African Development Bank GroupAfrican Development Bank Group

Diversification and sophistication of livestock

products: the case of African countries

Accra – Ghana – 05-06 November 2013

Nadège Désirée YameogoAfrican Development Bank

Conference on “Mainstreaming livestock value chains”

Research questions and objective

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What kind of livestock commodities do african countries export? What is the technology intensity and the degree of sophistication

embedded in livestock commodities? How much does africa loose when producing un-sophistcated products? What should be done to address this issue?

The objective of this study: Understand the structure of livestock and livestock commodities exports of

african countries: comparative advantage, type of technology embedded in livestock commodities and product economic complexity

Determine where countries need to invest for higher value added products

Data and Methodology: We used trade data (exports and imports of livestock commodities) of each

african country . New theory of economic complexity by Hausmann, Hidalgo et al. (2007,

2009, 2011)

Comparative advantage of african countries

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We are interested in the long term comparative advantage of countries from 1995 to 2011 using the revealed comparative advantage (RCA)

few countries (21/53) have been able to keep a long term comparative advantage in the export of at least one livestock commodity.

Food products: Six African countries have been able to maintain a comparative advantage in the

export of live animals: Burkina Faso, Djibouti, Mali, Niger, Namibia, and Sudan.

Only two countries have maintained a comparative advantage in processed livestock commodities such as fresh or frozen meat: Botswana and Namibia.

only Djibouti has kept a comparative advantage in the export of milk and creams

But in recent years, countries such as Uganda, Senegal, and Togo have demonstrated comparative advantage in the export of dairy products

Comparative advantage of african countries…

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Manufactured goods: Some countries specialized in the export of raw materials such as hides and skins: Kenya, Madagascar, Uganda, Rwanda, Senegal, Sudan, South Africa, Tanzania, and Zimbabwe.

Others specialized in the export of low technology manufactures such as leather: Djibouti, Eritrea, Ethiopia, Kenya, Malawi, Namibia, and Tunisia (for manufactured leather).

It should be noted that countries that have a huge livestock potential are not necessarily among those that managed to keep a long term comparative advantage in the export of these products. For instance, Nigeria, the largest producer of cattle in Africa, does not export any of these products with comparative advantage

Who are the trade partners?

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Region Partners Exports (000$) Imports (000$) Export share Import share

Central Africa Central Africa 383 190,95 302 177,85 8,90% 2,53% Central Africa Eastern Africa 11 305,87 238 843,49 ,26% 2,00% Central Africa ROW 3 845 824,06 10 553 766,03 89,31% 88,51% Central Africa North Africa 1 326,04 146 537,81 ,03% 1,23% Central Africa Southern Africa 20 171,79 460 681,93 ,47% 3,86% Central Africa West Africa 40 610,90 221 461,84 ,94% 1,86% North Africa Central Africa 126 666,72 834,68 1,15% ,00% North Africa Eastern Africa 172 450,25 369 723,59 1,57% ,67% North Africa ROW 8 568 319,30 53 210 950,10 77,87% 95,79% North Africa North Africa 1 643 557,20 1 908 147,91 14,94% 3,43% North Africa Southern Africa 91 442,21 35 787,34 ,83% ,06% North Africa West Africa 399 933,90 26 581,04 3,63% ,05% Eastern Africa Central Africa 225 421,55 7 963,44 2,03% ,11% Eastern Africa Eastern Africa 1 410 301,74 996 378,12 12,69% 13,36% Eastern Africa ROW 8 721 663,75 5 955 162,28 78,49% 79,86% Eastern Africa North Africa 384 655,34 182 367,31 3,46% 2,45% Eastern Africa Southern Africa 348 491,30 237 301,05 3,14% 3,18% Eastern Africa West Africa 19 964,73 10 753,24 ,18% ,14% Southern Africa Central Africa 418 724,35 5 758,79 2,00% ,02% Southern Africa Eastern Africa 376 076,83 337 816,65 1,79% 1,23% Southern Africa ROW 12 641 779,09 19 853 628,85 60,28% 72,18% Southern Africa North Africa 35 439,63 74 790,81 ,17% ,27% Southern Africa Southern Africa 7 083 938,93 7 223 259,71 33,78% 26,26% Southern Africa West Africa 393 931,03 9 992,26 1,88% ,04% West Africa Central Africa 171 110,54 28 355,69 1,63% ,08% West Africa Eastern Africa 7 502,65 17 144,74 ,07% ,05% West Africa ROW 5 308 986,29 32 758 566,32 50,70% 89,88% West Africa North Africa 43 025,00 363 304,31 ,41% 1,00% West Africa Southern Africa 208 168,93 377 591,97 1,99% 1,04% West Africa West Africa 4 709 484,11 2 899 574,29 44,97% 7,96% Africa Africa 28,58% 14,57% Africa ROW 71,42% 85,43%

