Implications of Accelerated Agricultural Growth on Household Incomes and Poverty in Ethiopia: A General Equilibrium Analysis

Transcription

1 ESSP2 Disussion Pper 002 Implitions of Aelerted Agriulturl Growth on Household Inomes nd Poverty in Ethiopi: A Generl Equilibrium Anlysis Pul Dorosh nd Jmes Thurlow with the support of the EDRI/University of Sussex Soil Aounting Mtrix tem Development Strtegy nd Governne Division, Interntionl Food Poliy Reserh Institute Ethiopi Strtegy Support Progrm 2, Ethiopi Ethiopi Strtegy Support Progrm 2 (ESSP2) Disussion Pper No. ESSP 002 November 2009 IFPRI-Addis Abb P.O. Box 5689 Addis Abb, Ethiopi Tel: Fx: E-mil: ifpri-ddis@gir.org IFPRI HEADQUARTERS Interntionl Food Poliy Reserh Institute 2033 K Street, NW Wshington, DC USA Tel: Skype: IFPRIhomeoffie Fx: E-mil: ifpri@gir.org

2 THE ETHIOPIA STRATEGY SUPPORT PROGRAM 2 (ESSP2) DISCUSSION PAPERS ABOUT ESSP2 The Ethiopi Strtegy Support Progrm 2 is n inititive to strengthen evidene-bsed poliymking in Ethiopi in the res of rurl nd griulturl development. Filitted by the Interntionl Food Poliy Reserh Institute (IFPRI), ESSP2 works losely with the government of Ethiopi, the Ethiopin Development Reserh Institute (EDRI), nd other development prtners to provide informtion relevnt for the design nd implementtion of Ethiopi s griulturl nd rurl development strtegies. For more informtion, see 757/ourwork/progrm/ethiopi-strtegy-support-progrm or ABOUT THESE DISCUSSION PAPERS The Ethiopi Strtegy Support Progrm 2 (ESSP2) Disussion Ppers ontin preliminry mteril nd reserh results from IFPRI nd/or its prtners in Ethiopi. The ppers re not subjet to forml peer review. They re irulted in order to stimulte disussion nd ritil omment. The opinions re those of the uthors nd do not neessrily reflet those of their home institutions or supporting orgniztions. About the Author(s) Pul Dorosh Sr. Reserh Fellow nd Progrm Leder, Ethiopi Strtegy Support Progrm, IFPRI Jmes Thurlow Reserh Fellow, Development Strtegy nd Division Governne, IFPRI

3 Implitions of Aelerted Agriulturl Growth on Household Inomes nd Poverty in Ethiopi: A Generl Equilibrium Anlysis Pul Dorosh nd Jmes Thurlow with the support of the EDRI/University of Sussex Soil Aounting Mtrix tem Development Strtegy nd Governne Division, Interntionl Food Poliy Reserh Institute Ethiopi Strtegy Support Progrm 2, Ethiopi Copyright 2010 Interntionl Food Poliy Reserh Institute. All rights reserved. Setions of this mteril my be reprodued for personl nd notfor-profit use without the express written permission of but with knowledgment to IFPRI. To reprodue the mteril ontined herein for profit or ommeril use requires express written permission. To obtin permission, ontt the Communitions Division t ifpri-opyright@gir.org.

4 Tble of Content ACKNOWLEDGMENTS... 1 ABSTRACT... 2 INTRODUCTION... 3 MODELING SOURCES OF AGRICULTURAL GROWTH AND POVERTY REDUCTION... 5 POVERTY REDUCTION UNDER ETHIOPIA S CURRENT GROWTH PATH... 9 ACCELERATING AGRICULTURAL GROWTH AND POVERTY REDUCTION...14 SUMMARY OF MAJOR FINDINGS...24 REFERENCES...25 APPENDIX 1: SPECIFICATION OF THE CGE AND MICRO-SIMULATION MODEL...26

5 List of Tbles Tble 1: Setors in the DREME model... 6 Tble 2: Seleted inome elstiities in the DREME model... 8 Tble 3: Setor growth results from model senrios...10 Tble 4: Prodution trgets for bseline nd griulturl growth senrios...11 Tble 5: Household poverty results from model senrios...17 Tble 6: Regionl growth results under model senrios...19 Tble 7: Household verge onsumption shres...20 Tble 8: Poverty-growth elstiities from model senrios...22 Tble A1. CGE model sets, prmeters, nd vribles...29 Tble A1 ontinued. CGE model sets, prmeters, nd vribles...30 Tble A1 ontinued. CGE model sets, prmeters, nd vribles...31 Tble A2. CGE model equtions...32 Tble A3. CGE model equtions (ontinued)...33 Tble A3. CGE Model Equtions (ontinued)...34

6 List of Figures Figure 1: Zones in the DREME model... 7 Figure 2: Ntionl poverty results from model senrios Figure 3: Current, expeted nd trgeted rop yields...15 Figure 4: Chnges in rel mrket pries from bseline vlues under All Agriulture senrio..21

7 ACKNOWLEDGMENTS We wish to thnk the other reserhers on the EDRI/University of Sussex tem tht helped onstrut the Soil Aounting Mtrix used in this nlysis, espeilly Hshim Ahmed, Aynw Amogne, Tewodros Tebekew, Birouke Teferr, nd Eysu Tsehye of EDRI, nd Shermn Robinson nd Dirk Willenbokel of the Institute of Development Studies. We lso thnk Sm Benin nd prtiipnts t vrious workshops on CAADP for their helpful omments nd suggestions. 1

