Prof. Cleaver, 3/8/02
Grant M. Scobie, Government Policy and Food Imports:
The case of Wheat in Egypt
Scobie wrote the article to show the principal structural relationships that are an intricate part of what determines a country, in this case Egypt’s, ability (politically and economically), to import food. Wheat is the principle commodity that Scobie focuses on because of its basic use as a main ingredient in most common foods and its unlimited access from exporting countries such as the United States. International reserves, the world price of imports/exports, cotton supply/price, and balance of payments are all factors that are used by the Egyptian government to determine what amount of wheat to domestically produce, and what subsidies/taxes to implement. Endogenous factors, such as tax policy and land crop usages also determine the food supply, as well as exogenous factors, such as war, famine, and draught contribute to government policy.
“Egypt is a major importer in the world wheat market, receives substantial amounts of foreign aid, spends an important fraction of her foreign exchange earnings on wheat imports and follows an explicit policy of subsidizing domestic consumption. The study finds that the country’s capacity to import is a principal determinant of domestic wheat policies and influences the level and composition of imports. In part, this capacity to import is itself determined by both wheat and cotton policies, emphasizing the simultaneous nature of policy formation.”
Egypt has allowed throughout the 19th century a huge fluctuation in other imports in order to keep wheat imports at a constant level. Why not grow wheat domestically and not be charged the world price for wheat you might ask? This would decrease their foreign trade reserves because that would leave less room for domestically produced cotton, which is Egypt’s leading export and it competes on a world level with cotton. Egypt is a top producer of cotton for the world. When relative cotton prices are down, the government forces wheat production through producer taxes for cotton, designating that farmers only plant one-third of their harvest as cotton, increase exporting taxes, etc. The government never really liberalizes domestic production of agriculture because, as Cleaver has discussed, control over food and peoples stomachs can quench a rebellion, and multiply the power of the state because the very lively hood of its peoples depends on government policy.
Historical exogenous economic impacts on the wheat market such as WWI, the great depression, WWII, OPEC energy hikes, etc… all contributed to the fluctuating Egyptian policy on Wheat importation. Wheat was domestically produced to provide foreign markets with foodstuffs for military excursions coupled with a lower price of cotton in the early 20th century. After the depression a wheat tariff was introduced. It was said to increase national security and self-sufficiency, to diversify the economy, and to relieve the government from pressures to make costly forays in to the cotton market. Historically, Egypt has manipulated the production of domestic wheat, cotton, and other agricultural products in order to keep a competitive level of foreign exchange.
Scobie uses an example of a small open economy that produces tradable goods and non-traded goods (imports and exports). Prices of non-traded goods are determined by domestic supply and demand, while prices of tradable goods are determined in the world markets. Suppose that there is an increase in demand of a tradable good, reserves of foreign exchange will fall and the economy will not be able to obtain additional imports as well if the exchange rate is pegged in the short run. Therefore, relative prices must change in order for equilibrium to return. The government just quickens up/slows down this process with all of its tax, tariff, and production controls.