IFPRI           Assessing Economy-wide Returns of            Agricultural Public Investment in                        Rwan...
Broad strategic questions       Is 6% agricultural growth of CAADP goal enough        to reach national poverty targets? ...
Outline Challenges in assessing agricultural investment  returns What is the simulation approach using an  economy-wide ...
What Rwanda’s Ministry of Agriculture has done in costing                     assessment?   Developed a costing tool to a...
Summary of total cost, adjusted from 5 years (2008-2012) to 9 years for                          modeling purpose         ...
What are the requirements of the Rwandan                   government?  How to link the specific targets (e.g. terracing ...
Challenges in assessing agricultural public                        investment       A simple cost-benefit assessment is c...
What is the simulation approach?       Develop an economy-wide (e.g. CGE) model for the        country first (already int...
Decompose spending to agricultural subsector: what is the                      current situation?                     Shar...
Decompose spending to agricultural subsector:Share of land allocation by types of interventions – Model results for 2015  ...
Achievable yield (mt/ha) under different types of investment                 Modern                                       ...
Agricultural subsector annual growth rate as    investment outcomes – the model results                                   ...
Economy-wide impact of agricultural investment – the                 model result                                         ...
Poverty reduction impact of agricultural             investment – the model result                                        ...
Economy-wide cost-benefit assessment –                 the model results                                                GD...
Conclusions   Project-based cost-benefit analysis may under-estimate impact of    agricultural investment because     » P...
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Assessing Economy-wide Returns of Agricultural Public Investment in Rwanda_2010

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"Assessing Economy-wide Returns of Agricultural Public Investment in Rwanda", presentation by Xinshen Diao at the USAID, IFPRI Financial Gap Analysis Workshop held at the World Bank, January 7, 2010.

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Assessing Economy-wide Returns of Agricultural Public Investment in Rwanda_2010

  1. 1. IFPRI Assessing Economy-wide Returns of Agricultural Public Investment in Rwanda Xinshen Diao International Food Policy Research Institute USAID/World Bank Workshop on “Agricultural investment priorities and financing gaps for achieving growth and poverty reduction targets: Review of evidence and methodology” January 7, 2010INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  2. 2. Broad strategic questions  Is 6% agricultural growth of CAADP goal enough to reach national poverty targets? If not what is the required agricultural growth rate?  How can different sectors (sub-sectors) contribute to accelerating growth and poverty reduction?  What is the level of agricultural investment needed to accelerate growth in these sectors?  What are potential returns to agricultural investment?IFPRI
  3. 3. Outline Challenges in assessing agricultural investment returns What is the simulation approach using an economy-wide model Linking public investment with growth and poverty reduction Assessing economy-wide impact of agricultural public investment IFPRI
  4. 4. What Rwanda’s Ministry of Agriculture has done in costing assessment? Developed a costing tool to assess national needs for achieving agriculture- related targets set in EDPRS Put together investment plan with detail program information: e.g. “Intensification and development of sustainable production systems” is one of the four broad programs; (a) sustainable management of natural resources and soil conservation, (b) marshland development, (c) irrigation development are three of the six subprograms of this program, while terracing, water tanks and trenches are specific interventions (under “soil conservation subprogram”) Set specific targets for individual interventions; e.g. x hectares of radical terraces in which year between 2008 and 2012 Provided unit cost for each intervention; e.g. x RWF per ha terracing or y RWF per unit of small scale dam development Added up total cost (annual and five years) for achieving the planned programs
