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.
- 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. Presentation outline
- Role of Livestock Markets
- Why the focus on smallholders?
- Why do we think that livestock markets can be improved for
smallholders?
- Competitiveness and market participation of smallholder
livestock producers
- International and regional livestock trade
3. Livestock and the global economy
- 40% of global agricultural GDP
- 30% of agricultural GDP in developing countries
- Livestock as source of traction for about 50% of the worlds
farmers
- Livestock as a source of organic fertilizer for most of the
worlds crop lands
- Hence the sector has a critical role in economic growth and
poverty reduction
- However, if left unregulated, livestock generatesnegative
externalities
4. Livestock and the rural poor
- Livestock contributes to the livelihoods ofabout 70% of the
rural poor worldwide
- Overlaying poverty and livestock distribution maps, ILRIs work
shows that about 30% of the rural poor live in Sub-Saharan
Africa.
- Livestock is one of the fastest growing sub-sectors in
agriculture and the sectors growth represents significant
contributions to poverty reduction and economic growth
- 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
5. Role of Livestock Markets
- Well-functioning livestock markets perform an important
function of signal transmission formacro and sectoral policies to
effectively change the incentives and constraints faced by
livestock producers.
- Well-functioning livestock markets also strengthen micro level
welfare improvement opportunities that could aggregate into economy
wide growth.
- 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.
- Well-functioning livestock markets produce price signals for
the development of institutional and technological innovations to
improve social welfare
6. Why the focus on smallholders?
- Smallholder livestock producers account for about 20% of the
world population
- Livestock production and marketing are important for the
livelihoods of about 1 billion poor people, including smallholder
livestock keepers
- Market opportunities for livestock and livestock products are
increasing due to population growth, increasing income,
urbanization, globalization need to ensure that smallholders
benefit
7. Why the focus on smallholders? (2)
- In arid and semi-arid areas, livestock represent major
marketable assets held by the poor
- Smallholder livestock keepers have been underserved by their
governments and by the international community
8. Exclusion of smallholders
- Smallholders are often excluded from benefiting from livestock
sector development due to requirements in:
-
- Quality and safety standard, which often require investment in
on-farm hygiene
-
- Uniformity of product, requiring investments in breeding,
feeding, and veterinary service
-
- Reliability of supply, which requires higher and sustainable
production
- 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 limitedneed to
break down barriers to finance, input supply and marker access
9. Why do we think that livestock markets can be improved for
smallholders?
- Critical deficiencies in livestock development policies (eg.
animal health policy, breeding policies, internal and cross-border
livestock movement, etc).
- The micro and meso-level realities of livestock markets in
sub-Saharan Africa:
-
- Poor market and transportation infrastructure
-
- Wide difference between producer and terminal market prices -
high transaction costs
-
- Limited access to commercial finance
-
- Considerable price volatility across space and time
-
- Significant entry and mobility barriers
-
- Highly personalized exchange
-
- Imperfect contract monitoring and enforcement
-
- Advances in technology imply possibilities for market
integration and efficiency that were not hitherto possible
10. Market participation of smallholders
- 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.
- A households production technology choice is fundamental
determinant of household market participation choice by affecting
productivity
- Promoting improved livestock technologies is also essential to
induce broad-based market participation and aggregate supply
response to price-based policy instruments
- Improved production technologies provide a more reliable driver
of increased supply than do exogenous price shocks due to policy
change.
-
- interventions to facilitate uptake of technologies that
increase productivity are important
11. Market participation (2)
- Wealthier households that have the livestock to generate
marketable surplus have higher market participation need for
interventions to build up assets
- 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
12. Market participation (3)
- The potential for smallholders to engage in livestock markets
depends largely on specific context of the market, product and
place under consideration
-
- In poorer areas, local and informal markets appear to offer
initial growth potential for smallholders
-
- Smallholders tend to be more efficient in the informal, low
input context due to household labor and low-cost purchased
inputs
-
- Generally smallholders are more competitive in ruminant systems
than monogastric production
-
- 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 marketspro-active policies and investments
needed
13. Dairy markets
- Dairy sector - one value chain where competitiveness of
smallholders was demonstrated: South Asia, East Africa, and Latin
America
- However, input supply a critical constraint:
-
- Improved indigenous animals
-
- Low quality crop residue make up the bulk of feed
-
- Simultaneous genetic and feed improvement can
increaseproductivity to as much as three-fold
- Linking input supply to extension, financial and market
services is critical
-
- solving commitment failure problem
14. Dairy markets (2)
- 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.
- Recent studies show that, in East Africa, around 80% of fluid
milk is marketedinformally, with most of it sold directly to
consumes with no intermediaries
- 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 ILRIs research in Nairobi shows
- In East Africa animal health results in calf mortalities of up
to 20%, and 10% for cows
15. Dairy markets (3)
- Comparative analysis of dairy systems in sub-Saharan Africa
show that:
-
- Peri-urban areas of African Dairy offers high potential as
smallholder diversification activity
-
- Growth in smallholder dairying is limited by high transaction
costs
-
- 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
-
- Contracts between producers and buyers or cooperatives play
important role in reducing transaction costs.
