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98 CHAPTER 4 Methods


We used the data from the Egypt Integrated Household Survey to estimate the short- and long-run impact of changes in agricultural prices. In the absence of reliable estimates of the impact of multilateral and unilateral trade lib- eralization on agricultural prices in Egypt, we simulated the impact of four price increases (10, 20, 30, and 40 percent) for each commodity of interest. Most analyses of the impact of multilateral trade liberalization suggest that agricultural prices would rise 5–20 percent, well within the range of price increases considered here. We simulated the impact of changes in the price of wheat, rice, sugar, cotton, and fruits and vegetables. The global markets for wheat, rice, sugar, and cotton are among the most distorted, so we would expect trade liberalization to have the largest effect on the world prices of these commodities. In addition, these four commodities are important in the agricultural economy of Egypt as sources of income (wheat, rice, and cotton) and as components of the diet (wheat, rice, and sugar). The global markets for fruits and vegetables are not highly distorted, but fruit and vegetable exports from Egypt (and other countries in the region) to the E.U. are con- strained by strict quality and food safety standards, as well as by seasonal restrictions to prevent competition with European growers. For this reason, we also simulated the impact on Egyptian households of improved market access to European fruit and vegetable markets, represented by increases in the prices for fruits and vegetables in Egypt.


In this analysis we simulated both the short-run and the long-run impacts of higher agricultural prices on each household in the Egypt Integrated House- hold Survey. The short-run impact refers to the effect on household welfare before households have had an opportunity to respond to the higher prices by producing more or consuming less. The change in per capita income of house- hold i after the price change in one commodity, say wheat, can be calculated as follows:


∆yi = ——— [(Qpi∆P) – (Qci∆P)], (1) Hi


1


where ∆yi is the change in per capita income of household i after the price increase, Hi is the number of members in household i, Qpi is the production of the commodity by household i, ∆P is the increase in the price of the


commodity, and Qci is the quantity of wheat consumed by household i. In graphic terms, this expression is the rectangular approximation of producer


surplus plus consumer surplus. If a household does not grow wheat, Qpi = 0, and the direct effect of higher wheat prices will be negative; the magnitude


will depend on the importance of wheat products in the household budget.


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