THE ROLE OF LIVESTOCK IN THE ETHIOPIAN ECONOMY: A DYNAMIC CGE ANALYSIS

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  • Existing micro-understanding points to the importance of livestock in HHs livelihoods (Negassa RashidDebremehdin 2011)Coping with shocksStore of value (if missing markets for credits)Food, dairy, fuel, manure,etc.. As we have seen at the beginning of this presentation, livestock activities and products also account for a large share of macro flows But to understand livestock’s potential contribution to econ growth, we have to understand its role in productionDraft power, for example, is an essential input in production. About 80 pct of farmers use animal traction to plough their field (Benhke 2010)
  • Diao Pratt give both production and consumption explanations for this result re: livestock:Production-wise, they point to smaller share of poor farmers’ income from livestock (this misses the linkages)Consumption-wise, they point to smaller share of livestock products in consumption compared to staplesDorosh and Thurlow (09) calculate poverty-growth elasticities: pct decrease in poverty reduction (headcount rate) from a one percent increase in AG GDP from different sourcesCereal has 1.27, export crops 1.13, livestock led 0.35Livestock performs a bit better in drought prone and, mainly, in pastoralist AEZs
  • To answer these questions we analyse different sub-sector growth scenarios, using a dynamic CGE model for Ethiopia
  • LIVESTOCK and CEREAL superior in pushing Ag GDP upDifferences though are small (same applies to overall GDP)Even if cereal had largest push and largest initial size…
  • Livestock sub sector accounts for 15 pct of all export value (probably under-estimated)Yet, strongest export response under LIVESTOCK simulationReal EXR has a role in this: under LIVESTOCK it suffers the lowest real appreciation across simulation
  • Livestock accounts for about 10 pct of factor ownership in 4 AEZs. The poor’s asset in hl, hc, ho and dp AEZs is predominatly labour. Land has a slightly smaller weight than livestockIn pastoralist areas, it accounts for more than 40 pctYet TFP increases stimulate economic linkages that raise income from labor and land the mostFrom a food security perspective, notice that CEREAL is still the simulation which is most effective at raising consumption of cereals of the poor. Although CEREAL has a smaller income effect, it also produces the lowest cereal prices across the simulations. The latter effect more than compensates for the formerNotice that the same dynamic would apply to income of ALL HHs as well.Also, notice that this translates in total income gains
  • A dynamic general equilibrium model, adapted to better capture the livestock sector shows th
  • THE ROLE OF LIVESTOCK IN THE ETHIOPIAN ECONOMY: A DYNAMIC CGE ANALYSIS

