ENDOGENOUS TECHNOLOGY CHOICE AND AFRICA’S GREEN

REVOLUTION

Donald F Larson, World BankInnovation and Policy for the Bioeconomy

Ravello June 18 2013

Overview Theory of

endogenous technology choice

Comparisons of Africa today and Asia at the start of its Green Revolution

Implications for applied agricultural research

Malawi

Endogenous technology (Mundlak, 1988)

There is a given set of technologies suitable for a wide set of states

The state frames the firm or household decision about which one to use

Geography Climate, soils, water, population density

Market conditions Availability of inputs and services

Agents at farmgate, credit, contracts, transaction costs

Household characteristics Labor, land, education, capacity to solve

market constraints (self-finance, self-insure) Consequence: a mixed set of applied

technologies in any given setting Econometric

Implication for innovation What new more-productive technology would

be chosen Implication for rural development strategies

What instrument would lead farmers to chose a more productive technology?

Words Math

Φሺ𝑠ሻ= 𝑚𝑎𝑥𝑥 𝜋ሺ𝑥,𝑠ሻ= 𝑝𝑓ሺ𝑥,𝑠ሻ− 𝑤𝑥 𝑤,𝑝∈𝑠

𝜕𝜙𝜕𝑝𝑖 = 𝑓ሺ𝑥,𝑠𝑖ሻ= 𝑞(si)

𝑓ሺ𝑥∗,𝑠𝑖ሻ= 𝑓𝑖 𝑓𝑖 ∈𝐹(𝑞,𝑥,𝑆),

4

The appeal of Asia’s Green Revolution policies for Africa: smallholder agriculture

Africa

Asia

Western Europe

Latin America and Caribbean

North America

0 20 40 60 80 100 120 140

1.6

1.6

27

67

121

Average farm size

hectares

Source: von Braun (2005)

The appeal of Asia’s Green Revolution policies for Africa: opportunities for poverty reduction

Virtuous cycle Agricultural

productivity gains Higher rural incomes Reductions in rural

poverty Investments in human

and physical capital in rural economy

Declining food prices Reductions in urban

poverty 1975 1980 1985 1990 1995 2000 2005 2010 20150

10

20

30

40

50

60

70

80

90

Share of population living on $1.25 per day or less

Sub-Saharan Africa IndiaChina Indonesia

Per

cent

age

of p

opul

atio

n

5

6

The Asian policy model is a central pillar in most African rural development strategies

“Eighty-six per cent of staples in poor areas come from local sources, so support for country-led efforts to bolster smallholder agriculture is critical.” –Robert Zoellik, President of the World Bank, Financial Times January 5, 2011

“Sustainable intensification of smallholder crop production is one of FAO’s strategic objectives.” Jacques Diouf, Director-General, Food and Agriculture Organization of the United Nations. Foreword to Save and Grow. FAO (2011).

“G20 Ministers of Agriculture must focus on smallholder farmers to achieve food security and prevent food price volatility” Shenggen Fan, Director General, International Food Policy Research Institute. Press Statement June 15, 2011.

“AGRA works to achieve a food secure and prosperous Africa through the promotion of rapid, sustainable agricultural growth based on smallholder farmers.” What is the Alliance for a Green Revolution in Africa, www.agra-alliance.org, downloaded June 16, 2011.

If you care about the poorest, you care about agriculture. Investments in agriculture are the best weapons against hunger and poverty, and they have made life better for billions of people.” Bill Gates, co-chair of the Bill and Melinda Gates Foundation (Gates, 2012)

Innovation impact of new rice varieties

in Asia

Pakistan

Bangladesh

Indonesia

Vietnam

Climate as a source of heterogeneous states

Heterogeneous natural endowmentsNigeria

Diets as a source of heterogeneous states

Because rice was the foundation of Asian diets, abundant and inexpensive rice had a large impact on household incomes and poverty. The technology was pro-poor, since rice occupied a larger than average share of the household budget

- 0.10 0.20 0.30 0.40 0.50 0.60 0.70

Starchy Roots

Other sources

Maize

Vegetable Oils

Rice

Wheat

Sorghum

Animal Products

Millet

Sugars

Bananas and plantains

share of average daily calories

Sub-Saharan Africa 2005 South Asia 1965 Southeast Asia 1965

Land abundance as a source of heterogeneous states

218

97

South Asia 1965

Arable land and Permanent cropsPermanent meadows and pastures

202

715

Sub-Saharan Africa 2008

Arable land and Permanent cropsPermanent meadows and pastures

11

Source: FAOSTAT

Boosting land productivity solved a key bottleneck in Asia

The constraints of land on agriculture is mixed in Africa, but lower on average than in Asia as the Green Revolution got underway

Water, investment, inputs and markets as a source of heterogeneous states

Sub-Saharan Africa

Eastern Africa

Middle Africa

Southern Africa

Western Africa

Southeast Asia

South Asia

0 0.1 0.2 0.3 0.4 0.5

Installed irrigation as share of cropland

2005 1965

Eastern Africa

Middle Africa

Southern Africa

Western Africa

Southeast Asia

South Asia

0 20 40 60 80 100 120 140

Fertilizer consumption

Kg per hectare

What problems need to be solved by mechanical and biological innovations? What are the

constraints? Place dependent

Endowment constraints

Market constraints Household

constraints

Bibliography Binswanger, Hans and Mark R Rosenzweig. 1986. Behavioral and material determinants of

production relations in agriculture. Journal of Development Studies 22(3), 503–539. Gates, Bill. 2012. Helping Poor Farmers, Changes Needed to Feed 1 Billion Hungry. Bill and

Melinda Gates Foundation. Available on the Internet at: http://www.gatesfoundation.org/media-center/press-releases/2012/02/helping-poor-farmers-changes-needed-to-feed-1-billion-hungry.

Larson, Donald F., Keijiro Otsuka , Tomoya Matsumoto and Talip Kilic. Should African rural development strategies depend on smallholder farms? An exploration of the inverse productivity hypothesis. Forthcoming. Agricultural Economics.

Mundlak, Yair. 1988. Endogenous technology and the measurement of productivity. In Susan M. Capalbo and John M. Antle (eds) Agricultural Productivity: Measurement and Explanation. Washington: Resources for the Future.

Mundlak, Yair, Rita Butzer and Donald F. Larson. 2012. Heterogeneous technology and panel data: The case of the agricultural production function. Journal of Development Economics 99(1), 139-149.

Otsuka, Keijiro and Donald F. Larson. 2012. An African Green Revolution: Finding Ways to Boost Productivity on Small Farms. Dordrecht: Springer.

von Braun, Joachim, 2005. Science and technology policies for agricultural productivity and growth in developing countries (PowerPoint Presentation), Agricultural Outlook Forum 2005 32857, United States Department of Agriculture, Agricultural Outlook Forum. Available on the Internet at: http://ageconsearch.umn.edu/handle/32857.