8 ABSTRACT Ethiopi s ntionl development strtegy, A Pln for Aelerted nd Sustined Development to End Poverty for 2005/06 to 2009/10 (PASDEP) ples mjor emphsis on hieving high rtes of griulturl nd overll eonomi growth. Consistent with the PASDEP, Ethiopi is lso in the proess of implementing the Comprehensive Afri Agriulture Development Progrmme (CAADP) together with other Afrin governments. As prt of CAADP, the ountry hs ommitted itself to meeting trgets of devoting t lest 10 perent of publi expenditures to griulture nd to hieving 6 perent growth rte in griulturl GDP. Ethiopi hs lredy met these trgets in reent yers. The hllenge remins, however, to ontinue to devote these publi resoures nd to hieve high growth rtes through This pper nlyzes griulturl growth options tht n support high levels of griulturl development using new omputble generl equilibrium (CGE) model for Ethiopi bsed on dt from the EDRI 2005/06 Ethiopi SAM (Ahmed et l. 2009). The CGE model results indited tht if Ethiopi n meet its trgets for rop yields nd livestok produtivity, then it should be possible to reh nd sustin the six perent griulturl growth trget during Even though these yield trgets re below the mximum potentil yields identified by griulturl field trils, they re still mbitious given the short timefrme of the CAADP inititive (i.e., seven yers). Ahieving griulturl growth of six perent per yer would redue ntionl poverty to 18.4 perent by 2015, lifting n dditionl 3.7 million people out of poverty ompred to bse simultion using medium term growth rtes. Most households re expeted to benefit from fster griulturl growth. However, some groeologil zones tht grow higher-vlue erels nd export-oriented rops nd whih re better situted to lrger urbn mrkets (e.g., the rinfll suffiient highlnds) stnd to gin more thn other prts of the ountry. Both rurl nd urbn households benefit from fster griulturl growth (nd thereby overll eonomi growth), s rurl produers benefit from inresed griulturl produtivity nd inomes, while net purhsers of food in both rurl nd urbn res benefit from moderte delines in rel food pries. Composition of griulturl growth mtters, though. Additionl growth driven by erels hs lrger impts on poverty redution, beuse these rops lredy onstitute lrge shre of rurl inomes nd so n ontribute substntilly to hieving brod-bsed griulturl growth. Yield improvements in these rops not only benefit frm households diretly, by inresing inomes from griulturl prodution, but lso by llowing frmers to diversify their lnd llotion towrds other higher-vlue rops. Inresed produtivity of erels tht redues rel erel pries is lso effetive t rising rurl rel inomes nd reduing poverty, espeilly mongst the poorest households. Thus, high priority should be fforded to improving erels yields nd opening mrket opportunities for upstrem proessing to redue demnd onstrints. 2

9 INTRODUCTION Ethiopi s eonomy hs experiened rpid growth in reent yers. Although growth in griulturl GDP from ws less rpid thn other prts of the eonomy, it hs lso performed well, growing fster thn the rurl popultion. However, poverty is still severe in Ethiopi nd is onentrted in rurl res. To elerte growth nd poverty redution, Ethiopi s ntionl strtegy ffords n importnt role to griulture, s soure of both growth nd development for the broder eonomy. This is essentil given tht griulture is n inome soure for most of the popultion. The setor ounts for more thn two-fifths of GDP, threequrters of merhndize export ernings, nd provides key inputs into the mnufturing setors, whose griulturl proessing setors ontribute further to ntionl GDP. In prllel to Ethiopi s griulturl strtegy, the New Prtnership for Afri s Development (NEPAD) is in the proess of implementing the Comprehensive Afri Agriulture Development Progrmme (CAADP), together with Afrin governments. The CAADP inititive supports the identifition of n integrted frmework of development priorities imed t restoring griulturl growth, rurl development nd food seurity in the Afrin region. The min trget of CAADP is hieving six perent griulturl growth per yer. Sine there re hoies involved within the griulturl setor, both for the setor s whole nd ross sub-setors, mny investment nd poliy interventions will be designed t the subsetor level. However, strong inter-linkges our ross sub-setors nd between griulture nd the rest of the eonomy. To understnd these linkges nd how setorl growth will ontribute to the ountry s brod development gols, n integrted frmework is needed in order to synergize the growth projetions mong different griulturl ommodities or subsetors nd evlute their ombined effets on eonomi growth nd poverty redution. Moreover, griulturl prodution growth is often onstrined by demnd in both domesti nd export mrkets, nd demnd, in turn, depends on inome growth both in griulture nd in the broder eonomy. While griulture is dominnt eonomi tivity in Ethiopi nd mjority of the popultion lives in rurl res, both rurl nd urbn setors need to be inluded in this frmework in order to understnd the eonomy-wide impt of griulturl growth. This pper nlyzes griulturl growth options tht n support the development of more omprehensive rurl development omponent under Ethiopi s griulturl strtegy tht is lso in lignment with the priniples nd objetives olletively defined by Afrin ountries s prt of the broder NEPAD gend. In prtiulr, the pper seeks to position Ethiopi s griulturl setor nd rurl eonomy within the ountry s ntionl strtegy. For these purposes, nd to ssist poliymkers nd other stkeholders to mke informed long-term deisions, new eonomywide model for Ethiopi hs been developed nd used to nlyze the linkges nd trde-offs between eonomi growth nd poverty redution t both mro- nd miro-eonomi 3

10 levels. The results from the model simultions re intended to guide debte in prioritizing the ontribution of different subsetors in helping Ethiopi hieve its broder development objetives. 4

