The Ethiopian National Synthesis Report Berhanu Nega

1. The Ethiopian National Synthesis Report Berhanu Nega

2. The real story: Broad Conclusion • Not much positive externality in almost all the modules coming from Ethiopian agriculture as it is currently operating • The few positive externalities are largely a result of the backwardness of agriculture, which are likely to change with development. • These positive externalities include: • Environment: Low external input, thus forex saving (in the enset culture) less water contamination, existence of genetic diversity (coffee, enset), landscape amenities (open field agriculture…etc. a reminiscence of 17th century Europe?) • Low rural urban migration: Although the opposite is what is desirable under Ethiopian circumstances

3. Factors inhibiting positive roles and externalities • Structure of production: micro and decreasing size holding, low technology, low skill, rain dependent agriculture • Policy and institutional configuration: land policy (insecurity, absence of land markets, diminishing size holding, inhibiting migration, powerlessness); the nature of liberalization, (effect on output prices and inputs); Agriculture Development Led Industrialization (only technology improvements emphasized without institutional and structural change) • Population pressure: land holding size and environmental implications (farming marginal areas, hill sides, deforestation…etc.) • Spatial Imbalance: very low urbanization affecting demand, and thus agri.prices.

4. Agriculture’s share in GDP

5. Long Term Growth Performance

6. Agriculture’s Contribution to Growth

7. Per capita value-added in the agricultural sector has been declining by about 1.2% for the last four decades

8. II. Policy module • Objectives: • to examine the policy setting in the 1990s • to study the impact of new policies on selected roles of agriculture • The contribution of agriculture to food security has continued to deteriorate in Ethiopia. • The disparity between urban and rural productivity has increased from 4.4 in 1987 to 4.7 in 1997.

9. The impact of various economic policies and reforms of the 1990s hasn't been satisfactory. • Although government development strategy favours agriculture over other sectors, actions are not commensurate with rhetoric • The economic reform program (ERP) has failed to direct available credit to the agricultural sector. • B/N 1991-98 Credit to Agriculture(14.7%), domestic trade ( 32.2%), industry (13.2%). • The volatility of prices for agricultural products is another problem. • Prices fell by up to 25 percent, during the 1996 and 2001 bumper harvest years

10. Government expenditure for and revenue from agriculture have not been satisfactory. • share in total government expenditure was 27.6% in 2000/01 and share in total government revenue was 2.3% in 1999/00. • The Sustainable Development and Poverty Reduction Program (SDPRP) has been implemented. • Components: ADLI, Judiciary and Civil Service Reform, Decentralization and Empowerment, and Capacity Building. • ADLI and PADETES have been criticized theoretical/conceptual and empirical grounds.

11. institutional factors (land policy, land administration…etc.) have significantly affected the performance and role of agriculture. • The input and output markets and extension and research systems are not generally in favor of agriculture. • Three areas that need attention to boost the agriculture sector including ag. exports • raising the income of producers of agricultural exports by reducing the gap between export prices and farm gate prices. • encouraging modern technologies. • developing the interface between the rural and urban sectors.

12. III. Environmental Role module • Objective: to identify and capture the positive and negative roles of agriculture in Ethiopia. • Research activities involved two elements: national level assessment and farming system based case study. • Five Environmental externalities were assessed: • Soil erosion and off-site impacts (-) • water availability and water contamination (+) • on-farm conservation of bio-diversity (+) • air quality (+) • landscape amenities (+)

13. Two case studies: the enset-coffee-livestock based system and the highland cereal system. • Findings: • Major positive externality: Conservation and management of agricultural bio-diversity • The Economic value: • 1)Avoiding fertilizer use and foreign exchange saving. • USD12,505,813/year saved from fertilizer avoidance in the inset culture.

