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Livestock Market and Mortality Risk in East Africa. Christopher B. Barrett Vet Med 6723 Guest Lecture February 28, 2014. Overview. Livestock’s roles in east African economic development Wealth accumulation and mortality risk Market risk Conclusions.

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livestock market and mortality risk in east africa

Livestock Market and Mortality Risk in East Africa

Christopher B. Barrett

Vet Med 6723 Guest Lecture

February 28, 2014

overview
Overview
  • Livestock’s roles in east African economic development
  • Wealth accumulation

and mortality risk

  • Market risk
  • Conclusions
livestock s roles in development
Livestock’s roles in development
  • Livestock as production input
      • Manure: mitigating soil degradation, spatial redistribution of nutrients
      • Traction services
      • Transport services

Result: Improved productivity of agricultural or non-agricultural enterprises.

livestock s roles in development1
Livestock’s roles in development
  • Livestock as a production system
      • Milk and blood (and social prestige): renewable outputs from a single animal
      • Meat, hides and skins: nonrenewable output from a single animal
      • Reproduction: dividends from the asset

Result: Income stream generated directly by livestock

livestock s roles in development2
Livestock’s roles in development
  • Livestock as a quasi-financial asset, providing savings and insurance
      • Store of value (walking bank)
      • Sometimes sold to stabilize incomes
      • Collateralizable for credit

Result: Livestock can play a valuable role where access to conventional financial products is limited or where such products are unattractive.

wealth accumulation and mortality risk
Wealth accumulation and mortality risk

Not everyone is equally able to acquire or

maintain livestock

  • Agroecological differences (disease, aridity, etc.)
  • Lumpiness of investment (Dercon, JDE 1998)
  • Threshold effects (Lybbert et al. EJ 2004)
  • Herder ability (Santos and Barrett 2006)
slide7

Wealth accumulation and mortality risk

Pronounced cattle cycles are common

And accumulation dynamics are often highly nonlinear

Examples from Boran pastoralists, southern Ethiopia, per Lybbert et al. (2004 EJ)

slide8

Wealth accumulation and mortality risk

  • Mortality risk:
      • Resource competition: Is there really a “tragedy of the commons” in any place lacking private land rights?
      • Rainfall
      • Disease

How idiosyncratic or covariate are these risks (i.e., what’s the best way to deal with them)?

In southern Ethiopia, we find that, rainfall aside, mortality risk is idiosyncratic w/o any significant tragedy of the commons effect (see also McPeak 2005, Human Ecology, similar findings from northern Kenya). But rainfall is a major covariate risk (on which, more later).

slide9

Livestock market risk

  • Prices fluctuate dramatically
    • covary negatively with mortality … so wealth is hyperivariablein livestock systems, unlike cropping systems where market prices covary negatively with yields, thereby stabilizing incomes and wealth.
    • rainfall, quarantine, seasons affect prices dramatically
    • limited spatial market integration, i.e., major price disconnects across distinct geographic markets

Nairobi-Marsabit price differentials (“basis”)

slide10

Livestock market risk

Estimated Effects of Drought On Livestock Prices

(hypothetical drop of 200 and 300 mm over 3 and 12 months, respectively)

Negative correlation exists between price and mortality because rainfall drives both lactation/reproduction and mortality.

- big variation among species

Source: Barrett et al. (2003 J. African Economies)

slide11

Livestock market risk

  • For animals traded long distance, intermarket margins are the source of most livestock price risk. For animals traded locally, local market conditions key:
  • - Auction vs. dyadic exchange
  • # traders/lorries (partly a function of food aid backhaul capacity)
  • vet services availability is negatively associated with market price due to vet care endogeneity in markets (reflects disease problems that drive price down)
slide12

Livestock market risk

Estimated Effects of Quarantine On Livestock Prices

Animal disease control measures matter to prices (Barrett et al., 2003 J. African Economies)

slide13

Livestock market and mortality risk

  • Risks are much broader than just livestock, however, and livestock-related risk is minor to many livestock-dependent peoples
  • - Livestock disease, prices and pasture availability of greatest concern to wealthier men in Ethiopian/Kenyan pastoralists(Smith et al., JDS 2001)
  • Poorer households more concerned about food security, human health, (Doss et al. World Dev’t 2008).
  • Development priorities among pastoralists are typically related to health, education and security, not livestock production/marketing (McPeak et al. J. Dev’t Studies 2009)
slide14

Index-based livestock insurance

Drought-related covariate livestock mortality risk is key. A new, commercial index-based livestock insurance (IBLI) product launched in Marsabit, northern Kenya in Jan 2010.

Subsequently adapted and extended to Ethiopia and to other ASAL areas of Kenya. Also being adapted to other contexts (e.g., hornbills conservation in southern Thailand, Chantarat et al. PNAS 2011)

conclusions
Conclusions

Livestock play a major role in rural development in east Africa

- as production inputs to ag/non-ag enterprises

- as production systems

- as quasi-financial asset

But …

- not everyone has equal access

- mortality and market risk are considerable and tend to be mutually reinforcing, making livestock keeping a high risk-high reward activity.

- working on developing viable insurance for livestock assets