implications of agricultural growth for poverty reduction in ethiopia
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Implications of agricultural growth for poverty reduction in Ethiopia
Paul DoroshEthiopian Strategy Support Program (ESSP-II)
International Food Policy Research Institute, Addis-Ababa
James ThurlowInternational Food Policy Research Institute, Washington D.C.
Development Economics Research Group, University of Copenhagen
Ethiopian Economics Association ConferenceAddis Ababa, 25 June 2009
Research questions
1. How much will poverty decline under Ethiopia’s current growth path?
2. What is the growth and poverty impact of increasing yields and productivity for different crops and livestock sub-sectors?
3. Which crops and agricultural sub-sectors are best at generating national growth and/or poverty reduction?
• These are some of the key strategic questions asked by NEPAD as Ethiopia’s prepares to join the Comprehensive African Agricultural Development Program (CAADP)
2
Economywide model structure (1)
• Dynamic CGE model (2005-15)
• New 2005 EDRI SAM of Ethiopia
• 24 agricultural sectors – Based on district crop and livestock data
– Calibrated to observed yields/land areas
– Regionalized (based on agro-zones)
• 14 upstream processing sectors
• 31 other nonagricultural sectors
• Detailed poor/non-poor households – Based on 2005 income/expend. survey
– Rural farm (by land size, asset holding)
– Rural non-farm and urban
• Micro-simulation poverty module3
Economywide model structure (2)
Factor market closure rules
• Regional land and livestock (mobile across agric. subsectors)
• National labor (mobile across sectors and regions)– Five types: agricultural; unskilled; skilled technical; managers; professionals
• National capital (fixed by sector)– Past investment creates new capital stocks (i.e., dynamic accumulation)
– New capital is allocated based on sector profit differentials
Macro closure rules
• Flexible exchange rate; fixed foreign capital inflows
• Fixed government spending plans; flexible fiscal deficit
• Fixed private savings rates; flexible investment (savings-driven inv.)
4
Baseline or ‘business-as-usual’ scenario
Agriculture
• Land cultivated for each crop follows medium-term trends: total land cultivated increases 2.6% per year, 2009-2015
• Land growth varies across regions (i.e., 1.2% in rainfall-sufficient areas, 3.2% in drought-prone areas, 3.7% in pastoralist areas)
• Crop yield increases account for one-third of production growth
• Overall agricultural GDP growth: 3.8% per year (pop growth = 3%)
Non-agriculture
• Based on historical medium-term trends (1998 onwards)
• Manufacturing and services: 8.2% per year
5
Accelerated agricultural growth scenario
We increase productivity (TFP) growth rates to achieve 2015
regional yield targets identified by the Ethiopia-CAADP team
6
0.00
0.50
1.00
1.50
2.00
2.50
Teff
Bar
ley
Wh
eat
Mai
ze
Sorg
hu
m
Oils
eed
s
Co
tto
n
Ch
at
Tob
acco
Co
ffee
Flo
wer
s
Cro
p y
ield
(m
t/h
a)
Accelerated yield growth target, 2015
Expected yields under baseline scenario, 2015
Current yields, 2005
Examples for selected crops
0.800
0.825
0.850
0.875
0.900
0.925
0.950
0.975
1.000
1.025
1.050
1.075
2005 06 07 08 09 10 11 12 13 14 15
Pri
ce in
de
x (b
ase
line
sce
nar
io =
10
0)
Teff
Wheat
Maize
Sorghum
Tobacco
Coffee
CattlePoultry
Model results: Growth and prices• Achieving crop/livestock
yield targets raises agric. growth from 3.8% to 6.0%
• Particularly strong expansion of cereals, export crops and livestock (high growth potential)
• However, higher production reduces prices for fast-growing and/or market constrained products (e.g., maize, wheat and livestock)
77
Share in 2005
Base-line
All agric.
Non-agric.
