84 CHAPTER 4


Egypt. We focused on wheat, rice, cotton, fruits and vegetables, and sugarcane because they are the most important tradable agricultural commodities in the country. First we computed the consumption expenditure of each household and the percentage of these households in poverty. Next we simulated the effect on households’ incomes resulting from an increase in producer prices and consumer prices, taking each household’s production and consumption of each crop into account. Adding the change in income to initial consumption expenditures (under the assumption that all the change is spent on consump- tion), we computed a new per capita consumption expenditure level for each household and recomputed the average income and poverty measures for different types of households.7 We used the Foster-Greer-Thorbecke poverty measures, as follows: • the headcount index (incidence), which is the proportion of people below the poverty line;


• the poverty gap index (intensity), which is the average shortfall of the income of the poor from the poverty line, averaged over the whole popula- tion; and


• the severity index, which addresses the inequality of incomes among the poor.


The short-run simulation holds production and consumption quantities fixed at their initial levels, while the long-run simulation allows producers and consum- ers to respond to price changes based on plausible price elasticities. The simu- lation method is described in more detail in the appendix to this chapter.


Wheat


Egypt’s wheat sector has been partially liberalized since 1987. Devaluation has brought local prices closer to international wheat prices. Under the Agricultural Reform Programme, wheat area restrictions, quotas, and fixed procurement prices have been removed. Egypt continues to encourage the expansion of acreage and the use of newly developed high-yielding wheat varieties. Within the past two decades, wheat production has tripled. Despite these efforts to increase local wheat production, Egypt continues to import wheat. International wheat prices are volatile and are affected by changes in the cost of ocean freight, while domestic prices are subject to stabilization measures. Household characteristics with respect to wheat production, con- sumption, and net sales are shown in Table 4.10. Almost all Egyptian house- holds (97 percent) consume wheat products, and 12 percent grow wheat.


7 Note that this method does not take into account the fact that price changes could induce a farmer to start growing a new crop or stop growing an old one.


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