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Improving Agricultural Market Performance:

Creation and Development of Market Institutions

77

Food Safety, Animal, and Plant Health Regulatory Act which formalized the National Food

Safety, Animal, and Plant Health Regulatory Authority (NAPHIS).

125

Examples of Subsidy Reform

Some Governments of OIC Member Countries have in recent years managed to address the

problem of fuel and food subsidies, as well as reforming distribution systems and subsidies for

agricultural inputs. The importance of subsidy reform cannot be overstated. Subsidies for fuel

and food, as well as agricultural inputs, consume a large portion of the budgets of many OIC

Member Countries and create perverse incentives that can reduce food production and

increase dependence on imported food and inputs. Subsidy reform is often an essential

precursor to reform of the agro-food sector.

1.

Egypt, where subsidies for energy, electricity, and food have historically accounted for

more than a quarter of Government spending, in 2014 began to cut subsidies, and in

the 2016/17 budget reduced fuel subsidies by more than 40%. Government also

began to cut food subsidies, which in 2013 amounted to US$4.31 billion out of a total

budget of about US$80 billion. These subsidies, covering some 18 different staple food

items, have been available to nearly 80% of Egyptians, regardless of income. In 2017,

Government introduced reforms to food subsidies, initially by cutting members of

middle- and high-income groups from the ranks of recipients and eventually by

replacing subsidies with cash transfers to poorer Egyptians. The subsidies, and the

ensuing reforms, have been the responsibility of Egypt’s Ministry of Supply and

Internal Trading.

2.

Nigeria in 2012 abolished fuel subsidies, which in 2011 had amounted to US$8 billion,

or 30% of Government expenditure, 4% of GDP, and 118% of the capital budget.

3.

Iran’s Parliament in 2010 passed a sweeping subsidy reform plan, with the intention of

replacing subsidies with targeted assistance to needy populations. Government

estimated annual food and fuel subsidy expenditures at US$100 billion, and the 2010

plan entailed cuts of some 40% of this amount. However, poor management with

insufficient data and universal coverage (an estimated 73 million of Iran’s 80 million

people applied) hindered the subsidy reform reduce poverty and food insecurity.

Phase 2 of the plan, introduced in 2014, entailed further cuts to subsidies, raising fuel

prices by 75% and further reducing food subsidies. Parliament in 2016 voted to

extend the reform plan to 2021, but implementation, which would entail cutting cash

transfers to some 24 million people, has met resistance from the Government.

4.

Indonesia’s Government, in November 2014, raised subsidized fuel prices by 31% for

gasoline and 36% for diesel, and in January 2015, completely removed subsidies for

premium gasoline. The price of fuel is now adjusted monthly by the Government in line

with the international crude oil price. Before it reduced and then removed the fuel

subsidies, the Government took steps to mitigate the impact of higher transport and

food prices on poorer families. These included a monthly electronic cash transfer of

IDR 200,000 (about US$16.40) to more than 15 million vulnerable households and

125

FAIRS (2017), “Pakistan - Food and Agricultural Import Regulations and Standards – Narrative,” available at

https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20and%20Agricultural%20Import%20Regulations%20 and%20Standards%20-%20Narrative_Islamabad_Pakistan_12-12-2013.pdf [

Accessed July 2017].