11 MODELING SOURCES OF AGRICULTURAL GROWTH AND POVERTY REDUCTION Dynmi Regionl Eonomywide Model of Ethiopi (DREME) A new Ethiopin omputble generl equilibrium (CGE) model ws developed to pture (i) trde-offs nd synergies from elerting growth in lterntive griulturl sub-setors; (ii) the eonomi inter-linkges between griulture nd the rest of the eonomy; nd (iii) the effets of lterntive soures of growth on household inomes nd poverty. This model is lled the Dynmi Regionl Eonomywide Model for Ethiopi (DREME). 1. Although this pper fouses on the griulturl setor, DREME lso ontins informtion on the non-griulturl setors. In totl DREME identifies 69 sub-setors, 24 of whih re in griulture (see Tble 1). Agriulturl rops fll into five brod groups: (i) erel rops, whih re seprted into teff, brley, whet, mize, nd sorghum nd millet; (ii) pulses nd oilseeds, whih is seprted into pulses, suh s bens, nd oilseed rops, suh s groundnuts; (iii) hortiulture, whih is seprted into fruits, vegetbles, nd enset; (iv) higher-vlue export-oriented rops, whih re seprted into otton, sugrne, tobo, offee, te, nd ut flowers; nd (v) other rops, whih inludes ht nd other stples, suh s root rops. DREME lso identifies four livestok sub-setors, inluding ttle, milk, poultry, nd other niml produts. To omplete the griulturl setor, DREME hs two further sub-setors pturing forestry nd fisheries. Most of the griulturl ommodities listed bove re not only exported or onsumed by households but re lso used s inputs into vrious proessing tivities in the mnufturing setor. The seven griulturl proessing tivities identified in the model inlude met nd fish proessing, diry, grin milling; sugr refining, beverges, tobo, nd other foods. The griulturl sub-setors lso use inputs from non-griulturl setors, suh s fertilizer from the fertilizer sub-setor nd mrketing servies from the trde nd trnsport subsetors. DREME lso ptures regionl heterogeneity. Frm prodution is disggregted ross four rurl zones, s shown in Figure 1. These inlude Zone 1 (humid erels region);2 Zone 1b (humid enset region), Zone 2 (drought-prone region); nd Zone 3 (pstorlist region). These zones reflet different gro-eologil nd limti onditions ross the ountry. 1 See Appendix 1 for disussion of the model equtions nd prmeters. Erlier CGE models for Ethiopi, however, hve not inluded detiled disggregtion of the griulture setor or households by region (e.g. Geln, 2002; Lofgren nd Bonill 2005). See Dio nd Nin-Prtt (2009) for fixed-prie multiplier nlysis using 1999/2000 Soil Aounting Mtrix (SAM) of Ethiopi is ombined with detiled regionlly disggregted multi-mrket model to nlyze growth nd poverty implitions of lterntive prodution senrios. 2 The humid lowlnd moisture relible gro-eologil zone shown in Figure 1 is inluded in Zone 1 (humid erels), s well. 5

12 Tble 1: Setors in the DREME model Agriulture Non-griulture 1 Teff 35 Textiles 2 Brley 36 Yrn 3 Whet 37 Fibers 4 Mize 38 Lint 5 Sorghum 39 Clothing 6 Pulses 40 Lether produts 7 Oilseeds 41 Wood produts 8 Vegetbles 42 Pper nd publishing 9 Fruits 43 Petroleum 10 Enset 44 Fertilizer 11 Cotton 45 Chemils 12 Sugrne 46 Non-metlli minerls 13 Te 47 Metls 14 Cht 48 Metls produts 15 Tobo 49 Mhinery 16 Coffee 50 Vehiles nd trnsport equipment 17 Flowers 51 Eletroni equipment 18 Other rops 52 Other mnufting 19 Cttle 53 Col 20 Milk 54 Nturl gs 21 Poultry 55 Other mining 22 Animl produts 56 Eletriity 23 Fisheries 57 Wter 24 Forestry 58 Constrution Agriulturl proessing 59 Wholesle nd retil trde 25 Met 60 Hotels nd tering 26 Diry 61 Trnsport 27 Vegetble produts 62 Communitions 28 Grin milling 63 Finnil servies 29 Milling servies 64 Business servies 30 Sugr refining 65 Rel estte 31 Te proessing 66 Other privte servies 32 Other foods proessing 67 Publi dministrtion 33 Beverges 68 Edution 34 Tobo proessing 69 Helth Soure: Dynmi Regionl Eonomywide Model of Ethiopi (DREME). DREME ptures ropping ptterns in eh of the four zones. The representtive frmer in eh zone responds to hnges in prodution tehnology nd ommodity demnd nd pries by relloting their lnd ross different rops in order to mximize inomes. These frmers lso rellote their lbor nd pitl between frm nd non-frm tivities, inluding livestok nd fishing, wge employment, nd diversifition into non-griulturl setors, suh s trnsport, trde nd onstrution. Thus, by pturing prodution informtion ross sub-ntionl regions, DREME ombines the ntionl or mroeonomi onsisteny of n eonomywide model with zonl-level prodution models. DREME is thus n idel tool for pturing the growth linkges nd inome-nd prie-effets resulting from elerting growth in different griulturl setors. 6

13 Figure 1: Zones in the DREME model Finlly, DREME endogenously estimtes the impt of growth on household inomes nd poverty. There re 12 representtive household groups in the model, disggregted by rurl zones, smll nd lrge urbn enters, nd poor/non-poor sttus. Poor is defined here s inluding ll households flling into the lowest two per pit expenditure quintiles (i.e., the poorest 40 perent of the popultion). 3 Household inome elstiities re bsed on estimtes from the 2004/05 household inome nd expenditure survey (HICES, 2005) (see Tble 2). Eh household questioned in HICES 2004/05 is linked diretly to the orresponding representtive household in the model. This is the miro-simultion omponent of DREME. In this formultion of the model, hnges in representtive households onsumption nd pries in the CGE model omponent re pssed down to their orresponding households in the survey, where totl onsumption expenditures re relulted. This new level of per pit expenditure for eh 3 Given this definition of poverty, we then use the utoff level of per pit expenditures tht defines the poor nd non-poor households (seprtely for the rurl nd urbn res) s the poverty lines in the subsequent simultions. 7

