Emerging Demand for Tractor Mechanization in Ethiopia


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"Emerging Demand for Tractor Mechanization in Ethiopia", presented by Guush Berhane, at NSD/IFPRI workshop on "Mechanization and Agricultural Transformation in Asia and Africa", June 18-19, 2014, Beijing, China

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Emerging Demand for Tractor Mechanization in Ethiopia

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE 1 Emerging Demand for Tractor Mechanization in Ethiopia Guush Berhane IFPRI/Ethiopia Strategy Support Program Mechanization and Agricultural Transformation in Asia and Africa Sharing Development Experiences June 18-19, 2014 Beijing, China
  2. 2. Outline of presentation 1) Motivation Too much focus on low-potential, densely-populated, fragmented-land story The ‘three Ethiopia’ and what we don’t know so far 2) Recent developments and land potential in Ethiopia: major investments in road (& soon railway!) connectivity. 3) Case study: the conditions for mechanization and emerging trends - consistent? 4) Recent public and private experimentations on mechanization. 4) Challenges for mechanization and way forward.
  3. 3. Motivation
  4. 4. Is the evidence consistent with the conditions for mechanization? 1) Mechanization determined by Land-labor ratio (the demand for labor from non-agricultural sectors)  Demand for agricultural products, when labor is abundant and land is small and fragmented, mechanization is not profitable (Binswanger, 1986). 2) Mechanization will contribute little to growth in densely populated countries where land constraints are binding (labor is abundant relative to labor) and labor is not moving out from agriculture – it will only inefficiently substitute labor or animals. 3) Mechanization is unlikely to be derived by wage increases in countries with high proportion of its population living in agriculture even if the rest of the
  5. 5. Is the pessimism in recent literature about land potentials, commercialization, and mechanization real? 1) Portraying relatively land abundant African countries (e.g., Ethiopia) as land constrained, swamped with population pressures of “disturbing scenarios of Malthusian proportions” - Focus on selected drought-prone, densely populated areas and ignore the bigger (national) picture – the ‘three Ethiopia’ - Neglect huge land resources and irrigation potentials. - Misleading conclusions (policy makers, donors, and some of us researchers). 2) The same literature (in fact, same people) challenge commercial mechanized farming, romanticizing it as ‘land grabbing’, ‘elite capture’, ‘the new neo- colonialism’, etc.
  6. 6. What you find and don’t find in the literature about Ethiopia
  7. 7. Ethiopia: basics Landmass of 1.14 million square KM. Land-locked but very close to the sea, middle east and European markets; and importantly, one of the gates to Africa! Complex agro-ecology: Elevated central plateau (1000 – 3000 masl, often pleasant climate throughout the year –average temp between 18 – 25 degree C; Largely unutilized lowlands (both wet and dry)  Beautiful mountain terrains but rendering efforts to provide access to markets and services difficult.
  8. 8. Agriculture - main stay of the economy • Provide 80% of employment, 80% of foreign exchange, and 40% of GDP • About 14.7 million farm households, • Crop production: 13.5 million ha • Grazing land: 2million ha • Average land holding per household : 1.25 ha • Agriculture production is mainly rainfed. • Two rainy seasons (June – September (Meher season) and February – May (Belg season) • Substantial irrigation potential but realized is limited, (12 major river basins, ground water resources, and fresh water lakes)
  9. 9. The central highlands the most densely populated but still few areas > 300 persons per square km.  Close to 50% of the country’s poor people live in these food deficit, central highland areas  The central highlands, densely populated and mostly food deficit areas are the most researched parts of ‘Ethiopia’ that most people know:  Vast sparsely populated areas
  10. 10. 1) Moisture deficit zone. Covers 32% of land, 47% of population, and 39% of permanent crop output. Rainfall is generally below 600 mm/year 2) High rainfall zone. Covers 24% of land, 43% of population, and 51% of permanent crop output. Rainfall tends to exceed 800 mm/year. 3) The lowland zones. Covers 44% of land but 10% of population, and currently produces only 10% of crop output. Further classified as the pastoralist (eastern and south eastern parts) lowlands and the high potential western lowlands Rainfall is lower than 600 mm/year in the pastoralist eastern lowlands. Ethiopia is more than the food deficit, densely populated, highlands
  11. 11.  More than 50% of food produced in food surplus areas (where food availability per household is 70% higher than the national average)  See also rainfall distribution map There is, at least, ‘three’ Ethiopia in terms of production potential …
  12. 12. 56 million hectares of arable land (potential) not cultivated yet. Is the pessimism justified? Land potential and cultivated Area (millions, ha) Share of arable land Total land 111.5 - Arable land 74.3 100% Under cultivation 18.0 24% Irrigable (potential) 3.7 - Already under irrigation 0.16 - Available for commercial farms (% total & arable land) 3.0 4% Source: Ministry of Agriculture, 2013
  13. 13. How accessible is this land? Why has not been used so far? Cultivated (24% of arable) Sparsely populated, high potential, western lowlands, recently targeted for large commercial farms Recent irrigation schemes
  14. 14. Recent Critical Investments: Game Changers?
