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Livestock Sector Policy Analysis

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  • Existing micro-understanding points to the importance of livestock in HHs livelihoods (Negassa RashidDebremehdin 2011)Coping with shocksStore of value (if missing markets for credits)Food, dairy, fuel, etc.. As we have seen at the beginning of this presentation, livestock activities and products also account for a large share of macro flows But to understand livestock’s potential contribution to econ growth, we have to understand its role in productionDraft power, for example, is an essential input in production. About 80 pct of farmers use animal traction to plough their field (Benhke 2010)
  • Diao Pratt give both production and consumption explanations for this result re: livestock:Production-wise, they point to smaller share of poor farmers’ income from livestock (this misses the linkages)Consumption-wise, they point to smaller share of livestock products in consumption compared to staplesDorosh and Thurlow (09) calculate poverty-growth elasticities: pct decrease in poverty reduction (headcount rate) from a one percent increase in AG GDP from different sourcesCereal has 1.27, export crops 1.13, livestock led 0.35Livestock performs a bit better in drought prone and, mainly, in pastoralist AEZs
  • To answer these questions we analyse different sub-sector growth scenarios, using a dynamic CGE model for Ethiopia
  • LIVESTOCK and CEREAL superior in pushing Ag GDP upDifferences though are small (same applies to overall GDP)Even if cereal had largest push and largest initial size…
  • Livestock sub sector accounts for 15 pct of all export value (probably under-estimated)Yet, strongest export response under LIVESTOCK simulationReal EXR has a role in this: under LIVESTOCK it suffers the lowest real appreciation across simulation
  • Livestock accounts for about 10 pct of factor ownership in 4 AEZs. The poor’s asset in hl, hc, ho and dp AEZs is predominatly labour. Land has a slightly smaller weight than livestockIn pastoralist areas, it accounts for more than 40 pctYet TFP increases stimulate economic linkages that raise income from labor and land the mostFrom a food security perspective, notice that CEREAL is still the simulation which is most effective at raising consumption of cereals of the poor. Although CEREAL has a smaller income effect, it also produces the lowest cereal prices across the simulations. The latter effect more than compensates for the formerNotice that the same dynamic would apply to income of ALL HHs as well.Also, notice that this translates in total income gains
  • A dynamic general equilibrium model, adapted to better capture the livestock sector shows th
  • Transcript

    • 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE
      Livestock Sector Policy Analysis Using an Economy-Wide Model for Ethiopia
      Authors
      AyeleGelan, ILRI
      ErmiasEngeda, IFPRI ESSP-II
      Stefano Caria, DRMFSS
      Ethiopian Economic Association Conference
      July 21, 2011
      Addis Ababa
      1
    • 2. LIVESTOCK’S IMPORTANT ROLE IN THE ECONOMY
      • Livestock’s macro role in production often not emphasized
      • 3. Growing demand for meat
      • 4. Forward linkages: draft power, manure
      • 5. Backward linkages: feed
      • 6. Livestock products and agro-processing
      • 7. How high are macro linkages from livestock sector growth?
      • 8. How much income growth and poverty reduction can we generate with livestock sector growth?
      • 9. General equilibrium analysis needed to capture these
    • PREVIOUS WORK EMPHASIZES ROLE OF CEREALS
      • CAADP limited initial recognition of role of livestock sector
      • 10. Diao Pratt (08) conclude that “growth in staples is the priority for poverty reduction”
      • 11. Combining growth in staples and livestock has high economic multipliers & strong poverty reduction gains in food deficit areas
      • 12. Dorosh and Thurlow (09)’s poverty-growth elasticities
      • 13. cereals have highest rural poverty reduction potential
    • APPROACHES OF PRESENT WORK
      • Developing a herd dynamic module
      • 14. Coupling the herd dynamics with the economy-wide model
      • 15. Nesting the biological and the economic processes
      • 16. Establishing stock-flow relationships in existing economy-wide models (e.g. livestock as capital and livestock products)
      • 17. Revising and improving the system of economic accounts in existing models (e.g., draft power as capital in cropping, breeding stocks as capital in livestock, etc)
      19/09/2011
      4
    • 18. SCHEMATIC REPRESENTATION OF HERDDYNAMICS AND PRODUCTIVITY
      Male Deaths
      Young male
      Immature male
      Other economic uses
      Mature male
      +
      Births
      Sale of live animals
      Off-takes
      +
      Sales of products
      Young female
      Immature female
      Mature female
      Yields/animal
      =
      Female deaths
      TR
      costs of keeping mature animals
      -
      costs of keeping young animals
      costs of keeping immature animals
      TC
      +
      +
      =
      =
      Gross margin
      Production and economic flows (off-take, in-takes and others)
      Reproduction and growth (growth, births, deaths)
    • 19. Condensed and adapted SAM for Ethiopia(ETH birr million, 2005)
    • 20. The model and simulations
    • 21. Dynamic CGE model for Ethiopia
      • We use Dorosh and Thurlow’s 09 model
      General equilibrium: the model represents different markets, all reaching equilibrium
      Dynamic: the model is solved recursively
      • Model is calibrated for Ethiopia using 2005/06 EDRI Social Accounting Matrix
      5 AEZs, 97 activities, 66 commodities, 27 factors
    • 22. Closures
      • Factor closures:
      • 23. Labour , livestock and land fully employed and mobile
      • 24. Capital fully employed and activity specific
      • 25. Macro closures
      • 26. Marginal propensity to save is fixed, investment adjusts
      • 27. Tax rate fixed, government savings adjusts
      • 28. Foreign savings fixed, exchange rate is flexible
    • Simulate realistic TFP shocks…
      • We simulate Total Factor Productivity (TFP) shocks to various subsectors
      • 29. Base growth follows 98-07 trend
      • 30. Additional shocks as in DoroshThurlow 2009
      Obtained in discussions with MoA and CAADP
    • 31. …different across sub-sectors
    • 32. Results
    • 33. Agricultural GDP 2006-2015
    • 34. Stronger linkages for livestock & cash crops
      • CEREAL has highest sub-sector growth
      • 35. But comparable Ag sector and GDP growth
      • 36. A 1 pct point of CEREAL sector growth impacts Ag sector (and overall GDP) less than growth in LIVESTOCK and MARKET
      • 37. Different economic linkages at work
    • Livestock has good export performance
    • 38. Livestock raises income from labor and land the most
    • 39. Price effects strengthen CEREAL effect on consumption poverty
      • The evolution of poor HHs consumption similar for each simulation
      • 40. Price effects more than compensate lower income effect of CEREAL
      Cereals about 25pct of whole consumption basket
      Rural poor HHs consumption thus grows faster
    • 41. Conclusions
    • 42. Livestock’s re-casted role
      • Livestock has important economic linkages
      • 43. Especially when taking into account complementarities with crop production due to draft power
      • 44. Livestock growth increases the incomes of the poor expanding incomes from labor and land
      • 45. Livestock limited role in consumption limits its consumption poverty reduction potential
      • 46. This may be moderated in the future
    • FUTURE EXTENSIONS
      • By far the most important extension (in both modelling contexts) - strengthening crop-livestock interactions (e.g. crop residue)
      • 47. From social accounting to environmental accounting (i.e., a third level nesting: biological => economic => environment)
      • 48. Livestock-environment interactions
      • 49. Livestock-demographic-economic relationships (the livestock revolution story)
      19/09/2011
      20