state owned enterprises while the rest are privately owned). Number of Loaves /day = 220 Million Per capita consumption (rural) = 1.9 Loaves Per capita consumption (urban) = 3.11 Loaves Total Cost = 16 Billion L.E./Year the weight of loaf is 130 grams.

Structure of Subsidized Bread industry (Supply Side)

The procurement phase: The General Authority for Supply Commodities (GASC), an agency of MOSS, is the government agency that absorbs most of the food subsidy costs through its budget: The GASC is responsible for all imports of subsidized wheat. The Principal Bank for Development and Agricultural Credit (PBDAC) is responsible for purchasing wheat from local farmers.

Milling phase: mills receive the wheat from GASC at LE 455/MT

Distribution Phase : In the past, most bakeries sold their bread to the public at the bakery. In recent times, small distribution outlets has been established to sell the bread. They are owned and run by the local government At present, approximately 60% of bread goes through these outlets. A home delivery service has been introduced in some districts. A household needs to register for it and pay a fee per month. This can be 3, 4 or 5 LE per month. A home delivery services are run by local government or by local NGOs.
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Baking phase : Bakeries pay 160 LE/t for subsidised flour. (less than 15% of the free market price The public bakeries have an average throughput of 7 tons of flour per day while the private bakeries average 1 ton per day. Bakers are required to produce 10 loaves of baladi bread per kilogram of flour.

Demand Side of Balaldi Bread

Subsidized baladi bread is available without restriction to all consumers living in Egypt. The fixed price of baladi bread is currently 5 piasters per loaf (approximately one US cent) throughout the country (That price has remained fixed since 1989/The market price for a similar loaf is approximately 25 piastres) No official limits are set on the quantity or frequency of purchases at this price.

Key Data of Ration Cards

Number of beneficiaries (coverage) = 62 Million Number of RCs/number of families = 16.5 Million Total cost = 5.5 Billion L.E./Year Ration cards provide very vulnerable households with 60 percent of their consumption of sugar, 73 percent of oil consumption and 40 percent of rice consumption.
Item Monthly quota Subsidized Price 1st Kilogram= LE 0.6 2nd Kilogram= LE 2 3rd Kilogram= LE 2.25 1st 1/2 Kilogram= LE 0.5 0.5 Kilogram= LE 1.75 0.5 Kilogram= LE 2.5 1st Kilogram= LE 1 2nd Kilogram= LE 2 LE 0.65 Free Market Price

Sugar

2 kilograms

1 Kilogram= LE 3

cooking oil Rice Tea

1.5 kilograms 2 kilograms 50 grams

1 Kilogram= LE 6 1 Kilogram= LE 3 LE 1.1

Ration Card System

Purchasing, importation Sugar from domestic production is supplied to the subsidy system through the Food Industries Holding Company (FIHC). Subsidized sugar comes entirely from domestic production Since 1991/92 . The GASC makes payments to the FIHC for the domestic. The bulk of cooking oil was imported. Imports are mostly in the form of semi-refined or crude oil, which is refined locally. In the case of cooking oil, the FIHC both imports and procures oil from domestic production

Ration Card system (cont..)

Distribution of ration Cards Commodities Sugar and cooking oil are distributed on a monthly quota basis to consumers through ration cards (betaka tamween). Consumers holding ration cards buy subsidized sugar and oil at outlets (tamweens) located in private groceries. The tamweens are registered by MOSS to receive rations from government wholesale companies operated by the ministry and other ministries. Ration card holders register their cards with the grocer of their choice. The grocer records monthly purchases of sugar and oil on the card, which has space for recording purchases over a full decade. It is the responsibility of the card holder to report changes in family size to local offices run by MOSS. Deaths or migration of family members must be reported The government stopped registering newborn children for the ration system since 1989
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Egypt and Food Price Crises

