1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Economic benefits and returns to rural
feeder roads
David Stifel – Lafayette College
Bart Minten – ESSP/IFPRI
Bethlehem Koru – ESSP/EDRI
Improved evidence towards better food and agricultural
policies in Ethiopia
November 02, 2012
Hilton Hotel, Addis Ababa
HTTP://essp.ifpri.info
1

2. The Question:
What are the
economic benefits
and returns to rural
feeder roads?

3. Debate on Rural Roads
1. Benefits of roads:
• Reduce transport and input costs
• Increase timely availability of inputs
• Lead to higher productivity and lower poverty
• Reduce price volatility
2. However, scepticism in Africa:
• Low productivity and commercial surplus
• Underuse of road infrastructure and
problematic transport services

4. Measuring Benefits – Two Issues
1. The measure of benefits
• A standard road project appraisal relies on
measuring various impacts (accessibility, quality,
mobility)
• Savings in transport
• Few evaluations look at household behavior
2. Reverse causality
• Non-random road placement

6. Transport Costs
• Donkey costs (Birr/kg)
o Cost of renting donkey
o Weight donkey can carry
• Economic transport costs
o Include the opportunity cost
of time

7. Average Travel Times and
Transport Costs to the Market Town
Travel Time Transport Cost
(hours) (Birr/Quintal)
Transport Cost Quintile
Least Remote 1.5 18.2
Quintile 2 3.6 40.2
Quintile 3 5.2 52.5
Quintile 4 6.0 60.4
Most Remote 6.5 73.4
Total 4.5 48.4

8. Crop Share Of Land

9. Adjusted Cereal Yields
20
15
Quintals / ha
10
5
0
0 20 40 60 80 100
Birr/Quintal
Sorghum Millet
Maize Teff

10. Measuring Benefits
• Households’ willingness-to-pay for
reduced transport costs
• 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

11. Demand for Transport Tonnage
1250
1000
500 kg 750
250
0
0 20 40 60 80 100
Transport Cost (Birr/kg)
Total Freight Imported Consumption
Agricultural Surplus Input Purchases

12. Benefits Estimate
• 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)

13. Benefit Estimates
For households in Benefit as percent of
each of the following household consumption
evenly spaced gridpoints
2nd 2.0
3rd 5.4
4th 6.5
5th 6.7
6th 7.4
7th 17.2
8th 23.5
9th 53.0
Most remote 60.5
Average for all households 9.3

14. Benefits vs. Costs
• 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

15. Internal Rates of Returns
Length of gravel
road (km)
Roads reduce Roads reduce
travel costs to zero travel costs by half
7 km 60% 27%
14 km 58% 25%
21 km 57% 23%
28 km 47% 20%
35 km 37% 14%
Assumptions: - 10 year lifespan of gravel road
- 5 % annual maintenance costs

16. Concluding Remarks
• Benefit to most remote HH ≈ 60% of HH consumption
• Costs of construction recovered in 3 years
• Caveats:
- Only rural feeder roads
- Potential non-farm earnings
- Transport services are necessary
- Do not look at social services (education, health)

17. Concluding Remarks
• High IRR for feeder roads even in situations of:
1/ small-farmers with low commercial surplus
2/ low non-farm earnings
3/ limited provision of motorized transport services
• Rural feeder roads are thus a cost-effective way to
reduce widespread poverty
• Return rates fare favorably to IRR calculated for trunk
road projects. Should thus be major part of rural
infrastructure development