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Is an Agriculture Centered Development Strategy a Viable Strategy for Africa? Questions From the Ethiopian Experience. Berhanu Nega and Berhanu Adenew.

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Presentation on theme: "Is an Agriculture Centered Development Strategy a Viable Strategy for Africa? Questions From the Ethiopian Experience. Berhanu Nega and Berhanu Adenew."— Presentation transcript:

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2 Is an Agriculture Centered Development Strategy a Viable Strategy for Africa? Questions From the Ethiopian Experience. Berhanu Nega and Berhanu Adenew Berhanu Nega and Berhanu Adenew

3 Introduction I would first like to thank the organizers for inviting me to participate in this conference. I would also like to welcome all of you to Ethiopia for the conference. I hope you enjoy your stay I would first like to thank the organizers for inviting me to participate in this conference. I would also like to welcome all of you to Ethiopia for the conference. I hope you enjoy your stay I also like to apologize (to the organizers and particularly to the discussant) for not having the paper ready for the discussant. My life has taken a sudden turn since I agreed to present the paper I also like to apologize (to the organizers and particularly to the discussant) for not having the paper ready for the discussant. My life has taken a sudden turn since I agreed to present the paper So, rather than present a full paper with all its merits, I will attempt to raise some issues relevant to the broad topic I agreed to discuss that are becoming important policy issues in Ethiopia and to ask our colleagues from other countries to comment on them based on their own country experiences So, rather than present a full paper with all its merits, I will attempt to raise some issues relevant to the broad topic I agreed to discuss that are becoming important policy issues in Ethiopia and to ask our colleagues from other countries to comment on them based on their own country experiences I am not an agricultural economist by training and I am looking at the issue from a broader perspective of development. Therefore, I am going to speak in broad strokes, obviously missing the fine details I am not an agricultural economist by training and I am looking at the issue from a broader perspective of development. Therefore, I am going to speak in broad strokes, obviously missing the fine details

4 What are the issues? What is the nature of agriculture as an economic activity? What is the nature of agriculture as an economic activity? What is the nature of the agricultural sector in Sub Saharan Africa in general and Ethiopia in particular? What is the nature of the agricultural sector in Sub Saharan Africa in general and Ethiopia in particular? Can the lessons of the green revolution in Asia in the 70s be replicated in Africa today? Can the lessons of the green revolution in Asia in the 70s be replicated in Africa today? Given this structure, can agriculture as a sector be the center (main driver) for the growth of economies such as Ethiopia? Given this structure, can agriculture as a sector be the center (main driver) for the growth of economies such as Ethiopia? What are the possible alternatives for poverty reduction and growth? What are the possible alternatives for poverty reduction and growth?

5 The case for an Agriculture Led growth strategy! This is a strategy currently followed by the Ethiopian government and supported by important institutions such as the World Bank largely based on current endowment and comparative advantage arguments… This is a strategy currently followed by the Ethiopian government and supported by important institutions such as the World Bank largely based on current endowment and comparative advantage arguments… More fertilizers and improved seeds More fertilizers and improved seeds Leads to high levels of land productivity Leads to high levels of land productivity Leads to high levels of income of the peasant masses Leads to high levels of income of the peasant masses Leads to increased demand for industrial goods… Leads to increased demand for industrial goods… Leads to industrialization…prosperity…Nirvana… Leads to industrialization…prosperity…Nirvana…

6 Some points about agriculture in general… Two important characteristics of agriculture as distinct from other industries (Cramer et.al, 2001) Two important characteristics of agriculture as distinct from other industries (Cramer et.al, 2001) First, it is characterized by the cyclical nature of production caused primarily by physical and biological factors First, it is characterized by the cyclical nature of production caused primarily by physical and biological factors Second, the sector faces serious price instability (owing to Engels law and other factors internal and external to the sector) Second, the sector faces serious price instability (owing to Engels law and other factors internal and external to the sector) Therefore, a very risky business Therefore, a very risky business

7 What Characterizes the Agricultural Sector in Africa today? declining real output prices (declined by about 2.6% between 1996-2001) declining real output prices (declined by about 2.6% between 1996-2001) rising input prices (esp. fertilizer, increased by 37.5% during the same time) rising input prices (esp. fertilizer, increased by 37.5% during the same time) limited national markets (seven farmer to one urban consumer in Ethiopia) limited national markets (seven farmer to one urban consumer in Ethiopia) high price instability in liberalised markets high price instability in liberalised markets high climatic and market risk high climatic and market risk absence of rural financial markets absence of rural financial markets declining farm sizes (farm sub-division) from 2.2 ha. Per hh in 1978 to 1 ha in 2001 with no irrigation. declining farm sizes (farm sub-division) from 2.2 ha. Per hh in 1978 to 1 ha in 2001 with no irrigation.

8 Implications to Economic Growth and Rural Poverty: The Case of Ethiopia GDP growth followed the pattern of the growth of value-added in the agricultural sector. GDP growth followed the pattern of the growth of value-added in the agricultural sector. The agricultural sector has long been susceptible to the fragility of nature, particularly rainfall. The agricultural sector has long been susceptible to the fragility of nature, particularly rainfall.

