ReSAKSS Regional Analysis on Agricultural Expenditures and Agricultural Policy Bias: East and Central Africa", presentation by Babatunde Omilola and Melissa Lambert. April, 2009.

1. ReSAKSS Regional Analysis on
Agricultural Expenditures and
Agricultural Policy Bias:
East and Central Africa
Babatunde Omilola and Melissa Lambert
April, 2009

2. Contents
• Agricultural snapshots of:
– Ethiopia
– Kenya
– Rwanda
– Uganda
– Sudan

3. Agriculture in Ethiopia
• Despite significant agricultural liberalization and
relatively robust growth in Ethiopia since 1990, food
security has not improved
• Why?
– Most of the cereals grown in Ethiopia are non-tradable
– Cereal production is largely weather dependent
– Only about 10 percent of the total cereal cropland is
irrigated
– Yield variability at the regional level is one of the highest in
the developing world
– Without technological innovation and reduction in
transactions costs, relative stagnation in cereal production
is unlikely to change

4. Agricultural Policy Bias in Ethiopia
• Taxation of agriculture increased in the 1980s and early 1990s but
has been less severe since as a consequence of reforms that
devalued the currency, withdrew price controls and reduced and
then eliminated export taxes
• As a result, export volumes of all major exportable farm
commodities have increased
• Agricultural policy distortions still exist in Ethiopia today:
– Control over input markets
– Ad hoc government interventions in output (mainly cereal) markets
– Disincentives through depressed prices, caused by the continuous
inflow of food aid
• Although farmers’ share of the fob prices increased in the 1990s,
those shares remain low compared with those in neighboring
countries

5. Agricultural Spending in Ethiopia
• Ethiopia is one of a handful of African countries
that has relatively consistently allocated 10
percent or more of their total budgets to
agriculture since 1990
20
AGRICULTURE SHARE (%)
15
10
5
0
AGRICULTURAL SPENDING SHARE IN TOTAL
AGRICULTURAL SPENDING SHARE IN AGRICULTURAL GDP
CAADP 10% TARGET

6. Agricultural Investments in Ethiopia
• To maximize poverty reduction in Ethiopia, agricultural
investments should focus on:
– Staple crops
• Largest share of smallholder income, so even a low growth rate of 1.5
percent would result in a decrease in the poverty rate to about 37 percent
– Modern technology in livestock production
– Enabling farmers’ access to productivity-enhancing inputs and
markets
• Irrigation
• Adoption of improved seed and fertilizer
– Growth in nontraditional exports and the coffee subsector would
not have as significant an effect, as their share of agricultural GDP is
small, and the more impoverished farmers usually cannot afford to
make the investments to grow these types of crops
• Combined growth in all subsectors would have the greatest
effect on poverty because each subsector has important
demand linkages with the others

7. Agriculture in Kenya
1990s 2000s Current Period
Indicator Proportion Proportion Proportion Year
National Poverty Rate (%) 40.0 55.4 67.7* 2008
1 Dollar a Day Poverty Rate (%) 38.4 19.6 19.8* 2008
Child Malnutrition Rate (%) 22.3 21.2 19.5* 2008
Undernourished Population (%) 39.0 33.9 28.1* 2008
Average GDP growth (%) 2.1 4.0 3.3 2008
Average Agriculture GDP growth (%) 2.1 3.3 7.1 2007
Agriculture Spending in National Spending (%) 6.0 4.0 4.8 2008
Agriculture GDP in Total GDP (%) 29.7 28.7 27.7 2007
• Agriculture is the largest sector in Kenya, contributing almost 30% to GDP
• It is the primary income source for rural inhabitants, who make up 85% of
the population
• Following independence until the early 1980s, agriculture in Kenya thrived
• In contrast, the second 20 years of independence have been marked by
agricultural and economic stagnation

8. Agriculture for Development in Kenya
• The greatest constraint to agricultural growth is limited public investment, not policy
distortions
• The country is currently promoting an industrial-led development strategy which
would result in a 46% poverty rate in 2015
• An agricultural-led strategy would result in a greater decline in poverty from around
51.3% of the population in 2003 to 38.7% in 2015
• Investments should target:
– irrigation and research and extension to reach the 10 percent Maputo agricultural spending target
– plus additional investments above the 10 percent target directed toward roads and market
reforms
20
SHARE OF AG SPENDING (%)
15
10
5
0
2005
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2006
2007
2008
AGRICULTURAL SPENDING AS A SHARE OF TOTAL SPENDING
AGRICULTURAL SPENDING AS A SHARE OF AGRICULTURAL GDP
CAADP 10% TARGET

9. Agriculture in Rwanda
• Agriculture is important in Rwanda:
– 90 percent of the population lives in rural areas
– The national poverty rate is above 60 percent
– The average amount of land per household is less than one hectare
• Only a small percentage of rural households are involved in producing
Rwanda’s main exports, which are tea and coffee
• The others depend on staple crops (root crops and bananas, in particular)
and livestock
• The country imports a large amount of food, especially rice and maize, and
the government has set high targets to increase the production of cereal
crops
• Growth in the staples subsector would be more pro-poor than would
agricultural export–led growth
• An agricultural growth rate of 9 percent, rather than 6 percent, would be
needed to achieve MDG 1

10. Agricultural Investment in Uganda
• Over the past two decades, Uganda has experienced strong
economic growth, with national GDP growing above 5% per year
• Agriculture, on the other hand, has lagged behind the rest of the
economy with a far more modest growth rate of 2% per year
• Uganda has experienced reductions in poverty and hunger that are
sufficient to put it on track towards achieving MDG1 by 2015
– BUT the rate of poverty reduction, when combined with an expanding
population, translates into an increase in the absolute number of poor
people from about 8.46 million in 2005 to 10.15 million by 2015
• Increased investments in agriculture would enable the country to
firmly secure MDG1 while also achieving the CAADP target of 6
percent agricultural growth
• This would lift an additional 2.9 million Ugandans above the poverty
line and reverse the current trend of increasing absolute numbers
of people in poverty

11. Taxation of Agriculture in Uganda
• Agriculture in Uganda was lightly taxed in the 1960s
• The burden of taxation increased significantly during
the chaotic years of the 1970s and 1980s
– Heavy taxation of exportables due to overvalued exchange
rate (especially high for coffee)
• Since the onset of agricultural liberalization at the
beginning of the 1990s, the discrimination against
agricultural production has been greatly reduced
• The main challenge now facing the Ugandan
government is to improve the competitiveness of
agriculture through a supply-side investment strategy
as the key element in its poverty reduction strategy

12. Sudan
• Agriculture is the most important sector in Sudan’s
economy
– Accounts for close to 40 percent of the GDP
– Provides a livelihood for more than 80 percent of the
population
– Employs about 70 percent of the active labor force
• Sudan’s agricultural policies have provided government
hegemony over production, marketing, and trade of
farm products through a series of public-sector-led
development plans, production and marketing
parastatals, and close control of foreign exchange
transactions with an overvalued currency