Total GDP 100.00 5.95 6.88 8.50
Agriculture 44.90 3.81 5.98 6.08
Cereals 13.49 5.18 7.53 7.79
Pulses/ oils 3.83 3.34 3.77 3.73
Horticulture 2.45 3.84 4.26 4.32
Export crops 4.50 4.54 7.20 7.20
Other crops 3.66 3.79 3.97 3.78
Livestock 12.94 2.88 6.02 6.14
Average growth rate (%)Economic growth
Relative price movements
Model results: Income poverty• Baseline reduces poverty rate
from 40% to 22.7%, but abs. poor increases
• Faster agricultural growth further reduces the national poverty rate to 18.4% (or 3.7mil. fewer poor in 2015)
• Poverty reduction is broad-based (i.e., falls in all regions and urban areas)
• Complementary nonagricultural growth reduces national poverty by as much as agricultural growth
88
Initial, 2005
Base-line
All agric.
Non-agric.
National 40.02 22.67 18.36 12.46
Rural regions 41.33 25.49 20.77 13.72
RS highlands (1a) 38.19 20.71 17.35 12.12
RS enset sys. (1b) 44.98 30.15 24.41 15.05
Drought-prone (2) 47.97 33.13 27.08 17.77
Pastoralist (3) 27.70 16.10 10.19 6.12
Small urban centers 33.95 8.57 6.41 5.18
Large urban centers 32.95 9.30 6.77 6.16
Regional poverty
22.7
18.4
40.0
12.5
10
15
20
25
30
35
40
2005 06 07 08 09 10 11 12 13 14 15
Nat
ion
al p
ove
rty
he
adco
un
t (%
)
Baseline scenario
All agriculture scenario
With non-agriculture scenario
Household income poverty
Final poverty rate, 2015
Model results:Identifying priority sectors• Poverty-growth elasticities show how
effective growth led by different
agricultural subsectors is at reducing national poverty
• Cereals are most effective at reducing poverty,
especially in poorer regions
• Livestock is especially effective
at reducing poverty in the
pastoralist region (although
cereals is even more effective)
• Export crops are more effective
at reducing Zone 1 poverty9
Cereals Export-crops
Live-stock
National -1.17 -1.08 -0.36
Rural regions -1.27 -1.13 -0.35
RS highlands (1a) -1.16 -1.03 -0.12
RS enset sys. (1b) -1.06 -1.44 -0.46
Drought-prone (2) -1.48 -1.06 -0.42
Pastoralist (3) -1.94 -0.93 -1.50
Small urban centers -0.62 -0.65 -0.42
Large urban centers -0.50 -0.92 -0.50
GDP
PovertyPGE
%
%
Poverty growth elasticities for growth led by different sectors
Conclusions
• Agricultural growth has significant poverty-reducing effects, especially for the poorest households/regions
• Thus an Agriculture Development-Led Industrialization (ADLI) strategy are sound approaches
• Complementary nonagricultural growth also significantly reduces poverty by raising incomes and stimulating agricultural demand
• However faster agric. growth will cause national average real prices of some products to fall (esp. wheat, maize and milk)
• If local marketing constraints are not resolved, localized market gluts could occur, seriously reducing incentives for production
• Nonetheless, reduced prices of major staples helps reduce poverty of net food purchasers
10
Next steps
• Investment costs of accelerating growth: Out study examined the impact of alternative growth options, but we have not yet compared the investment options/costs required to achieve this growth (i.e., investment trade-offs)
• Improve estimates of model parameters: We need to strengthen the econometric estimates for some of the remaining behavioral parameters (e.g., income elasticities and production technologies)
• Climate change: EDRI and the University of Sussex will estimate the economic costs of climate change and adaptation investments (e.g., hydroelectric power etc)
11
Linking growth to poverty reduction
12
Factor markets
Commodity markets
Foreign markets and countries
Public sector or government
Human/physical capital
Productivity/technology
Rural
Urban
Agriculture
Industry
Services
Economic growth Incomes and poverty
Production Consumption
Wages, rents, profits
Foreign trade
Taxes
Spending
Foreign investment
Taxes
Public investment
Private investment
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