This document summarizes an analysis of macro-policy, agricultural growth, and poverty reduction in Ethiopia. It finds that Ethiopia has achieved substantial progress in reducing poverty and increasing food security through agricultural investments and reforms. Agricultural growth averaged over 8% annually from 2004-2016 due to increased yields driven by improved seeds, fertilizer, and total factor productivity. However, macroeconomic imbalances including real exchange rate appreciation and rising public debt pose risks. Future scenarios project that land and water constraints may slow agricultural growth, while urbanization and changing diets will shape demand. Sustaining success will depend on balanced investments and managing macroeconomic stability.
call girls in DLF Phase 1 gurgaon 🔝 >༒9540349809 🔝 genuine Escort Service 🔝...
Ethiopia's Agricultural Success and the Future of Poverty Reduction
1. Macro-Policy, Agricultural Growth
and Poverty Reduction in Ethiopia:
Maintaining the Momentum of Past Success
Paul Dorosh
International Food Policy Research Institute (IFPRI)*
Ethiopian Economic Association (EEA) Annual Conference
Addis Ababa, Ethiopia
July 18-20, 2019
* Thanks to Bart Minten, Alemayehu Seyoum Taffesse and James Thurlow for helpful comments and
suggestions.
Funding for this ongoing study by the Ethiopian Strategy Support
Program (ESSP) was provided by USAID, the European Union, and DFID.
ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
2. Ethiopia: Substantial Progress
• Agricultural sector performance
• Substantial public investments, technical change and output
growth
• Spatial and structural transformation
• Urban population doubled over 20 years (7.3mil. in 1994 to
16.7mil. in 2014)
• Agriculture’s share of national employment and GDP have fallen
• Dramatic improvement in household welfare
• Rural poverty fell (45% in 1999/00 to 26% in 2015/16)
• Child malnutrition (stunting) fell (58% in 2000 to 38% in 2016)
2
3. Plan of Presentation
• The Ethiopian Success Story
• Agricultural growth and food security
• Poverty reduction and improved nutrition
• Macro-economic Imbalances
• Exchange rate policy, the balance of payments and public debt
• Future Scenarios
• The Importance of the Agricultural Food System for Poverty
Reduction
• Concluding Observations 3
4. 4
Agricultural Growth and Food Security
• From famine to food security
• Policy reforms and investments
• Including safety nets
• Drivers of agricultural growth
• Seeds, fertilizer and TFP
• Lessons for other countries?
• Prospects for future agricultural growth
5. Ethiopia: Causes of the 1984-85 Famine
• Military conflict: Massive costs of continuous wars
• Fiscal costs (budget shares):
• Defense: 11% in 1974/75; 37% in 1990/91;
• Health: 6% in 1974/75; only 3% in 1990/91
• Military labor force: almost 10% of men between
18 and 40 years old
• Drought and crop failure: Serious declines in yields
• A series of below-average rainfall years followed
by a drought year was especially damaging
Source: Webb and von Braun (1994).
6. Ethiopia: Causes of the 1984-85 Famine
• Government policy
• Land policy: Private land ownership abolished in 1975;
land reforms collectivized smallholders’ land; state farms
expanded
• Concentration of investment: In the ten-year prospective
plan for agriculture (1984-94), only 37 percent of total
expenditures to small holders
• Market failure
• Licensed private traders required to make 50% of their
purchases available to government (AMC) at fixed prices
• Inter-regional movements of grain (and labor) were
regulated (and banned during the drought)
• Poor road infrastructure also contributed to a lack of
market integration
Source: Webb and von Braun (1994).
7. Ethiopia Reforms
From Famine to Increased Food Security
• Policy reforms 1990-93: Liberalization of agricultural labor
and grain markets; currency devaluation, removal of
restrictions on transport charges
• Large increase in cereal production through agricultural
extension, improved seeds and increased fertilizer use
• Development of cereal markets through liberalization of
domestic marketing and investments in road infrastructure
and telecommunications
• Productive Safety Net Program (PSNP) replaced annual
“emergency” appeals for food aid with targeted program
linked to public works and household asset building 7
8. 8
Ethiopia Poverty Estimates
1995/96 – 2015/16
Source: Calculated from data in National Planning Commission (2017) and World Bank (2018).
