AGRICULTURE, TRADE, AND POVERTY IN EGYPT 99


If a household does grow wheat, the welfare impact depends on the value of wheat production compared to the value of wheat consumption. In the long run, farmers and consumers will respond to the higher prices by growing more and consuming less of the commodity, say wheat. The long- run effect can be estimated as follows:


∆yi = ——— (Qpi∆P) + —— (∆P)2εS ——— – (Qci∆P) – —— (∆P)2εD ——— P


1 Hi [ (


1 2


Qpi ) (


1 2


Qci P


)] , (2)


where εS is the supply elasticity of the commodity and εD is the price elastic- ity of demand for the commodity. In graphic terms, this expression is the


trapezoidal approximation of the producer surplus plus the consumer surplus. The two terms with elasticities are positive regardless of whether the price change is positive or negative, implying that the long-term welfare effect of a price change is more positive (or less negative) than the short-term effect. In the absence of estimated supply and demand elasticities for the four com- modities, we use 0.3 for the supply elasticities and –0.3 for the price elastici- ties of demand.


Because the welfare impact is calculated for each household in the Egypt Integrated Household Survey sample based on the income and consumption patterns of each household, we can estimate the change in the poverty measures caused by the change in prices. This microsimulation approach also allows us to estimate the change in income for any subgroup of households that is defined by income, farm size, or another variable. In this analysis we used the class of poverty measures identified by Foster, Greer, and Thor- becke (1984), defined as follows:


Pα = —— Σ[—————— N , (3) 1 i


µ – yi µ


] α


where Pα is the poverty measure, N is the number of households, µ is the poverty line, and yi is the income or expenditure of poor household i (the summation occurs only on poor households). When α = 0, the poverty measure


P0 is the incidence of poverty, that is, the proportion of households whose incomes are below the poverty line. When α = 1, the poverty measure P1 indicates the depth of poverty, taking into account the degree of poverty, as well as the percentage of households that are poor. If α = 2, the measure


P2 indicates the severity of poverty, incorporating information on the degree of inequality among poor households as well as the depth of poverty and the number of poor households.


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