    1. 1. THE ROLE OF LIVESTOCK IN THE ETHIOPIAN ECONOMY: A DYNAMIC CGE ANALYSIS Ayele Gelan, ILRI Ermias Engida, IFPRI/ESSP Stefano Caria, DRMFSS Taking Stock of the Economics of The Livestock07/11/2011 Sector in Ethiopia, Addis Ababa, Ethiopia 1 November 4, 2011
    2. 2. TOPICS OF DICUSSION  Study contexts and motivations  Approaches and methods  Overview of existing model and its modifications  Simulation results 07/11/2011 Concluding remarks and future research 2
    3. 3. IMPORTANCE OF LIVESTOCK IN A DEVELOPING ECONOMY Livestock’s macro roles are not often recognized • Growing demand for meat and dairy products • Crop-livestock interactions (e.g., draft power, manure, crop residue feed, etc) • Livestock products and agro-processing (e.g., dairy, leather, etc) How high are macro multipliers from livestock sector growth? • How much income growth and poverty reduction can we generate with livestock sector growth? • General equilibrium analysis needed to capture these
    4. 4. POLICY AND RESEARCH PRIORITIES NEPAD (2006) recognized the importance of integrating the livestock sector into the CAADP framework Diao and Pratt (2008) conclude that “growth in staples is the priority for poverty reduction” • Combining growth in staples and livestock has high economic multipliers & strong poverty reduction gains in food deficit areas Dorosh and Thurlow (2009) - poverty-growth elasticities • Cereals have highest rural poverty reduction potential
    5. 5. CURRENT STUDY - APPROACHES  Developing a herd dynamic module  Coupling/integrating the herd dynamics module with the economy-wide model  Nesting the biological and the economic processes  Establishing stock-flow relationships in existing economy-wide models (e.g. livestock as capital and livestock products)  Revising and improving the system of economic accounts in existing models (e.g., draft power as07/11/2011 capital in cropping, breeding stocks as capital in 5 livestock, etc)
    6. 6. Male Deaths Young Immature Mature Other economic male male male uses +Births Sale of live Off-takes animals + Young Immature Mature Yields/ Sales of female female female animal products = Female TR deaths - costs of keeping costs of keeping + costs of keeping + = TC mature animals young animals immature animals = Production and economic flows (off-take, in-takes and others) Reproduction and growth (growth, births, deaths) Gross margin
    7. 7. Condensed and adapted SAM for Ethiopia (ETH birr million, 2005) Live Pro (P-1) Poultry (P-2) Institutions Milk (P-3) Non-ag-C Nonag-A oth facts Liv cap Oag-A Oag-C AEZ-1 AEZ-2 AEZ-3 AEZ-4 AEZ-5 Total S-I AEZ-1 0 0 0 0 0 0 0 0 0 114 6 71 0 0 0 0 191Livestock AEZ-2 0 0 0 0 0 0 0 0 0 5553 180 1907 0 0 0 0 7640activities AEZ-3 0 0 0 0 0 0 0 0 0 983 26 754 0 0 0 0 1763by AEZs AEZ-4 0 0 0 0 0 0 0 0 0 3372 128 942 0 0 0 0 4442 AEZ-5 0 0 0 0 0 0 0 0 0 745 18 3205 0 0 0 0 3968 Oag-A 0 0 0 0 0 0 0 46974 19 0 0 0 0 0 0 0 46993 Nonag-A 0 0 0 0 0 0 0 234 121985 0 0 99 0 0 0 0 122318 Oag-C 0 0 0 0 0 2791 4610 0 0 0 0 0 0 0 48984 -173 56213 Non-ag-C 4 171 39 100 87 3025 52861 0 0 0 0 0 0 0 104730 31295 192314 Live Pro (P- 1) 0 0 0 0 0 0 940 0 0 0 0 0 0 0 7969 2229 11138Livestockproducts Poultry (P-2) 0 0 0 0 0 0 32 0 0 0 0 0 0 0 343 8 383 Milk (P-3) 0 0 0 0 0 0 430 0 0 0 0 0 0 0 7042 0 7473 Liv cap 59 2313 540 1352 1210 880 0 0 0 0 0 0 0 0 0 0 6353Factors oth facts 128 5155 1184 2990 2671 40297 63444 0 0 0 0 0 0 0 453 0 116323 Institutions 0 0 0 0 0 0 0 9005 70309 371 25 495 6353 116323 37153 0 240036 S-I 0 0 0 0 0 0 0 0 0 0 0 0 0 0 33360 2945 36305 Total 191 7640 1763 4442 3968 46993 122318 56213 192314 11138 383 7473 6353 116323 240036 36305
    8. 8. DYNAMIC CGE MODEL FOR ETHIOPIA We use Dorosh and Thurlow’s (2009) model • General equilibrium: the model represents different markets, all reaching equilibrium • Dynamic: the model is solved recursively Model is calibrated for Ethiopia using 2005/06 EDRI Social Accounting Matrix • 5 AEZs, 97 activities, 66 commodities, 27 factors
    9. 9. SIMULATION SCENARIOS Simulation Shocks We simulate Total Factor Productivity BASE All Ag commodities grow at (TFP) shocks to various 98-07 trend subsectors CEREAL Cereals + vegetable/fruit + (38%) enset grow faster Base growth follows 1998-2007 trend CASH CROP Cash crops and pulses (29%) + oilseeds grow faster Additional shocks as in LIVESTOCK Livestock activities grow Dorosh Thurlow 2009 (33%) faster (obtained in discussions CAADP All Ag commodities grow with MoA and CAADP) faster
    10. 10. … AGRI. SUB-SECTORS Weighted average of TFP shocks Size of sub-sector in 2005 to subsectors 22,000 Percentage 20,000 0.0% 2.0% 4.0% 6.0% 18,000 2.2% Cereal onlyMillion Birr 4.3% 16,000 14,000 0.6% Cash crop only 2.4% 12,000 0.5% 10,000 Livestock only 3.1% Base Accerelated
    11. 11. 90000 85000 80000Million Birr 75000 70000 65000 60000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Base Cereal only Cash crop only Livestock only Agricultural GDP 2006-2015
    12. 12. INTERSECTORAL LINKAGE EFFECTS • CEREAL has the highest Average growth rates 2009-15 sub-sector growth Sub-sector Ag sector GDP GDPBASE 3.7% 6.4%CEREAL 6.4% 4.6% 6.6% • But about the same aggregate agri. and GDPCASH CROP 4.1% 4.2% 6.5% growth effectsLIVESTOCK 5.5% 4.5% 6.7%CAADP 5.9% 7.0% • Different economic linkages at wor
    13. 13. LIVESTOCK AND EXPORT PERFORMANCE Shares of agricultural export value 2005-15 % change in total 1% export and real exchange rate 15% 10.5% 10.4% -1.0% -0.9% 10.3% -0.8% Percentage Percentage 10.2% -0.7% 10.1% -0.6%CEREAL 10.0% -0.5% 9.9% -0.4% 9.8% -0.3% 9.7% -0.2%CASH CROP 9.6% -0.1% 9.5% 0.0%LIVESTOCK 84% Export pct change Real EXR pct change (right axis)
    14. 14. RELATIVE FACTOR INCOME EFFECTS % increase 2009-15 in factor income: poor HH Factor income of the poor Percentage 0% 20% 40% 60% 80% 100% 0% 10% 20% 30% 40% 50%humid lowland Labour humid cereal humid enset Landdrought prone Livestock pastoralist Land Labour Livestock CEREAL CASH CROP LIVESTOCK
    15. 15. REAL CONSUMPTION EFFECTS The evolution of poor HHs Average growth rate 2009-15 of rural poor HHs food consumption consumption similar for Percentage each simulation 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% BASE 3.58% Price effects more than compensate lower income CEREAL 4.36% effect of CEREAL CASH CROPS 3.89% • Cereals about 25pct of whole consumption basket LIVESTOCK 4.02% • Rural poor HHs consumption thus grows faster
    16. 16. KEY FINDINGS Livestock has important economic linkages, esp. when we take into account complementarities with crop production Livestock growth increases incomes of the poor, particularly labor and land Livestock has marginally smaller consumption effects and with smaller productivity shocks, which means livestock needs to be taken seriously in food security policies
    17. 17. FUTURE EXTENSIONS  By far the most important extension (in both modelling contexts) - strengthening crop-livestock interactions (e.g. crop residue)  From social accounting to environmental accounting (i.e., a third level nesting: biological => economic => environment)  Livestock-environment interactions (the “long shadow” story)  Livestock-demographic-economic relationships (the07/11/2011 livestock revolution story) 20
    18. 18. THANK YOU!07/11/2011 21

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