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Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts
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Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts

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"Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts", presentation by James Thurlow and Paul Dorosh at the USAID, IFPRI …

"Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts", presentation by James Thurlow and Paul Dorosh at the USAID, IFPRI Financial Gap Analysis Workshop held at the World Bank, January 7, 2010.

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  • 1. IFPRI Prioritizing agricultural subsector growth and investments at the country level: Methodology to assess economy-wide impacts James Thurlow and Paul Dorosh 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. Broad Strategic Questions  Is a 6% agricultural growth rate enough to reach national poverty targets? If not what is the required agricultural growth rate?  How can different agricultural sectors contribute to accelerating growth?  How do outcomes vary across sub-national regions?  How will different types of farmers be affected, and what is the impact on rural employment and the non-farm economy?  What are the potential product market constraints caused by expanding agricultural productivity?IFPRI
  • 3. Overview 1. Economywide growth and poverty analysis  Overview and key features of the methodology 2. Modeling future growth scenarios  Results from the Uganda case study 3. Prioritizing sectors for investment  Criteria for ranking crops and sub-sectors  Results from selected country studiesIFPRI
  • 4. IFPRI Estimates of Impacts of Agricultural Investments: Two Analytical Approaches1. Costing of MDG and Development Objectives using a reduced form approach (“spreadsheet” calculations of growth and poverty reduction effects) » Fan, Johnson, Saurkar and Makobe (2009), “Investing in African Agriculture to Halve Poverty by 2015”, ReSAKSS Working Paper No. 25 (February). » Costing studies for Ghana and Uganda2. Individual country studies for CAADP using economy-wide models » Ghana, Kenya, Nigeria, Rwanda, Uganda, Zambia » Ethiopia, Mozambique, Tanzania (CGE analysis not including investment costs) IFPRI
  • 5. Approach 2: Impacts of Agricultural Investments using Economy-Wide Models (CAADP analysis)  Individual country studies for CAADP using economy-wide models » Output-investment elasticities for individual agricultural sub-sectors (derived from econometric analysis) » CGE model simulations of the agricultural productivity shocks showing  Changes in real prices  Sectoral and total GDP growth  Household income and consumption  Poverty ratesIFPRI
  • 6. 1. Growth and poverty analysis Economywide (“CGE”) modeling framework Economic production Incomes and poverty Wages, rents, profitsAgriculture Factor markets Urban/Rural Industry Production Commodity markets Consumption Farm/ Services Foreign trade Nonfarm Taxes Foreign markets/ Spending countries and market policies Foreign aid Taxes and Public sector/ social policies government Public investment and macro Productivity/technology policies Foreign Private investment investment Human/physical capital IFPRI
  • 7. 1. Growth and poverty analysis: Agriculture-nonagriculture linkages Models include detailed agricultural and nonagricultural sectors Capture upstream and downstream linkages (e.g., maize cultivation and grain milling) Considers all different income sources (e.g., off-farm, remittances) Captures labor mobility and rural-urban migration Includes the government (e.g., public spending, transfers, taxes) Sector contributions to national gross domestic product (GDP) (%) Zambia Kenya Mozam- Tanzania Malawi Ethiopia bique Whole economy 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 20.5 25.7 25.9 31.8 40.1 44.9 Cereals 5.5 4.4 5.3 8.3 11.9 13.5 Exports 3.5 4.6 1.1 2.8 10.2 4.5 Livestock 3.1 5.4 1.7 5.5 2.5 12.9 Manufacturing 13.0 11.0 13.7 8.8 10.8 5.2 Agro-processing 11.5 3.1 2.0 6.7 6.3 2.4 Other non-mining industry 10.4 7.1 9.5 10.4 5.7 1.9 IFPRI
