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Egypt: Impacts of the Ukraine and Global Crisis on Food Systems and Poverty: Updated 2022-08-14

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Egypt: Impacts of the Ukraine and Global Crisis on Food Systems and Poverty: Updated 2022-08-14

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Presentation prepared by Kibrom Abay, Fadi Abdelradi, Clemens Breisinger, Xinshen Diao, Paul Dorosh, Karl Pauw, Josee Randriamamonjy, Mariam Raouf, and James Thurlow, Fadi is with the Cairo University, all others with the International Food Policy Research Institute, Washington, DC. This is part of the Global Crisis Country Series.

Presentation prepared by Kibrom Abay, Fadi Abdelradi, Clemens Breisinger, Xinshen Diao, Paul Dorosh, Karl Pauw, Josee Randriamamonjy, Mariam Raouf, and James Thurlow, Fadi is with the Cairo University, all others with the International Food Policy Research Institute, Washington, DC. This is part of the Global Crisis Country Series.

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Egypt: Impacts of the Ukraine and Global Crisis on Food Systems and Poverty: Updated 2022-08-14

  1. 1. Version: 14 August 2022 Egypt Impacts of the Ukraine and Global Crisis on Food Systems and Poverty Kibrom Abay, Fadi Abdelradi, Clemens Breisinger, Xinshen Diao, Paul Dorosh, Karl Pauw, Josee Randriamamonjy, Mariam Raouf, and James Thurlow International Food Policy Research Institute, Washington DC These country studies are conducted by IFPRI with financial support from BMGF, FCDO, and USAID. All studies use data and models developed with ongoing support from BMGF, USAID and the CGIAR’s “Foresight and Metrics” initiative. The Egypt case study benefits from working with CGIAR’s “National Policies and Strategies” initiative, IFPRI’s Egypt country program, and researchers from the Faculty of Agriculture, Cairo University, and the Institute of National Planning. Kibrom Abay (k.abay@cgiar.org) | Xinshen Diao (x.diao@cgiar.org) | Paul Dorosh (p.dorosh@cgiar.org) | James Thurlow (j.thurlow@cgiar.org)
  2. 2. Version: 14 August 2022 Overview • Series of country case studies • Economywide modeling • Capture world market shocks • Estimate impacts on economy, agri-food system, poverty, food security, etc. • Simulate policy responses • Three phases of analysis: 1. Initial data collection and impact assessment 2. Data revisions and analysis of broad policy options • Cash transfers, food aid, and fertilizer subsidies • Fiscal implications for national governments 3. In-country engagement and tailored policy analysis Impact assessment Policy analysis Country coverage Countries with IFPRI RIAPA models May June July
  3. 3. Version: 14 August 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations World Price Shocks Source: World Bank Pink Sheets Global data 11% -13% 100% 56% 34% 88% 101% Maize Rice Wheat Palm oil Crude oil Natural gas Fertilizer Change in real world prices (June 2021 to April 2022) 30 Jun 2021 - 31 Jan 2022 31 Jan 2022 - 30 Apr 2022 30 Jun 2021 - 30 Apr 2022 How important are food and fertilizer imports in local market? How important are fertilizer and petrol exports to the economy?
  4. 4. Version: 14 August 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? How important are food and fertilizer imports in local market? How important are fertilizer and petrol exports to the economy? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations Supply and Demand Supply (% by source) Demand (% by use) Egypt data Source: IFPRI Egypt RIAPA Model 92% 33% 41% 64% 8% 61% 56% 29% 7% Maize Wheat Edible oils Oil products Exports Final use Input use + Others = 100% + + + 0.9% 0.5% 1.1% 10.0% Products’share of the value of total demand throughout the economy Note: Wheat includes wheat grains and flour in Demand. Oil products include crude oil, petroleum, and other oil products. 39% 47% 77% 90% 61% 53% 23% 10% Maize Wheat Edible oils Oil products Imports Domestic
  5. 5. Version: 14 August 2022 Shocks | World Food, Fuel and Fertilizer Prices World price Trade share Direct use Indirect use Incomes How big is the increase in world price? Which sectors use the affected products as inputs? Which other sectors are affected via supply chains? What kinds of workers and households earn incomes within the affected sectors? Final use Which households consume the affected products? Impact Channel Considerations Consumption Baskets Egypt data Source: IFPRI Egypt RIAPA Model 3.1% 4.4% 1.9% 4.8% 2.7% 30.9% 32.7% 30.6% 36.6% 30.2% 66.0% 65.9% 69.2% 62.2% 69.1% All households Rural Urban Poor Nonpoor Composition of household consumption spending Cereals & edible oils Other foods Non-food goods & services How important are food and fertilizer imports in local market? How important are fertilizer and petrol exports to the economy? Note: Breads are Egyptian main staples, and they are included in processed food and not in cereals & edible oils group. The high subsidies on breads have made cereals & edible oils a very small portion of consumers’ total expenditures especially in urban area.