0
10
20
30
40
50
1995/96 1999/00 2004/05 2010/11 2015/16
Poverty headcount ratio at national poverty lines (% of population)
Urban poverty headcount ratio at national poverty lines (% of urban population)
Rural poverty headcount ratio at national poverty lines (% of rural population)
9. 9
Ethiopia’s Productive Safety Net Programme (PSNP):
Impacts on Poverty, Vulnerability and Resilience
PSNP transfers…
• Reduce poverty (food gap) by
half a month;
• Reduce vulnerability (the
expected food gap), given a
drought has occurred, from
4.14 months to 1.8 months
(57% decline)
• Increase resilience: Reduce
food gap by a further 1.75
months after a drought and
reduce the time to recover
from 4 years down to 2 years
Source: Analysis of PSNP survey data from 2006-14 in Knippenberg and Hoddinott (2017).
10. Ethiopia’s Agricultural Transformation:
Three Big Questions
• Is the Ethiopian agricultural transformation experience truly
a success story?
• Did agricultural production really increase that fast? Has poverty
fallen? Are the gains sustainable? Implications of urbanization?
• How did Ethiopia manage to achieve such impressive
agricultural productivity and yield growth over a 20-year
period?
• What policies made steady growth possible? (public investments in
roads, ag technology – seed, fertilizer; broad political and macro-
economic stability)
• What aspects of Ethiopia’s impressive agricultural
transformation are replicable in other countries in Africa?
• What are the implications for policy in Ethiopia and elsewhere? 10
11. 11
Maize Yields in Selected African Countries
Source: Calculated from FAO data.
• Average maize yields in Ethiopia in 2015-17 were 2.63 times those in 1999-2001.
• In the same period, average maize yields in Malawi rose 53 percent; yields in
Kenya fell 11 percent.
0
0.5
1
1.5
2
2.5
3
3.5
4
1979-81 1989-91 1999-01 2009-11 2015-17
(tons/hectare
Ethiopia Kenya Malawi Tanzania
12. 12
Fertilizer Use in Selected African Countries
Source: Average fertilizer per hectare of arable land is calculated from FAO data.
• Ethiopia’s fertilizer use per hectare of arable land was 2.8 times higher in 2014-16 than in 1991-92;
• Kenya’s fertilizer use rate was almost unchanged over the same period.
0
5
10
15
20
25
30
35
40
45
50
1979-80 1991-92 2002-03 2009-11 2014-16
Fertilizer(kgs)/hectare
Ethiopia Kenya Malawi Nigeria Tanzania
13. 13
Ethiopia: Increases in Grain Production are
Increasingly Driven by Yield Growth
Source: CSA agricultural production data and Bachewe et al., (2018).
• Annual increases in grain area
cultivated have declined from
over 3% in the early 2000’s to
less than 1% in recent years.
• Yield increases averaged over
5% per year from 2010/11 to
2016/17.
-2
0
2
4
6
8
10
%
grain area
yield
• Growth in crop output slowed to 6.7 percent per year in the second part of this
period, however, as growth rates of most major inputs declined (except fertilizer).
• Increases in area cultivated, labor use, use of fertilizer and improved seeds, and
total factor productivity (TFP) accounted for much of the 8.3 percent annual
average crop output growth from 2004/05 to 2015/16.
14. 14
Ethiopia: Accounting for Growth in Crop Output
Source: Bachewe et al., (2018).
• TFP growth was 3.19 percent per year from 2004/05 to 2009/10, and 0.85 and 2.02 percent per year
for the 2010/11-2015/16 and the 2004/05 – 2015/16 periods.
• For the 2004/05 -2015-16 period, labor accounted for 34% of the 8.3 percent per year output growth;
fertilizer 11 percent, improved seeds 10%, land 8 percent and TFP 25%.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2004/05-2009/10 2010/11-2015/16 2004/05-2015/16
PercentChangeinOutput
Labor Capital Land Fertilizer
Improved seeds Pesticides Irrigation Extension
Services Returns to scale Rural roads ∆ TFP
15. 15
CAADP Analysis and Actual Outcomes (c.2008)
• Earlier CAADP analysis
• Would 6 percent / year agricultural growth raise rural incomes and
reduce poverty? (given rapid non-agricultural income growth)
• Model results suggested … with rapid non-agricultural growth, real
prices of food would not fall significantly, farmer incomes would
increase; poverty would decline.
• What actually happened?
• Major production increase
• Nonagricultural economy grew
• Real cereal prices rose
• Poverty fell
• Many other factors also
influenced outcomes.
0
100
200
300
400
500
600
700
800
900
1000
(2010Birr/quintal)
Maize Sorghum (red)
Teff (mixed) Wheat (white)
16. 16
Will Further Agricultural Growth Promote Poverty
Reduction Given Structural Change?
