For decades, food subsidies have been one of the main pillars of Egypt’s social protection policy. As the world’s top importer of wheat, Egypt spends billions of dollars every year to subsidize bread—a vital food item for the population of more than 80 million—in addition to few other basic foods. Given the population’s reliance on food subsidies, reforming the system has always been a politically sensitive issue.
However, following the presidential election in May 2014, Egypt started to fundamentally reform the food subsidy system with the goals of alleviating its large and rapidly growing fiscal burden on the country’s public budget and increasing the system’s effectiveness. The recent changes mark important steps toward a voucher-based system and provide the basis for implementing a more targeted approach. They may also have positive dietary effects, as they reduce—but not fully remove—the considerable economic incentives for a consumption of an unbalanced diet, overly rich in subsidized calorie-dense foods (bread, cooking oil, sugar rice).
Up until recently, Egypt’s food subsidies were mainly issued through two separate programs—the baladi bread program and the food ration program. The recent reform of the food subsidy system can be divided into five components—with the first two components referring to changes in the baladi bread program and the last three components referring to changes in the ration card program:
Moving the baladi bread subsidy to the end of the supply chain. In August 2014, the Ministry of Supply and Internal Commerce (MSIC) announced major modifications to the regulations on the baladi bread production, which are in line with common expert recommendations for reducing leakages along the supply chain. Bakery quotas for baladi flour were removed. Instead, bakeries have to purchase baladi flour at market prices and can buy any quantity of baladi flour. In turn, the government covers all production costs of baladi bread through direct cash deposits into the bakeries’ bank accounts on a daily basis. Existing regulations on the production of baladi bread remain in place (100g flour per loaf; 1,160 loaves from one 100kg flour bag). Also, the bread price at outlets remains fixed at five piasters per loaf (less than US$ 0.01).
Limiting baladi bread purchase to ration card holders and introducing maximum bread rations. Restricting the purchase of baladi bread to holders of valid ration cards marks a major change in the baladi bread program, ending the era of the universal bread subsidy introduced during World War II. Each household member registered on the household ration card is eligible for 150 loaves per month (5 loaves per day, on average), and beneficiary households can buy a maximum of 40 loaves per daily purchase. The unused baladi bread allotment can be redeemed for other commodities subsidized on the ration card program without any limit and within the first 10 days of the following month. This change marks a step toward merging the traditionally separate baladi bread program and ration card program and allows beneficiaries to choose the commodities more in accordance with their needs.
Transitioning from paper-based ration cards to electronic smart cards. In late September 2014, MSIC announced that, by the end of 2014, the transition from paper-based (booklet) ration cards to electronic smart cards will be completed, and existing paper-based ration cards will be invalid from January 2015 onward. The same smart cards will be used to purchase commodities subsidized under the ration card program and to buy baladi bread. The government increased the coverage of the ration card program (possibly to include households that rely on the subsidized baladi bread but were not yet covered by the ration card program). The total number of active ration cards are expected to reach 18.2 million by the end of 2014—an almost 8% increase over the number of cards in November 2011, when the ration card program covered 66.4 million beneficiaries (82% of the total population).
Increasing the number of subsidized items and allowing choice in the selection. In July 2014, the government expanded the basket of the commodities subsidized under the ration card program by adding 22 new commodities, and to a total of 32 commodities in early December 2014. New additions, include both food items (including meat, chicken, fish, pulses, and dairy products, but no vegetables or fruits) and non-food items (hygiene and cleaning products). Some of these commodities are included with more than one package size (and from different brands) and are expected to better meet the needs of the beneficiaries.
Replacing quantity-based quotas with cash allotment. Under the new ration card program, each beneficiary household receives a monthly cash allotment on the smart card, which can be redeemed for any of the subsidized commodities at any available packaging unit, instead of the quantity-based quotas for a few subsidized food items (cooking oil, sugar, rice, black tea) as under the old system. This provides beneficiaries some flexibility in the choice of subsidized purchases. The allotment amount per household depends on the number of registered household members, similar to the granted quotas before. As of July 2014, the monthly allotment on the ration card is EGP 15 per registered person (equivalent to US$ 2.10, according to the July 2014 official exchange) and was EGP 22 (US$ 3.08) per registered person during the month of Ramadan. When purchasing the subsidized commodities, the beneficiaries need to contribute a small copayment out-of-pocket that, on average, amounts to less than 10% of the ration card deduction for almost all commodities.
The prices of the subsidized commodities (including the amount deductible from the ration card and the beneficiary copayment) remain fixed and below free-market prices. Nonetheless, the prices for the traditional subsidized food items went up significantly. The kilogram-price for subsidized sugar increased from EGP 1.25 (US$ 0.18) to EGP 4.40 (US$ 0.62)—or, by 252%; for subsidized cooking oil from EGP 3 (US$ 0.42) to EGP 7.35 (US$ 1.03)—or, by 145%; for subsidized rice from EGP 1.5 (US$ 0.21) to EGP 2.4 (US$ 0.34)—or, by 60%; and for subsidized black tea from EGP 13 (US$ 1.82) to EGP 15 (US$ 2.10, for the largest packaging size)—or, by 15%. Accordingly, the subsidy amount per registered person fell by EGP 10.9 (US$ 3.63) for a regular month and for a household with four or less registered household members. This change reduced the annual costs of the ration card program by EGP 123.9 (US$ 17.35) per beneficiary—or, by about 40%.
Photo Credit: Amr Abdallah Dalsh/Reuters
