Food and state subsidy for this basic need occupy an important position the economies of the Arab countries. The pressure exerted by demographic factors is really effective. These factors are: high population growth, large family size, and significant portion of population are under working age. The combination of these factors leads to higher dependency ratio in one hand and higher effective demand for food on the other. When these factors are coupled with increasing rural-urban migration and declining agricultural production this will lead to a situation in which an increasing proportion of demand for food has to be met by imports.
During the 1970s the bill of imported foodstuff have increased substantially and created serious and unprecedented drains on government coffers. The decade of the 1980s was not better at all. The aggregate imports of various agricultural products of the Arab countries have increased from US$ 21.8 billion in 1980 to US$ 22.4 billion in 1985 and to US$ 23.3 in 1990. In fact if we exclude the rich Gulf states, most of the other Arab countries have imported more of agricultural products and foodstuff in 1990 than in 1980, and in terms of magnitude stand Egypt, Algeria, Iraq, Libya, and Morocco on the top of the list. Furthermore, the overall Arab ratio of dependence on imported food, which indicates the food security and vulnerability to external shocks, had deteriorated from 21.7% during the period 1969/71 to 38.1% 1986/8.39
Under such conditions of increasing demand and declining national agricultural production policy maker usually has three options: higher food prices coupled with higher nominal income/wages (the inflationary option ); higher food prices and declining real wages (austerity option); or keeping both food prices and nominal wages at parity (subsidy option).
All the Arab countries had avoided the inflationary option; those who undertook the structural adjustment programmes were advised or pressurised to adopt the austerity option by cutting subsidies; and those who can afford it or those, for social peace and political stability considerations, have chosen the continuation of subsidy option.
The dynamics and the socio-political adverse effects of the austerity and subsidy options are illustrated by what the adjusting countries have experienced in the violent "bread" or "urban riots".
Looking to the impacts of privatization and structural adjustment packages from the "streets" of the capitals and major cities of the Arab countries one can form a realistic view on who has been hardhit by these programmes.
From 1977 to 1989, many serious and severe riots rampaged major cities of Algeria, Egypt, Morocco, Sudan, Jordan and Tunisia. They were provoked by austerity measures linked to one form or another of structural adjustments, stabilization, liberalization and privatization programmes resulting in sudden rises in food and fuel prices.
The famous 1977 riot, the more moderate urban riot in 1984 and the violent riot of 1986 have rendered the Egyptian government to be more careful in adjusting food subsidies.
40
However, the 1977 riot in Egypt have been revisited with rather new PR interpretation. Wahba concluded, and Löfgren agreed with him, that the 1977 riots were a reaction to the style with which the subsidy cuts were announced than the cuts per se. 41
In Morocco 1978 the government attempted to introduce some reforms by reducing state investment, increase taxes, reduce credit, and freeze wages. But due to the price increase of both domestic and imported goods and the social unrest provoked by those measures, they were abandoned in the following year. Then in October 1980 Morocco embarked on a second stabilisation programme and concluded an agreement with the IMF according to which the food subsidies were reduced and that had led to 50% increase in the prices of essential consumer goods. Again these price increases had sparked widespread riots in Casablanca in the spring of 1981 and, together with other factors such as drought and falling phosphate prices, forced the government to abandon the programme. When riots broke out again in response to price increases in January 1984 the government, once more, abandoned its plan to introduce sudden price increase.42
In Tunisia also the "bread riots", January 1984, were strong enough to forced the policy maker to repeal the reduction in food subsidy. Even in 1986 when the sever fiscal and foreign exchange crisis made the government to accept the IMF recommendations, the decision maker was careful not to let the consequences of these recommendations to be shouldered by the working class. By undertaking the price-wage parity option, the Tunisian authorities had allowed wage rates to be steadily increase to keep pace with inflation.43
When price riots erupted in Algeria in October 1988 with between 150 and 300 civilians, mostly teenagers, were killed by the army, the event induced the then Algerian President, Chadli Bendjedid, to pursue a course of liberalizing reforms. Nevertheless and in spite of the civil unrest and political instability which shattered Algerian society and economy, many saw no viable but the austerity option. As mentioned above the Club of Euro-Maghreb had recommended the continuation of the three year austerity programme. The decision maker and the political establishment seems to sense the reality in a rather alarming, but realistic, way in which the conditions set by the IFIs, which includes austerity and subsidy reduction, could create "social explosion" in Algeria if they were applied.44
In March 1989 price riots broke also in a less state control economy of Jordan, and, like the situation in Algeria five months earlier, the Jordanian government addressed the popular discontent with promises for far reaching political reforms.