Key factors
• Growth of agricultural supply relative to demand (price
effects on agricultural incomes)
• Structural change in economy: Number of farmers (and
agricultural workers) declines as a share of total
population.
• Changing structure of demand: share of agricultural/food
products in total demand falls as incomes rise.
• Small investments targeted to poor farmers could still
reduce poverty even if aggregate agricultural growth has
limited effects.
17. 17
Ethiopia’s Macro-economy:
Overview
• High real GDP growth, but slightly slower than before:
• 2014/15-2016/17 average: 9.7%/year (official data)
• 2017/18: 7.7%; medium term 7.0%/year (IMF estimates)
• Relatively high (broad) money growth:
• 2014/15-2016/17 average: 24.5%/year (official data)
• 2017/18: 29.2%; medium term 22%/year (IMF estimates)
• Moderate inflation (CPI):
• 2014/15-2016/17 average: 8.9%/year (official data)
• 2017/18: 14.7%; medium term 8%/year (IMF estimates)
18. Ethiopia: Public Spending
2007/08 – 2015/16
• Ethiopia has invested
heavily in the rural
economy
• Agriculture and roads
accounted for 13.9 and
15.8 percent of public
expenditures in
2014/15
• Agricultural
expenditures grew by
an average of 10.1
percent per year from
2009/10 to 2014/15.
Road expenditures
grew even faster – 13.0
percent/year.
18
0
50
100
150
200
250
300
350
400
450
2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
(bn2015/16Birr)
Rec. Agric. Cap. Agric. Rec. Roads Cap. Roads Rec. Other Cap. Other
2009/10 2014/15 Annual Growth
Agriculture 33.3 53.7 10.1%
Recurrent 6.4 10.0 9.3%
Capital 26.8 43.7 10.2%
Roads 33.2 61.2 13.0%
Other 172.6 271.9 9.5%
Total 239.1 386.8 10.1%
Agriculture share 13.9% 13.9% 0.0%
Roads share 13.9% 15.8% 0.4%
19. 19
The Balance of Payments: Foreign Capital Inflows
• Total goods imports
declined from US$ 16.7 to
US$ 15.3 billion between
2015/16 and 2017/18, but
were still 1.85 times
2010/11 levels.
• Foreign capital inflows,
private transfers and FDI
together were US$14bil. in
2017/18 (73.3% of
merchandise imports).
• Merchandise exports
accounted for only 18.6% of
total foreign exchange net
inflows.
Foreign capital inflows have been large.
Projected debt/GDP for 2018/19 was 59.5%; projected
external debt/GDP was 29.5%.
Source: IMF data (various years). (2016/17 – 2018/19 figures are projections.)
0
2
4
6
8
10
12
14
16
18
2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17
billionUS$
Foreign Capital Inflows Foreign Direct Investment Public Transfers
Net Servs + Priv Transfers Exports
Imports
Ethiopia: Balance of Payments, 2014/15-2017/18
20. 20
Macro-economic Imbalances:
Real Exchange Rate Appreciation
• IMF estimated overvaluation of 14-20 percent in
2017 (before October 2017 devaluation).
• October 2017: Nominal exchange rate depreciation
of 15 percent from 23.40 to 26.91 Birr/US$.
• Ethiopian inflation and US dollar appreciation
relative to other currencies has resulted in an
appreciation of the real effective exchange rate.
• IMF estimated overvaluation of 12-18 percent at the end
of 2018.
21. 21
External and Domestic Debt
• Both external and
domestic debt quadrupled
between 2010/11 and
2018/19
• External debt reached
$27bil. in 2018/19
• Equal to 30% of GDP.
• Total Debt-to-GDP ratio
rose by 60%-points
• 37% in 2010/11
• 61% in 2017/18
• 59% in 2018/19Further substantial increases in foreign debt as a share
of GDP could become unstainable
Source: IMF data (various years). (2016/17 – 2019/20 figures are projections.)
37.4
32.7
37.4
45.7
53.4 54.4
57.2
61.0 59.5
58.6
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2010/11 2012/13 2014/15 2016/17 2018/19
Debt/GDP(percent)
billionUS$
Domestic Debt External Debt Debt/GDP
22. Perspectives on the Future of Ethiopia’s Agriculture:
2018 to 2040, Drivers and Scenarios
22
23. 23
Perspectives on the Future of Ethiopian Agriculture
Drivers of Growth and Transformation
• Increasingly binding land and water constraints (esp. in highlands)
• Technology-driven yield increases
• Improved seeds, quantity and quality of fertilizer
• Modernized value-chains
• Larger share marketed, reduced transport costs, cold-chains, value-addition
• Decelerating demand for cereals
• Accelerating demand for meat, dairy and process goods
• Increased urbanization: 16% in 2010/11 to 27% in 2034/35 (off.
est.)
