CAADP/AGP Workshop, Nazareth, Ethiopia June 2, 2009

1. Agricultural Growth and
Poverty Reduction in Ethiopia:
A General Equilibrium Analysis
Paul Dorosh
James Thurlow
International Food Policy Research Institute (IFPRI)
(Ethiopia Strategy Support Program, ESSP-2)
With the support of the EDRI/University of Sussex
Social Accounting Matrix team
CAADP/AGP Workshop
Nazareth, Ethiopia
2 June 2009

2. Research Questions
• How much will poverty decline under the current
growth path?
• What is the growth and poverty impact of
increasing yields and productivity for different
crops and sub-sectors?
• Is the 6% CAADP agricultural growth target
achievable and can it halve poverty by 2015?
• Which crops and agricultural sub-sectors are best
at generating national growth and/or poverty
reduction?

3. Methodology
• Dynamic CGE model (2005-2015)
• Many agricultural sectors
– Based on district crop and livestock data
– Calibrated to replicate observed yields and harvested
land areas
• Links to upstream sectors (e.g. processing)
• Regionalized (based on agro-zones)
• Disaggregated households
– Rural farm (by land size, asset holding, etc)
– Rural non-farm and urban
• Micro-simulation poverty module

4. The Data Base
EDRI Social Accounting Matrix 2004/05
– Constructed as part of a project with the
University of Sussex (w/support of IFPRI-ESSP2)
– 65 production sectors (24 agricultural, 10
agricultural processing, 20 other industry, 11
services)
– Regional SAM based on the “3 Ethiopias”
• Rainfall sufficient, drought prone, pastoralist
• Rainfall sufficient AEZ disaggregated to humid lowlands,
enset-based systems, and other (highland) rainfall
sufficient areas
– Poor and non-poor groups in rural and urban
areas

5. Agro-ecological Zones
“Three” Ethiopias

6. Baseline Scenario Assumptions
• Agriculture
– Land cultivated for each crop follows medium-term trends:
total land cultivated increases 2.6% per year, 2009-2015
– Land growth varies across region (1.2% per year in rainfall
sufficient areas, 3.2% per year in drought-prone areas,
3.7% per year in pastoralist areas)
– Crop yield increases account for one-third of the crop
production growth
– Overall agricultural GDP growth: 4.0%/year
– Note: population growth rate is 3.0 percent/year
• Non-agricultural output growth based on historical
medium-term trends:
– Manufacturing: 6.5% per year
– Services: 6.7% per year

7. Ethiopia:
Targeting yield/productivity increases
2.50
Accelerated yield growth target,
2015
2.00 Expected yields under baseline
scenario, 2015
Crop yield (mt/ha)
1.50 Current yields, 2005
1.00
0.50
0.00
Maize
Chat
Wheat
Sorghum
Tobacco
Flowers
Oilseeds
Cotton
Teff
Coffee
Barley

8. Ethiopia:
Agricultural Growth Outcomes
Initial Average annual GDP growth rate, 2009-2015 (%)
agric. Baseline Cereals Export- Livestock All Non-
GDP crops agric. agric.
share (%) (1) (2) (3) (4) (5) (6)
National (all zones)
Agriculture 100.00 3.95 4.90 5.36 5.96 5.98 6.06
Cereals 32.98 4.96 7.38 7.41 7.63 7.68 7.82
Pulses & oils 9.37 3.31 3.53 3.94 4.10 4.12 4.03
Horticulture 6.71 4.69 4.81 4.86 4.96 4.98 5.09
Export crops 10.92 3.77 3.77 7.36 7.36 7.36 7.37
Other staples 8.00 3.02 3.19 3.13 3.22 3.24 3.11
Livestock 32.02 3.18 3.27 3.31 4.97 4.99 5.10

9. Ethiopia: Impacts on Prices:
“All Agriculture” Scenario
1.050
1.025 Pulses
Relative price index (baseline scenario = 100)
1.000 Tobacco
0.975
0.950
Sorghum
Teff
0.925
Coffee
0.900
0.875 Maize
Wheat
0.850 Cattle
0.825
Poultry
0.800
2005 06 07 08 09 10 11 12 13 14 15

10. Ethiopia: Impacts on Poverty
40
40.0
National poverty headcount (%)
35
30
25
22.7
Baseline scenario
20
All agriculture scenario 17.6
15 With non-agriculture scenario
13.3
10
2005 06 07 08 09 10 11 12 13 14 15

11. Ethiopia: Impacts on Poverty
Initial poverty Final year poverty headcount, 2015 (%)
headcount (%) Baseline Cereals Export- Live- All Non-
crops stock agric. agric.
2005 2008 (1) (2) (3) (4) (5) (6)
National 40.01 35.44 22.73 19.60 18.35 17.82 17.64 13.32
Rural regions 41.31 36.33 23.47 20.14 18.80 18.55 18.29 13.54
Humid cereals (1a) 38.19 33.07 20.16 17.67 16.48 16.82 16.57 12.19
Humid enset (1b) 44.92 40.86 30.57 26.34 23.68 23.46 23.16 18.12
Drought-prone (2) 47.97 42.51 27.21 22.67 21.97 21.03 20.73 14.61
Pastoralist (3) 27.70 22.49 10.83 9.00 8.27 6.53 6.53 4.94
Small urban centers 33.95 31.25 19.21 16.84 16.19 14.46 14.68 12.54
Large urban centers 32.95 30.81 18.89 17.05 16.10 13.86 14.03 11.76

12. Caveats
– Revised simulations will use a new version of EDRI
SAM scheduled to be completed in early June 2009
– Sensitivity analysis regarding key assumptions and
parameters is required
– Further analysis is needed regarding the costs of
achieving the productivity increases simulated here
– Additional analysis of regional strategies is also
needed

13. Concluding Observations: ADLI
• The simulations indicate that agricultural growth
does have significant poverty-reducing effects.
– This indicates that the overall Agriculture
Development-Led Industrialization (ADLI) strategy, as
well as the basic CAADP and AGP programs, are sound
approaches
• Complementary non-agricultural growth (in
addition to agricultural growth linkages) can have
a marginal impact on poverty equal in size to that
of accelerated agricultural growth

14. Concluding Observations: Markets
– Although agricultural growth raises rural incomes
through production increases and growth linkages
with the non-agricultural sector, national average
real prices of some products (especially wheat, maize
and milk) may fall
– Moreover, if local marketing constraints are not
resolved, localized market gluts could occur, seriously
reducing incentives for production
– Nonetheless, reduced prices of major staples helps
reduce poverty of net food purchasers