How complex are livestock commodities?

Country exports reflects what it is capable to produce i.e.: its productive structure. If this output is diversified and sophisticated, so is the economy.

According to Hausmann et al. (2011), the complexity of an economy is defined as the multiplicity of useful knowledge or capabilities embedded in the society.

PCI is computed based on the method of reflection which uses the RCA to compute recursively diversity and sophistication.

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PCI of livestock commodities

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Product PCI PCI rank

Import Share Export share

Net Exportation

[016] Meat, edible meat offal, salted, dried; flours, meals 0,424 96 ,16% ,14% -162929,328 [024] Cheese and curd 0,171 114 3,32% 6,33% -1524415,34 [017] Meat, edible meat offal, prepared, preserved, n.e.s. 0,103 120 1,45% ,99% -1572007,98 [612] Manufactures of leather, n.e.s.; saddlery & harness 0,075 122 ,50% 1,05% -175948,333 [023] Butter and other fats and oils derived from milk 0,022 127 3,17% ,32% -4373744,61 [022] Milk, cream and milk products (excluding butter, cheese) -0,128 138 25,48% 5,29% -33807293,5 [098] Edible products and preparations, n.e.s. -0,142 139 22,92% 14,70% -25347937,2 [613] Furskins, tanned or dressed, excluding those of 8483 -0,148 140 ,02% ,23% 83801,342 [012] Other meat and edible meat offal -0,271 149 10,84% 5,45% -12748992 [025] Birds' eggs, and eggs' yolks; egg albumin -0,289 151 ,91% ,74% -920339,442 [212] Furskins, raw, other than hides & skins of group 211 -0,434 164 ,03% ,20% 56491,541 [091] Margarine and shortening -0,498 171 2,60% 2,39% -2512574,41 [011] Meat of bovine animals, fresh, chilled or frozen -0,570 176 7,23% 5,58% -7519255,31 [411] Animals oils and fats -0,753 193 1,71% 1,41% -1726740,12 [001] Live animals other than animals of division 03 -0,772 195 4,70% 14,51% 656526,14 [431] Animal or veg. oils & fats, processed, n.e.s.; mixt. -0,787 195 4,85% 2,73% -5556340,57 [611] Leather -0,841 201 6,80% 20,79% 856561,767 [268] Wool and other animal hair (incl. wool tops) -0,899 205 ,71% 7,24% 2673176,14 [291] Crude animal materials, n.e.s. -1,054 213 1,96% 3,21% -1172815,92 [211] Hides and skins (except furskins), raw -1,173 223 ,65% 6,71% 2495027,64

Complexity of livestock products

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• African countries export 34% of complex products while this share is almost half world level (61%). Contrastingly, 66% of Africa’s livestock exports are not complex while this share is only 39% globally: These results clearly indicate that in Africa, livestock exports are not sophisticated enough compared to the rest of the world.

• very few countries have been able to put in place industrial facilities that exploit the available livestock into value adding products. About 73% of complex products are exported by only seven countries: South Africa (26%), Egypt (16%), Morocco (7%), Botswana (6%), Namibia (6%), Swaziland (6%) and Tunisia (5%).