• Public investments
• Road and port infrastructure, urban versus rural allocations
• International economic climate and foreign investment
24. 24
Model Simulations:
Drivers of Agricultural and Economic Growth
• Land (varies by region / agroecology):
• 0.6% annual growth in most scenarios (1.8% in moisture-
sufficient lowlands; 0.7% in moisture-sufficient highlands)
• Labor (and rates of urbanization)
• Historical population growth rates 2007-15: urban 4.6%,
rural 2.1%, overall 2.5%
• Capital (and rates of investment by sector)
• Determined by domestic and foreign savings
• Private and public investment choices
• Technical change (changes in TFP)
25. 26
Design of Model Simulations
• Model run over the period 2010/11 - 2039/40
• 2010/11-2015/16 replicates observed trends
• 2016/17 onwards based on projections
• Five scenarios:
1. Baseline: Business-as-usual
2. Cities: Faster urbanization in cities >50k
3. Agriculture: Greater investment in agriculture
4. Rural Nonfarm/Towns: Faster growth in rural nonfarm and towns
<50k
5. Livestock: Shift in geographic area of concentration
Rainfall sufficient highlands: Decline in crop area and increase in
livestock productivity;
Rainfall sufficient lowlands: Increase in crop area and decrease in
livestock productivity
• Targeted investments displace other investments (no free
lunch)
• e.g., investing in cities reduces investments in agriculture
26. 27
Baseline Assumptions (1)
National annual average growth rate (%)
2011-2016 2016-2026 2026-2040
Population 2.6 2.3 1.8
Labor force 2.6 2.3 1.8
Crop land 2.0 0.86 0.41
Livestock herd 1.4 0.8 0.4
Foreign capital inflows 30.0 -8.0 -8.0
Foreign aid inflows 1.5 -4.0 -4.0
Remittance inflows 15.0 -10.0 -10.0
Agricultural TFP 3.0 1.0 1.0
Non-agricultural TFP 3.0 0.5 0.5
27. 28
Baseline Assumptions (2)
• Foreign savings growth is constant across simulations
• Calibrate annual rural-urban migration flows
• Migration rate estimated by assuming same natural pop. growth in
urban and rural areas, and then scale migration to hit projected pop.
growth rates
• Urban agglomeration & congestion effects
• Agglomeration elasticity = 0.08 (% urban TFP gain from 1% increase in
population density)
• Congestion elasticity = 0.10 (% urban TFP gain from 1% increase in
public capital per capita)
• Return on agricultural and rural investments
• Agricultural TFP to public agricultural spending elasticity = 0.3 (Benin
et al.)
• Similar return in rural nonfarm TFP (but nonfarm GDP is 42% of rural
GDP)
28. 29
Model Results: Growth Outcomes
Source: Ethiopia CGE model results
• City investments raise real GDP by
7.5% relative to baseline (agricultural
investments result in a decline by
12.8% relative to the baseline)
• Largest rural GDP gains (17.4%) from
investments in nonfarm activities,
but draws resources away from rural
agriculture
• Nonagricultural GDP is 17.3% and
18.7% less in the agriculture and
livestock investment simulations
7.5
0.1
15.9
-6.9
10.3
-12.8
-2.4
-24.7
10.0
-17.3
2.5
17.4
-14.4
-0.5
3.1
-14.5
-4.5
-26.0
6.7
-18.7
-30 -20 -10 0 10 20
National
Rural
Urban
Agriculture
Non-agriculture
Deviation from baseline, 2040 (%)
S1: Cities S2: Agriculture
S3: Nonfarm S4: Livestock
29. 30
Ethiopia’s Agriculture-Food System
GDP Employment
National economy 100.0 100.0
Agriculture-food system 52.9 84.4
Agriculture (crops, livestock, etc.) 42.1 79.0
Agricultural processing (milling, etc.) 2.1 0.7
Farm/processing input production 1.3 0.4
Agricultural trade & transport 7.5 4.2
• The agricultural sector alone accounts for 42.1 percent of
GDP and 79 percent of employment (primary occupation).
• Downstream and upstream non- agricultural sectors account
for 10.8 percent of GDP and 5.4 percent of employment.
