Nigeria Country Strategy Support Program: Agriculture Growth and Investment Options for Poverty Reduction in Nigeria
Nigeria Country Strategy Support Program Agriculture Growth and Investment Options for Poverty Reduction in Nigeria Xinshen Diao, Manson Nwafor, Vida Alpuerto
Research Background• Part of a wider effort to increase the use of research evidence in agriculture policy making in Africa.• Part of a wider advisory program launched around 2003 by the World Bank and other agencies.• A collaborative effort between ReSAKSS WA, IITA and the Agriculture Policy Support Facility (APSF), IFRPI-Nigeria.
Purpose of The Seminar• To obtain feedback on the analysis in general• To discuss the assumptions of the model• To discuss the adequacy of experiments done• To discuss the results obtained
Challenges and Opportunities Facing Agriculture (1)• High poverty rate, particularly in the rural areas (54.4% for the country and 63.3% in rural areas in 2004)• Rising poverty between 1980 and 1996 (from 27.2% in 1980 to 65.6% in 1996) and slow decline after 1996• High growth rates in recent periods (6.6% annual growth rate for GDP in 2002-2006 period, but poverty is still higher than the 1980 level.• Agriculture is the single most important engine of recent growth, accounting for 47% of growth (oil for 39%).• Agriculture is the single largest employer of labor and the largest share of the poor are farmers.
Challenges and Opportunities Facing Agriculture (2)• However, recent agricultural growth is still led by area expansion without enough productivity increase. Possible increases in productivity show that there are supply opportunities in the sector. Increasing food imports show that there is local unsatisfied demand for agricultural output – this is a demand opportunity (ReSAKSS WA ).• To improve outcomes, numerous goals and targets have been articulated by the government in many policy documents. However, there is little analysis which assesses the ability of these intermediate targets to lead to the ultimate targets of sectoral and national growth as well as poverty reduction.• An economy-wide, computable general equilibrium (CGE) model for Nigeria is developed in order to: 1. analyze synergies and trade-offs between economic growth and poverty reduction 2. Identify priority products for investment and growth. 3. Evaluate the expected poverty and growth outcomes of present government targets.
Key Policy Documents• The National Food Security Programme (NFSP) – released in 2008• The National Economic Empowerment and Development Strategy (NEEDS) II• The national medium term investment Programme under the Comprehensive Africa Agriculture Development Program.• Presidential initiatives and Medium term sector strategy documents.
Key Government Targets I : NFSP Targets defined in NFSP Current level Level by 2011 Total increase annual growth Million mt Million mt % (08-11, %)CropsCassava 49 100 104.1 19.5Rice 2.8 5.6 100 18.9Millet 4 6.5 62.5 12.9Wheat 0.1 0.5 614.3 63.5Sugar 0.2 2.2 1034 83.5Tomato 1.1 2.2 100 18.9Cotton 0.4 1 185.7 30Cocoa 0.4 0.7 84.2 16.5Palm Oil 0.8 1.3 50 10.7Palm Kernel 0.4 0.6 50 10.7Rubber 0.2 0.3 50 10.7
Key Government Targets II• Other specific targets for crops, livestock and fisheries• 6% agriculture growth (Comprehensive Africa Agriculture Development Programme , CAADP)• 10% agriculture growth in 2008 – 2011 (NEEDS II)• Halving of poverty by 2015 (NEEDS II) and MDG1. Also supported as ultimate goal by CAADP.
Data and Modelling I• The Social Accounting Matrix (SAM) is the basic data set used by the Computable General Equilibrium Model.• A SAM for the year 2006 was built for the study. A SAM is a table which shows the incomes and expenditures of production factors, firms, households, the government and the rest of the world.• It is built such that every income to one agent/institution is an expenditure to another. It is designed to show the inter dependence between agents and institutions which we observe in everyday life. It uses figures to document the circular flow of income in an open economy.• The SAM documents how the economy functioned in the year 2006. This base year is then used to assess possible future outcomes given the structure of the economy and economic relationships between agents and institutions (firms, government etc) in 2006. On their own, SAMS provide useful insights into the income and expenditure priorities and constraints of firms, farms, households and the government.• Most of the data for the SAM came from the National Bureau of statistics, the Federal Ministry of Agriculture and Rural Development and the Central Bank of Nigeria.
Data and Modelling II• A CGE model is a simultaneous equations model which replicates the functioning of the economy in a way that allows equilibrium to be achieved in major markets in the economy. It is therefore a good indicator of the eventual impacts of policies or uncontrollable events after markets adjust.• They are used to analyze a wide range of policies - fiscal, trade, agriculture , income, energy, technology and investment amongst others.• Unlike other models they capture how changes in one market may lead to changes in others due to forward and backward linkages in the production process. It also captures how low supply can reduce demand and vice- versa as it they track both total supply for commodities and total demand for them.• They are therefore ideal for analyzing the impacts of policies which can affect many sectors or whose success depends on the reactions of other sectors. They also analyze the impacts of these interactions on household incomes and expenditure levels. This allows assessments of the poverty impacts of policies/uncontrollable events to be captured.