  15. 15. 1. Road connectivity: 1984
  16. 16. 1. Road connectivity: 1994
  17. 17. 1. Road connectivity: 2007 (old data)
  18. 18. SOURCE: IWMI (2010) 2. Ground Water Potential Recently identified, new irrigation structures Recent private sector led mechanized agriculture: sesame, cotton, etc
  19. 19. Are the conditions for mechanization in place & is the evidence consistent?
  20. 20. 1. Agriculture role declining but still substantial 34 36 38 40 42 44 46 48 2004/05 2005/06 2006/7 2007/8 2008/9 2009/10 2010/11 Share of Agriculture to GDP overtaken by services Sector Agriculture Service Source: MoFED, 2012
  21. 21. 2. Declining share of (projected) rural population but likely to stay high 86.31 83.82 79.6 74.6 68.9 0 10 20 30 40 50 60 70 80 90 100 1994 2007 2012 2017 2022 2027 2032 2037 Percent Rural populationSource: CSA, 2014
  22. 22. 3. Landholdings: average 1.25 ha/farm (AGP data) 44.3 30.5 20.3 3.3 1.5 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 upto 1 1.0 - 2.0 2.0 - 5.0 5.0 -10.0 above 10 %ofhouseholds Land size (ha)
  23. 23. Case study Tractor Mechanization the evidence from a recent trip to the field
  24. 24. The ‘Ethiopia’ you probably have never heard of! Growing demand for mechanization in ‘relatively’ land abundant regions
  25. 25. Recent evidence of mechanization even from national datasets that sample small farms – evidence that there are around 12,000 tractors in the country 698 700 741 5,479 0 1000 2000 3000 4000 5000 6000 Small tractor Hand-held motorized tiller Motorized water pump Improved oxen driven plough Numberofhouseholds
  26. 26. Evidence that mechanization completely substitutes labor or animal power may not be tenable. Animal traction is combined with tractors. Evidence that mechanization is not an “either” “or” process. Both small and large farmers can mechanize if rental markets are allowed to flourish
  27. 27. Why combined use of technologies? Small farmers (< 10 ha), tractor is used when the rains are late and land is dry and hard at first-plowing (Tractor renting is relatively expensive at $ 65/ha only for plowing) Medium farmers (10 - 20 ha) that own tractors also own oxen, or else hire-in oxen for second-plowing, harrowing, and labelling. The thriving tractor renting-out markets make opportunity cost of tractors use for own farms high (sometimes even for the large farmer). Large farmers (> 15 ha), owning tractors, rent-in and operate large farms (up to 100 ha and beyond) are fully mechanized.
  28. 28.  This farmer has 10 ha of land, a tractor, co-owned with his neighbor, and 3 pairs of oxen.  Farmers believe that oxen plowing is more effective to take out weeds and has peculiar advantages to smooth the soil.  But, also tractor is used for harrowing and labelling during planting (often with large scale operations).
  29. 29. Proudly in the field – touching base of realities
  30. 30. Why combined use of technologies? Consistent with what has been observed in other countries (e.g., China), both tractors and tractor derivers move across districts. Small tractors covering large areas – making tractor (and driver) rents high!
