Urbanization is driving agricultural transformation in Ethiopia. Proximity to urban centers has a strong positive effect on teff farmers through higher output prices, wages, and land rental rates ("indirect effect"). It also lowers transaction costs and increases access to information and markets for inputs ("direct effect"), leading to greater use of inputs, higher productivity, and profits. Urbanization benefits intensification of staple crop production unlike population pressure alone. Policy should focus on infrastructure, urban growth, and input/knowledge availability to maximize these benefits.

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Cities and agricultural transformation in
Ethiopia
Joachim Vandercasteelen, Seneshaw Tamru, Bart Minten and Johan Swinnen
IFPRI ESSP
EEA, July 21st, 2011
Addis Ababa, Ethiopia
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2. 2
1. Introduction
• Agricultural transformation in Africa deemed important but progress
has been slow
• Several hypotheses explaining agricultural transformation:
1. Boserup-hypothesis
2. Induced innovation theorem
3. Market driven intensification

3. 3
1. Introduction
• Urbanization important new factor
Cities of more than 300,000 people
1975 2000 2025

4. 4
1. Introduction
• Some numbers:
- People living in cities in Sub-Saharan Africa increased by 160%
between 1990-2014
- Urban population in Africa expected to triple by 2050 (1.3 billion
people)
• Urbanization important economic impacts, associated with
structural transformation

5. 5
1. Introduction
• Important effects on agriculture and food markets:
1. Urban residents often do not grow own food
2. Urban residents have different diets
3. Urban residents richer and willing to pay more for food
• Most of the literature focused on changes in crops or off-farm
employment
• Relatively little evidence on impacts on staple crops

6. 6
1. Introduction
• Look at the case of Ethiopia and at teff
• Question: “How does proximity to urban centers affect farmers’
agricultural production environment and practices?”
• Important changes in Ethiopia in this area
1996/1997 2010/2011

7. 7
1. Introduction
• Urbanization: 3.7% to 14% between 1984 and 2007
• One quarter of the urban population living in Addis
• In 2012: 17% in cities
• Projections urban population:
- 5.4% annual growth
- Urban population to increase from 15.2 in 2012 to 42.3 million in 2034
- In 2028: 30% of population in cities

8. 8
2. Background on teff
• 23% of total grain area
• Most important crop in value terms in the country (2.5 billion USD in
2013/14)
• Most important cash crop in the country (750 million USD)
• Teff more readily eaten by urban consumers
• High income elasticities
• Rapid growth of cities and income growth leading to increasing
demand for teff

9. 9
3. Methodology
• Stratified random sample in 2012
• 1,200 farmers in five major teff production zones.
• Urban proximity main independent variable; two components: Cost
of transporting teff:
1/ From the farm to the market center
2/ From the market center to the Addis wholesale market (by
truck)

10. 10
4. Non-parametric regressions
- Advantage: No functional form specified in advance
- Local polynomial smoothing estimates
- Do for three major outcomes:
1. Prices
2. Input
3. Intensification

11. 11
4. Non-parametric regressions - prices

12. 12
4. Non-parametric regressions – use of inputs

13. 13
4. Non-parametric regressions – intensification

14. 14
5. Multi-variate regression
• Strong effect of urban proximity on:
- Prices
- Use of inputs
- Measures of intensification (land and labor productivity)
- Profits
• No strong effects of population pressure; smaller farms not
associated with higher farm incomes per hectare
• We find overall a strong direct effect (not only through prices)

15. 15
6. Explaining the direct effect
• Channel 1: Transaction costs

16. 16
6. Explaining the direct effect
• Channel 2: Monetization of production factors

17. 17
6. Explaining the direct effect
• Channel 3: Access to information and knowledge

18. 18
7. Conclusions
• Link of urban areas with rural hinterland not well understood
• Study agricultural linkages in the case of Ethiopia, where larger share
of the rural population “connected” to a city
• Strong positive effect of urban proximity on:
- Output prices but also on wages and land rental rates
- Input and factor market use
- Labor and land productivity
- Profitability

19. 19
7. Conclusions
• Important effect of prices (“indirect effect”)
• However, other effects matter significantly as well (transaction costs,
knowledge, information) (called “direct effect”)
• Beneficial effect of urbanization on intensification by rural producers
of staple crops
• In contrast to rural population increases (population density
increases)

20. 20
7. Conclusions
• Implications:
1. Ensure appropriate infrastructure and low transportation costs
2. Ensure that cities can grow
3. Ensure that appropriate inputs and knowledge are available