The situation was rather different in Iraq though the results were similar. In 1987/8 the regime in Iraq embarked on an ambitious privatisation programme in agricultural, light manufacturing industries, tourism, banking, and other services. Nearly all industries producing consumer products for domestic market were sold totally to the private sector or partially to the mixed sector. At the same time price controls were lifted in order to allow free market forces to operate uninterrupted. Prices began to rocket and many complains began to emerge in the local, though controlled and censored, newspapers. The price rises and the surfaced public cry generated by it seemed to had "forced" the government to reinstate the central pricing committee on April 12, 1989. Two months latter, it announced price freeze for one year of state produced goods and services and obliged retailers to put price tags on all goods, warning them that the prices would be monitored. Finally in 1 July same year the government announced the first pay rise in 10 years for state employees and the continuation of the annual $750 million food subsidy.45
Such action did not hold the prices for long and soon the prices of other products started to climb again, and the complains began to surface accordingly. One letter mentioned that what consumers had gained from privatization were products of inferior qualities at higher prices. An example was cited regarding Baghdad Factory for Asbestos Industries which had increased the prices of its products by five folds soon after the factory was sold to the private sector.46
From the cases considered above it seems, as many have observed, that food subsidy issue is a problem for which there are no easy solutions. In one aspect, food share in the households budget is very significant, hence food subsidies had an immediate and direct impact on livelihood of the household and its standard of living, and it therefore had a net redistributive effects. According to Morrisson (p. 1638) food subsidies constituted 20% of the expenditure of the urban poor households in Morocco. And since the poor spent 80% of their budget on food, their food consumption would have fallen by one-quarter without subsidies . On average the Moroccan family spend 40% of its annual income on food (WDR 1992. Table 10. p. 236)
In rural Egypt, as we shall see later, the reliance on food subsidies was substantial. On the national level, food amounted to 50% of the Egyptian households consumption. (WDR 1992. Table 10. p. 236). Adjustment policies had caused food subsidies to be reduced significantly. Actually these subsidies which constituted about 17% of total Egyptian public expenditure in the mid 1980s had went down to about 2 per cent in 1990.47
The "Households Surveys" in Iraq shows that expenditure on food absorbed in 1988 around 48.9% of the monthly per capita expenditure in the urban households as compared with 54.5% in the rural households.48 The annual US$750 million food subsidy constituted 1.2% of Iraq's GDP in 1989.
On the socio-political level food subsidies has been seen as part of a tacit social contract between the state and the people, and the people exercises power by threatening to destabilize the political situation and challenges regime's legitimacy if the government violates its commitment in the social contract. The issue of food subsidy as part of the social contract has been expressed, mostly in Egypt, by claiming that "bread is not an economic commodity; it is a social and political commodity".49 In a wider context the "social contract", as put by Waterbury, "is centred on the commitment of the state to provide goods and services to the public in exchange for political docility and quiescence".50
The emphasis has been so far, and for good reasons, placed on food subsidies. State subsidies, however, have been provided for other necessities such as housing, transport, energy, imported medicine, clothing etc. The general reduction of state subsidies will, undoubtedly, push the prices of all these commodities and services up, thus generating a domino-effect on the general price level.
