Agricultural Growth and Poverty Reduction in Ethiopia: A General Equilibrium Analysis

Agricultural Growth and Poverty Reduction in Ethiopia:

A General Equilibrium Analysis

Paul DoroshJames Thurlow

International Food Policy Research Institute (IFPRI)(Ethiopia Strategy Support Program, ESSP-2)

With the support of the EDRI/University of Sussex Social Accounting Matrix team

CAADP/AGP WorkshopNazareth, Ethiopia

2 June 2009

Research Questions

• How much will poverty decline under the current growth path?

• What is the growth and poverty impact of increasing yields and productivity for different crops and sub-sectors?

• Is the 6% CAADP agricultural growth target achievable and can it halve poverty by 2015?

• Which crops and agricultural sub-sectors are best at generating national growth and/or poverty reduction?

Methodology

• Dynamic CGE model (2005-2015)• Many agricultural sectors

– Based on district crop and livestock data– Calibrated to replicate observed yields and harvested

land areas

• Links to upstream sectors (e.g. processing)• Regionalized (based on agro-zones)• Disaggregated households

– Rural farm (by land size, asset holding, etc)– Rural non-farm and urban

• Micro-simulation poverty module

The Data Base EDRI Social Accounting Matrix 2004/05

– Constructed as part of a project with the University of Sussex (w/support of IFPRI-ESSP2)

– 65 production sectors (24 agricultural, 10 agricultural processing, 20 other industry, 11 services)

– Regional SAM based on the “3 Ethiopias” • Rainfall sufficient, drought prone, pastoralist

• Rainfall sufficient AEZ disaggregated to humid lowlands, enset-based systems, and other (highland) rainfall sufficient areas

– Poor and non-poor groups in rural and urban areas

Agro-ecological Zones“Three” Ethiopias

Baseline Scenario Assumptions

• Agriculture– Land cultivated for each crop follows medium-term trends:

total land cultivated increases 2.6% per year, 2009-2015– Land growth varies across region (1.2% per year in rainfall

sufficient areas, 3.2% per year in drought-prone areas, 3.7% per year in pastoralist areas)

– Crop yield increases account for one-third of the crop production growth

– Overall agricultural GDP growth: 4.0%/year– Note: population growth rate is 3.0 percent/year

• Non-agricultural output growth based on historical medium-term trends: – Manufacturing: 6.5% per year– Services: 6.7% per year

Ethiopia: Targeting yield/productivity increases

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

Ethiopia: Agricultural Growth Outcomes

Initial agric. GDP

share (%)

Average annual GDP growth rate, 2009-2015 (%)

Baseline Cereals Export-crops

Livestock All agric.

Non-agric.

(1) (2) (3) (4) (5) (6)

National (all zones) Agriculture 100.00 3.95 4.90 5.36 5.96 5.98 6.06

Cereals 32.98 4.96 7.38 7.41 7.63 7.68 7.82 Pulses & oils 9.37 3.31 3.53 3.94 4.10 4.12 4.03 Horticulture 6.71 4.69 4.81 4.86 4.96 4.98 5.09 Export crops 10.92 3.77 3.77 7.36 7.36 7.36 7.37 Other staples 8.00 3.02 3.19 3.13 3.22 3.24 3.11 Livestock 32.02 3.18 3.27 3.31 4.97 4.99 5.10

Ethiopia: Impacts on Prices: “All Agriculture” Scenario

0.800

0.825

0.850

0.875

0.900

0.925

0.950

0.975

1.000

1.025

1.050

2005 06 07 08 09 10 11 12 13 14 15

Re

lati

ve p

rice

ind

ex

(bas

elin

e s

cen

ario

= 1

00

)

Teff

Wheat

Maize

Sorghum

Pulses

Tobacco

Coffee

Cattle

Poultry

Ethiopia: Impacts on Poverty

22.7

17.6

40.0

13.3

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

Ethiopia: Impacts on Poverty

Initial poverty headcount (%)

Final year poverty headcount, 2015 (%)

Baseline Cereals Export-crops

Live-stock

All agric.

Non-agric.

2005 2008 (1) (2) (3) (4) (5) (6)

National 40.01 35.44 22.73 19.60 18.35 17.82 17.64 13.32 Rural regions 41.31 36.33 23.47 20.14 18.80 18.55 18.29 13.54 Humid cereals (1a) 38.19 33.07 20.16 17.67 16.48 16.82 16.57 12.19 Humid enset (1b) 44.92 40.86 30.57 26.34 23.68 23.46 23.16 18.12 Drought-prone (2) 47.97 42.51 27.21 22.67 21.97 21.03 20.73 14.61 Pastoralist (3) 27.70 22.49 10.83 9.00 8.27 6.53 6.53 4.94 Small urban centers 33.95 31.25 19.21 16.84 16.19 14.46 14.68 12.54 Large urban centers 32.95 30.81 18.89 17.05 16.10 13.86 14.03 11.76

Caveats

– Revised simulations will use a new version of EDRI SAM scheduled to be completed in early June 2009

– Sensitivity analysis regarding key assumptions and parameters is required

– Further analysis is needed regarding the costs of achieving the productivity increases simulated here

– Additional analysis of regional strategies is also needed

Concluding Observations: ADLI

• The simulations indicate that agricultural growth does have significant poverty-reducing effects. – This indicates that the overall Agriculture

Development-Led Industrialization (ADLI) strategy, as well as the basic CAADP and AGP programs, are sound approaches

• Complementary non-agricultural growth (in addition to agricultural growth linkages) can have a marginal impact on poverty equal in size to that of accelerated agricultural growth

Concluding Observations: Markets– Although agricultural growth raises rural incomes

through production increases and growth linkages with the non-agricultural sector, national average real prices of some products (especially wheat, maize and milk) may fall

– Moreover, 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