Farmers collect cabbage in the outskirts of Cairo January 24, 2010. REUTERS /Asmaa Farmers collect cabbage in the outskirts of Cairo January 24, 2010. REUTERS /Asmaa

How agricultural policies failed a fertile country

Tue, Nov. 27, 2018
Agriculture, forestry and fishing constituted 11.5% of Egypt’ GDP (gross domestic product) last year, according to the World Bank, which may seem a significantly high number compared to developed countries like France (1.5%) and the UK (0.5). However, farmers in Egypt are suffering on various fronts.

Citizens’ complaints about the prices of food have been on the rise, and a campaign was launched to boycott fruits. President Abdel Fattah al-Sisi criticized homeowners building on agricultural land. With rising costs and various violations to deal with, the agricultural sector has had alot to contend with recently.

“In developing countries all over the world, Egypt included, agriculture is taxed, although agriculture is often a big component of GDP. In developed countries, agriculture [which composes] a small fraction of GDP is subsidized,” former Assistant Secretary General of the UN World Food Conference Adel Beshai tells Business Today Egypt.

Beshai
Former Assistant Secretary General of the UN World Food Conference and former Chair of the Economics Department at the American University in Cairo Adel Beshai - Noha El Tawil


Beshai, who is the former chair of the economics department at the American University in Cairo (AUC), described the situation as ironic, explaining that governments in developing countries manage to achieve revenues from the agricultural sector.

Developing countries implement two types of agricultural taxation, according to the UN Food and Agriculture Organization (FAO); one is explicit, mainly land tax, while the other is implicit, epitomized in costs incurred due to policies. In line with a presidential decree issued last year, land taxes—amounting to 14% of the annual rental value per feddan—were suspended for three years.

Fertilizers, subsidy and government hurdles

Beshai explains that small farmers resort to the black market to acquire fertilizers at very high prices, as the fertilizers provided by the government at cheap prices are sold through inefficient cooperatives. High-quality fertilizers are produced in Egypt, but the majority of production is exported, Beshai adds.

Farmers complain about shortages in subsidized fertilizers offered by agricultural cooperatives due to two main reasons; corruption being the first as subsidized fertilizers are sold on the black market. The other is that many fertilizer companies do not abide by their agreements with the Ministry of Agriculture to supply certain production shares at prices lower than those of exportation.

“Farmers are squeezed to the extent that they sell their land. Even under Nasser, famers who got five feddans each suffered, because the government determined the prices of inputs and outputs,” Beshai says, highlighting losses incurred when they sold wheat to the government but achieved profits from chaff.

The economist laments that developing countries ignore agriculture when setting development plans, and instead focus on heavy industries such as building steel factories, like what Egypt did in the 1950s and 1960s, as did India, Ghana and others.

After the first World Food Conference in 1974, developing countries paid better attention to agriculture, and helped farmers. Ten years later, they began ignoring agriculture once again. With the exception of Argentina, developing countries post World War II have been net importers of food, while developed countries have been net exporters of food. Developed countries subsidize their agriculture by around $1 billion a day, Beshai explains.

Surprisingly, developed countries subsidize large farmers, turning away smaller ones who cultivate essential, healthy crops. For instance, the European Union Common Agricultural Policy (CAP) states that farmers cultivating fruits, vegetables, and table potatoes are not eligible for subsidies. The same applies to the US, where large farmers who form 15% of agricultural producers have been receiving 85% of subsidies. Those cultivate corn, soybeans, wheat, cotton and rice, while the rest produce vegetables and fruits.

“We must subsidize small farmers,” Beshai argues, adding that a policy should be set forth to achieve that goal. One way of subsidizing agriculture is that the government buys vegetables and fruits from farmers, then sells them at cheap prices through cooperatives, the professor suggests, citing Israel and England as examples of governments who applied similar strategies.

Large farms grow fruits and cotton, while small farms grow crops constituting Egyptian food staples such as okra, molokheya, tomatoes, arugula and coriander. If small producers refrain from cultivating those crops and sell their lands, Beshai argues, the prices would shoot up. “I predict that this will happen in two or three years. Large farmers would not grow such crops,” Beshai says.

Beshai sheds lights on another problem, as the number of wholesalers is in the range of 150-200, while the number of farmers is in the hundreds of thousands. As a result, farmers have to sell at very low prices. “That is a problem in the structure of policymaking in Egypt,” Beshai clarifies, noting that farmers make very little profit and can potentially achieve profits on some crops and sustain losses on others.

As for strategic crops, the economist adds that if the government wants to increase local production of wheat, it has to help the farmer who makes good profit off that crop when it sells at a fair price. “Set a good policy and the market would work,” Beshai asserts.

The estimated amount of wheat supplied to the Ministry of Supply and Internal Trade this year is 3.5 million tons. In July, Minister Ezz El Din Abou Steit said that the prices of strategic crops will be announced before the cultivation season. He also admitted before the parliament that agricultural guidance is weak, and promised to address that problem by training more people at research centers.

Beshai suggests that policy is also key to ensuring crop safety on human health and that regulatory measures could be further strengthened; any pesticide should not be circulated in the market until it is government approved, although the government remains passive on that front. Farmers buy pesticides containing substances that eliminate pests in a very short time, but that are dangerous to human health, Beshai says.

Commenting on the national project to reclaim 1.5 million feddans, the professor says that the approach should enable large companies to reclaim large tracts of desert lands, without benefiting the small farmers. He highlights that the success stories of large farmers who reclaimed land in the desert then exported are many.

Beshai explains that agriculture needs experience, distributing lands and supplying underground water would not be enough to allow a project’s success. “Large companies would know how to market their products, as they are export-oriented. A regular farmer would be lost on what to cultivate and how to sell the harvest,” the economist says, stressing that domestic needs should be fulfilled by small farmers.

The government targets LE 217 billion worth of direct investments in the agricultural sector, as part of the 2018-22 medium-term plan for sustainable development, LE 34.2 billion of which are for the first year. Another LE 87.5 million is allocated for the mechanization of agricultural processes.

The objectives of the plan are to reach maximum economic effectiveness in allocating and using land and water resources, ensuring the growth of agricultural output by about 3.6% a year, and achieving high levels of food security for strategic commodities. Other goals include strengthening the competitiveness of agricultural products in global markets, providing job opportunities, raising living standards in rural areas, as well as a move toward environmentally friendly organic farming and safe use of pesticides to improve the quality of agricultural products.

 
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