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Economic Benefits and Returns to Rural Feeder Roads
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Economic Benefits and Returns to Rural Feeder Roads Presentation Transcript

  • 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTEEconomic benefits and returns to rural feeder roads David Stifel – Lafayette College Bart Minten – ESSP/IFPRI Bethlehem Koru – ESSP/EDRI Improved evidence towards better food and agricultural policies in Ethiopia November 02, 2012 Hilton Hotel, Addis Ababa HTTP://essp.ifpri.info 1
  • 2. The Question: What are the economic benefits and returns to rural feeder roads?
  • 3. Debate on Rural Roads 1. Benefits of roads: • Reduce transport and input costs • Increase timely availability of inputs • Lead to higher productivity and lower poverty • Reduce price volatility 2. However, scepticism in Africa: • Low productivity and commercial surplus • Underuse of road infrastructure and problematic transport services
  • 4. Measuring Benefits – Two Issues 1. The measure of benefits • A standard road project appraisal relies on measuring various impacts (accessibility, quality, mobility) • Savings in transport • Few evaluations look at household behavior 2. Reverse causality • Non-random road placement
  • 5. Transport Costs• Donkey costs (Birr/kg) o Cost of renting donkey o Weight donkey can carry• Economic transport costs o Include the opportunity cost of time
  • 6. Average Travel Times andTransport Costs to the Market Town Travel Time Transport Cost (hours) (Birr/Quintal)Transport Cost Quintile Least Remote 1.5 18.2 Quintile 2 3.6 40.2 Quintile 3 5.2 52.5 Quintile 4 6.0 60.4 Most Remote 6.5 73.4Total 4.5 48.4
  • 7. Crop Share Of Land
  • 8. Adjusted Cereal Yields 20 15Quintals / ha 10 5 0 0 20 40 60 80 100 Birr/Quintal Sorghum Millet Maize Teff
  • 9. Measuring Benefits• Households’ willingness-to-pay for reduced transport costs• Compensate a remote household just enough such that indifferent between… o Remote (τ = τ0) o Situation in market town (τ = 0)  Estimate this compensation  Equivalent variation
  • 10. Demand for Transport Tonnage12501000 500 kg 750 250 0 0 20 40 60 80 100 Transport Cost (Birr/kg) Total Freight Imported Consumption Agricultural Surplus Input Purchases
  • 11. Benefits Estimate• Most remote households as accessible as the least remote• ↓ transport costs by US$ 50 / ton• Benefit ≈ 3,300 Birr per year (US$ 194) o This is 60.5% of mean consumption (most remote)
  • 12. Benefit EstimatesFor households in Benefit as percent ofeach of the following household consumptionevenly spaced gridpoints 2nd 2.0 3rd 5.4 4th 6.5 5th 6.7 6th 7.4 7th 17.2 8th 23.5 9th 53.0 Most remote 60.5Average for all households 9.3
  • 13. Benefits vs. Costs• Cost ≈ 28 million Birr (US$ 1.60 million)  800,000 Birr / km of gravel road  35 km• Benefits ≈ 10 million Birr per year (US$ 0.58 million)  1,930 Birr benefit on average  5,180 households in survey areaThree years for accrued benefits to exceed cost
  • 14. Internal Rates of ReturnsLength of gravelroad (km) Roads reduce Roads reduce travel costs to zero travel costs by half7 km 60% 27%14 km 58% 25%21 km 57% 23%28 km 47% 20%35 km 37% 14% Assumptions: - 10 year lifespan of gravel road - 5 % annual maintenance costs
  • 15. Concluding Remarks• Benefit to most remote HH ≈ 60% of HH consumption• Costs of construction recovered in 3 years• Caveats: - Only rural feeder roads - Potential non-farm earnings - Transport services are necessary - Do not look at social services (education, health)
  • 16. Concluding Remarks• High IRR for feeder roads even in situations of:1/ small-farmers with low commercial surplus2/ low non-farm earnings3/ limited provision of motorized transport services• Rural feeder roads are thus a cost-effective way to reduce widespread poverty• Return rates fare favorably to IRR calculated for trunk road projects. Should thus be major part of rural infrastructure development