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Livestock markets and smallholders in sub-Saharan Africa: A review

Presentation by Gebremedhin, B. and Hoekstra, D. to the 5th All Africa Conference on Animal Agriculture and the 18th Annual Meeting of the Ethiopian Society of Animal Production (ESAP), Addis Ababa, October 25-28, 2010.

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Livestock markets and smallholders in sub-Saharan Africa: A review

  1. 1. Livestock Markets and Smallholders in Sub-Saharan Africa: A Review Presented by Berhanu Gebremedhin and Dirk Hoekstra (IPMS/ILRI) for the 5th All Africa Conference on Animal Agriculture and the 18th Annual Meeting of the Ethiopian Society of Animal Production (ESAP), Addis Ababa, October 25-28, 2010
  2. 2. Presentation outline <ul><li>Role of livestock </li></ul><ul><li>Role of Livestock Markets </li></ul><ul><li>Why the focus on smallholders? </li></ul><ul><li>Why do we think that livestock markets can be improved for smallholders? </li></ul><ul><li>Competitiveness and market participation of smallholder livestock producers </li></ul><ul><li>Dairy markets </li></ul><ul><li>Live animal markets </li></ul><ul><li>International and regional livestock trade </li></ul><ul><li>Conclusions </li></ul>
  3. 3. Livestock and the global economy <ul><li>40% of global agricultural GDP </li></ul><ul><li>30% of agricultural GDP in developing countries </li></ul><ul><li>Livestock as source of traction for about 50% of the world’s farmers </li></ul><ul><li>Livestock as a source of organic fertilizer for most of the world’s crop lands </li></ul><ul><li>Hence the sector has a critical role in economic growth and poverty reduction </li></ul><ul><li>However, if left unregulated, livestock generates negative externalities </li></ul><ul><ul><li>Land degradation </li></ul></ul><ul><ul><li>Water pollution </li></ul></ul><ul><ul><li>Erosion of biodiversity </li></ul></ul><ul><ul><li>Greenhouse gas emissions </li></ul></ul><ul><ul><li>Risks to public health </li></ul></ul>
  4. 4. Livestock and the rural poor <ul><li>Livestock contributes to the livelihoods of about 70% of the rural poor worldwide </li></ul><ul><li>Overlaying poverty and livestock distribution maps, ILRI’s work shows that about 30% of the rural poor live in Sub-Saharan Africa. </li></ul><ul><li>Livestock is one of the fastest growing sub-sectors in agriculture and the sector’s growth represents significant contributions to poverty reduction and economic growth </li></ul><ul><li>Growth in the livestock sector is driven almost entirely by private investment, and the sector has been essentially neglected by the public sector in terms of investment and policy, with adverse effects to smallholders and the poor </li></ul>
  5. 5. Role of Livestock Markets <ul><li>Well-functioning livestock markets perform an important function of signal transmission for macro and sectoral policies to effectively change the incentives and constraints faced by livestock producers. </li></ul><ul><li>Well-functioning livestock markets also strengthen micro level welfare improvement opportunities that could aggregate into economy wide growth. </li></ul><ul><li>Well-functioning livestock markets are important instruments to manage risk associated with demand and supply fluctuations, since markets aggregate demand and supply across actors spatially and temporally. </li></ul><ul><li>Well-functioning livestock markets produce price signals for the development of institutional and technological innovations to improve social welfare </li></ul>
  6. 6. Why the focus on smallholders? <ul><li>Smallholder livestock producers account for about 20% of the world population </li></ul><ul><li>Livestock production and marketing are important for the livelihoods of about 1 billion poor people, including smallholder livestock keepers </li></ul><ul><li>Market opportunities for livestock and livestock products are increasing due to population growth, increasing income, urbanization, globalization – need to ensure that smallholders benefit </li></ul>
  7. 7. Why the focus on smallholders? (2) <ul><li>In arid and semi-arid areas, livestock represent major marketable assets held by the poor </li></ul><ul><li>Smallholder livestock keepers have been underserved by their governments and by the international community </li></ul>
  8. 8. Exclusion of smallholders <ul><li>Smallholders are often excluded from benefiting from livestock sector development due to requirements in: </li></ul><ul><ul><li>Quality and safety standard, which often require investment in on-farm hygiene </li></ul></ul><ul><ul><li>Uniformity of product, requiring investments in breeding, feeding, and veterinary service </li></ul></ul><ul><ul><li>Reliability of supply, which requires higher and sustainable production </li></ul></ul><ul><ul><li>Verifiability of origin </li></ul></ul><ul><li>Without complementary interventions to circumvent the effect of micro- and meso-level entry barriers that inhibit smallholder market participation, the impact of conventional top-down macro policies on smallholder livestock keepers remains limited  need to break down barriers to finance, input supply and marker access </li></ul>
