The document summarizes research on the future of Ethiopia's agriculture through 2040 based on economy-wide modeling. Key findings include:
- Agricultural growth will decelerate due to binding land constraints, while demand for food rises with urbanization.
- Investing in rural non-farm activities provides the largest gains for rural GDP and reduces poverty the most.
- Urban investments drive faster overall growth but reduce welfare for rural households.
- Continued public and private investments in agriculture, rural infrastructure, and technology are needed to boost yields and incomes.
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The Future of Ethiopia’s Agriculture: Public Investments and Poverty Reduction
1. The Future of Ethiopia’s Agriculture:
Public Investments and Poverty Reduction
Paul Dorosh*
Addis Ababa, Ethiopia
May 2, 2019
* This presentation compiles results of work by a team of researchers including: Bart
Minten, Mekdim Dereje, Seneshaw Tamru and Fantu Bachewe (Food Systems); Emily
Schmidt and Timothy S. Thomas (land constraints), and Paul Dorosh, James Thurlow, Tadele
Ferede, Frehiwot Worku Kebede, and Alemayehu Seyoum Taffesse (Perspectives Future of
Ethiopia’s Agriculture; Economy-wide Modeling).
Funding for this ongoing study by the Ethiopian Strategy Support
Program (ESSP) was provided by USAID, the European Union, and DFID.
2. 2
The Future of Ethiopian Agriculture: 2018-2040
Drivers and Scenarios
• Drivers of Growth and Transformation
• Land Constraints
• A Note on Climate Change
• Macroeconomic Environment and Constraints
• Future of Ethiopian Agriculture: Model Simulations
• Summary and Conclusions
3. 3
Perspectives on the Future of Ethiopian Agriculture
Drivers of Growth and Transformation
• Increasingly binding land and water constraints (esp. in highlands)
• Technology-driven yield increases
• Improved seeds, quantity and quality of fertilizer
• Modernized value-chains
• Larger share marketed, reduced transport costs, cold-chains, value-addition
• Decelerating demand for cereals
• Accelerating demand for meat, dairy and process goods
• Increased urbanization: 16% in 2010/11 to 27% in 2034/35 (off.
est.)
• Public investments
• Road and port infrastructure, urban versus rural allocations
• International economic climate and foreign investment
4. 4
Model Simulations:
Drivers of Agricultural and Economic Growth
• Land (varies by region / agroecology):
• 0.6% annual growth in most scenarios (1.8% in moisture-
sufficient lowlands; 0.7% in moisture-sufficient highlands)
• Labor (and rates of urbanization)
• Historical population growth rates 2007-15: urban 4.6%,
rural 2.1%, overall 2.5%
• Capital (and rates of investment by sector)
• Determined by domestic and foreign savings
• Private and public investment choices
• Technical change (changes in TFP)
5. 5
Ethiopia: Agroecological Zones
Highland moisture reliable zones accounted for 92%
of cereal area cultivated and production in 2013/14
Zone Classification Parameters
Elevation:
Highlands: >1500 meters above sea
level
Moisture Reliability:
Annual rainfall (mean/std) >= 7.5
Cropping System:
Cereal or enset based (moisture
reliable highlands only)
Drought Prone Lowland /
Pastoralist:
Mean annual rainfall < 500mm
Source: Schmidt and Thomas (2018).
7. 7
Drivers of Agricultural Growth:
Land Constraints in the Highlands
Notes: Growth rates for area cultivated for simulations S1 (Urban) and S3 (Rural
non-farm) are the same as the base simulation.
a S4 Livestock denotes the livestock and crop shift simulation.
S0-Baseline S2-Agriculture S4-Livestocka
Growth rates, % 2015/16-
2025/26
2025/26-
2039/40
2015/16-
2025/26
2025/26-
2039/40
2015/16-
2025/26
2025/26-
2039/40
R1: Dry highlands
0.40 0.00 0.40 0.00 0.00 0.00
R2: Dry lowlands
1.00 0.80 2.00 1.00 3.00 0.40
R3: Moist lowlands
2.00 1.50 4.00 3.00 9.90 4.80
R4: Moist high cereals
1.00 0.50 1.00 0.50 -0.20 -0.75
R5: Moist high enset
0.50 0.00 0.50 0.00 0.00 0.00
Total: All Ethiopia
0.86 0.41 0.99 0.57 1.13 0.28
8. 8
Crop Model: Climate Change Simulations
• Crop model simulations suggest that climate change will likely
have only relatively small effects on average yields of maize,
wheat and sorghum in 2035 and even 2055 in Ethiopia.
