In contrast, the food and tobacco sector has several benefits from the current policy regime. It buys raw materials from agriculture (representing over a third of share in costs) at fairly competitive domestic prices, and benefits from tariffs on food products that are the highest nominal protection level across all sectors (25.8 percent). Thus, the sector enjoys a very high and positive (partial) ERP due to tariffs and output subsidies, reaching 481 percent. Note that our ERP includes food subsidies – mainly on wheat products – on the order of 9500 million LE – which represents 1.3 percent of total national value added (almost 2 percent of GDP according to Cassing et al., 2007).

Adding energy subsidies increases the protection (subsidy) to the food sector by even more; such subsidies represent more than a third of a total ERP for the food sector of well over 700 percent. One reason why the ERP on food is so high is that, after removing all interventions, its share of value added as a proportion of gross output in this sector would fall to a very low level (4.9 percent). This implies that the sector is very tradable and thus sensitive to tariff changes. This high level of protection for the food sector can indirectly benefit domestic agriculture in activities competitive with imports, because it demands more raw materials from the farm sector. But in the absence of the explicit and implicit subsidies to the food sector, this sector would likely contract, perhaps substantially, resulting in a higher level of imports. Production agriculture might lose domestic demand, but the impact on specific farm activities could be diverse and beyond the scope of this analysis.

What is missing in the ERP for agriculture is the cost of water. According to the recent study by Cassing et al. (2007. p. 91), “the marginal cost of water to farmers is zero, which has encouraged water-intensive crops, such as rice, banana, and sugar cane.” (Other studies for Egypt have tried to incorporate the shadow price of water into an ERP, but this was very “preliminary” analysis.) From the same source, we have for Egyptian agricultural products some nominal rates of assistance from direct price comparisons. The authors conclude that the direct disincentives in farming overall in the mid-2000s were not large. They concluded, however, that milk, cotton and rice continued to suffer significantly negative NRAs (- 19.3%, -23.8, and -34.1%., respectively) In contrast, there were some significantly positive NRAs: maize (17.8%), wheat (6.0%) and sugar (7.2%). But to judge the practical effects of the trade regime on incentives at the product level one would have to examine effective rates of protection, which in turn requires estimates of the cost structure of each activities (not available in the Cassing et al. study).

# _Adding NTB equivalents to the ERP estimates by sector using the 2006/2007 I-O matrix_

Tariff equivalents of NTBs by sector were not available for this study, and so to assess the impact of NTBs on ERPs at the sectoral level, the industry estimates from Dr. Hanafy were applied where appropriate. The six sectors to which we add to the applied tariffs the estimates of the ad valorem effects of NTBs are food and tobacco, textiles, fertilizers, non-metal industries, iron and steel, and “other industries” (which include motor vehicles). As mentioned in Section 5, the textiles, fertilizer, iron and steel sectors closely match the industries for which NTB estimates were available, and so these estimates were applied directly. We applied the average NTB tariff-equivalent of 9 percent (i.e., excluding the high-value-added goods with extremely high NTB 18