Is an Agriculture Centered Is an Agriculture Centered Development Strategy a Viable Development Strategy a Viable Strategy for Africa? Questions Strategy for Africa? Questions From the Ethiopian Experience. From the Ethiopian Experience.

• Berhanu Nega and Berhanu AdenewBerhanu Nega and Berhanu Adenew

IntroductionIntroduction

• I would first like to thank the organizers for inviting me to I would first like to thank the organizers for inviting me to participate in this conference. I would also like to welcome all participate in this conference. I would also like to welcome all of you to Ethiopia for the conference. I hope you enjoy your of you to Ethiopia for the conference. I hope you enjoy your staystay

• I also like to apologize (to the organizers and particularly to I also like to apologize (to the organizers and particularly to the discussant) for not having the paper ready for the the discussant) for not having the paper ready for the discussant. My life has taken a sudden turn since I agreed to discussant. My life has taken a sudden turn since I agreed to present the paperpresent the paper

• So, rather than present a full paper with all its merits, I will So, rather than present a full paper with all its merits, I will attempt to raise some issues relevant to the broad topic I attempt to raise some issues relevant to the broad topic I agreed to discuss that are becoming important policy issues agreed to discuss that are becoming important policy issues in Ethiopia and to ask our colleagues from other countries to in Ethiopia and to ask our colleagues from other countries to comment on them based on their own country experiences comment on them based on their own country experiences

• I am not an agricultural economist by training and I am I am not an agricultural economist by training and I am looking at the issue from a broader perspective of looking at the issue from a broader perspective of “development.” Therefore, I am going to speak in broad “development.” Therefore, I am going to speak in broad strokes, obviously missing the fine detailsstrokes, obviously missing the fine details

What are the issues?What are the issues?

• What is the nature of agriculture as an economic What is the nature of agriculture as an economic activity?activity?

• What is the nature of the agricultural sector in Sub What is the nature of the agricultural sector in Sub Saharan Africa in general and Ethiopia in Saharan Africa in general and Ethiopia in particular?particular?

• Can the lessons of the green revolution in Asia in Can the lessons of the green revolution in Asia in the 70s be replicated in Africa today?the 70s be replicated in Africa today?

• Given this structure, can agriculture as a sector be Given this structure, can agriculture as a sector be the center (main driver) for the growth of the center (main driver) for the growth of economies such as Ethiopia?economies such as Ethiopia?

• What are the possible alternatives for poverty What are the possible alternatives for poverty reduction and growth?reduction and growth?

The case for an Agriculture Led The case for an Agriculture Led growth strategy!growth strategy!• This is a strategy currently followed by the This is a strategy currently followed by the

Ethiopian government and supported by Ethiopian government and supported by important institutions such as the World Bank important institutions such as the World Bank largely based on current endowment and largely based on current endowment and comparative advantage arguments…comparative advantage arguments…

• More fertilizers and improved seedsMore fertilizers and improved seeds• Leads to high levels of land productivityLeads to high levels of land productivity• Leads to high levels of income of the “peasant Leads to high levels of income of the “peasant

masses”masses”• Leads to increased demand for industrial goods…Leads to increased demand for industrial goods…• Leads to industrialization…prosperity…Nirvana…Leads to industrialization…prosperity…Nirvana…

Some points about agriculture Some points about agriculture in general…in general…• Two important characteristics of Two important characteristics of

agriculture as distinct from other agriculture as distinct from other industries (Cramer et.al, 2001)industries (Cramer et.al, 2001)

• First, it is characterized by the cyclical First, it is characterized by the cyclical nature of production caused primarily by nature of production caused primarily by physical and biological factorsphysical and biological factors

• Second, the sector faces serious price Second, the sector faces serious price instability (owing to Engel’s law and other instability (owing to Engel’s law and other factors internal and external to the sector)factors internal and external to the sector)

• Therefore, a very risky businessTherefore, a very risky business

What Characterizes the What Characterizes the Agricultural Sector in Africa Agricultural Sector in Africa today?today?

• declining real output prices (declined by about 2.6% declining real output prices (declined by about 2.6%

between 1996-2001) between 1996-2001)

• rising input prices (esp. fertilizer, increased by 37.5% rising input prices (esp. fertilizer, increased by 37.5%

during the same time)during the same time)

• limited national markets (seven farmer to one urban limited national markets (seven farmer to one urban

consumer in Ethiopia)consumer in Ethiopia)

• high price instability in liberalised marketshigh price instability in liberalised markets

• high climatic and market riskhigh climatic and market risk

• absence of rural financial marketsabsence of rural financial markets

• declining farm sizes (farm sub-division) from 2.2 ha. Per declining farm sizes (farm sub-division) from 2.2 ha. Per

hh in 1978 to 1 ha in 2001 with no irrigation.hh in 1978 to 1 ha in 2001 with no irrigation.