Source: 2010/11 Ethiopia Social Accounting Matrix (SAM)
30. 31
Baseline Agri-Food System Dynamics
Source: Ethiopia CGE model results
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2010 2015 2020 2025 2030 2035 2040
Shareofnationaltotal(%)
Agriculture-food system GDP share
Agriculture GDP share
Downstream share of total AFS GDP
52.9
42.1
20.5
28.7
23.0
16.4
31. 32
Model Results: Household Welfare Outcomes (2)
Source: Ethiopia CGE model results
• Investments in agriculture lead to
similar changes in national household
consumption in 2040 as investments
in cities.
• The largest gains in welfare come from
investments in rural non-farm.
• Urban investments benefit urban
households (by 1.5% points relative to
the baseline), but reduce national
average welfare (by 0.7% points)
• Generates demand for
agricultural products, but some of
these are imported
• Urban nonfarm producers
compete with rural nonfarm
producers
-0.7
-1.4
1.5
-1.0
0.3
-4.6
1.7
4.8
-7.5
-3.5
-2.0
-7.5
-10 -5 0 5 10
All
Rural
Urban
Growth Rates (Deviation from baseline, %)
S1: Cities S2: Agriculture
S3: Nonfarm S4: Livestock
32. 33
Poverty* Impacts of Investments (2016-40)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
Annual per capita consumption growth for poor households
(%-point deviation from baseline)
-1.5
-1.0
-0.5
0.0
0.5
1.0
2016 2020 2024 2028 2032 2036 2040
(%-pointdeviationfrombaseline)
Urban investments Agricultural investment Rural nonfarm investment
Agriculture invt more pro-poor
than urban invt through 2023-24
33. 34
Poverty* Impacts of Investments (2016-40)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
-1.5
-1.0
-0.5
0.0
0.5
1.0
2016 2020 2024 2028 2032 2036 2040
(%-pointdeviationfrombaseline)
Urban investments Agricultural investment Rural nonfarm investment
Agriculture invt more pro-poor
than urban invt through 2023-24
Rural non-farm invt is more pro-poor
than urban invt through 2025-26
Annual per capita consumption growth for poor households
(%-point deviation from baseline)
34. 35
Model Results: Poor* Household Outcomes 2040(2)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
• Rural nonfarm investments
result in large gains to poor
households (2.5%/year) as well
as nonpoor households
(1.4%/year)
• Investments in agriculture and
rural nonfarm are more pro-
poor than investments in urban
sectors
• Urban investments draw
resources away from AFS, which
hurts both poor and nonpoor
consumers
35. 36
Summary: Economy-wide Analysis (1)
• Agricultural growth is likely to decelerate
• Growing land constraints are only partly offset by cultivating
more of the moisture-sufficient lowlands
• Urbanization slows rural labor force growth (but rural
population is still growing)
• With rapid growth in the non-agricultural economy,
demand for agricultural products will continue to rise.
• Increased agricultural production can prevent an increase in real
food prices that would harm the poor.
• The share of downstream activities in the broader agri-
food system is likely to grow over time
36. 37
Summary: Economy-wide Analysis (2)
• Model simulations indicate that urban investments generate
faster economic growth and structural transformation
• But, in spite of rapid urbanization and structural
transformation, the bulk of the poor will likely be living in
rural areas with livelihoods dependent on agriculture and the
rural non-farm economy.
• As a result, agricultural and rural non-farm investments will
likely remain most effective at reducing poverty at least
through the mid-2020’s.
• Given tight foreign exchange and budget constraints, further
analysis of investment tradeoffs with respect to GDP,
employment, poverty, etc. is needed.
37. 38
Selected References (2)
Bachewe, F. N., G. Berhane, B. Minten and A.S. Taffesse. 2018. “Agricultural
Transformation in Africa? Assessing the Evidence in Ethiopia”, World Development
105 (c): 286-298.
Dorosh, Paul, James Thurlow, Frehiwot Worku Kebede, Tadele Ferede, and
Alemayehu S. Taffesse. 2018. “Structural Change and Poverty Reduction in
Ethiopia: Economy-wide analysis of the evolving role of agriculture”, ESSP Working
Paper 123.
International Monetary Fund. 2018. The Federal Democratic Republic of Ethiopia,
2018 Article IV Consultation. IMF Country Report No. 18/354. Washington, D.C.:
International Monetary Fund.
Knippenberg, Erwin; and Hoddinott, John F. (2017) “Shocks, social protection, and
resilience: Evidence from Ethiopia”, ESSP Working Paper 109, Addis Ababa,
Ethiopia.
Webb, Patrick and Joachim von Braun. 1994. Famine and Food Security in Ethiopia:
Lessons for Africa: John Wiley and Sons, Chapter 4.