Export Price Variability, Government Interventions and Producer Welfare: The Case of Egyptian Cotton

This paper examines the effects of government interventions during 1965-91 on short-run price stability and long-run price incentives, as well as the further repercussions on producer income and welfare, for the main agricultural export crop (cotton) in Egypt. In contrast to most existing studies on agricultural pricing policies in developing countries that focus on either price stability or producer incentives as the central policy goal, the analysis considers the simultaneous effects of alternative policy regimes on those two objectives. In fact, what matters to risk-averse producers is not price variability per se but the variability of their income. The analysis finds that the pure stabilization benefit from government interventions is heavily dominated by the transfer benefit so that producer welfare is significantly improved in moving to either of the two counterfactual regimes of sectoral and economywide free trade.