An Economic Study of the Growth Determinants for the Egyptian Potatoes Exports to the Global Market

Agricultural exports are drivers of economic growth as, apart from earning valuable foreign currency it creates sustainable jobs, increases the adoption of Advanced technologies and production practices as well as the enhancement of the overall competitiveness of the agricultural sector. Egypt’s average exports of potatoes grew at a rate of 20% during the period (2001-2013) accounting for about 14% of the total value of agricultural exports. This remarkable raised an important research question on what are the most important growth determinants of Egyptian potatoes exports. The study attempts to investigate the situation of Egyptian exports of potatoes in the key importing markets, identify the most important competing countries to Egypt’s potatoes exports and investigate the determinants of such exports in order to gain knowledge on the factors that influence the value of the Egyptian exports of potatoes. The results of the augmented gravity model revealed three factors that were found to be most significant namely, exchange rate, population, and the physical distance from Cairo to the capitals of the importers. GDP of Egypt GDP of the trading partner and the economic difference are of less importance. The total size of the specific export market for the Egyptian potatoes is also of lesser importance to the flows of the Egyptian potatoes exports.


Introduction
Agricultural exports are drivers of economic growth as, apart from earning valuable foreign currency; they create sustainable jobs, increase the adoption of advanced technologies and production practices as well as the enhancement of the overall competitiveness of the agricultural sector.Thus it is natural to focus on promoting Egyptian agricultural exports since they constitute one of the most important pillars in the economy that might help overcome the deficit of the trade balance and enhance economic development.In this regard, the Agricultural Sustainable Development Strategy 2030 (ASDS) pays considerable attention to increasing the competitiveness of agricultural products in local and international markets (MALR, 2009).
In fact agricultural exports constitute a large proportion of Egypt's total exports, representing about 10% of Egypt's total exports during the period (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)).Egypt's agricultural exports have shown a strong average growth over the last years rising from a total value of USD 0.5 billon in 2001 to USD 23 billion in 2013, with an average annual increase exceeding 14% in the same period.Egypt has shown some significant expansion in the exports of various agricultural commodities over the last years such as potatoes.oranges, onions, cotton lint, rice, grapes,beans,and strawberries (Faostat, 2013).
In particular, Egypt is well-known for its production of potatoes, The surplus, has found well-established and lucrative markets, earning large amounts of foreign currency and enhancing economic development.Because potatoes is one of the main crops among Egypt's agricultural exports, it is important to understand the relevant patterns and determinants of international trade in order to promote Egyptian agricultural exports.It should be noted that potatoes exports are coming under increasing international competition which calls for concern since only competitive countries are likely to stand the pressure of competition in the ever changing world economy.
Since these exports provide a good indication of the potential destinations of the Egyptian exports of potatoes, it is important to investigate the factors influencing the growth of potatoes exports.Notwithstanding the importance of supply side factors affecting Egyptian potatoes such as production costs and climatic conditions, the marketing factors influencing Egyptian potatoes internationally may provide guidelines for future production strategies.Thus it was suggested that the growth of potatoes exports is affected by gross domestic product, the gross national income per capita, the difference between per capita gross national income of Egypt and of the importer, the physical distance from Cairo to the capital of the importer, total imports of the Egyptian potatoes by the importer, exchange rate, the total population of the importer etc.These discussions raised an important research question on what are the most important growth determinants of Egypt's potatoes exports.This study therefore attempts to investigate the situation of the Egyptian exports of potatoes in the key importing markets identify the most important competing countries for Egyptian potatoes exports, and investigate the determinants of such exports in order to gain knowledge on the factors that influence the growth the Egyptian exports of potatoes.
In order to reach the objectives of this research, the rest of the study is divided into three more sections.The second section presents the methodological framework with special emphasis on the analytical method and data used whereas, the third section discusses the empirical results and finally, the last section concludes with some remarks and recommendations on policy implications.

