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CHAPTER 3-- THE POLICIES OF THE 20TH CENTURY

The Status of Agriculture in the Second Half of the Century

During the 1970s, despite substantial investment in land reclamation, agriculture lost its position as the dominant economic sector. Agricultural exports, which accounted for 87% of all merchandise export value in 1960, fell to 35% in 1974 and to 11% by 2001. In 2000, agriculture accounted for 17% of GDP and 34% of employment.

Cotton had been the staple crop, but it is no longer important as an export. Production in 1999 was 243,000 tons. Egypt is also a substantial producer of wheat, corn, sugarcane, fruit and vegetables, fodder, and rice; substantial quantities of wheat are also imported despite increases in yield since 1970, and significant quantities of rice are exported. Citrus, dates, and grapes are the principal fruits by acreage. Agricultural output in tons in 1999 included corn, 9,350,000; wheat, 6,347,000; rice, 5,816,000; potatoes, 1,900,000; and oranges, 1,525,000.

The government exercises a substantial degree of control over agriculture, not only to ensure the best use of irrigation water but also to limit the planting of cotton in favor of food grains. However, the government's ability to achieve this objective is limited by crop rotational constraints.

Egypt's arable area totals about 3.3 million hectares (8.1 million acres), about one-quarter of which is land reclaimed from the desert. However, the reclaimed lands only add 7% to the total value of agricultural production. Even though only 3% of the land is arable, it is extremely productive and can be cropped two or even three times per year. Most land is cropped at least twice a year, but agricultural productivity is limited by salinity, which afflicts an estimated 35% of cultivated land, and drainage problems.

Irrigation plays a major role in a country the very livelihood of which depends upon a single river. Most ambitious of all the irrigation projects is that of the Aswan High Dam, completed in 1971. A report published in March 1975 by the National Council for Production and Economic Affairs indicated that the dam had proved successful in controlling floodwaters and ensuring continuous water supplies, but that water consumption had been excessive and would have to be controlled. Some valuable land was lost below the dam because the flow of Nile silt was stopped, and increased salinity remains a problem. Further, five years of drought in the Ethiopian highlands—the source of the Nile River's water—caused the water level of Lake Nasser, the Aswan High Dam's reservoir, to drop to the lowest level ever in 1987. In 1996, however, the level of water behind the High Dam and in Lake Nasser reached the highest level since the completion of the dam. Despite this unusual abundance of water supply, Egypt can only utilize 55.5 billion cu m (1.96 trillion cu ft) annually, according to the Nile Basin Agreement signed in 1959 between Egypt and Sudan. Another spectacular project designed to address the water scarcity problem is the New Valley (the "second Nile"), aimed at development of the large artesian water supplies underlying the oases of the Western Desert.

Total investment in agriculture and land reclamation for the government's Third Plan (1993–1997) was E£16,963 million.

The agrarian reform law of 1952 provided that no one might hold more than 190 feddans for farming and that each landholder must either farm the land himself or rent it under specified conditions. Up to 95 additional feddans might be held if the owner had children, and additional land had to be sold to the government. In 1961, the upper limit of landholding was reduced to 100 feddans, and no person was allowed to lease more than 50 feddans (1 feddan = 0.42 hectares). Compensation to the former owners was in bonds bearing a low rate of interest, redeemable within 40 years. A law enacted in 1969 reduced landholdings by one person to 50 feddans. By the mid-1980s, 90% of all land titles were for holdings of less than five feddans, and about 300,000 families, or 8% of the rural population, had received land under the agrarian reform program. According to a 1990 agricultural census, there were some three million small land holdings, almost 96% of which were under five feddans (2.1 hectares/5.2 acres). Since the late 1980s, many reforms attempting to deregulate agriculture by liberalizing input and output prices and by eliminating crop area controls have been initiated. As a result, the gap between world and domestic prices for Egyptian agricultural commodities has been closed. (98) (Agriculture in Egypt 1970 -1980(4)

Government Policies Affecting Agriculture and Their Reform

To better understand the current policy environment in agriculture, it is helpful to consider briefly the evolution of government policies affecting agriculture over the past 40 years. These policies have had a major impact on the performance of the agricultural sector during this period.