  31. 31. The research team with the proud model farmer, his son & a DA  2002: He started small, first renting-in tractors for his 20 ha plus;  2004: bought an old tractor and started to expand by renting-in land; and renting-out the tractor;  2008: bought brand new tractor (USD 25, 000, now, valued at USD 70,000).  2012: bought combine harvester (USD 125,000), plans to buy one more!  Now: operates > 100,000 ha land; owns 3 big trucks, house in town, floor mills, 5 pairs of oxen etc…
  32. 32. Mechanization seem to have increased use of chemical fertilizers, improved seeds, and productivity Yield: wheat up to 5 tones/ha (1.6 tones/ha); Barely up to 3 tones/ha (1.4 tones/ha); Fertilizer and improved seeds applied; USD 50,000 total annual gross revenue (crop sales, renting, etc); As a result, harvester pays back in 7-10 years
  33. 33. If the rental market functions properly, land size does not matter whether or not mechanization follows large or small power machines
  34. 34. A number of experimentations going on in Ethiopia recently
  35. 35. 1. Public Sector: Adama Agricultural Machinery Industry – power tiller & tractors from china Very recent efforts to introduce power-tillers (imported from China)
  36. 36. 1. Public Sector: Adama Agricultural Machinery Industry – water pumps
  37. 37. 2. Private Sector: some private importers/dealers mainly serving investors  A number of private importers and dealers already in business  They supply tractors and other machines to state (sugar) farms, unions, commercial investors,  They are not allowed to import and stock them at their sale points; rather they are dealers of specific manufacturers and import on behalf the investors  A 35% duty is levied for all those that do not have the investment license, including small farmers.  Recently, importers are allowed to stock tractor imports at bonded warehouses for 3 months; otherwise, sell at the 35% tax.  Importation process takes 4-6 months
  38. 38. The key messages 1) Contrary to recent literature pointing to Boserupian, or even Malthusian proportions, enormous land potential (potential to increase national food supply); Intensification and other income increasing strategies in the highlands (high value fruits); Mechanization key instrument in this process (increases in fertilizer, improved seed, yield) Emerging demand for mechanization (not just tractors: planters, harvesters, threshers) Policy support during this incubation period critical 2) Is the pessimism in recent literature about land potentials, commercialization, and mechanization then real? NO! Key potentials and endowments are not taken into account; There is no problem with being pessimist. The problem is conclusions derived from those analyses neglecting important information (simplistic assumptions) can be misleading.
  39. 39. The key messages 2) Is the evidence consistent with the conditions for mechanization? Not all. Also some new conditions. - Climate change – rainfall has become more variable – planting & harvesting unpredictable and time constrained - Maintaining oxen has become very expensive (like Bullocks in India), but at the same time mechanization has come with more animal feed (straw). - Wages risen, labor became more scarce (% terms), seasonal, (reason: schooling, massive infrastructure construction; migration in & outside of the country); - Increased demand for food (agriculture becomes profitable) Although, too early to claim that mechanization has taken off in Ethiopia, there is certainly a clear evidence of demand for mechanization, regardless of farm size. Rural population is declining, share of agriculture to GDP has declined and wages have risen recently, but not to the level of deriving mechanization. On the other hand, as in Bangladesh and other places, emerging demand for mechanization in
  40. 40. • Policy level Potential heavy gov’t involvement at different levels: strategic focus on promoting public sector import of tractors et al, which may undermine potential private players (technology choices!); Tractor import policy also complicated by foreign exchange rationing and strategic public interests in this sector; Tractor import is limited to those that are licensed commercial farms and completely prevents small farmers that are unlikely to get these licenses. A new strategy is being designed – hopefully will address these issues Challenges for mechanization in Ethiopia
  41. 41. • Financing of mechanization Limited access to loans and collateral required by banks limits smallholder (or even large holder) mechanization; No insurance for large scale farmers, risk may limit expansion; • Technical Limited local technical skills & maintenance capacities Limited technical capacities to adapt machines to local conditions (limited knowledge of local context). Farmers limited knowledge and opportunities to exploit additional benefits of tractors or power tillers (young farmers emerging recently!) Challenges for mechanization in Ethiopia
  42. 42. Thank you