Literature Review
Studies on the Egyptian potatoes exports growth determinants were conducted by a number of researchers who investigated the issue.Shehata (2011) studied the economic impact of trade between Egypt and COMESA countries focusing on the most important Egyptian agricultural exports and using the gravity model.The study shows that the most important determinants that affect Egyptian exports are the exchange rate, the distance between Cairo and the most important capitals in the COMESA countries as well as imports of competing countries in the COMESA markets.The study by Hassanain (2010) looked at Gravity Trade Model Applications on some Egyptian agricultural exports.He concluded that the most important export markets for Egyptian agricultural exports are Saudi Arabia, Russia and Ukraine while the most competing countries with Egypt in these export markets are Spain, South Africa and Turkey.Further, Ewada (2013), used the Gravity Model to measure the impact of many factors affecting export growth such as preferential trade agreements, customs restrictions, or the imposition of the food standards and analyzed the record of Egypt's exports of potatoes to the EU.The study dealt with the development of Egypt's production of potatoes, and the evolution of Egypt's exports of potatoes to the world, and to the EU.It also discussed the development of regulations that the European Union has imposed on imports of potatoes, especially imports from Egypt.The study reached several conclusions major among which is that the imposition of the EU ban on the imports of potatoes in 1998 has had a significant negative impact on Egyptian exports of potatoes to the EU and may have resulted in the compliance of potatoes exporters in Egypt with the requirements and standards imposed by the European Union such as the establishment of pest free areas especially for agricultural exports since 2004.El-Awady (2009) points out that the EU countries ranked first among the recipients of the Egyptian exports of potatoes, with their potatoes imports absorbing about 78%, 70.4% during the periods (1990-1994), (2003-2007) respectively.The demand function for Egypt's potatoes exports by major importing countries shows the existence of stiff competition between Egypt, Morocco, Tunisia and Israel for the potato markets in the EU.The study found that the degree of price competitiveness of Egyptian potatoes exports was quite low in view of the relatively low import prices set by other potatoes exporters selling in the EU market.The EU could not be held responsible for the low relative prices fetched by the Egyptian potatoes exports to that market.The study recommended more research to find solutions to the problems of Egyptian potatoes exports and export quota, set seasons and quality, guide farmers to rationalize the use of chemical fertilizers, pesticides and to rely on integrated pest management programs to improve the quality of crops and increase their competitiveness in foreign markets in light of the global trend towards organic farming.

Analytical Method
To reach the objectives of this study, the gravity model will be applied using data of potatoes exports.Earlier studies have applied the gravity model to investigate the trade flows and trade potential of Egypt (Hassanain, 2010;Shehata, 2011).However, most of the studies are aggregate in nature and have not particularly looked at agricultural exports.Nevertheless, the trade gravity model is one of the most successful and widespread methodologies used for estimating the determinants of trade.
The gravity model is an analytical approach that uses historical data to conduct an econometric study of trade.Tinbergen (1962) and Poyhonen (1963) first applied the gravity model to analyse international trade flows.The traditional model explains the flows of trade between countries by the proportion of their economic mass and by the inverse proportion of the physical distance between them.Frankel (1997) gives recognition to Helpman & Krugman (1985) for the standard gravity model.They provide a rationale for the relationship between trade flows and country size but they do not include a role for distance.
The inclusion of the latter in the gravity model stems from different motivations.One such motivation is that distance is a proxy for transport cost.Another is that it is a proxy for transaction cost.Third, distance is also a proxy for shipping times (especially, important for the exports of perishable products).Fourth, distance is a proxy for synchronization cost (especially important for the exports of inputs or intermediates).Lastly distance is a proxy for cultural differences (cultural differences may impede trade due to differences in preferences, values, language, negotiating styles, etc).Bergstrand (1985) included a role for shipping cost in his version of the imperfect substitution model.
Apart from the traditional variables, income and distance, many models have included other variables to control for differences in geographical factors, trade policy and economic facts.It must be noted that the gravity model does not make provisions for third party effects between country A and B. Further, another important shortcoming of the model is the neglect of supply side constraints which are especially evident for agricultural production (e.g.weather patterns, pests).
This study applies an augmented gravity model which elucidates the factors determining Egypt's potatoes exports.The model used in this study can be specified as follows: Where: t is a specific year, n is Egypt and i is Egyptian potatoes trading partners or importers (Italy, Greece and United kingdom).
VExp tni : Value of exports of potatoes from Egypt to the importer i in year t (USD).
GDP tn : Gross Domestic Product of Egypt in year t (as a proxy of exporting capacity of Egypt).
GDP ti : Gross Domestic Product of the importer i in year t (as a proxy of economic market size of importer).
GNIc tn : per capita Gross National Income of Egypt in year t (as a proxy of the stage of development Egypt).
GNIc ti : per capita Gross national Income of the importer i in year t (as a proxy of stage of development of importer, income of consumers).
Dist ni : The physical distance in kilometers from Cairo to the capital of the importer i (as a proxy of transaction and transportation costs).
To account for other factors that are expected to influence agricultural trade levels, some variables have been added to Equation 1.The present study will therefore use the following augmented gravity model: The added variables are: EconDif tni : Economic difference: the difference between per capita Gross National Income (GNI) of Egypt and of the importer i (as a proxy of difference in economic development between the exporter and the importer).
IMP ti-n : Total imports of the Egyptian potatoes by the importer i in year t (as a proxy of size of Egypt's potatoes exports in the importer's market).
ER tni : The exchange rate of the national currency of the importer i and the Egyptian pound in year t (as a proxy of the impact of financial risk and bilateral currency devaluation).
Pop ti : The total population of the importer i in year t (as a proxy of physical total market size).

