Icraf Nairobi March 20 2007 V1
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Icraf Nairobi March 20 2007 V1 Icraf Nairobi March 20 2007 V1 Presentation Transcript

  • Underappreciated Facts about African Agriculture: Implications for Poverty Reduction and Agricultural Growth Strategies T.S Jayne with colleagues at Michigan State University ICRAF / Nairobi March 20, 2007
  • Major development strategies in retrospect, 1960-2000 1960 1970 1980 1990 2000 2010 “Big push” Integrated rural Structural adjustment; capital-intensive development liberalization ?? investment Community- Community-driven empowerment development Untied budget support
  • Current thinking on “strategy”  Emerging coalition for “big push” agricultural strategy • e.g., Sachs, Sanchez,…maybe Gates?  Strong consensus about need for greater investment in public goods (infrastructure, crop science) and certain policy reforms  Major debate with regard to what constitutes the right “enabling environment” • Food price support/stabilization • Input subsidies
  •  Many of these debates can be informed by a solid empirical understanding of how rural economies work
  • Organization of presentation: 1. Underappreciated “empirical regularities” of small farm agriculture in Africa 2. Discuss the implications of these findings for current policy debates
  • Six underappreciated aspects about African agriculture: 1. Farm sizes are declining  Huge land disparities  rural population is hardly growing  new demands on food marketing systems 2. Given plausible assumptions about productivity growth possibilities, grain productivity growth will be inadequate to kick-start growth in most of the region  diversification into higher-return activities will be crucial 3. Most farmers in the region are buyers of staple food  directly hurt by higher grain prices 4. Retail food prices are trending downward in most of the region
  • Six underappreciated aspects about African agriculture: 5. Supermarkets account for less than 4% of urban food expenditures in almost all African countries. Even with major growth in supermarket volume, investments in traditional marketing channels will remain much more important for small farmer and consumer welfare 6. “Market liberalization” -- inaccurate description of situation in E&S Africa
  • Fact #1 • Emerging land pressures are generating fundamental challenges for poverty reduction and investment strategies
  • Cultivated land per agricultural person (hectares) 1960-69 1970-79 1980-89 1990-99 Ethiopia 0.508 0.450 0.363 0.252 Kenya 0.459 0.350 0.280 0.229 Mozambique 0.389 0.367 0.298 0.249 Rwanda 0.215 0.211 0.197 0.161 Zambia 1.367 1.073 0.896 0.779 Zimbabwe 0.726 0.664 0.583 0.525 Source: FAOStat website: Source: FAO Stat database: www.faostat.fao.org/
  • Farm size distribution: Small farm sector hectares 7 6 5 4 bottom 25% 2nd 3 3rd 2 top 25% 1 0 Ken Eth Rwa Moz Zam
  • Characteristics of smallholder farmers, Zambia 1999/00 N= Farm Asset Gr. Rev., Gr. Rev., Total hh size values maize sales crop sales income (ha) (US$) (US$) (US$) (US$) Top 50% of maize sales 23,680 6.0 1,558 690 823 2,282 (2%) Rest of maize 234,988 3.9 541 74 135 514 sellers (23%) Households not selling 762,566 2.8 373 0 36 291 maize (75%)
  • Rural population growth rates
  • Share of Urban population in total population, 1968 and 1998
  •  More than 50% of Africa’s population will be urban by 2015. – 2000: 10 farm households feed 7 non-farm households – 2020: 10 farm households feed 16 non-farm households  Upshot: urban demand for food is rising rapidly
  • Are imported wheat and rice crowding out domestically-produced grain? • 3.6% annual growth in cereal imports • Of total grain imports by African countries, only 5% is produced by African farmers • Growth in urban demand is being met mainly by imported rice and wheat
  • Importance of Imported Staples in Nairobi Expenditure Patterns
  • Fact #2  Given plausible assumptions about new technology development, farm sizes are too small for grain-based productivity growth to lift most rural households out of poverty  Hence, diversification into higher- return activities will be crucial  This transition is already occurring
  • Role of maize in small farm incomes is declining (share of gross sales revenue) Other Non-food Animal grains/ Fruits - Maize cash beans/ veges products crops oilseeds Kenya 13.3 7.9 34.0 14.7 26.7 Malawi 32.3 11.8 44.9 na na Mozam 13.8 9.3 16.9 30.4 23.4 Zambia 28.2 7.7 16.7 27.5 14.7
  • Fact #3  Most rural farm households are buyers of maize (or net buyers)
  • Smallholder Households’ Position in the Maize Market 60 50 percent 40 sell only 30 buy only both 20 neither 10 0 Mozambique Zambia Kenya
  • Fact #3  Most rural farm households are buyers of maize (or net buyers)  2% of households account for 50% of marketed grain surplus  Crop price supports: • highly concentrated benefits • anti-poor • Most likely impede small farm diversification into higher-valued activities
  • Fact #4  Retail maize meal prices are trending downward
  • [D] Nairobi: Price trends 500 400 Linear trend(meal): -0.572*** US$ per ton 300 200 Llinear trend (grain): -0.1060 100 :5 :5 :5 :5 :5 :5 :5 :5 :5 :5 :5 :5 94 95 96 97 98 99 00 01 02 03 04 05 19 19 19 19 19 19 20 20 20 20 20 20 Year/Month Wholesale maize grain Retail maize meal Linear-trend-grain Linear-trend-meal *** 1% level of significance
  • 000 Kwacha/ton(real: cpi-2005=100) 0 1000 2000 3000 4000 19 94 :5 19 95 :5 19 96 :5 19 97 :5 19 98 :5 Wholesale grain 19 Linear-trend-grain 99 :5 20 00 :5 Year/Month 20 01 :5 Lusaka: Price trends 20 02 :5 20 Breakfast meal 03 :5 Linear-trend-meal 20 04 :5 20 05 :5
  • 000 Kwacha/ton(real: cpi-2005=100) 0 500 1000 1500 2000 2500 19 94 :5 19 95 :5 19 96 :5 19 97 :5 19 98 :5 19 99 :5 20 00 :5 Year/Month 20 01 :5 20 02 :5 Lusaka: wholesale-retail margin 20 03 :5 20 04 :5 20 05 :5
  • Fact #4 • Retail maize meal prices are trending downward • Why? – Food market reform has encouraged rapid investment in informal, small-scale milling and trading networks – The informal channel exerts competitive pressure on commercial millers/retailers – Exception: South Africa
  • 4000 Phase 1 Phase II Phase III constant 2000 rand per metric ton 3000 2000 1000 0 1980 1985 1990 1995 2000 producer maize wholesale maize retail maize meal
  • Fact #5  The performance of “traditional” food systems will remain a much more important determinant of farmer welfare and consumer food security than “supermarkets”  Hence, focus investment priorities on improving the performance of traditional food marketing systems – linking traditional with new agribusiness systems
  • Retail sources of consumer staple food expenditures, Nairobi
  •  Even with 20% annual growth of supermarkets, in relatively progressive Kenya, in 10 years, the supermarket share will be: 12.4% market share in 2016.
