This document summarizes a study on the role of livestock in the Ethiopian economy using a dynamic computable general equilibrium (CGE) model. The study develops a herd dynamics module and couples it with an existing CGE model of Ethiopia. Simulation results show that livestock sector growth increases incomes, particularly for the poor, through factor markets. Livestock growth has marginally smaller effects on food consumption than cereal growth but still significantly improves welfare. The study finds that accounting for crop-livestock interactions is important and extensions could further examine environmental and demographic linkages.
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Ethiopian Livestock Role Economy CGE Analysis
1. THE ROLE OF LIVESTOCK IN THE
ETHIOPIAN ECONOMY: A DYNAMIC CGE
ANALYSIS
Ayele Gelan, ILRI
Ermias Engida, IFPRI/ESSP
Stefano Caria, DRMFSS
Taking Stock of the Economics of The Livestock
07/11/2011
Sector in Ethiopia, Addis Ababa, Ethiopia 1
November 4, 2011
2. TOPICS OF DICUSSION
ï§ Study contexts and motivations
ï§ Approaches and methods
ï§ Overview of existing model and its
modifications
ï§ Simulation results
ï§
07/11/2011
Concluding remarks and future research 2
3. IMPORTANCE OF LIVESTOCK IN A
DEVELOPING ECONOMY
ï§ Livestockâs macro roles are not often recognized
âą Growing demand for meat and dairy products
âą Crop-livestock interactions (e.g., draft power, manure, crop
residue feed, etc)
âą Livestock products and agro-processing
(e.g., dairy, leather, etc)
ï§ How high are macro multipliers from livestock
sector growth?
âą How much income growth and poverty reduction can we
generate with livestock sector growth?
âą General equilibrium analysis needed to capture these
4. POLICY AND RESEARCH PRIORITIES
ï§ NEPAD (2006) recognized the importance of
integrating the livestock sector into the CAADP
framework
ï§ Diao and Pratt (2008) conclude that âgrowth in
staples is the priority for poverty reductionâ
âą Combining growth in staples and livestock has high economic multipliers
& strong poverty reduction gains in food deficit areas
ï§ Dorosh and Thurlow (2009) - poverty-growth
elasticities
âą Cereals have highest rural poverty reduction potential
5. CURRENT STUDY - APPROACHES
ï§ Developing a herd dynamic module
ï§ Coupling/integrating the herd dynamics module
with the economy-wide model
ï§ Nesting the biological and the economic processes
ï§ Establishing stock-flow relationships in existing
economy-wide models (e.g. livestock as capital and
livestock products)
ï§ Revising and improving the system of economic
accounts in existing models (e.g., draft power as
07/11/2011
capital in cropping, breeding stocks as capital in
5
livestock, etc)
6. Male
Deaths
Young Immature Mature Other
economic
male male male uses
+
Births Sale of live
Off-takes animals
+
Young Immature Mature Yields/ Sales of
female female female animal products
=
Female
TR
deaths
-
costs of keeping
costs of keeping + costs of keeping +
= TC
mature animals
young animals immature animals
=
Production and economic flows (off-take, in-takes and others)
Reproduction and growth (growth, births, deaths) Gross margin
9. DYNAMIC CGE MODEL FOR ETHIOPIA
ï§ We use Dorosh and Thurlowâs (2009)
model
âą General equilibrium: the model represents different
markets, all reaching equilibrium
âą Dynamic: the model is solved recursively
ï§ Model is calibrated for Ethiopia using
2005/06 EDRI Social Accounting
Matrix
âą 5 AEZs, 97 activities, 66 commodities, 27 factors
10. SIMULATION SCENARIOS
Simulation Shocks
ï§ We simulate Total
Factor Productivity
BASE All Ag commodities grow at
(TFP) shocks to various 98-07 trend
subsectors CEREAL Cereals + vegetable/fruit +
(38%) enset grow faster
ï§ Base growth follows
1998-2007 trend CASH CROP Cash crops and pulses
(29%) + oilseeds grow faster
ï§ Additional shocks as in LIVESTOCK Livestock activities grow
Dorosh Thurlow 2009 (33%) faster
(obtained in discussions CAADP All Ag commodities grow
with MoA and CAADP) faster
11. ⊠AGRI. SUB-SECTORS
Weighted average of TFP shocks
Size of sub-sector in 2005 to subsectors
22,000
Percentage
20,000 0.0% 2.0% 4.0% 6.0%
18,000 2.2%
Cereal only
Million Birr
4.3%
16,000
14,000 0.6%
Cash crop only
2.4%
12,000
0.5%
10,000 Livestock only
3.1%
Base Accerelated
12.