  5. 5. Summary of total cost, adjusted from 5 years (2008-2012) to 9 years for modeling purpose Fertilizer+ Annual 9 years Fixed seed totalAgricultural spending used in the model, million RWF total investment Recurrent subsidy averageCrop directly related 415,077 182,956 45,278 186,842 46,120Forestry 8,641 6,742 1,899 960Livestock 203,253 154,259 48,994 22,584R&D, extension 26,963 26,963 2,996Rural finance 13,662 13,662 1,518Other investment, horticulture 122,236 90,660 31,576 13,582Other investment, traditional export 22,840 16,940 5,900 2,538Rural road 21,965 21,965 2,441Ag institution 16,230 16,230 1,803Other investment 11,265 11,263 1,252Total 862,132 484,787 190,502 186,842 95,792Current annual total agr. spending in million Rwf (2007) 13,517 6,434 19,951 share in total government budget 1.4 7.4 3.9Proposed agr. spending, in EDPRS, 2008-2012 (5 years), million Rwf 242,000 158,000 84,000 48,400 share in total government budget 7.0 11.5 4.1Increase from the current annual level (times) 1.4Amount of ag spending, if ag = 10% of total budget, annual 69,143Compared with the number used in model, without fertilizer subsidy (model/10% budget) 1.09Compared with the number used in model, with fertilizer subsidy (model/10% budget) 1.39 Source: Authors’ calculation based on “Total Cost of EDPRS Agriculture Sector.” MINAGRI (2008)
  6. 6. What are the requirements of the Rwandan government?  How to link the specific targets (e.g. terracing or irrigation projects) to growth (e.g. improvement in rice yield due to irrigation)  How to link program intervention to broad growth targets (e.g., whether it is reachable for 6% of CAADP growth target with such investment plan)  How to link agricultural investment to MDG1  How to measure the impact of agricultural investment  With financial constraints, how to prioritize the allocationIFPRI
  7. 7. Challenges in assessing agricultural public investment  A simple cost-benefit assessment is commonly used  However, project-based assessment may underestimate the impact, given public good provision generates positive externalities often going beyond individual projects and agricultural growth has strong linkage effect  Ex post analysis is necessary, but it is often impossible to do such analysis in many African countries such as Rwanda, not only because data limitation or poor data quality, but also because that history is unlikely to tell future in these countries  Therefore, we develop a simulation approach to assess economy-wide impact of investmentIFPRI
  8. 8. What is the simulation approach?  Develop an economy-wide (e.g. CGE) model for the country first (already introduced by Paul)  Conduct growth option analysis using the model (already covered by Paul)  Decompose agricultural public resource allocation  Link growth at sub-sector level with public investment allocation  Assess economy-wide impact according to the allocation  Measure the economy-wide cost-benefit ratioIFPRI
  9. 9. Decompose spending to agricultural subsector: what is the current situation? Share of current land allocation by types of interventions Modern Terrace & Marshland (irri & fert fert & Terrace & fert & Marshland & & seed) seed &seed Terrace seed seed Marshland Seed TraditionalWheat 0.2 0.1 6.5 0.2 0.4 92.7Maize 0.2 0.4 6.0 0.2 0.3 92.9Paddy rice 15.0 4.0 22.7 18.4 40.0Sorghum 0.1 0.2 6.4 0.1 0.3 93.0Irish potatoes 1.0 1.9 0.4 6.5 90.3Sweet potatoes 0.1 0.0 3.1 1.7 95.1Cassava 0.1 0.1 3.0 3.3 93.5Other roots 0.1 0.0 3.1 1.7 95.1Pulses 0.1 0.2 0.9 0.7 98.1Vegetables 8.4 91.6Bananas 0.3 0.1 2.8 0.3 96.5Fruits 5.6 94.4Oil seed 0.1 0.6 2.8 0.1 96.5Coffee 29.6 70.4Green tea 35.3 64.7Other export crops 8.0 1.4 18.8 38.5 33.3Total 1.5 0.3 2.6 1.2 0.0 0.3 0.3 0.1 93.7 Source: Author’s calculation based on various information IFPRI