-
- Coordination failure and returns to size imply need for public
intervention to facilitate improvements in dairy markets
16. Dairy Markets (4)
- 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.
- 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.
17. Live animal and meat marketing- small ruminants
- About 163 million sheep and 200 million goats population in
SSA
- Sheep/goats constitute about 26% of meat output in the
region
- Small ruminants play important role in smallholder livelihoods
in Africa, particularly in drier, marginal areas and in humid
forest zones
- Studies show that about 130 million people across west and
southern Africa keep small ruminants
- Small ruminants are largely raised with almost no cash
expenditures, mainly owned by women
- Increasing market orientation, especially for sheep is
observed, fed on crop residues, supplemented with legumes and
bran
18. Small ruminants (2)
- In peri-urban fattening operations, small ruminants are kept
enclosed and fed on concentrates and fresh fodder for
finishing
- Markets remain less developed than for cattle, and remain
basically informal
- Smallholders remain very competitive relative to large scale
producers
- However, poor nutrition and husbandry, and high pre-weaning
mortality result in low productivity and market off-take
19. Live animal and meat marketing- cattle
- About 212 million cattle population in SSA
- The beef industry constitutes 45% of the meat output
- Pastoral systems account for a third of the cattle population,
providing 60% of the beef
- 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
- Many SSA countries hold large inventories of cattle which are
not effectively exploited (eg. Ethiopia)
20. Cattle (2)
- Despite the population size of cattle SSA produces 6% of the
world beef and veal output
- Although better developed than small ruminant markets,
significant transactions of cattle and beef is done informally (eg.
90% of Ghanas beef supply is marketed through the informal
sector)
- An important factor affecting both productivity and
marketability of live cattle and beef is the presence of animal
diseases.
21. International and regional trade
- More than 80% of livestock products are produced and consumed
in the same country
- 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
- SSA switched from being a moderate net exporter of a livestock
products in 1970 to a net importer by 1995.
- Currently, Africa contributes just about 2% of global
trade
- In West Africa, there are virtually no exports to countries
outside the region
22. International and regional trade (2)
- Livestock importers adopt hygiene and health standards that are
usually higher than those of developing countries
- Bans on livestock exports from African countries have had major
impact on the livestock dependent economies
-
- A ban on livestock exports from the horn of Africa by Saudi
Arabia in 1998-2000
-
- 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.
23. International and regional trade (3)
- Best market opportunities for future growth lies within Africa
itself:
-
- Africas meat demand is expected to almost triple between 1997
and 2005, from 5.5 to 13.3 million metric tons
-
- Given relatively high income elasticity for livestock products,
the increase will even be greater if SSA is able to accelerate its
economic growth.
- However, African countries need to harmonize their livestock
marketing and trade policies in order to expand domestic livestock
markets beyond border confines
24. International and regional trade (4)
- ILRI scientists studies on cross-border trade in West Africa
show:
-
- Domestic livestock markets are more competitive than
cross-border trade,
-
- Transportation and handling costs are the single largest
component of cross-border marketing costs, accounting for about
40-60% of marketing costs
-
- Cross-border transportation costs are twice as high as domestic
transportation and handling costs
-
- Regional cross-border transfer costs for cattle are three times
higher than the equivalent transfer of beef from Europe to West
Africas cost
-
- Illegal road taxation at numerous checkpoints further increase
transfer costs
-
- Cross-border market integration is low
-
- Market information service is weak
-
- Some governments do not adhere to agreed trade policy reforms,
especially as regards trade facilitation, exchange and payment
systems and investment facilitation
25. Conclusions
- 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.
-
- Political and investment support for collective action either
in the form of cooperatives or associations or under contract
farming or vertical integration
- Setting appropriate levels of public safety standards with due
regard for the state of the market, overall competitiveness and
enforceability
26. Conclusions (2)
- A level playing field for the pricing of inputs
- Treating smallholders equally in the incentive system
- Support to research and advisory services especially in
connection with the smallholders and the poor
-
- Input-supply and services
- Harmonization of marketing and trade policies of trading SSA
countries
27.
- Thank You For Your Attention!
28. Recommendations
- Support for training of the different stakeholders along the
value chain on good husbandry, manufacturing practices and food
safety
- Support for infrastructure development and institution
building
29. Livestock Value Chains (2)
- Both the public and private sectors can be important role in
livestock value chain governance, through regulatory functions and
farmer organizations.
- As livestock value chains become more complex, increasingly
sophisticated interface arises within and between the public and
private sectors.
- 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.
30.
- Major African exporters of live animals Burkina Faso, Djibouti,
Ethiopia, Mali, Niger and Sudan, and major importing countries are
Kenya, Nigeria, Cote dIvoire and Ghana
31.
- Strong economies of scale in feed delivery