  9. 9. Why do we think that livestock markets can be improved for smallholders? <ul><li>Critical deficiencies in livestock development policies (eg. animal health policy, breeding policies, internal and cross-border livestock movement, etc). </li></ul><ul><li>The micro and meso-level realities of livestock markets in sub-Saharan Africa: </li></ul><ul><ul><li>Poor market and transportation infrastructure </li></ul></ul><ul><ul><li>Wide difference between producer and terminal market prices - high transaction costs </li></ul></ul><ul><ul><li>Limited access to commercial finance </li></ul></ul><ul><ul><li>Considerable price volatility across space and time </li></ul></ul><ul><ul><li>Significant entry and mobility barriers </li></ul></ul><ul><ul><li>Highly personalized exchange </li></ul></ul><ul><ul><li>Imperfect contract monitoring and enforcement </li></ul></ul><ul><ul><li>Advances in technology imply possibilities for market integration and efficiency that were not hitherto possible </li></ul></ul>
  10. 10. Market participation of smallholders <ul><li>Value chain analysis is especially appealing in livestock development context because coordination factors are usually critical for effective and efficient flow of knowledge and products in the chain. </li></ul><ul><li>A household’s production technology choice is fundamental determinant of household market participation choice by affecting productivity </li></ul><ul><li>Promoting improved livestock technologies is also essential to induce broad-based market participation and aggregate supply response to price-based policy instruments </li></ul><ul><li>Improved production technologies provide a more reliable driver of increased supply than do exogenous price shocks due to policy change. </li></ul><ul><ul><li> interventions to facilitate uptake of technologies that increase productivity are important </li></ul></ul>
  11. 11. Market participation (2) <ul><li>Wealthier households that have the livestock to generate marketable surplus have higher market participation  need for interventions to build up assets </li></ul><ul><li>Increasing demand for livestock products in domestic markets will be the main driver of livestock intensification –improvements in domestic market conditions to improve access of smallholders to these markets </li></ul>
  12. 12. Market participation (3) <ul><li>The potential for smallholders to engage in livestock markets depends largely on specific context of the market, product and place under consideration </li></ul><ul><ul><li>In poorer areas, local and informal markets appear to offer initial growth potential for smallholders </li></ul></ul><ul><ul><li>Smallholders tend to be more efficient in the informal, low input context due to household labor and low-cost purchased inputs </li></ul></ul><ul><ul><li>Generally smallholders are more competitive in ruminant systems than monogastric production </li></ul></ul><ul><ul><li>As urbanization and incomes increase, livestock value chains become longer and more complex, and quality and safety standards become more stringent making it difficult for smallholders to compete in such markets  pro-active policies and investments needed </li></ul></ul>
  13. 13. Dairy markets <ul><li>Dairy sector - one value chain where competitiveness of smallholders was demonstrated: South Asia, East Africa, and Latin America </li></ul><ul><li>However, input supply a critical constraint: </li></ul><ul><ul><li>Improved indigenous animals </li></ul></ul><ul><ul><li>Cross-breeds </li></ul></ul><ul><ul><li>Exotic breeds </li></ul></ul><ul><ul><li>Low quality crop residue make up the bulk of feed </li></ul></ul><ul><ul><li>Simultaneous genetic and feed improvement can increase productivity to as much as three-fold </li></ul></ul><ul><li>Linking input supply to extension, financial and market services is critical </li></ul><ul><ul><li>solving commitment failure problem </li></ul></ul>
  14. 14. Dairy markets (2) <ul><li>Studies in the nearly 1990s on Kenyan Dairy showed that liberalization of dairy markets resulted in immediate increase in fluid milk supply and consequently processed milk supply to producers, and the participation of dairy cooperatives in in milk marketing and input supply. </li></ul><ul><li>Recent studies show that, in East Africa, around 80% of fluid milk is marketed informally, with most of it sold directly to consumes with no intermediaries </li></ul><ul><li>In areas in which the large majority of milk is boiled for consumption, but where cooling facilities are poor, mandatory pasteurization can be counterproductive to smallholders, since with some training, raw milk might represent lower health risk than pasteurized milk, as ILRI’s research in Nairobi shows </li></ul><ul><li>In East Africa animal health results in calf mortalities of up to 20%, and 10% for cows </li></ul>