  • Fact #6  Major misunderstanding of the staple food and input market policy environment • “liberalization” – a misnomer • marketing boards continue to pay major role in food and input markets • Handle 25-60% of marketed maize in Zambia, Kenya, Malawi, Zimbabwe • policy uncertainty
  • Sources of Policy Unpredictability • Export bans, import quotas (year to year & within year) • Uncertainty over changes in import tariff rates • When and where will marketing boards enter the market – current example: Zambia 2006 • Prices at which the MBs buy and sell unpredictable • Farmer & trader inventory carrying risks are high • All of these sources of unpredictability impede private traders’ servicing small farmers’ needs
  • Sources of Policy Unpredictability • Why does it matter how we characterize the market environment over past 15 years? • It matters a great deal
  • African Countries - % Growth in Cereal Production between 1985 and 2005 80 61.7 % growth in production 60 39 40 Sub-Saharan Africa 20 4 Kenya 0 -3 Malawi Zambia -20 Zimbabwe -40 -60 -62 -80
  • African Countries - % Growth in Cereal Production between 1985 and 2005 157 160 % growth in production 140 120 111 100 Sub-Saharan Africa 78 Mali 80 61.7 Mozambique 60 Uganda 40 20 0
  • Where from here?  Implications of: • > 50% of rural farm households have < 1 hectare and are extremely poor • > 50% of rural farm households are net buyers of staple food • Massive rural-to-urban migration: massive under-employment • but lacking the human capital to contribute productively to society
  • Much research evidence documents high returns to investment in 1. R & D: (Alston, Grilliches, Mellor) 2. Education: turns information into knowledge (Johnston) 3. Extension systems: farm management (Evenson) 4. Infrastructure: road, rail, port, communications (Antle) 5. Investments in health and addressing HIV/AIDS (Binswanger)
  • Budget allocation to Agricultural Sector in Zambia: ZMK465 million in 2005 Infrastructure 2% Irrigation Development 3% Personnel Emoluments Food Security Pack & 20% EDRP 12% Food Reserve Agency Operational funds Maize Marketing 11% 15% Fertilizer Support Program 37%
  • Total Assets Landholding Zambia Income size ‘000 kwacha per ha per capita Fertilizer source: capita Households not acquiring 266 173 .15 fertilizer: Cash purchases from private 774 342 .20 retailers: Government Fertilizer Support 804 425 .23 Program (50% subsidy)
  • Political economy of public resource allocation Donor budget support Government budget •Long-term productive investments: • Fertilizer subsidies, R&D, extension, irrigation, etc. • marketing board price supports, • land bills, food aid • Immediate political payoffs; • High social payoffs • Visible support to constituencies • But payoffs come 5-20 later • contribution to sustained growth / • Critical for sustained poverty reduction poverty reduction is unclear
  •  Spending 70% of agricultural budget on input/output subsidies is most likely a regressive mis-use of budget resources with questionable long-term payoffs  Opportunity costs
  •  As massive as the poverty problems are now, they will be much greater unless budgets are re-allocated sooner or later to investments that will make the economy productive in the long-term: – Population growth w/o productivity growth  civil strife – Not a viable option to have more and more “failed states” in Africa
  • Major Challenge:  how best to encourage governments to reallocate public budgets toward crucial investments with long-term payoffs instead of investments with short-term payoffs with limited impact on L.T. development?  Future of ‘untied’ budget support?
  • Farmer groups  Organizing small farmers into viable groups will be crucial for poverty reduction and agricultural growth  Millions of remote farms < 1 hectare have major problems with access to • credit and inputs • extension services, soil testing • market outlets  Reducing the transaction costs of linking small farms to markets and services will require aggregating farm units into groups
  • Getting Markets Right: What does this mean? • Not getting government out of markets • Changing the role of government from direct intervention to supportive investments to make markets work – Public goods investment – Support development of farmer organizations – Create “stable” policy environment: Clear, rule- based public operations in markets – Commodity risk management tools (e.g. warehouse receipt systems) – Greater transparency and consultation needed between private and public sectors
  • Policy response (cont.) • Lobby forcefully for more level playing field in international trade – OECD support for Africa: $50 bill./yr – OECD ag. subsidies: $350 bill./yr – Reassess developed country policy of dumping free food in Africa under guise of “food for development”
  • thank you