icraf nairobi march 20 2007 v1
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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
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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
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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
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Many of these debates can be informed by a solid empirical understanding of how rural economies work
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Organization of presentation:
1. Underappreciated “empirical regularities” of small farm agriculture in Africa
2. Discuss the implications of these findings for current policy debates
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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
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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
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Fact #1
• Emerging land pressures are generating fundamental challenges for poverty reduction and investment strategies
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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/
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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%
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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=
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Rural population growth rates
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Share of Urban population in total population, 1968 and 1998
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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
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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
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Importance of Imported Staples in Nairobi Expenditure Patterns
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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
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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
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Fact #3
Most rural farm households are buyers of maize (or net buyers)
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Smallholder Households’ Position in the Maize Market
0
10
20
30
40
50
60
Mozambique Zambia Kenya
sell onlybuy onlybothneither
perc
ent
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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
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Fact #4
Retail maize meal prices are trending downward
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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
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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
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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
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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
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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
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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
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Retail sources of consumer staple food expenditures, Nairobi
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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.
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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
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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
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Sources of Policy Unpredictability
• Why does it matter how we characterize the market environment over past 15 years?
• It matters a great deal
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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
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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
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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
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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)
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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%
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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
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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
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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
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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
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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?
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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
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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
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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”
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thank you