Infrastructure, AgricultureInfrastructure, Agricultureand Welfare in Rural Ethiopiaand Welfare in Rural Ethiopia

David Stifel Lafayette College IFPRI Addis Ababa

Symposium on Ultra-PovertyInstitute for International Economic Policy

Washington, DC, 22 March 2012

1

What are the benefits What are the benefits of rural roads?of rural roads?

Punchlines:

1.Wholesale marketing margins are falling along with transport costs.

2.Annual benefits in our study area are approx 1/3 of the cost of constructing a feeder road.

The Question:The Question:

1. Roads• Trunk roads

• Feeder roads

• Upgrading & construction

2. Cell phones

3. Electrification

4. Water & sanitation

Rural InfrastructureRural Infrastructure

• Our analysis focuses on trade of cereals between wholesale markets

• Monthly data from 31 wholesale markets across Ethiopia over the last decade

• Complemented with a survey of traders, brokers and truck drivers in these 31 markets (or surroundings) in January 2012

• Why???

Margins are falling Affect both urban & rural poor

I. Trunk RoadsI. Trunk Roads

1. The measure of benefits• Willingness to pay – equivalent variation

2. Endogenous road placement• Quasi-Experiment

2. Rural Feeder Roads2. Rural Feeder Roads

• Sample area selected purposefullyo Homogeneous region

o Except for transport costs

• Households’ circumstances differ because of different transport costs...

• ...not because of land characteristics, etc.

How is it a quasi-experiment?How is it a quasi-experiment?

• Donkey costs (Birr/kg)o Cost of renting donkey

o Weight donkey can carry

• Economic transport costso Include the opportunity cost

of time

Transport CostsTransport Costs

Average Travel Times andAverage Travel Times and Transport Costs to the Market TownTransport Costs to the Market Town

Travel Time Transport Cost    (hours) (Birr/Quintal)Transport Cost Quintile

Least Remote 1.5 18.2Quintile 2 3.6 40.2Quintile 3 5.2 52.5Quintile 4 6.0 60.4Most Remote 6.5 73.4

Total 4.5 48.4

• What crops?o Sorghumo Milleto Maizeo Black/mixed teff

• Confounding factors?o Weather and pest shockso Inputs – labor, fertilizer, herbicides, Improved seeds

Is land equally productive Is land equally productive in the sample area?in the sample area?

Modern Input UseModern Input UsePercent of households using…

Chemical Fertilizer Improved Seeds

    Any Dap Urea   (maize only)

Transport Cost Quintile

Least Remote 94.2 94.2 83.0 75.6

Quintile 2 86.2 86.2 61.4 31.2

Quintile 3 79.9 78.5 46.5 15.0

Quintile 4 73.2 73.5 49.3 12.4

Most Remote 71.1 71.7 37.5 9.4

Total 81.2 81.1 56.3 33.3

AdjustedAdjusted Cereal Yields Cereal Yields

05

10

15

20

Qui

ntal

s / h

a

0 20 40 60 80 100Birr/Quintal

Sorghum MilletMaize Teff

• Households’ willingness-to-pay for reduced transport costs (Jacoby and Minten, 2009)

Compensate a remote household just enough such that indifferent between…o Remote (τ = τ0)

o Situation in market town (τ = 0)

Estimate this compensation Equivalent variation

2. Measuring Benefits2. Measuring Benefits

Demand for Transport TonnageDemand for Transport Tonnage

02

50

500

750

100

01

25

0kg

0 20 40 60 80 100Transport Cost (Birr/kg)

Total Freight Imported ConsumptionAgricultural Surplus Input Purchases

• Most remote households as accessible as the least remote

• ↓ transport costs by US$ 50 / ton

• Benefit ≈ 3,300 Birr per year (US$ 194)

o This is 60.5% of mean consumption (most remote)

Benefits EstimateBenefits Estimate

Benefit EstimatesBenefit EstimatesFor households in each of the following evenly spaced gridpoints

Benefit as percent ofhousehold consumption

2nd 2.03rd 5.44th 6.55th 6.76th 7.47th 17.28th 23.59th 53.0

  Most remote 60.5

Average for all households 9.3

* Adjusted for landholdings

Remote HH will benefit the most.

Consumption & RemotenessConsumption & Remoteness

020

0040

0060

00B

irr p

er p

erso

n

0 20 40 60 80 100Transport Costs (Birr/quintal)

Total FoodNon-Food

• Cost ≈ 28 million Birr (US$ 1.60 million)

800,000 Birr / km of gravel road

35 km

• Benefits ≈ 10 million Birr per year (US$ 0.58 million)

1,930 Birr benefit on average

5,180 households in survey area

Three years for accrued benefits to exceed cost

Benefits vs. CostsBenefits vs. Costs

Concluding RemarksConcluding Remarks• Benefits of rural roads in Ethiopia

– Highlight the effects on the poor• Trunk roads

– Lower transport costs & marketing margins– Urban poor in deficit areas– Rural producers in surplus areas

• Feeder roads– Payoffs are high (provided the roads last)– Benefits disproportionately benefit remote households– Remote households are poorer

Thank youThank you