Beyond the Business Case for Agricultural Value Chain Development: An economywide approach applied to Egypt

This paper goes beyond the “business” case for agricultural value chain development and presents an economy-wide framework to make the “development” case. We show that there are several key transmission channels that determine the economy-wide impacts of promoting various value chains, including forward and backward economic linkages, price responses, and net employment effects. These impacts all matter for household incomes, poverty, and dietary diversity. Results for Egypt show that agricultural value chain development generates economy-wide growth as well as growth in the agri-food system, but the impacts on employment suggest that agricultural growth can create new (and better) jobs in and beyond the agri-food system, but not necessarily more jobs. The results also show that productivity-driven agricultural growth in all crops is pro-poor and improves nutrition. However, potential adverse effects of livestock-led growth show that growth acceleration in single sectors can be negative, highlighting the importance of a systems analysis or, in our case, an economy-wide analysis. It is clear that no single sub-sector is best at achieving all the development outcomes examined. Moreover, the ranking of value chains by their development outcomes differs across sub-national regions. As such, results from this paper may provide useful decision support for the government and its development partners to select value chains depending on their priority development outcomes.
Several recommendations for policy emerge from this paper.
• Agriculture-led growth in the food system is important, but not necessarily sufficient for accelerating economic transformation in middle-income countries. Additional growth in other sectors is also needed to absorb labor from agriculture and increase demand for higher value agri-food products and services.
• When designing agricultural strategies and projects, it is critical to take a multi-sector development perspective. Focusing only on one value chain can have unintended negative effects on key development outcomes, such as nutrition.
• The findings support the current focus of many development partners on high value crops. However, there is mounting evidence that the focus on high value exports may not be sustainable. Especially smallholders often stop producing after export-support projects end due to high recurrent costs that often come with the high quality requirements of export markets. More attention to production for domestic markets and improving quality standards more gradually may be advisable, especially in a middle-income country like Egypt with rapidly growing food demand.
• Development and agricultural strategies should be regionalized. In addition to obvious sub-national differences that are driven by variation in natural conditions and other circumstances, e.g., rice is mainly grown in Lower Egypt and sugarcane in Upper Egypt, our results suggest setting region-specific priorities depending on key development goals.
• The government and its partners should support the transformation of the agriculture, food policy, and business environment. As the macroeconomic environment has substantially improved in Egypt, now sector policies and performance need to follow to support agri-food system development, such as through a thorough review of agricultural investments, subsidies, and other policies.
• There is an urgent need for systemic change to improve agricultural extension services, irrigation, and markets, potentially by leveraging digital innovations that can help to overcome some of the obstacles that have hindered change in the past.