13. 90000
85000
80000
Million Birr
75000
70000
65000
60000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Base Cereal only Cash crop only Livestock only
Agricultural GDP 2006-2015
14. INTERSECTORAL LINKAGE EFFECTS
âą CEREAL has the highest
Average growth rates 2009-15 sub-sector growth
Sub-sector Ag sector GDP GDP
BASE 3.7% 6.4%
CEREAL 6.4% 4.6% 6.6% âą But about the same
aggregate agri. and GDP
CASH CROP 4.1% 4.2% 6.5%
growth effects
LIVESTOCK 5.5% 4.5% 6.7%
CAADP 5.9% 7.0%
âą Different economic
linkages at wor
15. LIVESTOCK AND EXPORT
PERFORMANCE
Shares of agricultural export
value 2005-15 % change in total
1% export and real exchange
rate
15% 10.5%
10.4%
-1.0%
-0.9%
10.3% -0.8%
Percentage
Percentage
10.2% -0.7%
10.1% -0.6%
CEREAL 10.0% -0.5%
9.9% -0.4%
9.8% -0.3%
9.7% -0.2%
CASH CROP 9.6% -0.1%
9.5% 0.0%
LIVESTOCK
84%
Export pct change
Real EXR pct change (right axis)
16. RELATIVE FACTOR INCOME EFFECTS
% increase 2009-15 in factor
income: poor HH
Factor income of the poor Percentage
0% 20% 40% 60% 80% 100% 0% 10% 20% 30% 40% 50%
humid lowland
Labour
humid cereal
humid enset Land
drought prone
Livestock
pastoralist
Land Labour Livestock CEREAL CASH CROP LIVESTOCK
17. REAL CONSUMPTION EFFECTS
ï§ The evolution of poor HHs Average growth rate 2009-15 of
rural poor HHs food consumption
consumption similar for Percentage
each simulation 0.00% 1.00% 2.00% 3.00% 4.00% 5.00%
BASE 3.58%
ï§ Price effects more than
compensate lower income CEREAL 4.36%
effect of CEREAL
CASH CROPS 3.89%
âą Cereals about 25pct of whole
consumption basket
LIVESTOCK 4.02%
âą Rural poor HHs consumption
thus grows faster
18.
19. KEY FINDINGS
ï§ Livestock has important economic linkages, esp.
when we take into account complementarities
with crop production
ï§ Livestock growth increases incomes of the
poor, particularly labor and land
ï§ Livestock has marginally smaller
consumption effects and with smaller
productivity shocks, which means livestock
needs to be taken seriously in food security
policies
20. FUTURE EXTENSIONS
ï§ By far the most important extension (in both
modelling contexts) - strengthening crop-livestock
interactions (e.g. crop residue)
ï§ From social accounting to environmental accounting
(i.e., a third level nesting: biological => economic =>
environment)
ï§ Livestock-environment interactions (the âlong
shadowâ story)
ï§ Livestock-demographic-economic relationships (the
07/11/2011
livestock revolution story) 20
Existing micro-understanding points to the importance of livestock in HHs livelihoods (Negassa RashidDebremehdin 2011)Coping with shocksStore of value (if missing markets for credits)Food, dairy, fuel, manure,etc.. As we have seen at the beginning of this presentation, livestock activities and products also account for a large share of macro flows But to understand livestockâs potential contribution to econ growth, we have to understand its role in productionDraft power, for example, is an essential input in production. About 80 pct of farmers use animal traction to plough their field (Benhke 2010)
Diao Pratt give both production and consumption explanations for this result re: livestock:Production-wise, they point to smaller share of poor farmersâ income from livestock (this misses the linkages)Consumption-wise, they point to smaller share of livestock products in consumption compared to staplesDorosh and Thurlow (09) calculate poverty-growth elasticities: pct decrease in poverty reduction (headcount rate) from a one percent increase in AG GDP from different sourcesCereal has 1.27, export crops 1.13, livestock led 0.35Livestock performs a bit better in drought prone and, mainly, in pastoralist AEZs
To answer these questions we analyse different sub-sector growth scenarios, using a dynamic CGE model for Ethiopia
LIVESTOCK and CEREAL superior in pushing Ag GDP upDifferences though are small (same applies to overall GDP)Even if cereal had largest push and largest initial sizeâŠ
Livestock sub sector accounts for 15 pct of all export value (probably under-estimated)Yet, strongest export response under LIVESTOCK simulationReal EXR has a role in this: under LIVESTOCK it suffers the lowest real appreciation across simulation
Livestock accounts for about 10 pct of factor ownership in 4 AEZs. The poorâs asset in hl, hc, ho and dp AEZs is predominatly labour. Land has a slightly smaller weight than livestockIn pastoralist areas, it accounts for more than 40 pctYet TFP increases stimulate economic linkages that raise income from labor and land the mostFrom a food security perspective, notice that CEREAL is still the simulation which is most effective at raising consumption of cereals of the poor. Although CEREAL has a smaller income effect, it also produces the lowest cereal prices across the simulations. The latter effect more than compensates for the formerNotice that the same dynamic would apply to income of ALL HHs as well.Also, notice that this translates in total income gains
A dynamic general equilibrium model, adapted to better capture the livestock sector shows th