The Welfare and Transfer Effects of Cotton Price Policies in Egypt, 1965–78

Abstract

Egyptian agriculture has been characterized by government controls for over a century. Since 1952, production and foreign trade have been heavily regulated. On the input side, the prices and quantities of fertilizers, fuel, seed, pesticides, credit, machinery, land, and water have been controlled. Internal prices have been kept stable. This implies a tax when international prices are low and a subsidy when they are high. Price and quantity intervention have been important for export crops, particularly cotton, a major foreign exchange earner. This paper estimates the response of Egyptian farmers to price changes, focusing on production decisions for extra-long and long staple lint cotton. Because cotton is the major input to the domestic textile industry and because Egypt plays a major role in the world cotton market, the model allows for the joint determination of export prices, cotton production, and cotton consumption. The relevant supply and demand elasticities are estimated from a simultaneous equation system. The welfare and transfer effects of the cotton pricing policy are then measured.