  • 8. 1. Growth and poverty analysis: Domestic and foreign markets and prices Models consider demand and supply interactions in both domestic and international markets Includes transaction costs separating home/marketed production Considers macroeconomic conditions (e.g., balance of payments constraints and exchange rates) Sector contributions to trade in Tanzania (%) Share (%) Intensity (%) Export Import Export Import Whole economy 100.0 100.0 9.4 22.0 Agriculture 34.9 6.1 13.2 7.3 Cereals 0.0 5.5 0.0 18.2 Exports 21.5 0.3 63.5 7.1 Livestock 1.6 0.0 3.6 0.0 Manufacturing 12.8 87.9 8.3 61.4 Agro-processing 2.1 10.0 2.0 20.8 Other non-mining industry 0.0 0.0 0.0 0.0 “Intensity” is the share of exports in output, and share of imports in demand IFPRI
  • 9. 1. Growth and poverty analysis: Spatial variation in production patterns  Models capture differences in production patterns across sub- national regions  Reflects differences in agro- ecological conditions and potentialLand allocated to crops by region in Malawi (%) Malawi North Center South UrbanMaize 49.9 43.9 51.1 47.2 72.3Other cereals 4.7 4.3 2.1 8.0 0.6Root crops 11.0 20.4 9.7 10.4 4.2Pulses & oils 23.2 18.4 24.2 24.5 16.5Horticulture 3.1 4.0 3.3 2.7 2.2Tobacco 4.4 7.6 6.6 1.5 2.6Other export crops 3.8 1.3 3.1 5.6 1.7All crops 100.0 100.0 100.0 100.0 100.0 IFPRI
  • 10. 1. Growth and poverty analysis: Farm-level variations in cropping patterns Models capture differences in production patterns across farmers with different characteristics or endowments (e.g., land holding size) Reflects differences in farmers’ opportunities and constraints (i.e., structure of production/crop mix, scale of production, access to irrigation, etc) Land allocated to crops by scale of production in Malawi (%) Malawi Large Medium Small Urban (>3ha) (0.75-3ha) (<0.75ha) Maize 49.9 45.4 47.8 52.4 72.3 Other cereals 4.7 1.2 5.5 6.2 0.6 Root crops 11.0 4.6 12.6 12.8 4.2 Pulses & oils 23.2 14.6 25.5 24.3 16.5 Horticulture 3.1 1.7 3.4 3.3 2.2 Tobacco 4.4 22.5 1.8 0.0 2.6 Other export crops 3.8 10.0 3.5 1.0 1.7 All crops 100.0 100.0 100.0 100.0 100.0 IFPRI
  • 11. The Data Base EDRI 2004/05 Social Accounting Matrix (SAM) Constructed as part of a project with the University of Sussex (w/support of IFPRI-ESSP2) 65 production sectors (24 agricultural, 10 agricultural processing, 20 other industry, 11 services) Regional SAM based on the “3 Ethiopias” • Rainfall sufficient, drought prone, pastoralist • Rainfall sufficient AEZ disaggregated to humid lowlands, enset-based systems, and other (highland) rainfall sufficient areas Poor household groups defined as poorest 40% of rural and urban households according to HICES 2004/05 per capita expenditure dataIFPRI
  • 12. Agro-ecological Zones (AEZ’s): “3 Ethiopias” split into 5 AEZs Source: 2005/06 EDRI Social Accounting Matrix.IFPRI
  • 13. 1. Growth and poverty analysis: Household income distribution and poverty  Models identify representative household groups based on location, income sources, endowments, etc  Households in the model are linked to a survey-based micro- simulation module in order to measure poverty impacts Farm typology Household income shares in Ethiopia (%) Labor income Land Capital Other All Economywide model Low High & live- profits income sources skilled skilled stock Agriculture Non-agriculture Poor 24.9 7.2 27.5 34.9 5.5 100.0Rural Non-poor 14.1 6.1 41.7 34.4 3.7 100.0 Rural UrbanSmall Poor 0.7 37.8 0.0 49.1 12.5 100.0urban Non-poor 0.2 20.9 0.0 69.3 9.6 100.0Large Poor 0.6 41.4 0.0 20.1 38.0 100.0urban Non-poor 0.1 15.9 0.0 48.9 35.1 100.0All households 13.2 10.5 27.7 39.8 8.7 100.0 Micro-simulation poverty module IFPRI
  • 14. 1. Growth and poverty analysis: Summary of key features of the models  Economywide (agriculture and non-agriculture)  Detailed crop and livestock production technologies  Sub-national agricultural production patterns  Farm typologies (e.g., land endowments, technologies)  Domestic and foreign markets and prices  Representative households captures distributional change  Households linked to survey-based micro-simulation module to capture poverty outcomesIFPRI
  • 15. 2. Modeling alternative growth scenarios: Business-as-usual versus accelerated growth  Dynamic models: considers growth paths for next 10 – 15 years  Three growth scenarios commonly considered: 1. Business-as-usual growth path as a baseline 2. Accelerated agricultural growth scenario to meet CAADP target 3. Accelerated agricultural and nonagricultural growth to achieve MDG1  Accelerated growth in both agricultural and nonagricultural sectors are driven by productivity improvementsIFPRI
  • 16. 2. Modeling alternative growth scenarios: Accelerated growth by closing yield gaps in Uganda Yield gaps are drawn from the country, and in most cases obtained from Ministry of Agriculture Yields for selected crops in Uganda (current and targeted) IFPRI