  6. 6. Version: 14 August 2022 Shocks | Fertilizer Prices and Response Fertilizer exports & imports Price Demand Response How important are fertilizer trade in the economy? How big is the domestic fertilizer price increase? How do farmers react to rising fertilizer prices? (i.e., price elasticity of fertilizer demand) How do yields change with reduced fertilizer use? (i.e., fertilizer response ratio) Fertilizer Supply and Demand Impact Channel Considerations 96% 71% 4% 29% Supply Demand Imports Exports Domestic Intermediates Source: IFPRI Egypt RIAPA Model • Supply of fertilizer is dominated by domestic production • Domestic fertilizer price could rise much more modestly than import prices • Almost 30% of fertilizer is for exports • Higher world prices benefit fertilizer manufacturers
  7. 7. Version: 14 August 2022 Shocks | Fertilizer Prices and Response Fertilizer exports & imports Price Demand Response How important are fertilizer trade in the economy? How big is the domestic fertilizer price increase? How do farmers react to rising fertilizer prices? (i.e., price elasticity of fertilizer demand) How do yields change with reduced fertilizer use? (i.e., fertilizer response ratio) Share of Fertilizer Cost in Crop Output Impact Channel Considerations Source: IFPRI Egypt RIAPA Model • Almost all crops applied fertilizer (adoption rate close to 100%) • Smallholders received 2 bags of subsidized fertilizer from the government • Additional use of fertilizer paid at market prices • Shares of fertilizer cost in total output value of individual crops vary due to fertilizer use intensity and amount of fertilizer purchased from the market Maize Sorghum & millet Rice Wheat Goundnuts Oilseeds Root crops Vegetables Sugarcane Cotton Other crops
  8. 8. Version: 14 August 2022 Results | Selected Macroeconomic Indicators • Positive terms of trade shock • Egypt exports natural gas and some fertilizer and petrol • Positive effect of higher natural gas, fertilizer and petrol export prices outweighs negative effect of higher food, fertilizer, crude oil and oil product import prices • Real exchange rate is largely unaffected • Rising food prices have positive effect because lowered domestic demand causes prices for domestic non-tradable goods to fall • Consumer price rises • Due to higher import prices, but mainly due to rising fuel prices • Government revenues increase • Mainly as a result of higher export prices for petrol Source: IFPRI Egypt RIAPA Model -0.8% 2.0% 3.2% 0.1% 4.2% 8.2% 2.6% 1.1% 1.6% 4.8% 2.3% 5.0% 9.9% Terms of trade Real exchange rate CPI Gov't revenues Percentage change in selected macro indicators due to food, fuel and fertilizer shocks (%) Food prices Fuel prices Fertilizer prices & response
  9. 9. Version: 14 August 2022 Results | GDP and Employment • National GDP and employment are not greatly affected • Positive terms-of-trade shock • Gains from petrol and fertilizer exports are offset by losses in the rest of the economy in GDP • However, GDP and employment fall in both on- farm and off-farm of agri-food system • GDP declines more in off-farm agri-food sectors • Larger job losses in off-farm sectors, because of increases in cost of food processing and food- related services that reduced their demand • GDP and Employment outside agri-food system are slightly positively affected • Modest gains in GDP led by fertilizer and petrol exports • More gains in employment led by more labor- intensive non-tradable service sectors Source: IFPRI Egypt RIAPA Model 0.0% -0.7% -0.5% -0.9% 0.2% 0.1% -0.9% -0.2% -2.2% 0.6% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% Whole economy Whole AFS Agriculture Off-farm Outside AFS Agri-food system Change in GDP and employment due to food, fuel and fertilizer shocks (%) GDP Employment Note: Model results are for 2022. Employment includes farmers, paid and non-paid workers, and self-employed persons.
  10. 10. Version: 14 August 2022 Results | Drivers of Differential GDP Impacts • Agriculture GDP losses driven mostly by fertilizer shocks • Production of many cereal and cash crops is fertilizer intensive • Agriculture GDP losses are mainly from crop production • Higher food prices have little effect on agricultural production • Off-farm agri-food GDP is more adversely affected by higher food prices • Higher prices for agricultural products raise costs for food processing and food services and thus, lowering demand for them • GDP gains outside the agri-food system driven mainly by higher fuel prices • From increased exports of natural gas and petrol • A small positive impact from increases in domestic fertilizer production Source: IFPRI Egypt RIAPA Model -0.2% -0.5% -0.1% -0.1% -0.1% 0.1% 0.0% -0.4% -0.4% -0.3% 0.0% -0.7% -0.5% -0.9% 0.2% Whole economy Whole AFS Agriculture Off-farm Outside AFS Agri-food system Percentage change in real GDP due to food, fuel and fertilizer shocks (%) Food prices Fuel prices Fertilizer prices & response Note: About 40 percent of the effect on agriculture GDP under “fertilizer prices and response” is directly from rising fertilizer prices, while the remaining less than 60 percent is from the productivity shock caused by a decline in the use of fertilizer.
