Agriculture - Pricing Policy

Agriculture - Pricing Policy

World War II led to shortages of food supplies as a result of increased demand by Allied troops. The government enforced a system of grain deliveries, a measure that was tantamount to nationalizing the grain trade. It also compelled farmers to increase the areas devoted to grains, and it subsidized fertilizers to appease small farmers. The revolutionary regime both deepened and broadened these policy measures in accordance with its objective of industrializing the country. The new policy sought to extract a surplus from agriculture to finance industry, an approach that was then favored by economists in both East and West, and to ensure food supply at relatively low prices to keep industrial wages down.

Specifically, the policy involved the allotment of areas for particular crops, compulsory sales by farmers to the government of a fraction of the output at fixed prices, and, at the same time, a subsidy on agricultural inputs and on basic food staples for consumers. Farmers referred to controlled crops as "government crops." The policy varied by crop type and over time to serve changing economic, political, and social objectives. The level of control over crops ranged from total control, at least in theory, to total absence of control. The pricing system directly affected the area and output of controlled crops, including cotton, clover, rice, wheat, and sugarcane. Indirectly, however, pricing had a chain reaction on all crops.

The impact of the pricing system was difficult to evaluate because of the multiplicity of other factors--such as the ecology, crop rotation, land distribution, wages, and trade and other macroeconomic policies--that shaped agricultural operations. A 1989 study by the World Bank concluded that there was virtually no connection between subsidized consumer prices and producer prices--prices paid to farmers; output was affected by the latter but not by the former.

The relative impact on the various strata of the population and on rural as opposed to urban dwellers changed over time. In the 1960s, policies were generally biased toward urban consumers: the low prices for their staples were made possible by the low prices that were paid to farmers. In other words, the countryside, not the government, subsidized the city. After 1974 the government, wishing to keep the social peace and not jeopardize the newly promulgated infitah, raised producer prices and input subsidies to disgruntled farmers and simultaneously underwrote the bill for the consumer price subsidy. Overall, the pricing policy seemed to have removed the bias against the rural regions.

In the 1980s, the government gradually dismantled procurement quotas for practically all crops. The two major exceptions were cotton and rice. The government still bought all cotton and onehalf of the rice output as it did in the 1960s. Cotton remained on the quota system because it was an important source of foreign currency; the reason for rice exemption was less clear. Furthermore, by the end of the 1980s, the state offered prices for wheat higher than world market prices to encourage expansion of the wheat area. On the distribution side, the government gradually raised the prices of all subsidized food items, including sugar, rice, and cooking oil, and exempted wheat only. The policy changes in the 1980s probably favored rural over urban areas.

Within the countryside itself, the impact probably differed according to farm size, because of cropping pattern differences. Data on the topic were extremely sketchy and contradictory. It would seem that the upper stratum owning more than ten feddans was affected proportionally less than the lowest segment--those owning less than one feddan--because its members were able to grow more of the uncontrolled crops, such as fruit trees, and to bend the rules more. The raising of food prices probably had a more adverse impact on the poorer segments of the population, irrespective of where they lived, because they spent larger proportions of their incomes on food.

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