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Icraf Nairobi March 20 2007 V1

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Page 1: Icraf Nairobi March 20 2007 V1
Page 2: Icraf Nairobi March 20 2007 V1

Underappreciated Facts about African Agriculture:

Implications for Poverty Reduction and Agricultural Growth Strategies

T.S Jaynewith colleagues at Michigan State University

ICRAF / NairobiMarch 20, 2007

Page 3: Icraf Nairobi March 20 2007 V1

Major development strategies in retrospect, 1960-2000

1960 1970 1980 1990 2000 2010

Community-driven development

“Big push” capital-intensive

investment

Integrated rural development

Structural adjustment; liberalization

Community-empowerment

??

Untied budget support

Page 4: Icraf Nairobi March 20 2007 V1

Current thinking on “strategy”

Emerging coalition for “big push” agricultural strategy• e.g., Sachs, Sanchez,…maybe Gates?

Strong consensus about need for greater investment in public goods (infrastructure, crop science) and certain policy reforms

Major debate with regard to what constitutes the right “enabling environment”• Food price support/stabilization• Input subsidies

Page 5: Icraf Nairobi March 20 2007 V1

Many of these debates can be informed by a solid empirical understanding of how rural economies work

Page 6: Icraf Nairobi March 20 2007 V1

Organization of presentation:

1. Underappreciated “empirical regularities” of small farm agriculture in Africa

2. Discuss the implications of these findings for current policy debates

Page 7: Icraf Nairobi March 20 2007 V1

Six underappreciated aspects about African agriculture:

1. Farm sizes are declining Huge land disparities rural population is hardly growing new demands on food marketing systems

2. Given plausible assumptions about productivity growth possibilities, grain productivity growth will be inadequate to kick-start growth in most of the region diversification into higher-return activities will be crucial

3. Most farmers in the region are buyers of staple food directly hurt by higher grain prices

4. Retail food prices are trending downward in most of the region

Page 8: Icraf Nairobi March 20 2007 V1

Six underappreciated aspects about African agriculture:

5. Supermarkets account for less than 4% of urban food expenditures in almost all African countries. Even with major growth in supermarket volume, investments in traditional marketing channels will remain much more important for small farmer and consumer welfare

6. “Market liberalization” -- inaccurate description of situation in E&S Africa

Page 9: Icraf Nairobi March 20 2007 V1

Fact #1

• Emerging land pressures are generating fundamental challenges for poverty reduction and investment strategies

Page 10: Icraf Nairobi March 20 2007 V1

Cultivated land per agricultural person (hectares)

1960-69 1970-79 1980-89 1990-99 Ethiopia 0.508 0.450 0.363 0.252 Kenya 0.459 0.350 0.280 0.229 Mozambique 0.389 0.367 0.298 0.249 Rwanda 0.215 0.211 0.197 0.161 Zambia 1.367 1.073 0.896 0.779 Zimbabwe 0.726 0.664 0.583 0.525

Source: FAOStat website: Source: FAO Stat database: www.faostat.fao.org/

Page 11: Icraf Nairobi March 20 2007 V1

Farm size distribution: Small farm sector

hectares

0

1

2

3

4

5

6

7

Ken Eth Rwa Moz Zam

bottom 25%2nd 3rdtop 25%

Page 12: Icraf Nairobi March 20 2007 V1

Characteristics of smallholder farmers, Zambia 1999/00

2913603732.8762,566(75%)

Households not selling maize

514135745413.9234,988(23%)

Rest of maize sellers

2,2828236901,5586.023,680(2%)

Top 50% of maize sales

Total hh income (US$)

Gr. Rev., crop sales

(US$)

Gr. Rev., maize sales

(US$)

Asset values(US$)

Farm size (ha)

N=

Page 13: Icraf Nairobi March 20 2007 V1

Rural population growth rates

Page 14: Icraf Nairobi March 20 2007 V1

Share of Urban population in total population, 1968 and 1998

Page 15: Icraf Nairobi March 20 2007 V1

More than 50% of Africa’s population will be urban by 2015.– 2000: 10 farm households feed 7 non-farm

households– 2020: 10 farm households feed 16 non-farm

households Upshot: urban demand for food is rising

rapidly

Page 16: Icraf Nairobi March 20 2007 V1

Are imported wheat and rice crowding out domestically-produced grain?

