News: Agricultural transformation and agribusiness opportunities – A way forward for development in Egypt

Hagar ElDidi (IFPRI-Egypt) &  Alejandro Nin-Pratt (IFPRI)

Economic transformation is the reallocation of economic activity across the three broad sectors (agriculture, manufacturing, and services) that accompanies the process of modern economic growth. As labor and other resources move from agriculture into more productive activities, overall productivity rises and incomes expand.  The process of economic transformation is driven by income growth, changes in demand and consumption patterns and by technical change and increased productivity within each sector. For Egypt especially, agriculture could play a central role in this process of transformation and can be a catalyst for development and income growth in poverty-locked areas.

IFPRI in collaboration with the Food and Agriculture Organization (FAO) and under the USAID funded project Evaluating Impact and Building Capacity (EIBC) co-hosted a seminar under the title “The Role of Agriculture and Agri-business for Accelerating Economic Transformation in MENA”, to examine the role of agriculture and related agri-businesses for transformation and development in the MENA, with emphasis on Egypt. It shed light on the main questions of a) How did agriculture perform in recent years? b) What is the importance of agriculture and agro-industries in MENA countries’ economies and how have their roles changed? c) How can agriculture and agro-industries contribute to local development, increase household incomes and reduce poverty in Egypt?; and d) What are the opportunities, challenges and policy options to enhance the role of agriculture and agri-business for development?ag-seminar

The panelists discussed the similarities and differences of agricultural transformation in Egypt, the region, and globally, based on IFPRI Egypt SSP’s working paper titled The Role of Agriculture and the Agro-processing Industry Development in Egypt: An Overview, as well as preliminary findings from FAO’s flagship report SOFA 2017. The Ministry of Agriculture and Land Reclamation was represented by Dr. Saad Nasser, advisor to the minister, who offered the national perspective and strategy, and engaged in discussions relevant to Egypt’s agricultural policy agenda.

Generally, the process of economic transformation is characterized by a decline in the agricultural GDP share in employment over time, as labor moves to higher productivity sectors.  Andrea Cattaneo, senior economist at FAO, presented this global picture of agricultural transformation, drawing from the 2017 SOFA report. A new measure of “rural inclusiveness” utilized in the report adds to nuancing understanding on who benefits from agricultural transformation, by measuring the share of rural non-poor relative to total population. In Vietnam for example, although the share of rural population is very high, a high rural inclusiveness level is prevalent, as opposed to Bangladesh, who showed increasing productivity in agriculture but lower levels of inclusiveness.  The report will focus on "the role of secondary towns rather than mega-cities, or the ‘missing middle’", as an area for development opportunities and improving income and wellbeing, said Cattaneo.

Zooming in to the MENA region , Alejandro Nin Pratt research fellow at IFPRI, highlighted special features of the region’s transformation process. In particular, he mentioned the importance of natural resources for the region and the fact that natural resource-rich countries develop capital-intensive industries that create little productive employment in manufacturing. This slows down the movement of labor out of agriculture and increases informality and low-productivity employment in other sectors. While agriculture’s share in GDP has been declining in the region, labor and resources are not well absorbed into other more productive sectors due to the latter’s limited capacities to generate productive jobs. Further, most of the increase in agriculture productivity has been due to land productivity as opposed to labor productivity, and only a couple of countries, including Egypt, have been driving this growth in the region. Also, the strategy followed so far in the region has focused on high intensification and increased land productivity, which is challenged by increasing pressure on natural resources and water scarcity, especially in the region’s arid climate.

fao-seminar-jpgCompared to other countries with similar income per capita, Egypt’s shares of agriculture in GDP and employment are still high. Hoda ElEnbaby, senior research assistant at IFPRI, explained in her presentation the process of agricultural growth in Egypt, pointing out that the sector has shown stable growth even in times of crises. Yet, agricultural households, particularly those in Upper Egypt, are more likely to be locked into poverty, thus many rural household members have been shifting to non-agricultural activities, seeking higher income.

A promising way for accelerating agricultural growth for job creation in Egypt is through development of the food processing sector, particularly in Upper Egypt. High value activities like horticulture can raise incomes, employment and export opportunities for agriculture. With the recent devaluation of the Egyptian pound, an opportunity for exports of horticulture and processed foods expands for Egypt. While textile production and exports have dropped, food processing exports show a sizable increase potential. Fruits and vegetables now comprise the largest exports in the sector and have particular potential to accelerate agricultural transformation in Egypt.

Wearing the government’s hat, Saad Nassar complemented these statements by highlighting the agricultural strategy 2030 and the sector’s priority on the agenda as a key sector for food security and employment, as well as providing the national industry with needed raw materials. The new strategy promotes production in areas of comparative advantage, as opposed to emphasis on self-sufficiency and obligatory cropping patterns.  The strategy aims to reach this growth through improving incomes and standards of living for the rural population, linking farmers to markets and increasing agriculture exports. Nassar also confirmed the need to foster agro-processing and agro-industry, adding that a major hindrance to the potential increase in agricultural productivity is the high land fragmentation, which the government is aiming to avoid through new agricultural projects focused on helping farmers consolidate land and linking them to markets.

p1060889An interactive discussion on agriculture transformation in Egypt followed, touching upon related issues, including food losses, the importance of enhanced food value chains, as well as the possible effects of devaluation on agriculture and particularly agricultural inputs. Nonetheless, there was a consensus among panelists that there is still room for accelerating agricultural growth.

This can be through 1) structural change within the agricultural sector, whereby allocating more resources to higher value crops like vegetables and fruits and related agro-industry is promising for job creation and more efficient resource use; 2) additional cultivated land which is a top priority of the Egyptian Government and if done well and in a sustainable way, can boost production and jobs; or 3) further productivity gains, through enhancing the efficiency of investments in agricultural research and the needed new technologies in the coming years. Perhaps most importantly, a more market-oriented policy environment is key to promoting, and perhaps even accelerating, sustained agricultural growth through all three pathways.

The seminar’s discussion also paved the way for some open research questions, including the need for an assessment of climate impacts on Egypt’s agriculture and ways of making agriculture more attractive for the young generation. Further research should examine labor market dynamics across households, sectors, and regions; the role of agriculture and agro-processing for youth employment, and female employment.  In addition, more actionable research is needed to assess opportunities and constraints for agri-business development, especially in Upper Egypt. Research is also required on nutrition-sensitive agriculture; how agriculture may help improving nutrition of household members; and how agricultural interventions can have strengthened nutrition impact. The discussants and seminar participants further reemphasized that there is a need for growth in other sectors along that of agriculture for a successful and inclusive transformation process.