Dr. Ahmed Goueli, Governor of Ismalailia, has provided an excellent summary of the changes occurring during this period in the paper entitled "Egyptian Agricultural Policy and Challenges for the 1990's. The following is information, in part, from his paper. (39)

"Nationalism" (1952-1961)

The Land Reform Law of 1952 was the first major intervention of government into agriculture. The law imposed a ceiling on agricultural land ownership, with distribution of excess land to the landless. It also gave farm tenants rights of inheritance which, in effect, gave tenants quasi-ownership. Agricultural rent was established at a level seven times the tax rate on the land. Furthermore, the land subject to the law was organized into cooperatives known as "land reform cooperatives" and was administrated by village and district offices and a central agency. Many of these regulations and institutions are still in existence.

During this period, both domestic and foreign trade in cotton was nationalized and brought under control of the government. This system of agricultural cooperatives was expanded to include "new reform" land. The government program for land reclamation began in this phase with about 78,000 feddans being reclaimed. The Land Reclamation Policy was based on small-farmer ownership of the reclaimed land.

"Socialism" (1961-1974)

In this period, dramatic change in agricultural policy occurred, reaching the very ultimate in government intervention and control A policy of low agricultural prices was adopted to transfer the surplus of the agricultural sector to the urban and industrial sectors. Public agencies were contracted to run agricultural activities-from the farm gate to domestic consumption and exports. Land reclamation and cultivation of New Lands was organized around state farms. The Aswan high dam was constructed. With the additional water resources, a large land reclamation program was implemented, involving some 500,000 feddans.

The rate of growth in agricultural production was high, reaching almost 4% annually due to the transformation of basin irrigation land to permanent irrigation and the shifting of the growing season for maize and rice. The late 1960s and early 1970s saw a stagnation of public investment in the economy, in general, and agriculture in particular.

"0pen Door" (1974-1982)

After the Sixth of October War in 1973, Egypt adopted an open-door policy to attract foreign investment. In agriculture, slogans such as "food security and "green revolution" emerged. The private sector was allowed, in a very unorganized fashion, to reclaim desert land for agricultural use or speculation. With large amounts of workers remittance from foreign employment, urban encroachment on agricultural land expanded greatly.

The same price policies as in 1960's for agricultural commodities continued to prevail. Due to these policies and a low rate of government investment in the agricultural sector, the high growth rate in the agricultural sector which prevailed in the 1960's was not sustained.

The most important institutional change was the creation of a village based system which took over all the functions of the village credit cooperatives. There was also a huge expansion in "food security" loans to farmers at highly subsidized rates, which was responsible for a large expansion in the poultry industry. Poultry and livestock feeds were subsidized which further stimulated the expansion in the production of animal products.

The only positive change which occurred during this period" was the beginning of foreign aid in agricultural research and technology transfer, particularly by USAID.

Revitalization (1982-1990)—US Presidential Mission

Within two months after President Mubarak assumed the Presidency in 1981, he visited Washington, D.C. and asked U.S. President Reagan for assistance in efforts to revitalize the agricultural sector. A part of the U.S. response to this request was to send a high level "Presidential Mission on Agricultural Development" to Egypt in early 1982, comprised of experts in agricultural research, extension, administration, production, policy, irrigation, etc. to analyze the problems constraining the development of the agricultural sector and recommend actions to overcome these constraints and accelerate development. In earlier years, the food gap (the gap between domestic production and consumption) had widened significantly. (102)

The 1982 U.S. Presidential Mission on Agricultural Development in Egypt (PMADE) focused major attention on the rapidly widening food gap in Egypt, especially the spread between the amounts of food produced and consumed. This gap was increasing at an alarming rate, and PMADE recommended a number of specific actions to deal with the problem. In 1960, for example, Egypt had been almost self-sufficient in wheat production. By 1980, the country was importing about three-fourths of its wheat needs. This alarming gap due, in part, to a stagnant agriculture in the 1970's and early 1980's, resulted in increased attention being devoted to agriculture.

Recommendations were made for significant policy reforms that would would have an impact on the problem by (1) making conditions more favorable for enhanced food production and, (2) slowing down the rate of gain in food demand. It was pointed out that cheap food, made possible by extensive government subsidies, was, in part, responsible for increasing per capita utilization by contributing to excessive waste. For example, farmers often found it desirable to buy cheap, heavily subsidized bread and feed it to the chickens and livestock. Moreover, some farmers were feeding their own government controlled and under priced wheat to livestock and buying subsidized bread for their own consumption. Both actions were resulting in increasing demand for imported wheat.