  15. 15. Dairy markets (3) <ul><li>Comparative analysis of dairy systems in sub-Saharan Africa show that: </li></ul><ul><ul><li>Peri-urban areas of African Dairy offers high potential as smallholder diversification activity </li></ul></ul><ul><ul><li>Growth in smallholder dairying is limited by high transaction costs </li></ul></ul><ul><ul><li>Differential levels of transaction costs across producers in what appears to be a single market results in widely different prices for a seemingly homogenous product in the same location and time </li></ul></ul><ul><ul><li>Contracts between producers and buyers or cooperatives play important role in reducing transaction costs. </li></ul></ul><ul><ul><li>Coordination failure and returns to size imply need for public intervention to facilitate improvements in dairy markets </li></ul></ul>
  16. 16. Dairy Markets (4) <ul><li>Studies on dairy marketing in West Africa, particularly Nigeria conducted in the Early 1990s, indicated that existing pricing structures, preference schemes and resultant consumption patterns suggested increased support for the development of traditional production schemes based on indigenous cattle. </li></ul><ul><li>The same studies indicated that a solid base of experience in intermediate-level milk production for the successful introduction of high-input modern production systems and imported genetic material is needed. </li></ul>
  17. 17. Live animal and meat marketing- small ruminants <ul><li>About 163 million sheep and 200 million goats population in SSA </li></ul><ul><li>Sheep/goats constitute about 26% of meat output in the region </li></ul><ul><li>Small ruminants play important role in smallholder livelihoods in Africa, particularly in drier, marginal areas and in humid forest zones </li></ul><ul><li>Studies show that about 130 million people across west and southern Africa keep small ruminants </li></ul><ul><li>Small ruminants are largely raised with almost no cash expenditures, mainly owned by women </li></ul><ul><li>Increasing market orientation, especially for sheep is observed, fed on crop residues, supplemented with legumes and bran </li></ul>
  18. 18. Small ruminants (2) <ul><li>In peri-urban fattening operations, small ruminants are kept enclosed and fed on concentrates and fresh fodder for finishing </li></ul><ul><li>Markets remain less developed than for cattle, and remain basically informal </li></ul><ul><li>Smallholders remain very competitive relative to large scale producers </li></ul><ul><li>However, poor nutrition and husbandry, and high pre-weaning mortality result in low productivity and market off-take </li></ul>
  19. 19. Live animal and meat marketing- cattle <ul><li>About 212 million cattle population in SSA </li></ul><ul><li>The beef industry constitutes 45% of the meat output </li></ul><ul><li>Pastoral systems account for a third of the cattle population, providing 60% of the beef </li></ul><ul><li>In SSA, most cattle are still kept in traditional low input low output production systems, with each of the traditional systems closely linked to specific agro-ecological zones </li></ul><ul><li>Many SSA countries hold large inventories of cattle which are not effectively exploited (eg. Ethiopia) </li></ul>
  20. 20. Cattle (2) <ul><li>Despite the population size of cattle SSA produces 6% of the world beef and veal output </li></ul><ul><li>Although better developed than small ruminant markets, significant transactions of cattle and beef is done informally (eg. 90% of Ghana’s beef supply is marketed through the informal sector) </li></ul><ul><li>An important factor affecting both productivity and marketability of live cattle and beef is the presence of animal diseases. </li></ul>
  21. 21. International and regional trade <ul><li>More than 80% of livestock products are produced and consumed in the same country </li></ul><ul><li>Openness to international and regional markets can lead to profound changes in the structure and performance of livestock industries, not only by providing opportunities for accelerated economic growth and poverty reduction, but also by introducing risks for the poor and smallholder producers </li></ul><ul><li>SSA switched from being a moderate net exporter of a livestock products in 1970 to a net importer by 1995. </li></ul><ul><li>Currently, Africa contributes just about 2% of global trade </li></ul><ul><li>In West Africa, there are virtually no exports to countries outside the region </li></ul>