14 survey household is ompred to the seprte poverty lines for rurl nd urbn res, nd stndrd poverty mesures re relulted. Thus, poverty is mesured in extly the sme wy s stndrd poverty estimtes, nd hnges in poverty drws on the onsumption ptterns, inome distribution nd poverty rtes ptured in the ltest household inome nd expenditure survey. Tble 2: Seleted inome elstiities in the DREME model Rurl Urbn Rurl Urbn Mize Cttle met Whet Poultry Teff Milk Other erels Other mets Root rops Fish Pulses Proessed foods Oilseeds Beverges Enset Textiles Vegetbles Other mnuftures Fruits Constrution Sugrne Utilities Cht Trde nd trnsport Coffee Resturnts Tobo Other privte servies Publi servies Soure: Authors estimtes bsed on dt from the 2004/05 Household Inome, Consumption nd Expenditure Survey (HICES). Dt soures for the model The ore dtset pturing the eonomi struture of the Ethiopin eonomy is the 2005/06 soil ounting mtrix (SAM) developed by the Eonomi Development Reserh Institute (EDRI). 4 This SAM inludes four gro-eologil zones nd detiled regionl disggregtion of household groups. Zonl-level griulturl prodution nd re dt were tken from the 2005/06 griulturl smple survey were used to identify the four zones nd to disggregte prodution in the SAM. DREME is therefore onsistent with reent griulturl prodution levels nd yields t the zonl level. 4 Ahmed et l., (2009). 8

15 POVERTY REDUCTION UNDER ETHIOPIA S CURRENT GROWTH PATH We use DREME to exmine the impt of Ethiopi s urrent growth pth on poverty redution. This business-s-usul senrio drws on prodution trends for vrious griulturl nd nongriulturl sub-setors. Ethiopi experiened rpid growth from 1998 to 2007, with ntionl GDP growing t lmost eight perent per yer. During this period the griulturl setor did not grow s rpidly, with n verge growth rte of six perent per yer. However, muh of this rpid eonomi growth hs ourred in the lst few yers, nd it is unertin whether in tody s globl eonomi reession, suh rpid growth n still be hieved over the ner-term. Aordingly, the bseline senrio tkes more utionry position nd ssumes verge nnul griulturl growth of 3.8 perent per yer during (see Tble 3). 5 Although this is below the reent spike in griulturl GDP growth rtes, it still ssumes firly strong performne by the griulturl setor over the oming dede. 6 More thn hlf of griulture s strong growth performne during ws driven by lnd expnsion, with the rest resulting from hnges in ropping ptterns nd improvements in yields. For exmple, lnd re under mize ultivtion expnded by 2.2 perent per yer during this period, while yields improved eh yer by 1.5 perent. Similr ptterns were observed for other erels, with the only exeption being whet, where lnd re expnded extremely fst t 5.5 perent per yer, ompred to yield growth of 2.7 perent. Long-term griulturl growth hs thus been driven more by expnded ultivted lnd thn by improvements in ropping tehnologies. The Bseline senrio is librted to prodution trends from nd so it ssumes tht lnd expnsion will ontinue long its long-term pth, with bout two-thirds of prodution inreses driven by re expnsion. This is equivlent to n inrese in totl hrvested lnd by 2.6 perent per yer during , whih is slightly below to the rurl popultion growth rte of 3.0 perent. Aording to prodution trends, lnd re expnsion vries ross zones. Cultivted lnd growth is 2.2 perent per yer in Zones 1 nd 1b (humid regions), 3.2 perent in Zone 2 (drought-prone region), nd 3.7 perent in Zone 3 (pstorlist region). As shown in Tble 4, the non-griulturl setors re expeted to mintin their strong performne over the oming dede, with mnufturing nd servies growing more rpidly thn griulture t 8.2 perent per yer. The 3.8 perent griulturl growth rte in the Bseline senrio is bsed on more detiled prodution trends for different griulturl sub-setors. 5 Simultions re run beginning with the bse yer of 2005/06. Produtivity shoks re modeled only from 2008/09 onwrds, however (i.e. ll senrios re the sme until 2008/09), so simultion results re shown from this yer onwrds only. 6 As disussed in more detil in setion 4, five different senrios were designed for this nlysis. Senrios 1-3 trget speifi groups of rops or griulturl sub-setors, inluding erels (Simultion 1); export-oriented rops (Simultion 2); nd livestok (Simultion 3). The ll griulture senrio (Simultion 4) inludes dditionl growth from the fisheries nd forestry sub-setors. Simultion 5 inludes elerted produtivity growth in the non-griulture setor, s well. 9

16 Tble 3: Setor growth results from model senrios GDP Averge nnul GDP growth rte, (%) shre, Bseline Cerels Exportrops Livestok All Non-gri (%) gri. (1) (2) (3) (4) (5) (6) Totl GDP Agriulture Cerels Teff Brley Whet Mize Sorghum Pulses & oilseeds Pulses Oilseeds Hortiulture Vegetbles Fruits Enset Export rops Cotton Sugrne Tobo Coffee Cut flowers Other rops Cht Other rops Livestok Cttle Milk Poultry Animl produts Other griulture Fisheries Forestry Industry Mnufturing Agro-proessing Met proessing Diry Grin milling Sugr refining Other foods Beverges Tobo proessing Other industry Servies Privte Publi Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: The simultions re umultive, suh tht the Export-Crop senrio inludes the produtivity gins from the Cerels senrio (1) plus dditionl produtivity gins for export rops. Similrly, the Livestok senrio (3) inludes the produtivity gins for both erels nd export rops (i.e., from the previous two senrios). 10