• 3.6% annual growth in cereal imports• Of total grain imports by African countries,

only 5% is produced by African farmers• Growth in urban demand is being met

mainly by imported rice and wheat

Page 17: Icraf Nairobi March 20 2007 V1

Importance of Imported Staples in Nairobi Expenditure Patterns

Page 18: Icraf Nairobi March 20 2007 V1

Fact #2

Given plausible assumptions about new technology development, farm sizes are too small for grain-based productivity growth to lift most rural households out of poverty

Hence, diversification into higher-return activities will be crucial

This transition is already occurring

Page 19: Icraf Nairobi March 20 2007 V1

Role of maize in small farm incomes is declining (share of gross sales revenue)

Maize

Other grains/ beans/ oilseeds

Non-food cash crops

Fruits -veges

Animalproducts

Kenya 13.3 7.9 34.0 14.7 26.7

Malawi 32.3 11.8 44.9 na na

Mozam 13.8 9.3 16.9 30.4 23.4

Zambia 28.2 7.7 16.7 27.5 14.7

Page 20: Icraf Nairobi March 20 2007 V1

Fact #3

Most rural farm households are buyers of maize (or net buyers)

Page 21: Icraf Nairobi March 20 2007 V1

Smallholder Households’ Position in the Maize Market

0

10

20

30

40

50

60

Mozambique Zambia Kenya

sell onlybuy onlybothneither

perc

ent

Page 22: Icraf Nairobi March 20 2007 V1

Fact #3

Most rural farm households are buyers of maize (or net buyers)

2% of households account for 50% of marketed grain surplus

Crop price supports: • highly concentrated benefits• anti-poor• Most likely impede small farm diversification

into higher-valued activities

Page 23: Icraf Nairobi March 20 2007 V1

Fact #4

Retail maize meal prices are trending downward

Page 24: Icraf Nairobi March 20 2007 V1

Linear trend(meal): -0.572***

Llinear trend (grain): -0.1060

100

200

300

400

500

US$

per

ton

1994:5

1995:5

1996:5

1997:5

1998:5

1999:5

2000:5

2001:5

2002:5

2003:5

2004:5

2005:5

Year/Month

Wholesale maize grain Retail maize mealLinear-trend-grain Linear-trend-meal

*** 1% level of significance

[D] Nairobi: Price trends

Page 25: Icraf Nairobi March 20 2007 V1

010

0020

0030

0040

00

000

Kw

acha

/ton(

real

: cpi

-200

5=10

0)

1994

:5

1995

:5

1996

:5

1997

:5

1998

:5

1999

:5

2000

:5

2001

:5

2002

:5

2003

:5

2004

:5

2005

:5

Year/Month

Wholesale grain Breakfast meal

Linear-trend-grain Linear-trend-meal

Lusaka: Price trends

Page 26: Icraf Nairobi March 20 2007 V1

050

010

0015

0020

0025

00

000

Kw

acha

/ton(

real

: cpi

-200

5=10

0)

1994:5

1995:5

1996:5

1997:5

1998:5

1999:5

2000:5

2001:5

2002:5

2003:5

2004:5

2005:5

Year/Month

Lusaka: wholesale-retail margin

Page 27: Icraf Nairobi March 20 2007 V1

Fact #4

• Retail maize meal prices are trending downward

• Why?– Food market reform has encouraged rapid

investment in informal, small-scale milling and trading networks

– The informal channel exerts competitive pressure on commercial millers/retailers

– Exception: South Africa

Page 28: Icraf Nairobi March 20 2007 V1

0

1000

2000

3000

4000

1980 1985 1990 1995 2000

producer maizewholesale maizeretail maize meal

cons

tant

200

0 ra

nd p

er m

etric

ton Phase 1 Phase II Phase III

Page 29: Icraf Nairobi March 20 2007 V1

Fact #5

The performance of “traditional” food systems will remain a much more important determinant of farmer welfare and consumer food security than “supermarkets”

Hence, focus investment priorities on improving the performance of traditional food marketing systems– linking traditional with new agribusiness

systems

Page 30: Icraf Nairobi March 20 2007 V1

Retail sources of consumer staple food expenditures, Nairobi

Page 31: Icraf Nairobi March 20 2007 V1

Even with 20% annual growth of supermarkets, in relatively progressive Kenya, in 10 years, the supermarket share will be:

12.4% market share in 2016.

Page 32: Icraf Nairobi March 20 2007 V1

Fact #6

Major misunderstanding of the staple food and input market policy environment• “liberalization” – a misnomer• marketing boards continue to pay major

role in food and input markets• Handle 25-60% of marketed maize in Zambia,

Kenya, Malawi, Zimbabwe• policy uncertainty

Page 33: Icraf Nairobi March 20 2007 V1

Sources of Policy Unpredictability

• Export bans, import quotas (year to year & within year)

• Uncertainty over changes in import tariff rates• When and where will marketing boards enter the

market– current example: Zambia 2006

• Prices at which the MBs buy and sell unpredictable

• Farmer & trader inventory carrying risks are high• All of these sources of unpredictability impede

private traders’ servicing small farmers’ needs

Page 34: Icraf Nairobi March 20 2007 V1
Page 35: Icraf Nairobi March 20 2007 V1

Sources of Policy Unpredictability

• Why does it matter how we characterize the market environment over past 15 years?