14. 2) aversion of coffee production loss due to coffee berry disease (CBD) resistant varieties • An estimated loss of 830 million was averted during the world’s three CBD years of 1970 1976 and 1982. • reducing the degree of soil erosion • Estimated annual income loss due to soil erosion : US $150 million in 1998. • The Ethiopian coffee population provides genetic stock for crop improvement breeding worldwide. • Other externalities: • Agricultural use of water does not cause water scarcity for non-agriculture. (traditional, rain fed agriculture with very little irrigation) • limited concern about the harmful environmental effects of fertilizer use. (20 kg per ha.) • Agriculture in Ethiopia is more of a sink than a source of green house gases. • The aesthetic value of agricultural landscape. (Tourist identification of the exotic nature of traditional ag.)

15. Major negative externalities: deforestation and soil erosion. • soil erosion inflicts external or off-site costs through the process of sedimentation. • An estimated loss of Birr 60 million was incurred as a result of siltation. • Policy recommendations: • The need for land use policy • Reduce deforestation • Favourable policy on tenure security • Catchment protection to reduce reservoir siltation

16. IV. Food Security Role Module • The food security role of agriculture is investigated at two levels: at the national and household levels. • The various approaches in the study include: • Review of indicators of national food security: • Measures of the risk of national consumption shortfall beyond a certain level of trend consumption;

17. During 1999/2000 average cereal supply per person ranged between 122 to 158 Kg • Average yield of major cereals didn’t improve from its level of 1ton per hectare 25 years ago. • Famine affected population during drought years increased from about 1.5 million in 1972/73 to about 7 million in 1984/85 and about 14 million people in 2002/03 • The structural deficit is about 6 million people • Projection of famine affected population will reach about 42% by 2020 (i.e 3.4% growth rate/annum)

18. Trend of per capita cereal and pulses production

19. The national level food security situation: • average daily energy supply:1880 kcal/cap, • 44% of the population is undernourished; and 47% of under 5 children are underweight. • Ethiopia heavily relies on food aid which averages at about 800,000 MT/ year. • The benefits of increased domestic production: • Supply response of cereals to own price is estimated at 0.38% • A 40% price increase, for example, will reduce expenditure for food imports by 50% • Foreign exchange is a very important constraint for food security in Ethiopia • The country relies on limited export earning base (e.g. coffee) for commercial food import

20. Food import average at 199 and 172 million USD during 1990-1995 and 1990–2000, respectively. • These amounts relate to 65% and 44% of export earning less debt repayment. • Household level food security • Rural households spend 61% of their income on food, while in urban households it is 46%. • 74% of total earnings in rural households comes from agriculture and 17% from remittances. • Rainfall and soil fertility explain the largest share of variability of rural income. • In rural areas average per capita nutrient intake per day is 2032 Kcal of energy, 55gms protein and 60gms of fat while these are 2300 kcal, 63gms and 40gms respectively in urban areas.

21. Agricultural growth impact on poverty • Poverty Situation: • Proportion of people in food poverty is 52% in rural and 36% in urban • 1995/96 poverty level was 45.5% and 44.2% in 1999/2000 • Current poverty estimate is 47.5%

22. Seven channels through which agriculture affects poverty are identified • Food Channel • Income Channel • Price Channel • Non-farm employment channel • Off-farm employment channel • Wage Channel • Government revenue channel • Four are major transmission mechanisms: Food, income, price and employment

23. Growth elasticity of poverty = -0.76 (previous estimates) Agricultural growth elasticity of GDP growth = 0.32  Agricultural growth elasticity of poverty = -0.24 Growth elasticity of poverty = -0.4 (Actual) Agricultural growth elasticity of GDP growth = 0.32  Agricultural growth elasticity of poverty = -0.13 Agricultural Growth Elasticity of Poverty

24. Rural Poverty Estimates for 2000 under different assumptions

25. Rural Poverty Estimates for 2015 under different assumptions

26. The results of the calculation of elasticities shows that if agriculture grows, it would have significant impact on poverty reduction.

27. VI. Buffer Role Module • Objective: • to assess the potential of Ethiopian agriculture as a buffer in times of crisis. • Analysis is made based on the aggregated national data and household level data. • At macro data from Published materials and data from agencies and institutions: CSA, MoLSA and others . • The household level data from rural and urban surveys of AAU • Specific data regarding remittances and migration could not be obtained.

