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

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

2. 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 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 • 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

3. What are the issues? • 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? • 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? • What are the possible alternatives for poverty reduction and growth?

4. 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… • More fertilizers and improved seeds • Leads to high levels of land productivity • Leads to high levels of income of the “peasant masses” • Leads to increased demand for industrial goods… • Leads to industrialization…prosperity…Nirvana…

5. Some points about agriculture in general… • 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 • Second, the sector faces serious price instability (owing to Engel’s law and other factors internal and external to the sector) • Therefore, a very risky business

6. What Characterizes the Agricultural Sector in Africa today? • 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) • limited national markets (seven farmer to one urban consumer in Ethiopia) • high price instability in liberalised markets • high climatic and market risk • 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.

7. 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. • The agricultural sector has long been susceptible to the fragility of nature, particularly rainfall.

8. Growth in GDP follows the pattern of growth in agriculture

9. Trend in GDP: Moderate and irregular

10. Per capita value-added in the agriculture has been declining

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

13. National Per Capita Income Rural Per-Capita Income Urban Per-Capita Income 1960/61-1973/74 240.2 194.6 732.4 1974/75-1990/91 242.1 158.8 914.6 1991/92-2003/04 243.8 134.9 993.2 1960/61-2002/03 241.4 163.8 877.6

17. 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 • big deficit markets, lower use of trade • rising or stable output prices • comprehensive agric support policies: • fixed prices, floor prices • buffer stocks & stabilisation operations • substantial fertilizer subsidies • huge subsidies to large-scale irrigation

18. 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” • 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

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

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

21. Agriculture Benefits from Diversification (Ellis, 2004)

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

23. 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) • 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. • Equally interestingly, the productivity differentials between urban and rural areas will reduce from 4.1 to 3.1 under a faster urbanization scenario

24. 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

25. I Think I Should Stop there!!! • Thank You