9 Growth in GDP follows the pattern of growth in agriculture

10 Trend in GDP: Moderate and irregular

11 Per capita value-added in the agriculture has been declining

12 Per capita value-added in the non- agricultural sector has been rising

13 Source: MOFED and CSA( Statistical Abstract, Various Issues)

14 National Per Capita Income Rural Per-Capita Income Urban Per-Capita Income 1960/61-1973/74 240.2194.6732.4 1974/75-1990/91 242.1158.8914.6 1991/92-2003/04 243.8134.9993.2 1960/61-2002/03 241.4163.8877.6 Annual Average Per-Capita Income, In Birr, Constant 1980/81 Prices Source: MOFED and CSA( Statistical Abstract, Various Issues)

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18 Agriculture During the Green Revolution in Asia in the 1970s: Can Africa Emulate that today? The answer is no because the international environment has changed so much today compared with the 70s The answer is no because the international environment has changed so much today compared with the 70s big deficit markets, lower use of trade big deficit markets, lower use of trade rising or stable output prices rising or stable output prices comprehensive agric support policies: comprehensive agric support policies: fixed prices, floor prices fixed prices, floor prices buffer stocks & stabilisation operations buffer stocks & stabilisation operations substantial fertilizer subsidies substantial fertilizer subsidies huge subsidies to large-scale irrigation huge subsidies to large-scale irrigation

19 So, what are the alternative options for Africa? While trying to increase productivity in agriculture is a valid policy to increase income it is a questionable strategy at best to think of the sector as the lead sector While trying to increase productivity in agriculture is a valid policy to increase income it is a questionable strategy at best to think of the sector as the lead sector In fact, the development of other sectors around agriculture, particularly the process of urbanization seem to help the development of the agricultural sector In fact, the development of other sectors around agriculture, particularly the process of urbanization seem to help the development of the agricultural sector In general economic diversification seems to be a better strategy both for poverty alleviation in rural areas and for overall economic growth In general economic diversification seems to be a better strategy both for poverty alleviation in rural areas and for overall economic growth

20 Benefits of Diversification ? helps overcome seasonality helps overcome seasonality helps ameliorate risk helps ameliorate risk increases knowledge, skills, adaptability increases knowledge, skills, adaptability generates financial resources generates financial resources yield growth arises from non-farm earnings yield growth arises from non-farm earnings poverty & vulnerability most intractable with high agric & subsistence reliance poverty & vulnerability most intractable with high agric & subsistence reliance

21 Diversification Leads to Mobility & Migration diversification one facet of human mobility diversification one facet of human mobility mobility essential to economic dynamism mobility essential to economic dynamism ceaseless circulation the norm in growing economies ceaseless circulation the norm in growing economies longer duration and more permanent movements: migration, urbanisation, international migration longer duration and more permanent movements: migration, urbanisation, international migration importance of remittances importance of remittances good for the poor and for agriculture good for the poor and for agriculture

22 Agriculture Benefits from Diversification (Ellis, 2004)

23 Urbanisation holds the key to Poverty Reduction and growth in SSA provides growing markets for agric output provides growing markets for agric output Helps in the transformation of agriculture through the production of high value crops (horticulture…etc.) Helps in the transformation of agriculture through the production of high value crops (horticulture…etc.) benefits from agglomeration economies benefits from agglomeration economies encourages economic specialisation encourages economic specialisation provides employment & upward mobility provides employment & upward mobility reduces unit cost of service provision reduces unit cost of service provision creates low-cost labour-intensive services creates low-cost labour-intensive services

24 The Value of Urbanization for Ethiopian Agriculture empirical projections using a preliminary Demo Economic Model that Jean Marie Cour developed for Ethiopia illustrate exactly this point. (The model was originally done for Seven West African Countries with similar results) empirical projections using a preliminary Demo Economic Model that Jean Marie Cour developed for Ethiopia illustrate exactly this point. (The model was originally done for Seven West African Countries with similar results) a faster urbanization implies not only higher levels of GDP overall compared with a slower pace of urbanization, but more interestingly, rural incomes will be much higher under a faster urbanization scenario compared with the alternative. a faster urbanization implies not only higher levels of GDP overall compared with a slower pace of urbanization, but more interestingly, rural incomes will be much higher under a faster urbanization scenario compared with the alternative. A projection for the year 2025 using two urbanization scenarios (20% and 40% urbanization) show that national per capita GDP would be US$ 468 under the 40% scenario compared with US$ 288 for the 20% scenario while rural GDP per capita will be higher by US$79 under a faster urbanization. A projection for the year 2025 using two urbanization scenarios (20% and 40% urbanization) show that national per capita GDP would be US$ 468 under the 40% scenario compared with US$ 288 for the 20% scenario while rural GDP per capita will be higher by US$79 under a faster urbanization. Equally interestingly, the productivity differentials between urban and rural areas will reduce from 4.1 to 3.1 under a faster urbanization scenario Equally interestingly, the productivity differentials between urban and rural areas will reduce from 4.1 to 3.1 under a faster urbanization scenario

25 So, what does this mean for Policy Priorities in SSA? In Ethiopia? poverty reduction requires human mobility mobility needs to be facilitated, not disabled (Implications for land policy in Ethiopia?) In general, policy should support: exchange, mobility, communication, information, infrastructure Social and economic protection of people on the move removal of constraints on urban growth & dynamism Provision of services in urban areas resist enforced relocations out of urban areas pursue growth where it is observed to occur

26 I Think I Should Stop there!!! I Think I Should Stop there!!! Thank You Thank You


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