17 Tble 4: Prodution trgets for bseline nd griulturl growth senrios Crop yields Crop prodution Crop lnd re Levels (mt/h) Growth rtes (%) Levels (1000 mt) Growth rtes (%) Growth rtes (%) Initil Bseline Trget Bseline Trget Initil Bseline Trget Bseline Trget Bseline Trget Cerels Teff ,191 3,660 4, Brley ,271 2,009 2, Whet ,230 4,105 5, Mize ,647 5,424 6, Sorghum ,608 4,226 4, Pulses &oils Pulses ,110 1,632 1, Oilseeds ,035 1, Hortiulture Enset Vegetbles ,321 1, Fruits Export rops Sugrne ,617 2,614 2, Te Cotton Tobo Coffee Flowers Other rops Cht Other stple ,576 2,537 2, All rops Soure: Crop trgets drwn from onsulttions with CAADP stoktking tem nd representtives from the Ministry of Agriulture; finl setor trgets re bsed on results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Notes: Growth rtes shown re ntionl verges. Bseline 2015 denotes levels in the bseline senrio for Bseline denotes the growth rte in the bseline senrio from 2005 to

18 Tble 4 shows the ssumptions mde bout eh sub-setor s yield growth. We initilly dopt the teff yield of 0.76 tons per hetre tht ws observed in 2005/06 nd then ssume tht teff yields grow t 2.86 perent per yer suh tht Ethiopi hieves sustined ntionl verge teff yield of 1.01 tons per hetre by 2015). Lnd re under teff ultivtion lso grows t 2.33 perent eh yer under the Bseline senrio, suh tht overll prodution expnds by 5.26 perent. This is onsistent with observed prodution ptterns for Moreover, yield nd re expnsions vry t the zonl-level bsed on tul prodution trends. The Bseline thus reflets expeted improvements in the performne of the teff setor over the next dede with the rte of growth of investments ontinuing s before. Similrly, for whet, we ssume tht initil yields ontinue to grow rpidly t 3.40 per yer, nd tht yields rise to 1.67 tons per hetre by Ntionl nd regionl prodution of eh of the five erels rops in DREME is thus librted to losely reprodue long-term prodution trends. Ntionl prodution trends were used to librte the Bseline growth rtes for non-erels rops. Prtiulrly rpid prodution growth ws observed for the hortiulturl rops, inluding fruits, vegetbles nd enset. However, unlike erels, these high growth rtes were driven more by lnd expnsion thn by improvements in rop yields. For exmple, during , enset yields remined lrgely unhnged, but ultivted lnd re grew extremely fst. This is refleted in the Bseline senrio, where the prodution growth rte is driven minly by fster expnsion of enset lnd re. Similr bises towrds lnd expnsion over yield improvements were observed for pulses, oilseeds, nd other stples, suh s root rops. Industril nd export rops performed quite well during , with the exeption of tobo, whose prodution levels delined slightly. This is refleted in the Bseline senrio. For exmple, offee nd otton prodution rises by 4.54 nd 4.61 perent per yer respetively during This is driven by firly rpid expnsion of lnd re under export rop ultivtion. The Bseline senrio therefore ssumes tht the export-oriented ontinue to grow rpidly, lbeit slower thn the mjor stple rops. Only tobo prodution is expeted to deline bsed on long-term trends. Livestok is key griulturl sub-setor generting signifint shre of griulturl GDP, nd with strong upstrem linkges to met proessing in the mnufturing setor (see Tble 3). The Bseline senrio ssumes tht livestok GDP will expnd t rte of 2.9 perent per yer. This is below the rpid growth of the rop setors, but is entirely onsistent with livestok GDP growth rtes reported in ntionl ounts for The Bseline senrio does reflet more rpid growth in the milk nd poultry sub-setors. Fisheries nd forestry re lso griulturl sub-setors in DREME, with the ltter generting 4.04 perent of totl griulturl GDP in 2005/06. Bsed on ntionl ounting for the period , the Bseline senrio ssumes tht fisheries GDP remins virtully unhnged during For the forestry 12

19 Ntionl poverty hedount (%) sub-setor, the Bseline senrio ssumes tht vlue-dded in this sub-setor will grow t 4.02 perent per yer. Drwing on the bove trends, DREME simultion results indite tht, with four perent growth in the griulturl setor nd more rpid growth in the non-griulturl setors, overll ntionl GDP will grow t n verge rte of 5.95 perent during This is equl to the verge GDP growth rte of six perent observed for , thus ssuming tht Ethiopi s eonomy will mintin its long-term growth rte over the oming dede. With popultion growth t three perent per yer, this mens tht per pit GDP lso grows rpidly t bout three perent. With rising per pit inomes nd growth ross ll setors, DREME estimtes tht poverty will deline from 40 perent to 23 perent during (see Figure 2). The fster expnsion of the non-griulturl setors mens tht ntionl inome growth fvors urbn households nd res more thn rurl ones. For exmple, poverty flls in smll urbn enters from 34 to 9 perent by 2015, while rurl poverty delines from 41 to 25 perent. Given overll rpid poverty redution, nd despite n expnding popultion, the bsolute number of poor people in Ethiopi would deline from 25.8 million people in 2005 to 19.6 million by While this is signifint redution in the number of poor people living in Ethiopi, it revels the persistent burden of poverty in the ountry nd emphsizes the need for reinforing pro-poor soures of eonomi growth. Figure 2: Ntionl poverty results from model senrios Bseline senrio All griulture senrio 18.4 With non-griulture senrio Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: The poverty hedount is the perentge shre of the popultion living below the poverty line. We ssign the poverty line so tht 40 perent of the popultion is lssified s poor (i.e., the bottom two expenditure quintiles). As noted in footnote 5 bove, ll simultions re the sme from 2005 to Produtivity shoks re modeled from 2009 onwrds. 13

