Transcript Introduction

Is an Agriculture Centered
Development Strategy a Viable
Strategy for Africa? Questions From
the Ethiopian Experience.
• Berhanu Nega and Berhanu Adenew
Introduction
• I would first like to thank the organizers for inviting me to
participate in this conference. I would also like to welcome all of you
to Ethiopia for the conference. I hope you enjoy your stay
• I also like to apologize (to the organizers and particularly to the
discussant) for not having the paper ready for the discussant. My
life has taken a sudden turn since I agreed to present the paper
• So, rather than present a full paper with all its merits, I will attempt
to raise some issues relevant to the broad topic I agreed to discuss
that are becoming important policy issues in Ethiopia and to ask our
colleagues from other countries to comment on them based on their
own country experiences
• I am not an agricultural economist by training and I am looking at
the issue from a broader perspective of “development.” Therefore, I
am going to speak in broad strokes, obviously missing the fine
details
What are the issues?
• What is the nature of agriculture as an economic
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activity?
What is the nature of the agricultural sector in Sub
Saharan Africa in general and Ethiopia in particular?
Can the lessons of the green revolution in Asia in the 70s
be replicated in Africa today?
Given this structure, can agriculture as a sector be the
center (main driver) for the growth of economies such as
Ethiopia?
What are the possible alternatives for poverty reduction
and growth?
The case for an Agriculture Led
growth strategy!
• This is a strategy currently followed by the
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Ethiopian government and supported by
important institutions such as the World Bank
largely based on current endowment and
comparative advantage arguments…
More fertilizers and improved seeds
Leads to high levels of land productivity
Leads to high levels of income of the “peasant
masses”
Leads to increased demand for industrial
goods…
Some points about agriculture in
general…
• Two important characteristics of agriculture as
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distinct from other industries (Cramer et.al,
2001)
First, it is characterized by the cyclical nature of
production caused primarily by physical and
biological factors
Second, the sector faces serious price instability
(owing to Engel’s law and other factors internal
and external to the sector)
Therefore, a very risky business
What Characterizes the Agricultural
Sector in Africa today?
• declining real output prices (declined by about 2.6%
between 1996-2001)
• rising input prices (esp. fertilizer, increased by 37.5% during
the same time)
• limited national markets (seven farmer to one urban
consumer in Ethiopia)
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high price instability in liberalised markets
high climatic and market risk
absence of rural financial markets
declining farm sizes (farm sub-division) from 2.2 ha. Per hh
in 1978 to 1 ha in 2001 with no irrigation.
Implications to Economic Growth
and Rural Poverty: The Case of
Ethiopia
• GDP growth followed the pattern of the
growth of value-added in the agricultural
sector.
• The agricultural sector has long been
susceptible to the fragility of nature,
particularly rainfall.
Growth in GDP follows the pattern
of growth in agriculture
Trend in GDP: Moderate and irregular
Per capita value-added in the
agriculture has been declining
Per capita value-added in the nonagricultural sector has been rising
Rural and Urban Per-Capita Income, 1980/81 constant
prices
1250.0
Urban Per-Capita Income
650.0
350.0
Rural Per-Capita Income
50.0
19
60
/
19 61
63
/
19 64
66
/6
7
19
69
/
19 70
72
/
19 73
75
/
19 76
78
/7
9
19
81
/
19 82
84
/
19 85
87
/
19 88
90
/
19 91
93
/
19 94
96
/
19 97
99
/
20 00
02
/0
3
In Birr
950.0
Source: MOFED and CSA( Statistical Abstract, Various Issues)
Annual Average Per-Capita Income, In Birr, Constant
1980/81 Prices
National Per
Capita Income
Rural Per-Capita
Income
Urban Per-Capita
Income
1960/61-1973/74
240.2
194.6
732.4
1974/75-1990/91
242.1
158.8
914.6
243.8
134.9
993.2
241.4
163.8
877.6
1991/92-2003/04
1960/61-2002/03
Source: MOFED and CSA( Statistical Abstract,
Various Issues)
Population projection for Ethiopia for selected years
('000)
120000
100000
80000
60000
Urban
National
40000
Year
2030
2025
2020
2015
2010
2005
2002
0
1999
20000
1995
population
140000
Fig.5. Estimated food demand ('000 tons)
140000
120000
Food
demand
(tons)
based on
2.5
qt/yr/pers
100000
80000
60000
40000
Population
(000)
Year
2030
2020
2015
2010
2005
2001
0
2000
20000
2030
2020
2003
2002
2001
2000
1999
1998
1997
1996
1995
70
60
50
40
30
20
10
0
Fig.6. Drought affected population and projections in
millions (1995-2030)
Agriculture During the Green
Revolution in Asia in the 1970s: Can
Africa Emulate that today?
