ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE<br />Livestock Sector Policy Analysis Using an Economy-Wide Model for Ethiopia<br...
LIVESTOCK’S IMPORTANT ROLE IN THE ECONOMY<br /><ul><li>Livestock’s macro role in production often not emphasized
Growing demand for meat
Forward linkages: draft power, manure
Backward linkages: feed
Livestock products and agro-processing
How high are macro linkages from livestock sector growth?
How much income growth and poverty reduction can we generate with livestock sector growth?
General equilibrium analysis needed to capture these</li></li></ul><li>PREVIOUS WORK EMPHASIZES ROLE OF CEREALS<br /><ul><...
Diao Pratt (08) conclude that “growth in staples is the priority for poverty reduction”
Combining growth in staples and livestock has high economic multipliers & strong poverty reduction gains in food deficit a...
Dorosh and Thurlow (09)’s poverty-growth elasticities
cereals have highest rural poverty reduction potential</li></li></ul><li>APPROACHES OF PRESENT WORK<br /><ul><li>Developin...
Coupling the herd dynamics with the economy-wide model
Nesting the biological and the economic processes
Establishing stock-flow relationships in existing economy-wide models (e.g. livestock as capital and livestock products)
Revising and improving the system of economic accounts in existing models (e.g., draft power as capital in cropping, breed...
SCHEMATIC REPRESENTATION OF HERDDYNAMICS AND PRODUCTIVITY<br />Male Deaths<br />Young male<br />Immature male<br />Other e...
Condensed and adapted SAM for Ethiopia(ETH birr million, 2005)<br />
The model and simulations<br />
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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
  • Livestock Sector Policy Analysis

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

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