• It matters a great deal

Page 36: Icraf Nairobi March 20 2007 V1

African Countries - % Growth in Cereal Production between 1985 and 2005

61.7

-3

39

4

-62

-80

-60

-40

-20

0

20

40

60

80

Sub-Saharan AfricaKenyaMalawiZambiaZimbabwe

% g

row

th in

pro

duct

ion

Page 37: Icraf Nairobi March 20 2007 V1

African Countries - % Growth in Cereal Production between 1985 and 2005

61.778

157

111

0

20

40

60

80

100

120

140

160

Sub-Saharan AfricaMaliMozambiqueUganda%

gro

wth

in p

rodu

ctio

n

Page 38: Icraf Nairobi March 20 2007 V1

Where from here?

Implications of:• > 50% of rural farm households have < 1

hectare and are extremely poor• > 50% of rural farm households are net

buyers of staple food• Massive rural-to-urban migration: massive

under-employment• but lacking the human capital to contribute

productively to society

Page 39: Icraf Nairobi March 20 2007 V1

Much research evidence documents high returns to investment in

1. R & D: (Alston, Grilliches, Mellor)2. Education: turns information into knowledge

(Johnston)3. Extension systems: farm management

(Evenson)4. Infrastructure: road, rail, port, communications

(Antle)5. Investments in health and addressing HIV/AIDS

(Binswanger)

Page 40: Icraf Nairobi March 20 2007 V1

Budget allocation to Agricultural Sector in Zambia: ZMK465 million in 2005

Personnel Emoluments20%

Operational funds11%

Irrigation Development3%

Infrastructure2%

Food Security Pack & EDRP12%

Food Reserve Agency Maize Marketing

15%

Fertilizer Support Program37%

Page 41: Icraf Nairobi March 20 2007 V1

ZambiaTotal

IncomeAssets Landholding

size

Fertilizer source:‘000 kwacha per

capita ha per capita

Households not acquiring fertilizer:

266 173 .15

Cash purchases from private retailers:

774 342 .20

Government Fertilizer Support Program (50% subsidy)

804 425 .23

Page 42: Icraf Nairobi March 20 2007 V1

Donorbudget support

Government budget

•Long-term productive investments: R&D, extension, irrigation, etc.

• High social payoffs • But payoffs come 5-20 later• Critical for sustained poverty reduction

• Fertilizer subsidies, • marketing board price supports, • land bills, food aid

• Immediate political payoffs;• Visible support to constituencies• contribution to sustained growth /

poverty reduction is unclear

Political economy of public resource allocation

Page 43: Icraf Nairobi March 20 2007 V1

Spending 70% of agricultural budget on input/output subsidies is most likely a regressive mis-use of budget resources with questionable long-term payoffs

Opportunity costs

Page 44: Icraf Nairobi March 20 2007 V1

As massive as the poverty problems are now, they will be much greater unless budgets are re-allocated sooner or later to investments that will make the economy productive in the long-term:– Population growth w/o productivity growth

civil strife– Not a viable option to have more and more

“failed states” in Africa

Page 45: Icraf Nairobi March 20 2007 V1

Major Challenge:

how best to encourage governments to reallocate public budgets toward crucial investments with long-term payoffs instead of investments with short-term payoffs with limited impact on L.T. development?

Future of ‘untied’ budget support?

Page 46: Icraf Nairobi March 20 2007 V1

Farmer groups

Organizing small farmers into viable groups will be crucial for poverty reduction and agricultural growth

Millions of remote farms < 1 hectare have major problems with access to• credit and inputs• extension services, soil testing• market outlets

Reducing the transaction costs of linking small farms to markets and services will require aggregating farm units into groups

Page 47: Icraf Nairobi March 20 2007 V1

Getting Markets Right:What does this mean?

• Not getting government out of markets• Changing the role of government from direct

intervention to supportive investments to make markets work– Public goods investment– Support development of farmer organizations– Create “stable” policy environment: Clear, rule-

based public operations in markets– Commodity risk management tools (e.g.

warehouse receipt systems)– Greater transparency and consultation needed

between private and public sectors

Page 48: Icraf Nairobi March 20 2007 V1

Policy response (cont.)

• Lobby forcefully for more level playing field in international trade– OECD support for Africa: $50 bill./yr– OECD ag. subsidies: $350 bill./yr– Reassess developed country policy of

dumping free food in Africa under guise of “food for development”

Page 49: Icraf Nairobi March 20 2007 V1

thank you