By Ulas Karakoc (TOBB ETU, Ankara & Humboldt University Berlin) & Laura Panza (University of Melbourne)
The full article from this blog post has been publishing in the Economic History Review.
By 1914, Egypt’s large agricultural sector was negatively hit by declining yields in cotton production. Egypt at the time was a textbook case of export-led development. The decline in cotton yields — the ‘cotton crisis’ — was coupled with two other constraints: land scarcity and high population density. Nonethless, Egyptian agriculture was able to overcome this crisis in the interwar period, despite unfavourable price shocks. The output stagnation between 1900 and the 1920s clearly contrasts with the following recovery (Figure 1). In this paper, we empirically examine how this happened, by focusing on the role of government investment in irrigation infrastructure, farmers crop choices (intra-cotton shifts), and access to credit.
Figure 1: Cotton output, acreage and yields, 1895-1940
The decline in yields was caused by expanded irrigation without sufficient drainage, leading to a higher water table, increased salination, and increased pest attacks on cotton (Radwan, 1974; Owen, 1968; Richards, 1982). The government introduced an extensive public works programme, to reverse soil degradation and restore production. Simultaneously, Egypt’s farmers changed the type of cotton they were cultivating, shifting from the long staple and low yielding Sakellaridis to the medium-short staple and high yielding Achmouni, which reflected income maximizing preferences (Goldberg 2004 and 2006). Another important feature of the Egyptian economy between the 1920s and 1940s, was the expansion of credit facilities and the connected increase in farmers’ accessibility to agricultural loans. The interwar years witnessed the establishment of cooperatives to facilitate small landowners’ access to inputs (Issawi,1954), and the foundation of the Crèdit Agricole in 1931, offering small loans (Eshag and Kamal, 1967). These credit institutions coexisted with a number of mortgage banks, among which the Credit Foncièr was the largest, servicing predominantly large owners. Figure 2 illustrates the average annual real value of Credit Foncièr land mortgages in 1,000 Egyptian pounds (1926-1939).
Figure 2: Average annual real value of Credit Foncièr land mortgages in 1,000 Egyptian pounds (1926-1939)
Our work investigates the extent to which these factors contributed to the recovery of the raw cotton industry. Specifically: to what extent can intra-cotton shifts explain changes in total output? How did the increase in public works, mainly investment in the canal and drainage network, help boost production? And what role did differential access to credit play? To answer these questions, we construct a new dataset by exploiting official statistics (Annuaire Statistique de l’Egypte) covering 11 provinces and 17 years during 1923-1939. These data allow us to provide the first empirical estimates of Egyptian cotton output at the province level.
Access to finance and improved seeds significantly increased cotton output. The declining price premium of Sakellaridis led to a large-scale switch to Achmouni, which indicates that farmers responded to market incentives in their cultivation choices. Our study shows that cultivators’ response to market changes was fundamental in the recovery of the cotton sector. Access to credit was also a strong determinant of cotton output, especially to the benefit of large landowners. That access to credit plays a vital role in enabling the adoption of productivity-enhancing innovations is consonant with the literature on the Green Revolution, (Glaeser, 2010).
Our results show that the expansion of irrigation and drainage did not have a direct effect on output. However, we cannot rule out completely the role played by improved irrigation infrastructure because we do not observe investment in private drains, so we cannot assess complementarities between private and public drainage. Further, we find some evidence of a cumulative effect of drainage pipes, two to three years after installation.
The structure of land ownership, specifically the presence of large landowners, contributed to output recovery. Thus, despite institutional innovations designed to give small farmers better access to credit, large landowners benefitted disproportionally from credit availability. This is not a surprising finding: extreme inequality of land holdings had been a central feature of the country’s agricultural system for centuries.
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Glaeser, Bernhard. The Green Revolution Revisited: Critique and Alternatives. Taylor & Francis, 2010.
Goldberg, Ellis. “Historiography of Crisis in the Egyptian Political Economy.” In Middle Eastern Historiographies: Narrating the Twentieth Century, edited by I. Gershoni, Amy Singer, and Hakan Erdem, 183–207. University of Washington Press, 2006.
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