• Although temperatures are expected to increase, average
rainfall is also expected increase in most regions of the
country. Thus, agronomic conditions for cultivation of these
crops may actually improve in large parts of the country
(especially the highlands) that currently have moderate
average temperatures.
• Nonetheless, crop yields will need to increase to enable cereal
production to keep pace with expected demand growth due to
increases in population and per capita incomes.
9. 9
Simulated Crop Yields with
Climate Change and Technical Change (2055)a
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Maize Wheat Sorghum
Climate Change Effect Technical Change Total Change
a Relative to 2013 yields. Projections assume yield growth from technical change of 2.0, 1.0 and 1.0 percent per
year for maize, wheat and sorghum, respectively.
Source: Thomas et al., 2019.
10. 10
Summary: Climate Change Simulations
No reason for complacency
• Continued public and private investments in agriculture and
rural infrastructure, as well as policies that maintain incentives
for input use and adoption of new technology.
• Moreover, even if future changes in climate have only
moderate impacts on average crop yields in Ethiopia, there is
growing evidence that weather outcomes, particularly rainfall,
are likely to become more variable in the future.
• Thus, there could still be substantial effects on crop production
and household welfare (as well as on livestock) due to extreme
events – droughts, floods or extremely high temperatures.
There is no reason for complacency.
11. 11
Drivers of Growth: Foreign Capital Inflows
0
2
4
6
8
10
12
14
16
18
20
2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17
billionUS$
Foreign Capital Inflows Foreign Direct Investment Public Transfers
Net Servs + Priv Transfers Exports
Imports
Balance of Payments: 2004/05 to 2016/17 • Total goods imports in
2016/17 (US$18bil.) were
2.2x 2004/05 levels
• Foreign capital inflows,
private transfers and FDI
together were US$14bil. in
2016/17 (75.6% of
merchandise imports).
• Merchandise exports
accounted for only 19.4%
of total foreign exchange
net inflows.Foreign capital inflows have been large.
Projected debt/GDP for 2016/17 was 54.1%; projected
external debt/GDP was 30.5%.
Source: IMF data (various years). (2016/17 figures are projections.)
12. 12
External and Domestic Debt
Source: IMF data (various years). (2016/17 figures are projections.)
37.4
32.7
37.4
45.7
55.3 54.2
60.3
0
10
20
30
40
50
60
70
0
10
20
30
40
50
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Debt/GDP(percent)
billionUS$
Domestic Debt External Debt Debt/GDP
Further substantial increases in foreign debt as a share of
GDP could become unstainable.
Model simulations assume slower debt growth.
• Both external and
domestic debt quadrupled
between 2010/11 and
2016/17
• External debt reached
$27bil. in 2016/17
– Equal to 35% of GDP.
• Debt-to-GDP ratio rose by
60%-points
– 37% in 2010/11
– 60% in 2016/17
13. 13
Design of Model Simulations
• Model run over the period 2010/11 - 2039/40
• 2010/11-2015/16 replicates observed trends
• 2016/17 onwards based on projections
• Five scenarios:
1. Baseline: Business-as-usual
2. Cities: Faster urbanization in cities >50k
3. Agriculture: Greater investment in agriculture
4. Rural Nonfarm/Towns: Faster growth in rural nonfarm and towns
<50k
5. Livestock: Shift in geographic area of concentration
Rainfall sufficient highlands: Decline in crop area and increase in
livestock productivity;
Rainfall sufficient lowlands: Increase in crop area and decrease in
livestock productivity
• Targeted investments displace other investments (no free
lunch)
• e.g., investing in cities reduces investments in agriculture
14. 14
Baseline Assumptions (2)
• Foreign savings growth is constant across simulations
• Calibrate annual rural-urban migration flows
• Migration rate estimated by assuming same natural pop. growth in
urban and rural areas, and then scale migration to hit projected pop.
growth rates
• Urban agglomeration & congestion effects
• Agglomeration elasticity = 0.08 (% urban TFP gain from 1% increase in
population density)
• Congestion elasticity = 0.10 (% urban TFP gain from 1% increase in
public capital per capita)
• Return on agricultural and rural investments
• Agricultural TFP to public agricultural spending elasticity = 0.3 (Benin
et al.)
