Over the many upheavals and spells of stability, Egypt’s policy makers have persistently prioritized food subsidies in an effort to achieve social equity and political stability. The recently published World Bank book The 1.5 billion People Question: Food, Vouchers, or Cash? includes a chapter on the evolution and recent implementation reforms of Egypt’s Tamween Food Subsidy System. As one of the Egyptian experts who have been working for many years on various aspects of Egypt’s food subsidy system, I was invited by my ex-colleagues in the Bank to co-author the chapter with Mr. Moustafa Abdalla, World Bank Senior Helath Specialist. The chapter includes various interesting details about the many changes introduced to the system over the years since the fifties. Yet, the focus of this blog is on the radical reforms undertaken in early 2014, with the intention to shift the system from in-kind to a voucher-style subsidy system.
Wait, but what is radical with these reforms?
Although the new reforms benefited from previous pilot projects, and followed measures thatwere previously recommended to shift food subsidies toward the end of the supply chain they represent a paradigm shift from the traditional measures the government used to adopt. Until then, the reforms would include changing eligibility or enrollment rules in the ration cards (RCs), introducing lower-valued RCs for relatively better-off beneficiaries, decreasing the number or/and weight of RCs items and incrementally raising their prices. For the baladi bread (BB), reforms entailed reducing the size, weight or/and changing the ingredients of the loaf.
The new package of reforms included distinct features for the first ever time:
• replacing subsidized commodity quotas with a monthly cash allotment which started at 15 LE/individual/month (almost 2 USD) and increased gradually to reach LE 50 in mid-2017 (2.8 USD, taking the devaluation into account).
• shifting from input to output-based subsidies. Market prices were, therefore, set for the BB and RCs items, and the government subsidized eligible consumers only.
• capping the number of loaves per person: 5loaves/individual/day (or the flour equivalent per month in selected governorates). This meant a monthly subsidy of LE 45/individual (2.5 USD, currently), since the market price of BB stood at around 35 pts/loaf.
• consolidating the system, by establishing a point-based incentive system that allows beneficiaries to use savings from BB consumption (10 pts- equivalent to 0.6 cents- for each non-purchased loaf) to buy commodities under the RC system.
Well, but did these reforms have any positive outcome?
Yes, they had many:
They turned Egypt’s subsidy beneficiaries into market consumers, who can maximize their benefits according to their needs and preferences. The RC beneficiary could purchase any quantity of any of the items available in any grocery at any time throughout the month. This, with the consolidation of the BB and RC programs, allowed 30% increase in the beneficiaries’ dietary diversity.
They turned bakeries and groceries into market competitors that have an incentive to improve their efficiency and effectiveness. This interrupted leakage to the black market, and encouraged bakeries and groceries to meet certain quality standards to increase their sales and thus their profits. Not only non-milled wheat dropped from 15% to around 8%; but also the number of reported violations by bakeries in regard to underweight loaves and loaf specifications decreased in 2015 to less than one third their levels before reforms, and long queues at the bakeries curtailed.
The point system led to an estimated annual savings of about LE 11 bn in FY16 (or USD 1.35 bn).
The new system implied wide financial inclusion. More than 25,000 bakeries and 25,000 groceries were prompted to open a bank account for the financial settlement of their sales.
They gave more negotiation power in the commodity market to the Ministry of Supply and Internal Trade and its affiliated agencies, because of the new simpler supply chain. This enabled The Holding Company for Food Industries to give a large discount to Tamween groceries (up to 15%), helping to make their business profitable.
All these good outcomes could have never been possible without using evidence and new opportunities offered by technological advances. Using modern technology changed the accountability and oversight of subsidy provision, realizing significant efficiency gains. The system has achieved much greater “personalization” and traceability of all the bakeries’ financial transactions, all the beneficiaries’ daily consumption of BB and accrued savings points, and consumption under the RCs, and the storage of wheat at silos and shawnas.
So, is mission accomplished, and the system is perfect?
Reform is a dynamic process. There are still many challenges that the system has to face in the coming period:
In spite of some attempts the system remains essentially universal, refraining, at least until now, from using the technology for more appropriate targeting that makes the system more progressive, while maintaining social cohesion.
The value of system’s parameters has remained unchanged in spite of the increase in prices of all commodities. The system has thus now commodity as well as voucher subsidies. The system should automatically avoid differential pricing for all covered items.
There should be a clear indexation mechanism that protects consumer real benefits without endangering the fiscal stance.
There is a need to capitalize on the available smart technology of logistical tracking to better monitor every step of the supply chain. This would require making smartcards even more personalized and secure, such as biometrics.
It is vital to improve the nutritional content of the system by adopting a sustainable, budgeted national program of fortifying BB, and enshrining nutrition awareness on the importance of food diversity in the program.