Development of the Egyptian Agricultural Exports
Results illustrated in Table 1 reveal that the value of agricultural exports constitutes a large proportion of Egypt's total exports, amounting to about 10.7% during the period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013).However, the value of agricultural exports rose considerably in 2013 reaching six times its value in 2001.Moreover, Egypt's agricultural exports have witnessed strong average growth over the last few years from a total value of USD 0.5 billion in 2000 to USD 2.9 billion in 2013, or an average of about USD 1.7 billion.Percentage-wise, the annual increase exceeded 12% in the same period.Besides, potatoes exports come at the top of the list of vegetables exports of Egypt and it is a major export product for the country (FAOSTAT, 2013).
Considering the quantity of potatoes exports as a percentage of potatoes production, Table 2 shows that about 8.8% of Egypt's potatoes production was exported to the global market in 2000 this figure rose to as high as 14.7% in the year 2013 which gives an average of well over 12.2% during the study period.
Potatoes Yield: As shown in Table 2 potatoes yield initially was about 9.9 ton/feddan in 2000, but then rose to about 11.3 ton/feddan in 2013, which means an average of about 10.6 ton / feddan, and an annual growth rate well over 2% during the period (2000-2013).

Development of the Egyptian Exports of Potatoes
The data in tables 1 and 2 indicate that potatoes exports witnessed an upwards trend during the period under consideration, with 156.6 and 705.4 thousand tons recorded in 2000 and 2013, respectively.This can be attributed to the fact that potatoes exports are subject to bilateral agreements that are annually signed under varying conditions.In addition, Egypt's average value of potatoes exports reached about USD 119.8 million, with an annual average rate of 23.01%during the period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013).It should also be noted that on average potatoes exports accounted for about 7% of the total value of agricultural exports during the same period.

The Main Egyptian potatoes Importing Markets
Table 3 shows that the main destinations of Egypt's potatoes exports are Italy, Greece and the United Kingdom, accounting between them for about 72% and 70% of Egypt's total potatoes exports in terms of quantity and value, respectively during the study period.However, Italy is the largest import market for Egypt's potatoes with a share of 34% of Egypt's total potatoes exports.The average imported quantity for this same country is about 61.1 thousand tons, while its average annual growth rate stood at 7.5%.The average value for these imports stood at USD 16.68 million, with an annual growth rate of about 15.3%.Greece ranks second among the Egyptian potatoes imports markets accounting for about 32% of Egypt's potatoes import market with an average quantity of about 58.36 thousand tons, and an annual growth rate of about 31.2%.The average value of these imports was about USD 16.76 million, and its annual growth rate stood at 39%.France comes at the top of the list of competing countries with an average quantity of about 1666 thousand tons, which grew at an annual rate of about 1.3% during the period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012).The average value of French exports was about USD 446.7 million, with an average annual growth rate of about 5% during the same period.
Considering the Netherlands, the data reveal that it ranks second in terms of potatoes exports with an average quantity of about 1669 thousand tons, and an annual growth rate of about 5% during the period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012).The average value of the Dutch potatoes exports is about USD 575.65 million, and with an average growth rate of about 14% during the study period.Germany comes third in the list of competitors of the Egyptian exports of potatoes in Egypt's main potatoes importing markets with an average quantity of about 1458.5 thousand tons, and an average annual growth rate of about 6.89% during the period (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012).The average value of the German exports of potatoes is about USD 222.6 million, with an average annual growth rate of about 12% during the study period.

