rural areas.
21
The above results indicate that wheat, maize and rice are normal goods where the elasticity is greater than zero and less than one,.while sorghum is an inferior good as the expenditure elasticity is less than zero. The results showed also that the consumption pattern in the urban areas is different from that in the rural areas.
Table 3.5: Expenditure Elasticities of Cereals and Fresh Meat
Function
Source: (1) Appendix Tables 13 - 17.
Based on the projection trends of growth in population, per-capita GDP and the estimated
expenditure elasticities of demand on the aggregate level, human consumption to the year 2000 can be expected to increase by 40.91 percent as a lower limit and by 46.36 percent as an upper limit for wheat, between 40.48 and 44.70 percent for rice, and between 41.75 and 45.12 percent for maize . For sorghum, the lower limit indicates that the human consumption can decrease by about 2.1 percent, while the upper limit shows that the consumption will increase by only
0.43 per cent.
22
Based on the above elasticity configuration, we estimated the human consumption projections to the year 2000 as follows: at 12238, 5894, 3419 and 518 thousand tons as lower limit for wheat, maize, rice and sorghum respectively. The upper limits were estimated at
12714, 6034, 3522 and 532 thousand tons for these crops respectively (see table 3.6 below).
Table 3.6: Demand projection of cereals to year 2000
Crop
Animal feed lower
Source: Computed from Table 3.5 and Appendix Tables 8 -12.
3.2.2.2 Animal feed
The expenditure elasticity for meat is used as proxy for the income elasticity of demand of meat, (see table 3.5). Using this elasticity together with the growth rate of population and per-capita GDP, the projections for animal feed to the year 2000 indicate a cumulative increase of about 66.62 percent as a lower limit and 79.69 percent as an upper limit on the level consumption in 1989. In physical terms, the consumption projection of animal feed would be 2154, 47 and 138 thousand tons as a lower limit, and 2327, 50 and 149 thousand tons as the upper limit for maize, sorghum and barley respectively (see table 3.6).
3.2.2.3 Seeds, waste and non-food uses
The projected requirements for seeds, waste and non-food uses were calculated on the basis of their ratio of the production of the crop during the period 1967-1989. Thus these requirements for the year 2000 were estimated at 1048, 513, 192, 23 and 51 thousand tons for wheat, maize, rice, sorghum and barley respectively as a lower limit, and 1090, 513, 196, 25 and 52 as an upper limit.
23
The total demand for cereals to the year 2000 was estimated at 13286, 8561, 3611, 588 and 189 thousand tons as a lower limit and 13806, 8874, 3718, 607 and 201 thousand tons as an upper limit for wheat, maize, rice, sorghum and barley respectively (see table 3.6).
3.2.3 The food gap projection to the year 2000
By subtracting the projected consumption from the projected production of the cereal crops we can obtain the gap per commodity. The results show that the wheat gap amounted to 7231 thousand tons as a lower limit, arid 7986 thousand tons as an upper limit. The maize gap would amount to 2149 or 2464 thousand tons, the rice gap would stand at 348 thousand tons as a lower limit and 516 thousand as an upper limit, and the sorghum gap would be ranging beween 85 and 94 thousand tons. Finally, for barley the gap would range between. 38 and 54 thousand tons (see table 3.7 below).
Table 3.7: Cereals gap projections to year 2000
000's metric ton Commodity
Wheat Maize Rice Sorghum Barley Total
Lower limit 7231 2149 348 85 38 9851
Upper limit 7986 2462 516 94 54 11112
Source: Computed from Tables 3.3 and 3.6.
CHAPTER 4
PROPOSED APPROACHES FOR REDUCTION THE FOOD GAP IK EGYPT
To reduce the food gap in the basic staples, production has to grow at,a rate faster than the historical rate of growth and/or that consumption should decrease, through reducing current calorific intake per capita of about 3194 calories in 1981-1985 to the optimum of 2260 calories per capita suggested bytheFAO under Egyptian conditions. To explore the feasibility of the above production/consumption-configurations it was thought appropriate to advance a number of hypothesis that impinge on the production procees or on consumption, and trace their impacts with a view to arriving at the most appropriate policy mix that could be suggested for reducing the food gap in the country. These approachs could be classified into two broad categories. The first category deals with the production aspect within the context of price support policy, supply response functions and technology. The second category focuses on the consumption side. A consumption function for cereal crops would need to be estimated to assess the impact of changes in consumer prices of staples on the food gap. The subsequent sections outline the various aspects of these approaches and laydown their modular forms.
4.1 Price support policy
Prices are among the most important instruments used to engender a fast food production response. In a free market system, prices are instrumental in guiding resource allocation. Within agriculture they can similarly guide the allocation of agricultural resources among competing
crops.
In Egypt, for along time farm prices are set by the govenment a system that relies on a cost of production method. The prices of the basic inputs were themselves administratively determined and often subsidized and cooperatives are used as the main channels for marketing and supplying the inputs to the farmers. To ensure the production of adequate quantities of strategic food crops, the government imposes a system of area restriction. Under this sytem area grown to each crop is predetermined. In other words, the output price,input price and area sown to individual food crops are fixed by the government. This arrangement does not provide the necessary incentives to the food producers and has in fact encouraged various types of evations.