  11. 11. Version: 14 August 2022 Results | Household Consumption Source: IFPRI Egypt RIAPA Model • Household consumption falls • Households do not benefit from rising gas and fuel prices (windfall revenues mainly accrue to the government) • Most households are hit twice, by rising prices and falling incomes • Rising fuel and food prices are drivers of consumption losses • Importance of shocks differs across population groups: • Rural and poor households are affected much more than urban households • Fuel shocks have larger impact on rural and poor households than on urban households • Some urban households’ incomes gain from increases in fertilizer and petrol manufacturing and related services, while all households are negatively affected by higher domestic fuel prices that increase transaction cost margins for many products • Food prices have a similar negative impact on all households • Fertilizer shocks benefit urban and nonpoor households • Fertilizer production and related services increase, benefiting some urban households from the income side -0.6% -0.7% -0.5% -0.7% -0.6% -0.6% -0.9% -0.9% -0.5% 0.3% 0.5% 0.4% -0.9% -1.5% -0.3% -1.5% -0.7% National Rural Urban Poor Nonpoor Percentage change in real consumption Food prices Fuel prices Fertilizer prices & response
  12. 12. Version: 14 August 2022 Results | Changes in Inequality • Differential effects on poor/nonpoor households are driving changes in inequality : • Fuel shock has largest negatively impact for poorer households in lower quintiles • Food price shocks affect all households with a similar impact across income distribution • Fertilizer shocks have positive impact for the households in top quintiles with little impact on the first three lower quintiles • The effects of Combined shocks are dominated by fuel shocks • Overall, inequality is rising • Large consumption losses in poor households of lower quintiles lead to raising income inequality significantly Source: IFPRI Egypt RIAPA Model -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% Q1 Q2 Q3 Q4 Q5 Percentage change in quintile consumption Food prices Fuel prices Fertilizer prices & response Combined food, fuel and fertilizer shocks
  13. 13. Version: 14 August 2022 Share of population falling into poverty Results | Poverty • Poverty rises significantly • Headcount rate up by 1.8% points • 1.76 million more people pushed into poverty • Larger increase in poverty in rural areas • More than 80% of increased poor population resides in rural areas • Larger increase in rural poverty headcount rate • Rural population more than urban population • Mainly driven by food price shocks Source: IFPRI Egypt RIAPA Model 1.8% 1.2% 2.2% 1.8% 0.7% 2.5% National Urban Rural Change in poverty headcount rate (%-point) Food prices Fuel prices Fertilizer prices & response 18% 82% Urban Rural Note: The national poverty line is 32.5% in 2017/18. The poverty rate is higher in rural areas, about 38%, than in urban, about 25%. 1,760 523 1,283 1,763 316 1,447 National Urban Rural Change in poor population (1000s) Food prices Fuel prices Fertilizer prices & response
  14. 14. Version: 14 August 2022 • Global price shocks have differential effects on the costs of six food groups for a healthy reference diet • Reference diet is the EAT-Lancet’s “healthy” diet thresholds for the six major food groups • Rising prices for edible oils (in added fats) and for wheat (in staples) push up their costs, while falling incomes reduce demand for fruits, dairy, and protein foods, and thus, lower their costs • The real cost for the referenced healthy diet is largely unaffected Results | Diet Quality Source: IFPRI Egypt RIAPA Model • Rising food prices and falling incomes cause diet quality to worsen for many households • Prior to the crisis, many households did not have consumption levels and diversity needed for a healthy diet • Rising food prices worsen diet quality and cause 18% of people to become deprived in at least one additional food group for a healthy diet. Many such people are not necessarily poor. • Percentage of people with deteriorated diet quality is high in both rural and urban areas -0.1% 0.2% -0.3% -0.5% -1.0% 1.4% Net change in cost of healthy diet Contributions of food groups to change Change in the real cost of a healthy reference diet caused by rising world prices (%) Added fats Proteins Dairy Fruits Vegetables Staples 10.7% 15.7% 19.3% 11.1% 38.5% 4.7% Shares of six food groups in total cost of a healthy diet prior to the crisis Added fats Proteins Dairy Fruits Vegetables Staples 17% 19% 16% 18% 19% 17% National Urban Rural Share of population to become deprived in at least one additional food group for a healthy diet (%) Food prices Fuel prices Fertilizer prices & response
  15. 15. Version: 14 August 2022 Headlines • Food, fuel and fertilizer shocks do not greatly affect GDP and employment in Egypt • GDP and total employment are largely unaffected by the rising food, fuel and fertilizer prices because Egypt exports natural gas, produces both petroleum and fertilizer • However, agri-food system is adversely affected by high fertilizer prices • More job losses occurred in off-farm agri-food system due to rising cost of food processing and food related services that reduced demand for them • Rural and poor households are especially vulnerable • Larger income losses due to higher fertilizer prices • Greater increase in poverty (esp. number of poor people) • Larger contribution to the deterioration in diet quality • Next steps • The government of Egypt has launched major fiscal and monetary policy instruments to limit the crises’ adverse effects. Evaluate these policy options that are likely to have important impacts for Egypt’s economy and households will be the focus of the next-stage analysis Impact assessment Policy analysis Country coverage May June August

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