  22. 22. International and regional trade (2) <ul><li>Livestock importers adopt hygiene and health standards that are usually higher than those of developing countries </li></ul><ul><li>Bans on livestock exports from African countries have had major impact on the livestock dependent economies </li></ul><ul><ul><li>A ban on livestock exports from the horn of Africa by Saudi Arabia in 1998-2000 </li></ul></ul><ul><ul><li>ILRI study conducted in the Somali region of Ethiopia showed that the overall cost the regional economy during the 16 months ban period was about US$21.8 million, and the total estimated loss in value added was about US$ 195 million. </li></ul></ul>
  23. 23. International and regional trade (3) <ul><li>Best market opportunities for future growth lies within Africa itself: </li></ul><ul><ul><li>Africa’s meat demand is expected to almost triple between 1997 and 2005, from 5.5 to 13.3 million metric tons </li></ul></ul><ul><ul><li>Given relatively high income elasticity for livestock products, the increase will even be greater if SSA is able to accelerate its economic growth. </li></ul></ul><ul><li>However, African countries need to harmonize their livestock marketing and trade policies in order to expand domestic livestock markets beyond border confines </li></ul>
  24. 24. International and regional trade (4) <ul><li>ILRI scientist’s studies on cross-border trade in West Africa show: </li></ul><ul><ul><li>Domestic livestock markets are more competitive than cross-border trade, </li></ul></ul><ul><ul><li>Transportation and handling costs are the single largest component of cross-border marketing costs, accounting for about 40-60% of marketing costs </li></ul></ul><ul><ul><li>Cross-border transportation costs are twice as high as domestic transportation and handling costs </li></ul></ul><ul><ul><li>Regional cross-border transfer costs for cattle are three times higher than the equivalent transfer of beef from Europe to West Africa’s cost </li></ul></ul><ul><ul><li>Illegal road taxation at numerous checkpoints further increase transfer costs </li></ul></ul><ul><ul><li>Cross-border market integration is low </li></ul></ul><ul><ul><li>Market information service is weak </li></ul></ul><ul><ul><li>Some governments do not adhere to agreed trade policy reforms, especially as regards trade facilitation, exchange and payment systems and investment facilitation </li></ul></ul>
  25. 25. Conclusions <ul><li>Improved coordination around investment, incentives, production technologies, input supply, grades and standards, can result in added value to the different actors in the livestock value chain. </li></ul><ul><li>Collective action </li></ul><ul><ul><li>Political and investment support for collective action either in the form of cooperatives or associations or under contract farming or vertical integration </li></ul></ul><ul><li>Setting appropriate levels of public safety standards with due regard for the state of the market, overall competitiveness and enforceability </li></ul>
  26. 26. Conclusions (2) <ul><li>A level playing field for the pricing of inputs </li></ul><ul><li>Treating smallholders equally in the incentive system </li></ul><ul><li>Support to research and advisory services especially in connection with the smallholders and the poor </li></ul><ul><ul><li>Genetic material </li></ul></ul><ul><ul><li>Input-supply and services </li></ul></ul><ul><ul><li>Diseases of the poor </li></ul></ul><ul><ul><li>Market support services </li></ul></ul><ul><li>Harmonization of marketing and trade policies of trading SSA countries </li></ul>
  27. 27. <ul><li>Amesgnalehu! </li></ul><ul><li>Thank You For Your Attention! </li></ul>
  28. 28. Recommendations <ul><li>Support for training of the different stakeholders along the value chain on good husbandry, manufacturing practices and food safety </li></ul><ul><li>Support for infrastructure development and institution building </li></ul>
  29. 29. Livestock Value Chains (2) <ul><li>Both the public and private sectors can be important role in livestock value chain governance, through regulatory functions and farmer organizations. </li></ul><ul><li>As livestock value chains become more complex, increasingly sophisticated interface arises within and between the public and private sectors. </li></ul><ul><li>The public sector can have a strong role in regulatory functions and creating enabling environment, which will support the efficient allocation of resources and adaptive response to changing markets by the private sector. </li></ul>
  30. 30. <ul><li>Major African exporters of live animals Burkina Faso, Djibouti, Ethiopia, Mali, Niger and Sudan, and major importing countries are Kenya, Nigeria, Cote d’Ivoire and Ghana </li></ul>
  31. 31. <ul><li>Strong economies of scale in feed delivery </li></ul>