Data and Modelling III• The CGE model and SAM have 62 sub-sectors, more than half in agriculture, but also include agro-processing sectors in detail and the most important nonagricultural sectors in both industry and services• In agriculture: (i) 5 cereal crops; (ii) 5 root crops; (iii) 7 other food crops; (iv) 10 higher-value export-oriented crops; (v) livestock products; (vi) forestry; and (vii) fisheries• Agricultural production disaggregated across six zones• Dynamic model: 2006 – 2017.• Two types of capital – agriculture capital and non-agriculture capital• 3 types of labour – farm labour, unskilled labour and skilled labour.• Models the behavior of firms and farms, households, the government and the rest of the world (goods and services trade, income and transfers- remittances etc- to and from the world)
Data and Modelling IV– Assumptions• The targets articulated by the government are unlikely to be met by 2011• Population growth rate for 2008 – 2017 remains the same as for 1991 – 2006 (3% p.a)• Rural farm labour supply grows at 2% p.a. while other unskilled and skilled labour grow at 3.3% and 3.4% respectively.• Land expansion rate (area cultivated) which was 5.2% p.a. in 2001-2006 is maintained for 2007-2011 but is reduced to 4.2% for 2012 – 2017• In a given year factors are fully employed• The exchange rate is the numeraire• The current account balance is fixed in each year but grows initially by 3.5% and then by 2.8% each year to reflect changes in the international oil market• Real government expenditure and transfers to households increase by 5% each year.• Real foreign payments to the government from assets abroad etc increases by 3.5% each year.• The model is savings driven: total investment in the economy adjusts to the level of available savings of the government, firms, households etc.
Scenarios I• Considering changing global environment a modest annual GDP growth rate of 6.5% is targeted in the next 9 years (2009 – 2017) in the base-run, while agriculture grows at 5.9%• Growth is driven by increases in land, labor and capital accumulation, as well as by productivity changes• A series of agriculture-led scenarios are considered, and in these scenarios, additional growth is led by productivity.• Growth in different crops/crop groups are considered while an aggregate scenario (CAADP) considers a simultaneous increase in the different agriculture products‟ yield and productivity.
Scenarios II Base Run CAADP Rural farm labour grows at 2% p.a. Rural farm labour grows at 2% p.a.Labour Supply while other unskilled and skilled while other unskilled and skilled labour grow at 3.3% and 3.4% labour grow at 3.3% and 3.4%growth respectively. respectively. Land expansion which was 5.2% p.a. Land expansion which was 5.2% p.a.Land growth (area in 2001-2006 is maintained for 2007- in 2001-2006 is maintained for 2007- 2011 but is reduced to 4.2% for 2012 2011 but is reduced to 4.2% for 2012cultivated) – 2017 – 2017. Additional expansion where the government targeted it. Based on 1999-2006 growth rates Modest increases in yield up to 2017.Yield growth 2017 yields are still much lower than potential yields. Levels consistent with 5.9% Levels consistent with the agricultureTotal factor agriculture growth and 6.5% economy output targets in the National Food growth. Security Programme (2008) and otherProductivity growth government policy documents
Table III.1 GDP growth rates in the Base-run and CAADP scenario (1) Results – economic growth I Annual growth rate 08- Share of GDP 17 (%) In 2006 Baseline CAADP scenario Total GDP 19,909 billion Naira 6.5 8 Agriculture 29.7 5.7 9.5 Cereals 7.7 5.4 9.5 Rice 2.6 5.1 10.2 Wheat 0 5 25.9 Maize 2.2 7.3 12 Sorghum 1.6 4 5.7 Millet 1.3 4.2 5.7 Root crops 9.4 6 8.9 Cassava 4.4 5.6 8.7 Yams 3.9 6.4 9.3 Cocoyam 0.2 4.7 6 Potato 0.3 8.8 12.4 Sweet potato 0.6 4.7 7
Results – economic growth II Annual growth rate, 08-17 Share of GDP (%) In 2006 Baseline CAADP scenarioTotal GDP 19,909 billion Naira 6.5 8Agriculture 29.7 5.7 9.5 Other food crops 7.6 5.7 8.1 Plantain 0.6 3.8 4.9 Beans 1 5.3 7.6 Groundnuts 1.1 5.5 7.7 Soybeans 1.1 5.7 8.5 Other oilseeds 0.1 4.5 6.3 Vegetables 1.8 6.1 8.6 Fruits 1.6 6.4 8.7
Figure III.2: Baseline Results – Poverty Reduction Across Six Zones % 73 Regional Poverty Rate in Base-run Scenario 63 53 Southsouth Southeast Southwest North center 43 Northeast Northwest 33 23 13 2008 09 10 11 12 13 14 15 16 2017 Source: Nigerian CGE model results
Agriculture-Led Growth – Poverty Reduction under Different Growth Scenarios 52 National Poverty Rate (%) under Alternative Agricultural 50 Growth Scenarios 48 46 44 42 40 38 36 Base Cereal-led 34 Root-led Pulse-led 32 Export-led Livestock-led CAADP 30 2008 09 10 11 12 13 14 15 16 2017
Results• Achieving 5.7% growth in agriculture will leave the population in poverty slightly increased by 2017. The estimated 1990 poverty level of 44% would not be halved by 2017.• high growth target in agriculture will lift 16.5 million people out off poverty by 2017. The 1990 poverty rate would still not be halved as poverty would drop from 44% (1990) to 30.8% (2017). With 10% of agricultural growth, the national poverty rate of 1996 can be halved by 2017 – 2018.• Food security is improved considerably with additional kilograms of cereals root products available for each person by 2017.• dependence on imported cereals will not be eliminated, but cereal imports will much less under the high growth scenario.