• Similar return in rural nonfarm TFP (but nonfarm GDP is 42% of rural
GDP)
15. 15
Model Results: Growth Outcomes
Source: Ethiopia CGE model results
• City investments raise real GDP by
7.5% relative to baseline (agricultural
investments result in a decline by
12.8% relative to the baseline)
• Largest rural GDP gains (17.4%) from
investments in nonfarm activities,
but draws resources away from rural
agriculture
• Nonagricultural GDP is 17.3% and
18.7% less in the agriculture and
livestock investment simulations
7.5
0.1
15.9
-6.9
10.3
-12.8
-2.4
-24.7
10.0
-17.3
2.5
17.4
-14.4
-0.5
3.1
-14.5
-4.5
-26.0
6.7
-18.7
-30 -20 -10 0 10 20
National
Rural
Urban
Agriculture
Non-agriculture
Deviation from baseline, 2040 (%)
S1: Cities S2: Agriculture
S3: Nonfarm S4: Livestock
16. 16
Model Results: Household Welfare Outcomes
Source: Ethiopia CGE model results
• Investments in agriculture lead to
similar changes in national household
consumption in 2040 as investments
in cities.
• The largest gains in welfare come from
investments in rural non-farm.
• Urban investments benefit urban
households (by 1.5% points relative to
the baseline), but reduce national
average welfare (by 0.7% points)
• Generates demand for
agricultural products, but some of
these are imported
• Urban nonfarm producers
compete with rural nonfarm
producers
-0.7
-1.4
1.5
-1.0
0.3
-4.6
1.7
4.8
-7.5
-3.5
-2.0
-7.5
-10 -5 0 5 10
All
Rural
Urban
Growth Rates (Deviation from baseline, %)
S1: Cities S2: Agriculture
S3: Nonfarm S4: Livestock
17. 17
Model Results: Poor* Household Outcomes 2040(2)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
• Rural nonfarm investments
result in large gains to poor
households (2.5%/year) as well
as nonpoor households
(1.4%/year)
• Investments in rural nonfarm
are more pro-poor than
investments in urban and
agriculture sectors
• Urban investments draw
resources away from AFS, which
hurts both poor and nonpoor
consumers
18. 18
Poverty* Impacts of Investments (2016-40)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
Annual per capita consumption growth for poor households
(%-point deviation from baseline)
-1.5
-1.0
-0.5
0.0
0.5
1.0
2016 2020 2024 2028 2032 2036 2040
(%-pointdeviationfrombaseline)
Urban investments Agricultural investment Rural nonfarm investment
Agriculture invt more pro-poor
than urban invt through 2023-24
19. 19
Poverty* Impacts of Investments (2016-40)
Source: Ethiopia CGE model results
* Defining poor households as the lowest 40% in the income distribution.
-1.5
-1.0
-0.5
0.0
0.5
1.0
2016 2020 2024 2028 2032 2036 2040
(%-pointdeviationfrombaseline)
Urban investments Agricultural investment Rural nonfarm investment
Agriculture invt more pro-poor
than urban invt through 2023-24
Rural non-farm invt is more pro-poor
than urban invt through 2025-26
Annual per capita consumption growth for poor households
(%-point deviation from baseline)
20. 20
Summary: Economy-wide Analysis
• Agricultural growth is likely to decelerate
• Growing land constraints are only partly offset by cultivating more of
the moisture-sufficient lowlands
• Urbanization slows rural labor force growth (but rural pop. still grows)
• The broader agri-food system becomes more important over
time as agriculture’s direct importance declines (in relative
terms)
• Investing in rural nonfarm activities greatly benefits poor (rural)
households
• Urban investments generate faster economic growth and
structural transformation
• But trade-off in reducing poverty (faster growth requires greater
investment and therefore a lower share of consumption in total
expenditures)
21. 21
Summary: Economy-wide Analysis (2)
• With rapid growth in the non-agricultural economy, demand
for agricultural products will continue to rise.
• Increased agricultural production can prevent an increase in real food
prices that would harm the poor.
• In spite of rapid urbanization and structural transformation,
the bulk of the poor will likely be living in rural areas with
livelihoods dependent on agriculture and the rural non-farm
economy.
• Model simulations indicate that while investments in the
urban non-agricultural economy may have the biggest impacts
on growth, agricultural and rural non-farm investments will
likely remain most effective at reducing poverty at least
through the mid-2020’s
22. 22
Selected References
Dorosh, Paul, James Thurlow, Frehiwot Worku Kebede, Tadele
Ferede, and Alemayehu S. Taffesse. 2018. “Structural Change
and Poverty Reduction in Ethiopia: Economy-wide analysis of
the evolving role of agriculture”, ESSP Working Paper 123.
Schmidt, Emily and Timothy S. Thomas. 2018. “Cropland
Expansion in Ethiopia: Economic and Climatic Considerations for
Highland Agriculture”, ESSP Working Paper 127.
Thomas, Timothy S., Paul Dorosh and Richard Robertson. 2019.
“Climate Change Impacts on Crop Yields in Ethiopia”, ESSP
Working Paper 130.