28. Problem of unemployment has become a serious issue in urban Ethiopia. • Sharp decline in the rate of growth of urban based employment opportunities • The highest rate of unemployment was experienced by the youth (43.1%) while adult job seekers took the next position (41.4%) in 1984. • The direct way of assessing the contribution of rural households to non-agricultural dependents is not possible in the Ethiopian case. (No remittance from rural to urban house holds could be identified both from national data and from survey conducted for this purpose) • For brevity, using the data on remittances from urban to rural areas, a Tobit model is used to examine the purpose of remittance flows from urban areas to rural to check if self interest or altruism explain the reasons for remittances.

29. Conclusion: • the ability of agriculture to act as a buffer hinges on the sector’s performance during a crisis. • Poverty is getting serious in urban areas but the situation in rural areas is more daunting. • The low level of urban-to rural migration, and the virtual absence of remittances going from agriculture to urban households indicate the low capacity of the agricultural sector to support urban households in case of adverse economic circumstances in urban areas. • Self-interest motive doesn’t dominate in urban households’ decisions to remit to rural households

30. VII. Social Viability Role Module • Overall Objective: Establish the contribution of agriculture to social viability in the form of spatial population balance • Data Sources and Method: Use of existing macro-level data and primary data generated for the purpose of this study through surveys and focus-group discussions carried out at two representative sites of the two farming systems (enset-coffee complex farming system and highland cereal farming system). • Secondary sources of data: CSA census, statistical abstracts and published and unpublished reports. • Primary data generated through: survey and focus-group discussions in two representative4 sites of the highland-cereal and enset-coffee complex farming systems

31. To this effect the study has: • Assessed the spatial distribution of the population, as well as the features of the population and migration at the national an d city (Addis Ababa) level • Using the Harris-Todaro Model, identified the main determinants of rural-urban migration, and estimated their respective contribution • Estimated the social costs of migration to urban administrations • Estimated the optimal rate of rural to urban migration, and looked into how this relates to the actual level. • Illustrated the interplay between land tenure, farming system and agricultural production and transformation.

32. Recent population estimates for Ethiopia: 70.7 million of which 83.8% resides in rural areas. • 44.7% of the total urban population and 9.2% of the total rural population consist of migrants. • In 1994, of the four major categories of internal migrations the rural-rural migration ranked first (48.9%), followed by rural-urban migration (24.8%). • Addis Ababa is by far the only truly metropolitan city with more than 3 million residents amounting to 24% of the total urban population.

33. From the estimated model, rural-urban income differentials affect migration • Fertilizer use, investment in agricultural machinery, investment in livestock and education all have the capacity to increase productivity in agriculture and hence minimize implicit wage differentials and thus reduce rural-urban migration.

34. A simultaneous 1% increase in the use of these three agricultural inputs would result in the reduction of the rural-urban migration by about 6.2%. • Estimated per capita marginal urban absorption cost is Birr 5,139. • The average rate of migration measured as a proportion of the rural population for the years 1980 to 2001 was about 0.25%. • The equilibrium (optimal) rate of migration (where the present value of future expected real income in both areas is equalized) measured relative to the rural labor force is about 1.96%. • This implies that the optimal number of migrants to be about four times (485,000 per annum) compared with the actual number of migrants (114,000 per annum) for the period 1980 to 2001.

35. One reason for the low rate of migration is the land tenure policy. • This was supported by evidence from the different farming systems where different tenure security prevails (largely owing to differences in social organization rather than differing de jure tenure arrangements.) • It would be erroneous to consider this very low rate of rural-urban migration a positive externality of agriculture. • But, this was made possible because of food aid that made up for the chronic food deficit.

36. Conclusion • Positive externalities from agriculture are hard to come by in the Ethiopian context. • An archaic production system with a suffocating property rights regime and a population pressure partly owing to very low urbanization responsible for the sector’s poor performance. • Structural transformation of agriculture (from traditional to modern) along with the transformation of the economy (from predominantly agricultural to non-agricultural) is crucial.

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