The Empirical Results of the Trade Gravity Model
The estimation results of the augmented gravity model for the Egyptian exports of potatoes to the three studied trading partners namely, Italy and the United Kingdom are portrayed in Table 5.All variables are transformed to their natural log in order to make the model linear.The adjusted coefficient of determination (adj.R 2 ) indicates that the studied factors of the augmented gravity model explain about 92% of the variation in the Egyptian exports of potatoes to the three studied trading partners.Only the significant estimators at a confidence level of 90% or more are shown in the Table .The t-statistic per estimator is given and the goodness of fit (reflected by the adjusted R-square), F-value, as well as the total number of observations are given in the final rows.Looking at the overall goodness of fit of potatoes estimations for the gravity model, it can be concluded that the specified model explains potatoes export flows reasonably satisfactorily.The results imply that the stage of development of the three studied trading partners and incomes of the consumers do not significantly affect the exports of the Egyptian potatoes to these markets.Similar results were found for the GNI per capita of Egypt.This indicates that the Egyptian exports of potatoes are not impacted by its stage of development.
The economic difference (or the difference between per capita gross national income of Egypt and of the importer) was found to be positively significant in the estimation, implying that the Egyptian potatoes tend to be exported to countries that differ substantially in the stage of their economic development from Egypt.These results reveal that an increase of the economic difference between Egypt and the three studied trading partners by 1% increases the exports of the Egyptian potatoes to these markets by about 0.23%.
The total size of the specific export market for the Egyptian potatoes, reflected by the total imports of potatoes by the trading partners, was positively significant.This entails that Egyptian potatoes are being exported to countries which rely heavily on Egyptian imports for their supply of potatoes.The physical total market size, reflected by the total population of the trading partner (importer) was found to be significant in the estimation.The sign of its coefficient in the model was positive as expected.This implies that the exports of the Egyptian potatoes to the studied markets are positively related to the physical market size of the trading partner.These results reveal that an increase of the total imports of the Egyptian potatoes by the studied trading partners by 1% increases the exports of the Egyptian potatoes to these markets by about 0.75% whereas, an increase of the total population of the studied trading partners by 1% increases the exports of the Egyptian potatoes to these markets by about 1.92%.
The exchange rate, reflecting financial risk and currency devaluation, was negatively significant.This indicates that the lower the relevant exchange rate, the more of the Egyptian potatoes is exported to the studied markets.However, an increase in the exchange rate by 1% decreases the exports of the Egyptian potatoes to the studied markets by about 0.63%.Regarded as an important estimator of the trade flow, the physical distance from the capital of the exporter to the capital of the importer; Cairo-Italy, Cairo-Greece, and Cairo-United Kingdom, reflecting transactions and transportation cost was found to be of significance.The sign of the coefficient for distance was negative, as expected.Thus for the exports of the Egyptian potatoes to the studied markets, transactions cots are of significant importance.These results reveal that an increase of such distance by 1% decreases the exports of the Egyptian potatoes to these markets by about 3.15%.

Concluding Remarks, Recommendation and Policy Implications
The primary objectives of this study were to investigate the situation of the Egyptian exports of potatoes to the key importing markets, identify the most important competing countries to Egypt's potatoes exports, and investigate the determinants of such exports in order to gain knowledge on the factors that influence the growth of the Egyptian exports of potatoes by applying the gravity model.The results from the gravity model reveal that a number of the investigated factors were found significant.One of the main finding was that specified model explains the export flows of the trading partners.
Thus exogenous factors will have limited effect on the exports of the Egyptian potatoes.The three factors that were found to be most significant in the gravity model are the exchange rate (reflecting financial risk and currency devaluation) population ( reflecting physical market size), and the physical distance from the capital of the exporter to the capital of the importer; Cairo-Italy, Cairo-Greece, and Cairo-United Kingdom (reflecting transaction and transportation costs).The GDP Of Egypt (reflecting supply capacity),the GDP of the trading partner (reflecting economic market size), and the economic difference (reflecting difference in economic development between the exporter and the importer) are of less importance.The total size of the specific export market for the Egyptian potatoes is also of lesser importance to the flows of the Egyptian potatoes.
The implication's of these results are that the focus of Egypt's future potatoes exports should be strategized along the following guidelines from a marketing perspective: * Economic and physical market size play an important role in the growth of the Egyptian potatoes exports to the studied markets.so those markets should be targeted first.
* Economic growth in Egypt motivates growth in potatoes exports, and growth in potatoes exports stimulates economic development.Thus, a synergetic relationship between the two exists.
*The stage of development of the studied markets is not of high importance to the growth of the Egyptian potatoes exports.Thus, Potatoes exports should be focus on importing markets in all stages of economic development; developing, emerging and developed.
obtained from the Central agency for Public Mobilization and statistics (CAPMAS), the Egyptian Central Department of Agricultural Economics & statistics, the United Nations Commodity Trade statistics Database (UN COMTRADE) the United Nations food and Agriculture Organization statistical database (FAOSTAT), the World Bank, the World Economic Outlook Databases of the International Monetary Found (IMF), etc.

Table 5 .
The empirical results of the trade gravity model