Since 1987, however, and within the framework of the economic liberalisation programme adopted by the government, agricultural prices were freed in an attempt to encourage farmers to grow food crops and increase productivity. This system too has serious disasdvantages to the farmers in terms of price and income fluctuations and by disturbing their resource allocation decisions. While free prices would reflect market conditions, to ensure some stability in farm resource allocations a system of supported prices maybe necessary.
There are several criteria that could be used in determining farm support prices, but each method would ofcourse have its own advantages and limitations.
25
Four approaches have been used by researchers to determine food prices, namely:
unit costs of production approach terms of trade approach
international prices approach crop income equalization approach
, . The; study utilizes all four approaches with a view to selecting the most appropriate to the Egyptian conditions.
4.1.1 Unit cost of production approach
The farmgate prices estimated by this approach cover the total cost of production for the crop under consideration, plus a remunerative margin that also reflects the inflation rate. A margin of 35 per cent is believed adequate under Egyptian condition. It should however be mentioned that this approach by concentrating on individual crops, does not take into account the competitive and/or the integration relationship between crops. Formally, this relation could be expressed as:
TCit+35 (TClt)-Vlt
where,
Pit = farm price of crop i in year t
TCit = total costs per feddan of crop i in year t Vit = value of by-product of crop i in year t Yit = yield of crop i in year, t
Although this approach is useful, it also suffers from major disadvantages such as inability to take into account prices of competing crops, the terms of trade between agricultural and non-agricultural sectors, international prices and demand aspects (Nassar 1987).
4.1.2 Terms of trade approach
Prices according to this approach are determined by the ratio between prices paid by the farmer and the prices of his produce. Formally, this relation could be expressed as:
Pit={MPi/MCi)CIt
where,
j = moving average of farm price of crop i for the last three years.
MCj = moving average of consumer price index in the rural areas for thelast three
years.
CIt = consumer price index in the rural areas in year t
26
This keeps prices paid by farmers for their consumption commodities in line with prices received for their crops. This means that the prices are capable of sustaining the purchasing power of farmer's produce. This approach also ensures that the terms of trade between agriculture and the other sectors do not move against farmers to distort incentives. However, it doesn't take into consideration international market prices or the imperfection in the markets, nor does it take into consideration the relationships between crops.
4.1.3 International price approach
This approach uses the world equivalent prices for valuing farm products. While useful in providing a guide for resource allocation on the basis of comparative advantage, this approach however does not take into account the costs of production, nor the various distortions in the world market due to international commodity agreements. Like the previous method, it also ignores intra-crop relationships. Formally,
Plt=(MPi/MWi)PWit
where
j = moving average of world price of crop i for the last three years.
— World price of crop i in year t 4.1.4 Crop income equalization approach
This approach equates estimated net return to producers across alternative enterprises in order to develop a balanced crop mix required' by the country to achieve set targets of production. It gives the optimal prices for the different crops, provides a common indicator for examining the resource efficiency and comparative advantage of producing different commodities and also it reduces the inequalities and promotes equitable income distribution among producers of different commodities.
This approach depends on the sensitivity analysis (dual solution) for a linear programming model for the agricultural sector.
As the application of this approach needed to be informed beyond its functional form, it is thought appropriate to relate the arguments in the functional forms to Egypt's circumstances.
4.1.4.1 The activities
The activities included in the model are the major field crops. Eighteen crops were considered, namely: wheat, long berseem, barley, lentils, onions and flax (as a winter crops), cotton, maize, rice, sorghum, groundnuts, sesame and soybeans (as summer crops), maize, rice
27
and sorghum (as nili crops)!/ and sugar cane. These crops formed about 75 per cent of cropped area in Egypt during 1988-1990. It should be noted that vegetables and fruits were excluded from the study because the data pertaining to them are not available.
4.1.4.2 The objective function
The objective function of the model aims at maximizing the profits of the agricultural sector,: Theproilt of a crop is defined in terms: of its gross revenue minus the cost of producing it. The objective function could be mathematically expressed as follows:
18
Maximize Z=
(i = 1, ...., 18) where,
Z = the total profit for farm activities, in L.E.
■ttj = the profit of crop i per feddan, in L.E X; = the cultivated area by crop i, in feddan 4.1.4.3 The constraints
Given the objective realities in Egypt, the exercise identified four factors as constraints, namely: land, labour, irrigation water and capital.
4.1.4.3.1 Land constraints
Land is generally considered the most limiting resource in Egyptian agriculture. In this exercise, the input-output coefficients pertaining to the land resources are standardized and expressed in terms of a unit of area (feddan). The available supply of the land resources is represented by the cultivated area by season. The mathematical form of the land constraints could thus be expressed as:
18
(j = 1, ... ,4) representing the four constraints
where
Rj = the available cultivated land by season, (winter, summer, nili and total cultivated
area per year), in feddans.
1/ These crops are grown between August and December.
28 4.1.4.3.2. Labour constraints
Labour is a major factor of production in agriculture . Avialable labour resources determine the maximum labour input possible at a given point in time. Here, the constraints of labour resources are expressed in monthly terms. It should be pointed out that the study used man-day to specify the input-output coefficients of labour resources. The binding condition is that the total man-day required by all crops included in the model should not exceed the total available supply of man-day during that month. The mathematical form of the labour constraints
is expressed by:
18
(j = 1,..., 12) representing the 12 constraints.
where
m; = the monthly input-output coefficients of labour for crop i, in man-day Lj = the monthly available supply of labour, in man-day
4.1.4.3.3 . Water constraints