  • 17. 2. Modeling alternative growth scenarios: Economy-wide impact assessment, UgandaTotal GDP growth increases from5.1% to 6.1%Agricultural GDP growthincreases from 2.7% to 6.0%(i.e., CAADP target)Export crops have higher growthpotentialAgricultural processing GDP growthrises from 4.4% to 5.8%(linkage-effects for thenonagriculture sector) Average GDP growth rates (%) IFPRI
  • 18. 2. Modeling alternative growth scenarios: Impact on poverty reduction, UgandaFaster agricultural growth greatly accelerates poverty reduction…Base scenario: achieves MDG1 (i.e., half 1991 poverty by 2015)CAADP: additional 7.6% poverty reduction (2.9 million people by 2015) IFPRI
  • 19. 2. Modeling alternative growth scenarios: Market constraints and price effect, Uganda 1.10Some crops face serious 1.05 Coffeemarket constraints 1.00 Price index (2005=1)Prices fall more if income 0.95 Vege.elasticity is low and 0.90 Fishproduction increases too 0.85rapidly (e.g. matoke) Potatoes 0.80 MaizeExport opportunities are 0.75small for domestic staple 0.70 Matokecrops even after prices fall 0.65 2005 07 09 11 13 15 Assuming exported crops are not More domestic-focused food constrained by world market demand crops are affected most (e.g. coffee) (e.g. maize, matoke) IFPRI
  • 20. 3. Growth options and investment prioritization Four criteria for agricultural sub-sector prioritization 1. Growth potential and size-effect:  Larger sectors can contribute more to national growth  Some sectors may be small but can grow fast 2. Poverty-effect:  Some sectors are better at reducing poverty (stronger income generation for poorer households) 3. Linkage-effect:  Some sectors generate more growth outside of agriculture 4. Price-effect:  Some sector face greater demand or market constraintsIFPRI
  • 21. 3. Growth options and investment prioritization Results from Uganda Strongest povertyStrongest growth reducing effectsspillovers to restof economy Forestry Cereals Livestock Roots Coffee & export crops Matoke Pulses Best growth potential & largest subsectors IFPRI
  • 22. 3. Growth options and investment prioritization: Summary of sector ranking for selected countries Criteria 1: Criteria 2: Criteria 3: Criteria 4: Growth potential Poverty- Linkage- Price- and size-effect effect effect effect Maize, Rice, Livestock, Livestock,Kenya export crops export crops roots sorghum Maize, Vegetables, Rice, Tobacco,Malawi tobacco pulses roots vegetables Planned biofuels, Maize, Roots, Cashews,Mozambique maize other cereals livestock export crops Cassava, Rice, Pulses, Wheat,Nigeria rice millet/sorghum cereals maize Potatoes, Pulses, Maize,Rwanda - livestock maize rice Maize, Maize, Livestock, Rice,Tanzania livestock roots pulses tobacco Roots, Vegetables, Vegetables,Uganda Coffee, fisheries matoke roots forestry Export crops, Roots, Roots, Export crops,Zambia maize maize livestock livestock IFPRI
  • 23. 3. Growth options and investment prioritization: Completed country-level studies IFPRI has provided technical support to COMESA and ECOWAS to prepare for the CAADP roundtables IFPRI has also provided technical support to three regional organizations (CORAF, ASARECA, CARDESA) for regional level strategic analysis Detailed country study Covered by regional studies IFPRI
  • 24. Summary1. The evaluation of alternative investments depends on:  The output-investment ratio (which is exogenous to the models)  Economy-wide effects of the increase in crop or sub-sector productivity2. Economy-wide growth and poverty analysis  Models are based on detailed data on crop production patterns, sectoral output, factor earnings, and household incomes and expenditures captured in Social Accounting Matrices (SAMs) for individual countries  The CGE models used use conservative estimates of parameters for supply and demand response to changes in price incentives3. Modeling future growth scenarios  Base-line simulations are derived from historical growth rates  Alternative investment patterns are modeled as exogenous increases in productivity  The simulations show the economy-wide impact of these productivity increases on production, incomes, prices and poverty in consistent economy-wide framework4. Prioritizing sectors for investment  Various criteria are used for ranking investments in crops and sub-sectors IFPRI

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