20 ACCELERATING AGRICULTURAL GROWTH AND POVERTY REDUCTION In the previous setion we desribed the results of the Bseline senrio, whih estimted the impt of Ethiopi s urrent growth pth on poverty redution. We found tht while eonomi growth over the oming dede is expeted to remin robust nd will hlve the ntionl poverty rte by 2015, it will redue the number of poor people by less thn one-third. Therefore, in this setion we exmine whether medium-term six perent griulturl growth trget identified by CAADP is hievble, bsed on resonble sub-setor growth potentils. We lso estimte the potentil ontribution of different griulturl sub-setors in helping Ethiopi substntilly redue poverty throughout the ountry. A sustined six perent griulturl growth rte is hievble Aelerted rop prodution is modeled by inresing yields in order to hieve yield trgets identified for Tking teff s n exmple, under the Bseline senrio we ssumed tht verge yields would rise from 0.76 to 1.01 tons per hetre during (see Tble 4). In this setion we model more mbitious teff yield improvements, with the nnul yield growth rte for teff rising from its urrent 2.86 perent per yer to 3.82 perent per yer. This implies tht ntionl verge teff yields will rise onsistently over the next dede to reh 1.11 tons per hetre by This ntionl trget yield ws identified together with the CAADP stoktking tem nd in onsulttion with the Ministry of Agriulture nd Rurl Development (MOARD). The yields of other rops were lso inresed in similr mnner but to differing degrees bsed on long-term trends nd potentil yields (see Figure 3). Prodution growth trgets were lso identified for the livestok nd fisheries subsetors. Five different senrios were designed for this nlysis (Tble 3). In Senrios 1-3 we trget speifi groups of rops or griulturl sub-setors, inluding erels (Simultion 1); exportoriented rops (Simultion 2); nd livestok (Simultion 3). For instne, in the erels-led growth senrio we inrese totl ftor produtivity (TFP) for ll erels rops so s to hieve the rop-speifi yield trget shown in Tble 4. In the non-rop senrios, suh s livestok-led growth, we lso inrese totl ftor produtivity (TFP) to hieve trgeted GDP growth rtes. The results of eh simultion re umultive, so tht Simultion 2 inludes the effets of Simultion 1, Simultion 3 inludes the effets of Simultion 2, nd so on. In the ll griulture senrio (Simultion 4), we inlude dditionl growth from the fisheries nd forestry subsetors. This is equivlent CAADP senrio, sine it ptures ll possible soures of dditionl griulturl growth. Finlly, in the non-griulture senrio (Simultion 5), we elerte eonomi growth in not just the griulturl setor, but in non-griulture s well. The results of these senrios re disussed below. 14

21 Teff Brley Whet Mize Sorghum Oilseeds Cotton Cht Tobo Coffee Flowers Crop yield (mt/h) Figure 3: Current, expeted nd trgeted rop yields Aelerted yield growth trget, 2015 Expeted yields under bseline senrio, 2015 Current yields, Soure: Crop trgets drwn from onsulttions with CAADP stoktking tem nd representtives from the Ministry of Agriulture; finl setor trgets re bsed on results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Under the All Agriulture senrio, griulturl growth elertes to six perent per yer for the period (see Tble 3). This is driven by strong expnsion in erels prodution. For exmple, whet prodution inreses from bout four million tons under the Bseline senrio to over six million tons under the All Agriulture senrio (see Tble 4). Similrly lrge expnsions of offee prodution re lso hieved under this elerted senrio. Thus, even though the dditionl growth required for other rops is less pronouned, the hievement of the six perent griulturl growth trget remins mbitious. Livestok growth would lso hve to double from n nnul verge growth rte of 2.88 perent per yer under the Bseline senrio to 6.02 perent under the All Agriulture senrio. However, despite these hllenges, the results from DREME indite tht if the rop yield nd livestok produtivity trgets n be hieved by 2015 then Ethiopi will be ble to hieve nd sustin the six perent griulturl growth trget set forth by CAADP. Sine griulture is more thn third of the Ethiopin eonomy, the elertion of griulturl growth inreses the ntionl GDP growth rte from its urrent 5.95 perent per yer to 6.88 perent per yer. Fster griulturl growth lso stimultes dditionl growth in the non- 15