Implications to Economic Implications to Economic Growth and Rural Poverty: The Growth and Rural Poverty: The Case of EthiopiaCase of Ethiopia• GDP growth followed the pattern of GDP growth followed the pattern of

the growth of value-added in the the growth of value-added in the agricultural sector.agricultural sector.

• The agricultural sector has long been The agricultural sector has long been susceptible to the fragility of nature, susceptible to the fragility of nature, particularly rainfall.particularly rainfall.

Growth in GDP follows the Growth in GDP follows the pattern of growth in agriculturepattern of growth in agriculture

Growth Rates of GDP and Value-added in the Agricultural and non-agricultural Sectors

-25

-20

-15

-10

-5

0

5

10

15

20

25

Year

Agr-g GDP-g Non-agri-g

Trend in GDP: Moderate and Trend in GDP: Moderate and irregularirregular Trends in Value-added in the Industrial Sector

5

5.5

6

6.5

7

7.5

8

Year

LInd Indu-Trend

Per capita value-added in the Per capita value-added in the agriculture has been decliningagriculture has been declining

Trend in the Per capita Value-added in the Agricultural Sector

100

120

140

160

180

200

220

Year

AgriPCI AgriPCI-Trend

Per capita value-added in the Per capita value-added in the non-agricultural sector has non-agricultural sector has been risingbeen risingTrends in the Per capita Value-added in the Non-agricultural Sector

0

200

400

600

800

1000

1200

Year

Nonagr-PCI Non-Agr-PCI-Trend

Rural and Urban Per-Capita Income, 1980/81 constant prices

50.0

350.0

650.0

950.0

1250.0

In B

irr

Urban Per-Capita Income

Rural Per-Capita Income

Source: MOFED and CSA( Statistical Abstract, Various Source: MOFED and CSA( Statistical Abstract, Various Issues) Issues)

 

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

1991/92-2003/04 243.8 134.9 993.2

1960/61-2002/03 241.4 163.8 877.6

Annual Average Per-Capita Income, In Birr, Annual Average Per-Capita Income, In Birr, Constant 1980/81 PricesConstant 1980/81 Prices

Source: MOFED and CSA( Statistical Source: MOFED and CSA( Statistical Abstract, Various Issues) Abstract, Various Issues)

0

20000

40000

60000

80000

100000

120000

140000

popu

latio

n

1995

1999

2002

2005

2010

2015

2020

2025

2030

Year

Population projection for Ethiopia for selected years ('000)

Urban

National

0

20000

40000

60000

80000

100000

120000

140000

2000

2001

2005

2010

2015

2020

2030

Year

Fig.5. Estimated food demand ('000 tons)

Fooddemand(tons)based on2.5qt/yr/pers

Population(000)

Fig.6. Drought affected population and projections in millions (1995-2030)

01020304050607019

95

1996

1997

1998

1999

2000

2001

2002

2003

2020

2030

Agriculture During the Green Agriculture During the Green Revolution in Asia in the 1970s: Revolution in Asia in the 1970s: Can Africa Emulate that today?Can Africa Emulate that today?

• The answer is no because the international The answer is no because the international

environment has changed so much today environment has changed so much today

compared with the 70scompared with the 70s

• big deficit markets, lower use of tradebig deficit markets, lower use of trade

• rising or stable output pricesrising or stable output prices

• comprehensive agric support policies:comprehensive agric support policies:

fixed prices, floor pricesfixed prices, floor prices

buffer stocks & stabilisation operationsbuffer stocks & stabilisation operations

substantial fertilizer subsidiessubstantial fertilizer subsidies

huge subsidies to large-scale irrigationhuge subsidies to large-scale irrigation

So, what are the alternative So, what are the alternative options for Africa?options for Africa?• While trying to increase productivity in While trying to increase productivity in

agriculture is a valid policy to increase agriculture is a valid policy to increase income it is a questionable strategy at best income it is a questionable strategy at best to think of the sector as the “lead sector”to think of the sector as the “lead sector”

• In fact, the development of other sectors In fact, the development of other sectors around agriculture, particularly the process of around agriculture, particularly the process of urbanization seem to help the development urbanization seem to help the development of the agricultural sectorof the agricultural sector

• In general economic diversification seems to In general economic diversification seems to be a better strategy both for poverty be a better strategy both for poverty alleviation in rural areas and for overall alleviation in rural areas and for overall economic growtheconomic growth

Benefits of Diversification ? Benefits of Diversification ?

