Egypt: Smallholder contract farming for high-value and ... - IFAD

Executive summary
Background
The total population of Egypt has grown rapidly over the last 25 years, to more than 70 million,
but the annual rate of population growth has slowed to a moderate 2.1 per cent. As a result of
structural reforms in the 1990s, the Egyptian economy experienced a period of sustained growth
between 1994 and 2006, with a short spell of recession in 2003; however, this was reversed after
the arrival of the new reformist government in the summer of 2004. The economy has improved
considerably since.
Trade in high-value products, such as fruits and vegetables, is increasingly displacing exports of
traditional commodities. Thus, during the 1990s, the aggregate value of world trade in traditional
agricultural commodities declined, while the value of trade in high-value exports grew by around
6.8 per cent annually (approximately 4.8 per cent growth in volume and 2 per cent growth in unit
prices). The trends for Egypt were similar. Export volumes and values were falling in traditional crops,
and unit prices were stagnating. Meanwhile, the annual export value of high-value products was
increasing by 6.6 per cent (a 5.5 per cent increase in volume and a 1.1 per cent increase in unit prices).
The predominately large Egyptian commercial farmers have benefited from the development in
exports of high-value products. There is a growing consensus that, if smallholders become involved
in the production of high-value crops for export, this would be the most effective way of
stimulating the rural non-agricultural economy towards positive growth. This study therefore
explores the potential of involving smallholders in the production of non-traditional high-value
horticultural crops for export, within the thematic context of contract farming, with the aim of
improving the return to smallholders on production for the domestic market.
Findings
The study finds that contract farming could be an effective way of including smallholders in the
effort to supply the horticultural export value chain, particularly if farmers are organized into
farmer associations. The study reveals that smallholder families could increase their incomes by as
much as 63 per cent if they engage in the contract farming of organic horticultural produce, and by
43 per cent if they engage in conventional export crops.
It is estimated that if farmers would organize into farmer associations they could improve their
incomes by curtailing the number of traders and selling their own production in village, governorate,
and metropolitan wholesale markets, improving their household incomes by 7, 15 and 22 per cent,
respectively, in these markets.
Economic impact. The marginal propensity to consume in villages by smallholders has been
estimated at around 64 per cent. This provides an economic multiplier of 2.8, meaning that, for
every additional Egyptian pound (EGP) earned by a smallholder, an additional EGP 2.8 would be
generated in the local economy. This would drive economic growth in the agricultural sector.
Equally important, it would fuel non-agricultural small and medium-sized enterprises in villages,
which would generate needed job opportunities. If smallholders produce the crops most suitable
for them, this could generate an annual recurrent return (see table below).
7