  10. 10. Decompose spending to agricultural subsector:Share of land allocation by types of interventions – Model results for 2015 Modern (irri Terrace & Marshland & fert & fert & Terrace & fert & Marshland seed) seed & seed Terrace seed & seed Marshland Traditional Wheat 4.0 2.5 8.5 7.0 78.0 Maize 3.2 3.0 11.2 4.9 77.7 Paddy rice 15.0 23.0 30.0 17.0 15.0 Sorghum 0.5 0.8 12.6 3.3 82.8 Irish potatoes 2.2 3.5 3.8 13.6 76.9 Sweet potatoes 0.7 0.5 4.6 6.4 87.8 Cassava 0.8 1.4 4.3 9.1 84.5 Other roots 0.3 0.5 5.1 6.0 88.2 Pulses 0.2 0.6 1.3 4.4 93.4 Vegetables 20.2 79.8 Bananas 0.6 2.5 7.3 23.6 66.0 Fruits 12.4 87.6 Oil seed 1.5 3.1 6.0 12.0 77.4 Coffee 59.3 40.7 Green tea 70.6 29.4 Other export crops 9.6 18.6 40.0 29.2 2.6 Total 4.4 3.0 5.1 9.5 0.5 0.7 0.5 76.3 Source: Author’s calculation based on “Total Cost of EDPRS Agriculture Sector.” MINAGRI (2008) IFPRI
  11. 11. Achievable yield (mt/ha) under different types of investment Modern Average Targeted (irri & Terrace Marshland yield by average fert & & fert Terrace & fert & Marshland Current 2015 in yield by seed) & seed &seed Terrace seed & seed Marshland Traditional average base-run 2015Wheat 3.0 2.8 1.4 2.3 1.2 0.8 1.2 1.6Maize 3.5 3.1 1.5 2.5 1.2 0.8 1.0 1.5Paddy rice 6.4 5.8 5.5 5.8 6.1 6.1 5.5 3.7 4.9 4.7Sorghum 3.4 2.7 1.7 2.4 1.5 1.1 1.5 1.7Irish potatoes 27.2 24.9 15.5 20.2 12.6 9.1 11.9 14.7Sweetpotatoes 15.0 16.8 11.2 11.5 7.7 5.5 6.9 7.8Cassava 27.3 24.7 11.2 18.8 8.6 6.2 8.0 10.5Other roots 24.5 17.3 9.6 12.3 6.8 4.9 6.0 6.8Pulses 2.7 2.4 1.2 2.1 1.1 0.8 1.0 1.0Vegetables 29.5 19.6 14.0 19.6 14.0 9.4 7.3 9.4Bananas 17.9 15.7 10.5 14.9 9.9 7.2 10.0 12.9Fruits 28.6 19.1 13.6 19.1 13.6 9.7 14.3 17.1Oil seed 2.7 1.8 1.1 1.4 0.8 0.6 0.8 1.1Coffee 1.0 0.8 0.7 0.8 0.7 0.7 1.1 1.1Green tea 1.7 1.4 1.2 1.4 1.2 1.1 1.7 1.7O. exportcrops 45.8 38.2 27.3 38.2 32.7 23.8 32.7 27.3 17.6 26.5 35.0 Source: Drawn from broad literature review IFPRI
  12. 12. Agricultural subsector annual growth rate as investment outcomes – the model results Base-run Simulation with investment Wheat 4.9 8.5 Maize 3.9 8.2 Paddy rice 3.9 9.7 Sorghum 3.1 4.2 Irish potatoes 3.6 6.5 Sweet potatoes 2.1 2.4 Cassava 3.2 5.2 Other roots 3.9 5.7 Pulses 3.4 4.6 Vegetables 4.4 7.5 Bananas 3.7 6.6 Fruits 3.5 5.4 Oil seed 3.7 6.6 Coffee 6.3 9.8 Green tea 6.1 10.5 Other export crops 4.5 10.1 Source: Rwanda DCGE model resultsIFPRI
  13. 13. Economy-wide impact of agricultural investment – the model result Base-run Simulation with investment GDP 4.8 6.0 AgGDP 3.8 6.5 Grains 3.6 7.0 Root crops 3.1 5.1 Other food 4.1 6.5 Cash and exportables 4.7 7.9 Livestock 5.5 12.6 Fish and forestry 4.0 6.9 Industry 5.1 5.1 Processing manufacturing 6.2 7.9 Coffee processing 8.3 11.8 Tea processing 6.7 10.6 Services 5.7 5.8 Trade 4.4 6.2 Transport 7.0 6.5 Communication 8.0 6.4 Source: Rwanda DCGE model results IFPRI
  14. 14. Poverty reduction impact of agricultural investment – the model result 2015 Current Simulation with level (2006) Base-run investmentNational 57.6 46.7 37.2Urban 28.8 27.9 19.9Rural 63.4 50.4 40.7Note: 1999’s national poverty rate = 60% Source: Rwanda DCGE model resultsIFPRI
  15. 15. Economy-wide cost-benefit assessment – the model results GDP/investment AgGDP/investment Maize 7.02 6.59 Paddy rice 1.41 1.22 Wheat 5.34 5.15 Cassava 5.46 4.61 Irish potatoes 5.88 5.66 Sweet potatoes 2.53 2.22 Pulses 9.09 8.21 Bananas 5.35 4.94 Oil seed 5.89 4.73 Coffee 1.01 1.74 Green tea 1.95 2.52 Other cash and export crops 1.08 1.07 Poultry 10.54 10.09 Other livestock 1.81 1.74 Fishing 12.50 12.35 Grains 2.75 2.73 Root crops 5.03 4.65 Cash and export crops 1.02 1.24 Livestock 2.02 1.90 Staple crops and livestock 3.84 3.63 Agriculture total 3.19 3.11 Source: Rwanda DCGE model resultsIFPRI
  16. 16. Conclusions Project-based cost-benefit analysis may under-estimate impact of agricultural investment because » Provision of public goods has strong and positive externalities » Agricultural growth has strong linkage effects Prioritization of public investment is challenged by lack of data and poor quality of data. Moreover, in many African countries, ex post analysis using historical data is unlikely to point in the right direction for the future Model simulations based on detailed data of the structure of Rwanda’s economy that capture economy-wide effects show that returns to agricultural investment in Rwanda are high: $1 investment $3.19 increase in GDP Investing in staples has the highest economy-wide returns: $1 investment $3.84 increase in GDP IFPRI
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