Furthermore, PMADE recognized the need for the establishment of effective programs of family planning to reduce the rate of population growth-as a primary means of reducing the rapid rate of increase in demand for food. PMADE also emphasized a number of actions needed to increase food production-above and beyond recommended policy changes. Major emphasis was placed upon the need for strengthened research and extension programs aimed at increasing agricultural output.

In its report entitled "Strategies for Accelerating Agricultural Development" (102), PMADE addressed many policy issues. For example, the report emphasized that government policies were acting to seriously constrain the growth of Egypt's agricultural sector and recommended that the GOE "Permit agricultural output and input prices to move toward world price levels." The report emphasized that "correcting distortions in relative prices received and paid by farmers is central to using resources in the agricultural sector more efficiently and reducing Egypt’s growing dependence on imported food."

Many of the government policies and other factors constraining agricultural development were recognized in an excellent report by Dr. Youssef Wally and associates, entitled "Strategies for Agricultural Development in the 1980's for the Arab Republic of Egypt," . This document, published in June 1983, proposed various strategies for addressing these constraints. In fact, when the Presidential Mission's report was presented to the Minister of Agriculture, Dr. Wally, he indicated that he was firmly committed to modifying a wide range of government policies constraining agricultural development but that these changes would have to be in a gradual, stepwise fashion.

Another related policy problem highlighted in the Presidential Mission's report was the heavily subsidized bread prices. In 1980, a loaf of "balady" bread sold for one piaster-a price that had not been increased in many years, despite high inflation rates. In real terms, prices paid by consumers for bread declined significantly from 1965-1987 causing the bread subsidy costs to approach $1 billion, representing more than half the total food subsidy in some years. Even with the low fixed prices paid to the farmer for wheat, the government was still spending enormous sums to subsidize the cost of bread. This situation was contributing to the government's efforts to keep the prices paid to the farmer for wheat low.

In 1982, Dr. Wally (98) was appointed Minister of Agriculture (MOA) a few weeks before the Presidential Mission arrived. He worked very closely with the Mission and began immediately to take steps to address the problems identified by the Mission. In late 1982, the price of bread was increased 100% to 2 piasters and the size of the loaf was simultaneously reduced almost 8%. There was another slight reduction in loaf size in 1986. Then in 1989 the price of balady bread was raised to 5 piasters and the size of the loaf was reduced another 18 %. Better quality breads are priced at even higher levels. These adjustments resulted in significant reductions in GOE expenditure for bread subsidies and made it easier to raise prices paid to farmers for wheat.

Economic Policy Reforms-- Dr. Wally

Additional major economic policy reforms were needed to address problems that were limiting the development of the agriculture sector. In 1986 additional reforms were announced that included the following actions:

· Government controls on commodity prices received by farmers and procurement quotas on all crops except cotton and sugar cane were removed.

· Farm gate prices of sugar cane and cotton were increased.

· Farm input subsidies were removed

· Government constraints on private sector importing, exporting, and distribution of farm inputs were removed, allowing the private sector to compete with the Principal Bank for Development and Credit. (PSDAC).

· Government constraints were removed to allow the private sector to import and export agricultural crops.

· The role of the PSDAC was gradually limited to that of providing financial services.

· Limitations on state ownership of land were imposed and the sale of new lands to the private sector was facilitated

· The role of the MOA was proposed to be limited to agricultural research, extension and legislative policies along with a program to facilitate the development and implementation of economic policies.

· Adjustments were made in the land tenancy system.

· Interest rates were adjusted to reflect commercial rates.

· Foreign exchange rates were adjusted to reflect the real value of local currency.

In summary, the economic reform program initiated by the Minister of Agriculture had as its objectives:

· removing all restrictions and distortions from the agricultural sector;

· encouraging the private sector; improving agricultural terms of trade;

· encouraging farmers to use modern technology;

· increasing cultivatable areas, productivity and farm income;

· improving the standard of living for farmers while providing food for citizens at reasonable prices;

· and increasing exports and raising the share of the agricultural sector in the social and economic development of the country. (From paper supplied by Dr. Saad Nassar-77.)