• helps overcome seasonalityhelps overcome seasonality

• helps ameliorate riskhelps ameliorate risk

• increases knowledge, skills, increases knowledge, skills,

adaptabilityadaptability

• generates financial resourcesgenerates financial resources

• yield growth arises from non-farm yield growth arises from non-farm earningsearnings

• poverty & vulnerability most poverty & vulnerability most intractable with high agric & intractable with high agric & subsistence reliancesubsistence reliance

Diversification Leads to Diversification Leads to Mobility & MigrationMobility & Migration diversification one facet of human mobilitydiversification one facet of human mobility

mobility essential to economic dynamismmobility essential to economic dynamism

ceaseless circulation the norm in growing ceaseless circulation the norm in growing

economieseconomies

longer duration and more permanent longer duration and more permanent

movements: migration, urbanisation, movements: migration, urbanisation,

international migrationinternational migration

importance of remittancesimportance of remittances

good for the poor and for agriculturegood for the poor and for agriculture

Agriculture Benefits from Agriculture Benefits from Diversification (Ellis, 2004)Diversification (Ellis, 2004)

I II III IV

Income Quartiles

0

200

400Ta

nza

nia

S

hil

lin

gs

(T

ho

us

an

ds

)

72 96 139

339

43%

56%63%68%

Tanzania Sample 310 HHs 2001Agric Contribution to HH per Capita Income (Red)

Net Agric Output per Hectare (Green)

Urbanisation holds the key to Urbanisation holds the key to Poverty Reduction and Poverty Reduction and growth in SSAgrowth in SSA

• provides growing markets for agric outputprovides growing markets for agric output

• Helps in the transformation of agriculture Helps in the transformation of agriculture

through the production of high value crops through the production of high value crops

(horticulture…etc.)(horticulture…etc.)

• benefits from agglomeration economiesbenefits from agglomeration economies

• encourages economic specialisationencourages economic specialisation

• provides employment & upward mobilityprovides employment & upward mobility

• reduces unit cost of service provisionreduces unit cost of service provision

• creates low-cost labour-intensive services creates low-cost labour-intensive services

The Value of Urbanization for The Value of Urbanization for Ethiopian AgricultureEthiopian Agriculture• empirical projections using a preliminary Demo Economic empirical projections using a preliminary Demo Economic

Model that Jean Marie Cour developed for Ethiopia illustrate Model that Jean Marie Cour developed for Ethiopia illustrate exactly this point. (The model was originally done for Seven exactly this point. (The model was originally done for Seven West African Countries with similar results)West African Countries with similar results)

• a faster urbanization implies not only higher levels of GDP a faster urbanization implies not only higher levels of GDP overall compared with a slower pace of urbanization, but overall compared with a slower pace of urbanization, but more interestingly, rural incomes will be much higher under a more interestingly, rural incomes will be much higher under a faster urbanization scenario compared with the alternative. faster urbanization scenario compared with the alternative.

• A projection for the year 2025 using two urbanization A projection for the year 2025 using two urbanization scenarios (20% and 40% urbanization) show that national per scenarios (20% and 40% urbanization) show that national per capita GDP would be US$ 468 under the 40% scenario capita GDP would be US$ 468 under the 40% scenario compared with US$ 288 for the 20% scenario while rural GDP compared with US$ 288 for the 20% scenario while rural GDP per capita will be higher by US$79 under a faster per capita will be higher by US$79 under a faster urbanization. urbanization.

• Equally interestingly, the productivity differentials between Equally interestingly, the productivity differentials between urban and rural areas will reduce from 4.1 to 3.1 under a urban and rural areas will reduce from 4.1 to 3.1 under a faster urbanization scenariofaster urbanization scenario

So, what does this mean for So, what does this mean for Policy Priorities in SSA? In Policy Priorities in SSA? In Ethiopia?Ethiopia?

• poverty reduction requires human mobility

• mobility needs to be facilitated, not disabled (Implications 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 I Think I Should Stop there!!!Stop there!!!

• Thank YouThank You