22 griulturl setors, by rising finl demnd for non-griulturl goods nd by lowering input pries nd fostering upstrem proessing. For instne, under the All Agriulture senrio, the GDP growth rte of griulture-proessing in the mnufturing setor inreses from 6.08 perent under the Bseline senrio to 6.82 perent per yer. Ahieving the six perent griulturl growth trget therefore hs eonomywide growth-linkge effets for non-griulture. Finlly, we exmine the impt of elerting eonomi growth outside of griulture. In the Non-griulture senrio we inrese the produtivity growth rtes of the nongriulturl subsetors by n dditionl two perentge points per yer during As shown in Tble 4, this uses the ntionl GDP growth rte to inrese from 6.88 perent under the All Agriulture senrio to 8.50 perent. Fster nongriulturl growth lso stimultes dditionl demnd for griulture, thus helping rise griulture s GDP growth bove the six perent trget. The inrese in demnd for griulturl produts is lrger for erels nd livestok, whih form lrger shre of urbn households nd nongriulturl workers onsumption bskets, nd whose inomes re rising s result of fster nongriulturl growth. Thus, elerting griulturl growth hs positive eonomywide effets, whih n be further strengthened by n expnded nongriulturl setor. Agriulturl growth gretly redues poverty The elertion of griulturl growth to round six perent per yer under the All Agriulture senrio nd its spillover effets into non-griulture uses poverty to deline by further 4.3 perentge points. This is shown in Figure 2, where the shre of Ethiopi s popultion under the poverty line flls to perent by 2015 under the All Agriulture senrio ompred to perent under the Bseline senrio. Thus, tking popultion growth into ount, hieving the six perent growth trget lifts n dditionl 3.7 million people bove the poverty line by This is suffiient to lmost hlve the number of poor people in Ethiopi tody (i.e., from 25.8 to 15.9 million). Fster griulturl growth benefits mjority of households. However, not ll households in ll gro-eologil zones benefit eqully from hieving the higher rop yields nd fster subsetor growth rtes trgeted under the All Agriulture growth senrio. Tble 5 shows how poverty rtes hnge under the vrious senrios. Poverty delines mongst both rurl nd urbn households, lthough the delines re more thn twie s lrge in rurl res. Moreover, there re lrge delines in rurl poverty rtes in the two zones where poverty is initilly highest: humid enset region (Zone 1b) nd drought-prone region (Zone 2). Within urbn res, households in both smll nd lrge urbn enters benefit from fster griulturl growth. This is beuse urbn households usully spend signifint shre of their inomes on food nd griulturl produts. They thus benefit from fster griulturl growth nd lower food pries. 16

23 Tble 5: Household poverty results from model senrios Initil poverty hedount (%) Finl yer poverty hedount, 2015 (%) All gri. Bseline Cerels Exportrops Livestok Nongri (1) (2) (3) (4) (5) (6) Ntionl Rurl regions Humid erels (1) Humid enset (1b) Drought-prone (2) Pstorlist (3) Smll urbn enters Lrge urbn enters Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: The poverty hedount is the perentge shre of the popultion living below the poverty line. We ssign the poverty line so tht 40 perent of the popultion is lssified s poor (i.e., the bottom two expenditure quintiles). The impt of griulturl growth on households inomes nd poverty depends on number of ftors. One key ftor is the geogrphi distribution of griulturl prodution. As indited in Tble 6, higher-vlue export-oriented rops re grown more intensively in ertin zones. 7 Coffee, for exmple, is onentrted in the humid erels region (Zone 1). However, it forms lrge shre of griulturl GDP in the humid enset (Zone 1b). Similrly, while erels form lrge shre of griulturl GDP in the humid erels region (Zone 1), it lso ontributes lrge shre to the poorer drought-prone region s griulturl GDP (i.e., it is 41.8 perent in Zone 1 nd 34.1 perent in Zone 2). Finlly, livestok is key setor in ll regions, ontributing between one-qurter to one-third to griulturl GDP in Zones 1, 1b nd 2. However, it is espeilly importnt in the pstorlist region, where it ounts for most of griulturl GDP, with the remining griulturl inomes dominted by erels. These onentrtions of prtiulr rops nd sub-setors will influene how griulturl growth driven by ertin setors ffets household inomes in different prts of the ountry. The soures of dditionl inomes lso vry ross representtive households within zones. Not surprisingly, households tht lredy depend more on erels tend to benefit more from erels-led growth. However, there re two fores driving hnges in prodution following subsetor-speifi yield improvements. First, inresing erels yields diretly effets frm inomes sine it inreses the quntity of output tht frm produes using the sme quntity of ftor inputs. But sine supply of the griulturl produt inreses fster thn demnd (unless inomes re rising rpidly from other soures), pries typilly fll following yield inreses. In response to these prie hnges, frmers my rellote some of their lnd to other rops. 7 Note tht griulturl GDP in Tble 5 exludes fisheries nd forestry (i.e., only inludes rops nd livestok). 17

24 Thus it is importnt to note tht, while we model erels-led growth by inresing erels yields, some of the gins under this senrio re derived from diversifition into other higher-vlue rops fing better demnd onditions. DREME ptures both diret nd indiret effets in its ssessment of the effets of improved yields in different sub-setors. Rel inome nd poverty impts re lso determined by household onsumption demnd. For exmple, households tht spend signifint shre of their inomes on erels will benefit from lower pries when erels prodution rises. Household onsumption ptterns re bsed on the 2004/05 household inome nd expenditure survey, s ptured in the 2005/06 EDRI soil ounting mtrix. The verge budget shres for different household groups re shown in Tble 7. Even though reltively little griulturl GDP in the Pstorlist region (Zone 3) is derived from erels prodution, households in this region spend 16 perent of their disposble inome on erels. Thus, while ntionl expnsion of erels prodution my not diretly benefit households in the Pstorlist region, it will indiretly benefit them through lower food pries. This is lso the se for urbn households, who derive reltively little inome from griulture diretly, but spend t lest third of their inomes on griulturl goods nd proessed foods. Together with regionl prodution ptterns, these verge budget shres nd the inome elstiities in Tble 2 will determine the impt of griulturl growth on poverty. Figure 4 shows the importne of tking demnd onstrints nd reltive prie hnges into ount. Whet, for exmple, fes domesti demnd onstrints nd hs weker linkges to upstrem food proessing nd foreign mrkets. As suh, when whet prodution inreses substntilly under the All Agriulture senrio, its pries deline by seven perent in rel terms (or reltive to the overll onsumer prie index). Milk nd ttle produt pries deline in more shrply (by more thn 15 perent), highlighting the ruil importne of improved mrketing in these sub-setors. By ontrst, some griulturl subsetors do not experiene yield improvements under the All Agriulture senrio, suh s pulses nd hortiulture, nd so inresed household inomes uses rel pries for these rops to rise. Finlly, some rops my lso hve stronger linkges to upstrem proessing nd foreign mrkets, suh s offee, whih mens tht their pries re quite stble, even in the All Agriulture senrio. In summry, DREME results indite tht it is possible for Ethiopi to reh the CAADP trget of six perent griulturl growth. It will, however, require substntil improvements in rop yields nd livestok produtivity over reltively short period of time (i.e., seven yers). If these rop- nd sub-setor-level trgets n be hieved then the resulting broder-bsed griulturl growth is likely to benefit households in both rurl nd urbn res. However, the higher growth potentil of ertin export rops nd better mrket onditions in ertin prts of the ountry my use uneven inome growth nd poverty redution. The livestok sub-setors lso ontribute to griulturl growth nd poverty redution throughout the ountry. Finlly, elerting nongriulturl growth n redue some of the demnd onstrins on griulturl growth 18