Impact of policy Changes--immediate and long term

This very strong process of liberalization and privatization began under Minister Wally's leadership in the early 1980's, resulted in the fact that, agriculture became the most privatized sector in the Egyptian economy. In fact, 97% of agricultural lands were held by the private sector. The impact of these reforms had immediate impacts on agriculture in the following areas:

· Interest rates rose from a subsidized level of 6% to a market rate of some 20% (now around 12%).

· There is now active participation of the private sector in trade and distribution of agricultural imports, especially fertilizer.

· State managed production enterprises have been transferred to a system of holding companies while they await privatization.

· State marketing systems have been privatized for all crops except cotton.

· The amount and scope of agricultural subsidies have been limited.

As a result, by the end of the 1980's, productivity of major crops, including wheat, maize, rice, fruits, and vegetables had increased substantially over the levels of the 1970's.

In addition to policy changes, there were also major improvements in the development and application of improved agricultural technology through cooperative research programs funded by USAID. One of the earliest of these was the California project and another was the Farmer to Farmer program.

Early Cooperative Research Programs--USAID

The “California Project”

The ‘California Project’ (120) was formally entitled Agricultural Development Systems (ADS). It was known as the California Project because it was managed by the University of California, Davis. Its objective was to introduce new fruit and vegetable cultivars to improve stock and to provide material for varietal development by the Agricultural Research center. The program had two components: Agricultural Economics and Horticultural Research.

While the project did not introduce any new crops, it was successful in introducing new varieties of open field tomatoes, grapes, and strawberries. It also made significant scientific advances in rice seed multiplication by small farmers, plant pathology, plant virology, and nematology.

Tomatoes were notably successful. The variety known as UC Tomato led to dramatic increases in yields. Egypt is still growing high yield tomatoes, based on the UC varieties as well as others from Israel, introduced under the trilateral research activity, funded by USAID.

Unable to work on citrus directly because of USG regulations, they nevertheless assisted this sub sector by working on soil and water management. At the time of the California Project, the Egyptian fruit and vegetable industry was not quality- or cost conscious. By convincing Egyptians that they could grow competitive varieties, the project laid the foundation for later generations of projects, including current projects such as Agricultural Technology Utilization and Transfer (ATUT). The California Project also worked closely with the GOE on policies required to increase horticultural competitiveness. It thus paved the way for the consensus-building mechanisms and approaches that have led to the reforms proposed and supported by Agricultural Policy Reform Program (APRP).

Farmer-to-Farmer Program

The objective of the Farmer-to-Farmer Program (3) was to increase private sector agricultural investment, productivity and income. The program used US volunteer technical assistance, US and local participant training, and outreach activities to provide Egyptian farmers and MALR extension agents with improved farming technologies and farm management techniques. It was a major influence in encouraging a true extension program to link the farmer with new technologies.

The Farmer-to-Farmer program built on the legacy of an earlier program, the Small Farmer Production Project (SFPP). Implemented in the 1980s, it provided technology transfer with credit packages to increase rural incomes and productivity.

The program, carried out by a group known as the Agricultural Cooperative Development International and Volunteers in Overseas Cooperative Assistance (ACDI/VOCA). It operated in 16 of Egypt’s governorates and worked with a core group of 600 farmers and reportedly reached more than 12,000 other farmers indirectly. It was also the largest program working with graduates in the new lands. The program’s person-to-person approach and multiple interventions helped farmers to increase yields, decrease costs, and improve the quality of their produce.

One of the main successes of the project was that it strengthened the incentive among farmers to share successful experiences and led to the establishment of at least three farmer associations. The current AgLink project in the livestock sector (also implemented by ACDI / VOCA)(3)was later to build on the successful methodology of Farmer-to-Farmer.

Future Research in Agriculture

It was easy to recognize that a continuing flow of improved agricultural technology would be essential for the agricultural sector to take full advantage of these significant policy reforms. This recognition resulted in the continuation of cooperative research and development with financial assistance from USAID and the initiation of a new cooperative project called the National Agricultural Research Program (NARP). It will be discussed in detail in the following chapter.

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