• These countries are also among the most complex economies on the continent i.e.: their productive structures are among the most sophisticated in Africa.

• South Africa for instance which received about 5% of exported live animals exported about 60% of processed commodities within the continent. Contrastingly, Egypt exported 64% outside the continent

Why few countries have succeeded and others not yet?

Nations that hold complex knowledge are able to make complex or sophisticated products which cannot be made in countries with only basic knowledge.

There is causal relationship between knowledge and development. According to their empirical results, Hausmann et al. (2011) found that the most prosperous economies are also those that are more complex i.e. hold high volumes of knowledge or capabilities.

Capabilities are what are required to make a given product. Capabilities can be tangible inputs such as bridges, ports, roads, buildings, abattoirs, industrial plants, but also be intangibles such as skills and knowledge, institutional capital which include norms and institutions, and the overall non-tradable goods and services.

If the lack of human and physical capabilities contributes to explain why African countries export much more unprocessed goods, an immediate solution could be collaboration between the major livestock producers and countries with complex productive capabilities that can transform these primary goods into sophisticated products within the continent.

But in the long term, countries need to invest to improve their productive structure or capabilities to catch-up with the rest of the world..

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The opportunity cost of not producing complex products

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• How much Africa is losing when producing essentially non-complex livestock products?

• Between 1995 and 2012, Africa has been a net importer of livestock commodities.

• The most imported are processed goods: dairy products (25% ) and prepared and edible products (22%).

• Contrastingly, the most exported commodities are primary goods: live animals (14%) and leather (un-manufactured) and hides/skins (27%).

• The opportunity cost of not producing processed goods could be approximated by the amount of money the continent spent to import such goods.

• Africa earned about 51 billion dollars by exporting livestock commodities, but at the same time, the continent spent about 143 billion dollars to import the same type of goods between 1995-2012.

• For the ten most complex commodities, the continent spent about 99 billion between 1995-2012 to import such products while, at the same time, it earned only 18 billion dollars by exporting the same processed goods.

How to reduce the costs?• Increase productivity and the quality of what they produce and export. Instead of

exporting raw materials, countries could gain more by transforming these raw materials into processed products for domestic and international markets

• This will significantly increase the contribution of the livestock sector to development and ensure food security on the continent.

The role of livestock value chains

• Processing of livestock commodities creates value addition and offers additional opportunities for domestic and international markets provided that certain international requirements are met by exporting countries.

• In addition, importers seek dependable suppliers who provide on time quality and competitive products.

• Entry into a foreign market requires a continual commitment. To be successful, producers need to be innovative and look for new products and niche markets.

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Livestock supply response Yet, in many African countries, there is a predominance of traditional herding over

commercial herding. This has an advantage but also an inconvenient. The advantage is that livestock is free ranging on natural pasture, and therefore

produces high quality meat that is in high demand in domestic as well as in international markets.

But, because of the dominance of traditional herding, producers are not commercially oriented and sell animals only when they need cash or when a drought hits.

In this context, higher prices could lead to a decrease in livestock supply if producers anticipate higher future prices, and lower prices could push producers to sell as much as possible in anticipation of lower future prices.

negative short-term price elasticities and positive long-term price elasticity of livestock supply

This often causes miss-coordination in the value chain

Left alone, livestock producers may not be able to meet the market needs. And when there is shortage of livestock supply, the value chain becomes unreliable.

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What kind of interventions?

Government(but also development partners) can intervene by providing incentives to livestock producers

Improve country’s productive structure or capabilities: investment in adequate infrastructure to support the sector, create market incentives to boost the livestock value chains, reduce transaction costs to livestock commodoties trade, trade agreements to increase intra-regional trade

Improve human capital: training, knowledge transfer

Provide adequate financing to producers to support the livestock value chains

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Thank you!!!

Merci!!!

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