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The answer is no because the international environment
has changed so much today compared with the 70s
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big deficit markets, lower use of trade
rising or stable output prices
comprehensive agric support policies:
 fixed prices, floor prices
 buffer stocks & stabilisation operations
 substantial fertilizer subsidies
 huge subsidies to large-scale irrigation
So, what are the alternative options
for Africa?
• While trying to increase productivity in
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agriculture is a valid policy to increase income it
is a questionable strategy at best to think of the
sector as the “lead sector”
In fact, the development of other sectors around
agriculture, particularly the process of
urbanization seem to help the development of
the agricultural sector
In general economic diversification seems to be
a better strategy both for poverty alleviation in
rural areas and for overall economic growth
Benefits of Diversification ?
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helps overcome seasonality
helps ameliorate risk
increases knowledge, skills, adaptability
generates financial resources
yield growth arises from non-farm
earnings
poverty & vulnerability most intractable
with high agric & subsistence reliance
Diversification Leads to Mobility
& Migration
 diversification one facet of human mobility
 mobility essential to economic dynamism
 ceaseless circulation the norm in growing
economies
 longer duration and more permanent movements:
migration, urbanisation, international migration
 importance of remittances
 good for the poor and for agriculture
Agriculture Benefits from
Diversification (Ellis, 2004)
Tanzania Shillings (Thousands)
Tanzania Sample 310 HHs 2001
Agric Contribution to HH per Capita Income (Red)
Net Agric Output per Hectare (Green)
400
43%
200
68%
63%
56%
339
0
72
I
96
II
139
III
Income Quartiles
IV
Urbanisation holds the key to
Poverty Reduction and growth in
SSA
• provides growing markets for agric output
• Helps in the transformation of agriculture through
the production of high value crops
(horticulture…etc.)
• benefits from agglomeration economies
• encourages economic specialisation
• provides employment & upward mobility
• reduces unit cost of service provision
• creates low-cost labour-intensive services
The Value of Urbanization for
Ethiopian Agriculture
• empirical projections using a preliminary Demo Economic Model that
Jean Marie Cour developed for Ethiopia illustrate exactly this point.
(The model was originally done for Seven West African Countries
with similar results)
• a faster urbanization implies not only higher levels of GDP overall
compared with a slower pace of urbanization, but more
interestingly, rural incomes will be much higher under a faster
urbanization scenario compared with the alternative.
• A projection for the year 2025 using two urbanization scenarios
(20% and 40% urbanization) show that national per capita GDP
would be US$ 468 under the 40% scenario compared with US$ 288
for the 20% scenario while rural GDP per capita will be higher by
US$79 under a faster urbanization.
• Equally interestingly, the productivity differentials between urban
and rural areas will reduce from 4.1 to 3.1 under a faster
urbanization scenario
So, what does this mean for Policy
Priorities in SSA? In Ethiopia?
• poverty reduction requires human mobility
• mobility needs to be facilitated, not disabled (Implications
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for land policy in Ethiopia?)
In general, policy should support:
 exchange, mobility, communication, information,
infrastructure
 Social and economic protection of people on the move
 removal of constraints on urban growth & dynamism
 Provision of services in urban areas
 resist enforced relocations out of urban areas
 pursue growth where it is observed to occur
• I Think I Should Stop
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there!!!
Thank You