1. z
The Egyptian subsidy policy
landscape and impacts on
household consumption patterns
Sherine Al-Shawarby
Professor of Economics
Cairo University
National Wheat Day
February 14th
St. Regis Hotel
New Administrative Capital

2. z
Objective
Motivate the audience to debate the policy
options of reforming the subsidized BB
system, given the current economic
pressures
2

3. z
Subsidized BB (SBB):
Facts from the budget

‫المالية‬ ‫للسنة‬ ‫للدولة‬ ‫العامة‬ ‫الموازنة‬ ‫مشروع‬ ‫عـن‬ ‫المالي‬ ‫البيان‬
2022/2023
3

4. z
Subsidized BB (SBB):
Facts from the budget

‫المالية‬ ‫للسنة‬ ‫للدولة‬ ‫العامة‬ ‫الموازنة‬ ‫مشروع‬ ‫عـن‬ ‫المالي‬ ‫البيان‬
2021/2022
4

5. z
Subsidized BB (SBB):
Facts from the budget
88.5
‫رغيف‬ ‫مليار‬
516
‫دقيق‬ ‫طن‬
(
10
‫كجم‬
/
‫شهر‬
*
4.3
‫مستفيد‬ ‫مليون‬
*
12
‫شهر‬
5

6. z
Subsidized BB (SBB):
Facts from the budget
8.5 million Ton of Wheat
7.878 million Ton to produce
90 billion SBB loaves
622 thousand Ton to
produce 516 ton of
warehouse flour (4.3*10*12)
66.7 million beneficiaries 4.3 million beneficiaries
71 million beneficiaries
+
24.3 billion SBB non-
purchased- 10 pt bonus/loaf
6

7. z
Calculated numbers for SBB
Fiscal Budget HIECS
Number of
beneficiaries
66.7 million Egyptians
(+ 4.3 million warehouse
flour)
83.7% of Egyptian
HHDs
Average per capita
consumption
Assumed: 4.7 loaf/day
(114.4 billion SBB/ 66.7
million)
Actual: 3.7 loaf/day (=90
billion SBB loaves/ 66.7 M
beneficiaries)
3.2 loaf/day
Wheat used in a
loaf
87.5 gm
Flour used in a loaf 76.6 gm
Weight of a loaf 50 gm!!!
7

8. z
Poverty Rates in Egypt
16.7
19.6
21.6
25.2 26.3
27.8
32.5
29.5
1999/2000 2005/2004 2009/2008 2011/2010 2013/2012 2015 2018/2017 2019/2020
)%(
8

9. z
How many were
lifted out of
poverty because
of SBB in
2019/2020?
More than 3% of
the population
3.33%
3.60%
3.98%
33.07%
33.34%
33.72%
50
55
60
SBB cost
Pt/loaf
Poverty
reduction
Poverty Rate
9

10. z
10

11. z
11

12. z
As Food shares is larger for the poorer quintiles,
CPI is higher for the poorest quintile
40.05
36.95
35.12
32.39
23.83
30.71
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
1 2 3 4 5 All Egypt
Food Shares by quintiles
104
106
108
110
112
114
116
118
120
122
CPI by month with respect to corresponding month of previous year, by
quintiles
1 2 3 4 5
12

13. z
Inflation is the main factor for poverty and food
insecurity
Looking at the triple decomposition, most
of the increase in poverty was due to
relative price shifts (faster change in the
cost of the basket of commodities
consumed by the poorer deciles than that
consumed by the average household).
The increase of about 5.6 percentage points
in poverty can be accounted for by the
inflation factor. Real growth would reduce
poverty by 0.97 percentage points;
distributional change (which is also poverty-
reducing) would increase it by 0.1
percentage points.
Changes All
Egypt
Urban Rural
Actual 4.71 7.88 2.26
due to growth -0.97 1.49 -4.36
due to
inequality
0.07 1.65 0.37
due to
inflation
5.61 4.74 6.26
Triple composition of poverty changes, 2015-2018
(percent)
13

14. z
Depending on cheaper food is one of coping strategies
adopted by households experienced deteriorated living
conditions or price increases and stagnant income
 Stress strategies (short-term
strategies), includes borrowing or
purchasing on credit. Reduce
consumption, reduce number of
meals
 Crises strategies such as reducing
expenditure on health and education,
sending children to work and sell
income-generating land, have a
serious impact on human capital.
 Emergency strategies , receiving
financial support from governmental
or non-governmental agencies
1.8
11.1
20.8
22.1
31.1
33.7
35.9
88.2
89.7
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
Spend day or more without food
Reduce food consumption of adults
Coping crisis
Reduce number of meals
Coping emergency
Coping Stress
Reduce meal size
Reduce weekly consumption of meat/poultry
Relay on cheaper food
% of households who experienced insufficient food by coping
strategies, 2019/20
14

15. z Inflationary pressures impact on SBB
consumption
Income
effect Substitution
effect
Consumption decreases
(unless Giffen)
Consumption
increases
15

16. z
Reform Policy options
1- exclude the top 20% of the beneficiaries
16

17. z
0.15%
GDP
Exclude the richest
20% of beneficiaries
Policy Option Fiscal Savings
17

18. z
Reform Policy options
1- exclude the top 20% of the beneficiaries
2- gradual increase in the SBB price.
18

19. z
How many
could fall into
poverty
should SBB
increase?
And what are
the fiscal
savings?
0.14% of
GDP
2.3% of the population will
move down in the
expenditure ladder and
0.7% will fall in poverty
1.2% of the population
will move down in the
expenditure ladder and
0.4% will fall in poverty
Increase the
SBB price to
15 pt
Policy Option Fiscal Savings Poverty Impact
0.07% of
GDP
Increase the
SBB price to
10 pt
19

20. z
Reform Policy options
1- exclude the top 20% of the beneficiaries
2- gradual increase in the SBB price.
3- increase in the monthly payment of T&K
20

21. z
Reform Policy options
1- exclude the top 20% of the beneficiaries
2- gradual increase in the SBB price.
3- increase in the monthly payment of T&K
4- blended flour or other grain flours (???)
21

22. z
Reform Policy options
1- exclude the top 20% of the beneficiaries
2- gradual increase in the SBB price.
3- increase in the monthly payment of T&K
4- blended flour or other grain flours (???)
5- iron-fortified SBB
22

23. z
23