From 2005-2008, prices of food and other basic goods and services, which constitute the consumption of the poor, increased much faster than the prices of non-essential goods and services. The cost of the minimum food basket increased by 47 percent in 3 years, much faster that the overall CPI (31%). The sharp increase in international wheat export prices back in February 2008 was one of the direct factors leading to the Balady bread crisis in Egypt. As Egypt is the world-wide largest importer of wheat, the price increase of this crop triggered a significant rise of the budget allocated for subsidized Balady bread in the fiscal year (2007/08) from LE 8 billion to LE 11 billion. The Increase in other food commodity prices led to increased consumption of subsidized bread, as a substitute for such goods The high difference in subsidized and free market prices of flour and bread led to an increase in the leakage of subsidized flour. in some cases, Balady bread is used as animal and poultry fodder because of the increase in fodder prices. The sharp increase of food goods led to the increasing importance of subsidized food commodities, especially for the poor, therefore, the State interventions was necessary to help the poor to cope with the food price increases.

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Government response to the food price crisis (Current reform)

Financial resources for food subsidies In response to the food price crisis, Financial resources for food subsidies increased from 1.4 percent of the Gross Domestic Products (GDP) in 2005 to 1.8 percent in 2008. The amount of resources spent on the subsidy program increased from 10 billion EGP in Fiscal Year (FY) 2007-08 to 21.5 billion in FY 2008-09.

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Government response to the food price crisis (Current reform)

Balady Bread Many intervention mechanisms were carried out by GOE/MOSS to deal with bread crises and increase efficiency and decrease flour leakages: Delegation of responsibility to Governors and Local Municipalities in response to the crisis. Separation between production & distribution of Balady bread. In this case they do not allow the bakery to sell bread directly to the public, and instead require that the bread be delivered to an independent distribution outlets. This led to eliminate bread queues and overcrowding of bakeries and improve peoples access to bread. Improve supervision and quality control of Balady bread Building large scale automated bakeries with a production capacity of around 1 million loaves per day. In this case the government is planning to build 22 large bakeries in public-private partnerships (PPPs), with the aim of producing 10% of national production These bakeries should have lower costs and also should provide a degree of insurance against supply problems. Home delivery system

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Government response to the food price crisis (Current reform)

Ration Cards In response to the food price crisis, the government expanded the coverage of the subsidy program from 39.5 million to 63 million beneficiaries. Government expanded eligibility for ration cards to all those born since 1989. Ministry of Social Solidarity has opened the door for registering all those persons whose date of birth falls within (1989-2005) on the ration cards of their parents. The reasons behind this decision is to include all eligible households/ household members born after the last ration card registration with the aim to provide a safety net umbrella to all poorest households to combat soaring food prices and to prepare for carrying out the selection criteria (targeting mechanism) in the medium term. The ration card system currently holds a total of 16.5 million ration cards, representing a total number of 62 million beneficiaries. 22 million persons have been included after re-opening the registration and added to the 40 million persons in the prior system. The GoE also piloted the smart card system for distribution purposes Most vulnerable people were allowed to apply for a new ration card. Food items that were on the card that were not in great demand were removed and quotas for some commodities were increased.
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The GoE also piloted the smart card system for distribution purposes

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Government response to the food price crisis (Current reform)

percent of ration percent of ration cards percent change cards holders 2005 holders 2008 in coverage Chronic Poor Into poverty 75.6 63.6 85.0 78.9 78.1 66.8 70.4 +12 +24 +6 +14 +13

Out of poverty 73.8 Never poor 58.5

All Population 61.9

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Future plans
Baladi Bread Tendering for flour directly from the mills (phase 1) In this case the government aims to avoid problems in the flour supply chain by having a competitive tender for flour to be delivered to bakeries. They plan to purchase the flour at market prices and sell it to bakeries at the subsidised price. This is being trialled in four Governorates. Purchasing the bread directly from bakeries (phase 2) In this case the Government plans to purchase bread directly from bakeries at market prices and then sell it at subsidised prices in the outlets. They will still continue with a flour tendering system but they will sell the flour to the bakeries at the tendering prices (that is, not subsidised) and bakeries can choose to buy flour from elsewhere if they wish.. Bread distribution The intention is that 100% of households will eventually have access to a home delivery service.

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