Livestock Sector Policy Analysis

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

LIVESTOCK’S IMPORTANT ROLE IN THE ECONOMY
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

PREVIOUS WORK EMPHASIZES ROLE OF CEREALS
CAADP limited initial recognition of role of livestock sector
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 areas
Dorosh and Thurlow (09)’s poverty-growth elasticities
cereals have highest rural poverty reduction potential

APPROACHES OF PRESENT WORK
Developing a herd dynamic module
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, breeding stocks as capital in livestock, etc)
19/09/2011
4

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)

Condensed and adapted SAM for Ethiopia(ETH birr million, 2005)

The model and simulations

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

Closures
Factor closures:
Labour , livestock and land fully employed and mobile
Capital fully employed and activity specific
Macro closures
Marginal propensity to save is fixed, investment adjusts
Tax rate fixed, government savings adjusts
Foreign savings fixed, exchange rate is flexible

Simulate realistic TFP shocks…
We simulate Total Factor Productivity (TFP) shocks to various subsectors
Base growth follows 98-07 trend
Additional shocks as in DoroshThurlow 2009
Obtained in discussions with MoA and CAADP

…different across sub-sectors

Results

Agricultural GDP 2006-2015

Stronger linkages for livestock & cash crops
CEREAL has highest sub-sector growth
But comparable Ag sector and GDP growth
A 1 pct point of CEREAL sector growth impacts Ag sector (and overall GDP) less than growth in LIVESTOCK and MARKET
Different economic linkages at work

Livestock has good export performance

Livestock raises income from labor and land the most

Price effects strengthen CEREAL effect on consumption poverty
The evolution of poor HHs consumption similar for each simulation
Price effects more than compensate lower income effect of CEREAL
Cereals about 25pct of whole consumption basket
Rural poor HHs consumption thus grows faster

Conclusions

Livestock’s re-casted role
Livestock has important economic linkages
Especially when taking into account complementarities with crop production due to draft power
Livestock growth increases the incomes of the poor expanding incomes from labor and land
Livestock limited role in consumption limits its consumption poverty reduction potential
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)
From social accounting to environmental accounting (i.e., a third level nesting: biological => economic => environment)
Livestock-environment interactions
Livestock-demographic-economic relationships (the livestock revolution story)
19/09/2011
20

Livestock Sector Policy Analysis

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