Table IV.5: Regional level poverty reduction with CAADP growthSource: Nigerian CGE model results Poverty Reduction at the Zone Level S imulation results by 2017 Additional reduction (% ) (percentage points) % change C AADP from base 1996 2004 Base-run growth from 1996 2017 from 1996 from base 2017 National 65.6 54.4 39.7 30.8 -34.8 -8.9 -53 -22.4 Rural 69.8 63.3 47.9 37.3 -32.5 -10.6 -46.6 -22.1 Urban 58.2 43.2 29.4 22.6 -35.6 -6.8 -61.1 -23.1 Southsouth 58.2 35.1 21.5 14 -44.2 -7.4 -75.9 -34.6 Southeast 53.5 26.7 13.4 8.5 -45 -4.9 -84.1 -36.5 Southwest 60.9 43 30 24.7 -36.2 -5.3 -59.4 -17.6 North central 64.7 67 51.5 41.9 -22.8 -9.6 -35.2 -18.7 Northeast 70.1 72.2 55.6 42.2 -27.9 -13.4 -39.8 -24.1 Northwest 77.2 71.2 55.4 43.7 -33.5 -11.7 -43.4 -21.1
Results – impacts on other sectors• Agricultural growth has backward and forward linkages (multipliers) with other sectors, and this induced growth in other sectors also impacts on poverty• In terms of poverty impacts we find cereals-led growth strategies are highly pro-poor• In terms of linkages, we find negative effects on other sectors of export-led growth, and large positive effects of pulses
Price Effects Level of selected agricultural prices in CAADP scenario (normalized by prices in 2008 and deflated by CPI)1.301.201.101.000.900.800.70 Rice Maize Cassava Cocoa0.60 Cotton Sugar0.50 Poultry Fish CPI0.40 2008 09 10 11 12 13 14 15 16 2017
Results• However, broader market opportunities do exist for agriculture by developing agro-processing industries in the country and by expanding export market.• eg-1. Cassava - accounts for largest land allocation and highest agricultural value-addition, an input for both feed and agro-processing and highly demanded in international markets.• Thailand produces 10% of world cassava output, but captures 70–80% of world exports• Clearly there are opportunities for Nigeria to capture larger share of world market
Results• eg-2. Poultry – price is artifically high because of import restrictions. A productivity surge in poultry would make these restrictions unnecessary• In fact, there are good export opportunities to regional neighbours• A poultry „boom‟ would also boost domestic demand for maize and other feeds, which will further enhance the linkage and multiplier effects
Messages from the Model Negative price effect Size in the economy Growth multiplier Pro-poorness Qualitative Qualitative Qualitative Qualitative assessment Ranking assessment Ranking assessment Ranking assessment RankingGrowth led byCereals Large 2 Large 3 Large 1 Rice Large 4 Large 8 Large 2 Small 7 Maize Large 7 Large 5 Large 5 Large 2Millet/sorghum Large 5 Large 1 Large 4 Small 6 Wheat Small 13 Small 9 Large 11 Large 1Roots Large 1 Large 6 Large 3 Cassava Large 3 Large 4 Large 7 Small 5Pulses Large 6 Large 2 Large 8Export-orientedcrops Small 9 Small 10 Small 12 Small 9Livestock Small 8 NM Large 9 Poultry Small 12 NM NM Large 3Fishery Large 10 Large 7 Large 6 Large 4Forestry Small 11 NM Large 10 Small 8
Messages from the model• Agricultural growth targets should take into account:1. Initial conditions: size, yields, poverty profile.2. Multiplier effects3. Market potential: price effects, domestic demand (consumers, agro-processing), exports4. Productivity levels: ag productivity growth has to double• All these 4 factors depend on policies, but market potential and productivity levels depend heavily on policies that are often “outside” agriculture: trade, investment, energy, land tenure …
Messages from the model• Ideally, we should also consider state- level policies• We need to be aware of tradeoffs between growth & poverty, but also that there are lots of win-win strategies within agriculture, as this study demonstrates