25 Tble 6: Regionl growth results under model senrios Ntionl (ll zones) Initil gri. GDP shre (%) Averge nnul GDP growth rte, (%) Bseline Cerels Exportrops Livestok All gri. Non-gri. (1) (2) (3) (4) (5) (6) Agriulture Cerels Pulses & oils Hortiulture Export rops Other stples Livestok Humid erels (1) Agriulture Humid enset (1b) Cerels Pulses & oils Hortiulture Export rops Other stples Livestok Agriulture Drought-prone (2) Cerels Pulses & oils Hortiulture Export rops Other stples Livestok Agriulture Pstorlist (3) Cerels Pulses & oils Hortiulture Export rops Other stples Livestok Agriulture Cerels Pulses & oils Hortiulture Export rops Other stples Livestok Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: Agriulturl GDP in this tble exludes fisheries nd forestry, sine these two setors re not regionlized in DREME. The ntionl griulturl growth rte is therefore slightly higher in this tble. 19

26 Tble 7: Household verge onsumption shres Rurl households Urbn households All Zone 1 Zone 1b Zone 2 Zone 3 Poor Non-poor All Smll enters Lrge enters Poor Non-poor All goods nd servies Agriulture Cerels Pulses & oilseeds Hortiulture Export rops Other rops Livestok Other griulture Industry Mnufturing Agro-proessing Other industry Servies Soure: EDRI soil ounting mtrix (Ahmed et l., 2009). 20

27 Reltive prie index (bseline senrio = 100) Figure 4: Chnges in rel mrket pries from bseline vlues under All Agriulture senrio Vegetbles Pulses Tobo Sorghum Teff Coffee Whet Mize Milk Cttle Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: These re rel pries hnges for seleted produts reltive the pries hieved under the bseline senrio (djusted for hnges in the overll onsumer prie index). They therefore show how dditionl prodution ples downwrd pressure on some ommodities pries, but rising inomes nd demnd llow some ommodities pries to rise when growth is elerted. Compring sub-setor growth in terms of growth nd poverty redution The previous setion highlighted the potentil ontributions of different rops nd sub-setors in inresing griulturl growth nd poverty redution. However, the different sizes of these subsetors mde it diffiult to ompre the effetiveness of setor growth in reduing poverty. Understnding how growth-poverty linkges vry t the sub-setor nd household level is importnt for designing pro-poor growth strtegies in different prts of the ountry. In this setion we lulte poverty-growth elstiities tht llow us to ompre the pro-poorness of growth in lterntive sub-setors. These elstiities re endogenous outomes from the model results. Growth ffets individul households differently due to heterogeneity ross household

28 groups. The bove nlysis hs shown how, with differenes in household nd frm hrteristis, hnges in inome nd onsumption ross households n differ onsiderbly from verge hnges t the ntionl level. Thus, to pture growth-poverty linkges, hnges in the distribution of inomes, whih re primrily determined by ountry s initil onditions, need to be understood. In the previous setion we sw how households in ertin regions hve better opportunities to produe export-oriented rops, nd re thus better positioned to benefit from export-rop-led griulturl growth. However, export-rop-produing households re typilly less poor thn other rurl households. Thus, griulturl growth driven by export rops my hve less of n impt on poverty, espeilly mongst the poorest households. By ontrst, erels tend to be more importnt soure of griulturl inomes for poorer households. Thus, growth in erels my be more effetive t reduing poverty thn similr growth in export rops. The poverty-growth elstiity mesures the responsiveness of the poverty rte to hnges in per pit griulturl GDP growth. More speifilly, the elstiity mesures the perentge hnge in the poverty rte used by one perent inrese in griulturl GDP per pit. Tble 8 shows the lulted poverty-growth elstiities under the different growth senrios. The results indite tht griulturl growth driven by erels is prtiulrly effetive t reduing poverty in the drought-prone region (Zones 2 nd 3), where households re generlly poorer nd depend more hevily on inomes from erels prodution. Poverty in the Pstorlist region (Zone 3) is lso gretly ffeted by erels-led growth due to these rops importne in poorer households onsumption bskets (see Tble 7). For similr reson, erels-led growth is lso effetive t reduing poverty in smller urbn enters, where households re poorer thn in lrger enters nd thus spend lrger shre of their inomes on purhsing erels nd milled grins. Tble 8: Poverty-growth elstiities from model senrios Perentge hnge in poverty hedount rte from one perent inrese in ntionl griulturl GDP led by the following setors Cerels-led Export-rops-led Livestok-led Ntionl Rurl regions Humid erels (1) Humid enset (1b) Drought-prone (2) Pstorlist (3) Smll urbn enters Lrge urbn enters Soure: Results from the Dynmi Regionl Eonomywide Model of Ethiopi (DREME). Note: The poverty hedount is the perentge shre of the popultion living below the poverty line. We ssign the poverty line so tht 40 perent of the popultion is lssified s poor (i.e., the bottom two expenditure quintiles). 22