Maximo Torero, Director Markets, Trade and Institutions Division (MTID) International Food Policy Research Institute

1. Transformation of Smallholder Agriculture: the role of infrastructure Maximo Torero International Food Policy Research Institute (IFPRI) Brasilia, June 2nd , 2010

3. Smallholders face Inefficient markets lower farm-gate prices & increase cost of inputs, reducing input use, market access, and incomePage 2

5. agricultural markets have been liberalized

6. international trade has been liberalized

7. income growth and urbanization within developing countries, is promoting a shift in consumer demand

8. supermarkets and processors are playing an increasingly important role

9. Rising demand for quality & food safety Page 3

10. How good is the current market access for Africa relative to the rest of the world? 21 countries with better access than world average, 11 countries with duties to exports less than 2%, 32 countries with worst market access and 13 countries facing average duties greater than 10% Page 4

11. Example: Marginalization of Africa in world trade – The snapshot view Authors:Antoine Bouët, Devesh Roy and Santosh Mishra 1970 1971 2005 8% 1972 2004 1973 2003 1974 2002 6% 1975 2001 1976 2000 4% 1977 1999 2% 1978 1998 0% 1979 1997 1980 1996 1981 1995 1982 1994 1983 1993 1984 1992 1985 1991 1986 1990 1987 1989 1988 Page 5

12. Paradox of smallholders Efficiency argument Lipton (1993) points that there is extensive empirical literature that point to the ‘inverse relationship’ between farm size and production per unit of land Lipton (2005) says economies of scale are weak Dyer (1991, 1996): Small farmers more efficient use of labor Poulton (2005) says scale of farm operations affects transactions costs for different activities in different ways Cornia (1985), Heltberg (1998) show small farmers employ more labor than large farmers (labor markets are imperfect) Problems faced by small farmers Changes in production methods are not scale neutral as were with the Green revolution Economies of scale in agriculture may apply in input supply, processing of harvests and in transport Modern food value chain impose new restrictions for smallholders as a result they are not linked to dynamic markets (e.g. auditing and certification costs, Raynolds 2004, and many papers of Reardon) Market imperfections imply higher transactions costs Page 6

14. Information asymmetry

15. Missing input markets

16. Policy induced barriers

18. Broken links because of luck of appropriate infrastructure Page 9

19. Page 10 What is the situation of infrastructure in SSA?

21. Electricity = lowest coverage of all infrastructuresSource: Data from Estache and Goicoechea (2005) Page 11

23. Electricity is the most unequalPage 12

24. Source: The Economist August 2007 Page 13

25. High Transportation costs Notes: The extent of agriculture includes areas with at least 10 percent irrigated, cultivated or grazing lands, net of areas with a growing season of zero days. Source: Nelson (2006) and Sebastian (2007b). Page 14

26. Page 15 Access to roads

27. Page 16 Access to roads

28. GSM Coverage, 1999 Source: GSM Association

29. GSM Coverage, 2008 Source: GSM Association

30. 477 million people covered by mobile This represents 477 million people This represents 11.2 million square kilometres Source: GSMA 2009

31. Mobile Coverage, 2008 Source: GSMA 2009

32. On irrigation Page 21

33. Page 22 On Ports Location constraint for the sustainability of certain ports Port capacity usually results from inadequate maintenance Impact of port efficiency on port productivity and costs (dwell time may vary between a reported average of 7 days in Abidjan and 17 days in Douala) Importance of a legal setting: the institutional framework of a port in WCA has depended primarily on its inheritance of either the French or the British models. Cumbersome procedures and poor links to the hinterland reduce port efficiency In addition, there are the traditional “non-infrastructure” and “non-official” barriers

34. Africa’s infrastructure services several times more expensive than elsewhere

35. Infrastructure will require an additional US$31 billion a year and huge efficiency gains Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% All figures in US$ billion a year

36. Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% All figures in US$ billion a year

37. Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% Improving operational efficiency $7.5 All figures in US$ billion a year

38. Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% Increasing cost recovery $4.7 Improving operational efficiency $7.5 All figures in US$ billion a year

39. Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% Increasing cost recovery $4.7 Improving operational efficiency $7.5 Prioritizing public spending $3.3 All figures in US$ billion a year

40. Spending needs $93 100% 80% 60% Efficiency gap $17 40% Existing spending $45 20% 0% Increasing cost recovery $4.7 Improving operational efficiency $7.5 Prioritizing public spending $3.3 Spending budgeted All figures in US$ billion a year resources $1.9

41. Spending needs $93 100% 80% Funding gap $31 60% Efficiency gap $17 40% Existing spending $45 20% 0% Increasing cost recovery $4.7 Improving operational efficiency $7.5 Prioritizing public spending $3.3 Spending budgeted resources $1.9 All figures in US$ billion a year

42. Page 31 Is just an issue of building new infrastructure?

43. Example of the role of transportation value chain

44. Improvement Original Improved Cost of improvement($) hours road road (km) (km) Ayauca 4.34 308.32 204.45 $6,137,455.71 Satipo 0.73 464.14 504.53 $17,728,322.39 Example of the role of transportation value chain

45. What we know on infrastructure

47. There exists complementarities in the provision of different types of infrastructure Source: Escobal and Torero, 2004. Page 35

48. Page 36 3+ infrastr 15 4 2 infrastr 10 3.5 1 infrastr 5 3 2.5 0 2 additional weekly hours of work % change in time allocation -5 1.5 -10 1 -15 Ag salaried Non-ag salaried 0.5 -20 Ag self-empl Non-ag self empl 0 -25 2 infrastruct 3+infrastruct 1infrastruct How does infrastructure affect welfare? PERU, 2002 PSM (kernel); control group: HH with no assets A) Households work more hours B) Households increase non-agricultural hours of work Source: Escobal and Torero, 2004.

49. 16 Treatment: 2 infrastructures 16 Treatment: 1 infrastructure Diff = Diff = 14 Control: No infrastructure 14 Control: No infrastructure 0.04 0.02 12 12 10 10 8 density 8 Male density Male 6 Female 6 Female 4 4 2 2 0 0 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 -0.1 0 0.1 0.2 0.3 0.4 ATT ATT Treatment: 3 infrastructures 6 Control: No infrastructure Diff = 5 -0.08 4 3 density Male 2 Female 1 0 -0.4 -0.2 0 0.2 0.4 0.6 0.8 -1 ATT Infrastructure seems to have different impacts on men and women Bangladesh, 2004: ATT effects of infrastructure among men and women (PSM among men and women) Page 37

50. Empirical Research on the Impact of Mobile Phones Fisheries in India (Abraham 2007, Jensen 2007) Grain markets in Niger (Aker 2008, 2010) => sell Farmer participation in Uganda (Muto 2009) Internet kiosks and soybean prices in India (Goyal 2009) Labor markets in South Africa (Klonner and Nolen 2009) Market Information Availability and Potato Producer Prices in West Bengal (Mitra, Mookherjee, Torero and Visaria 2010)

51. Mobile Phones and Fish Price Dispersion (Jensen 2007)

52. Trader-Level Outcomes (Aker 2008) Search in .91 more markets Sell in one more market

53. Page 41 Final comments

54. Page 42 1. Regional coordination to boost supply capacities- corridor concept Africa’s economic geography is a serious challenge infrastructure is inherently regional 20+ countries with populations of <5 million 20+ countries with economies of <US$5 billion 60 international river basins 15 landlocked countries Need of evaluation and prioritization based on ERR and PRR (result of wealth creation) Prioritized infrastructure corridors with Economic development corridors (potentially use a typology of development domains). Need to learn from existing information by systematizing it and developing concrete plans to implement it.

55. Page 43

56. Page 44 2. Economic crisis is a challenge and an opportunity Economic crisis will generate excess capacity (see fall in industrial production in 2009) This imply that infrastructure building could be cheaper Investment returns in countries which significant bottlenecks on infrastructure like Africa could be crucial Learn from what China did and not from what Japan did during the crisis

57. 3. Financing Multilaterals HAVE to play a crucial role but they need to think regionally – Need to change their way of operation Public – Private partnership for infrastructure development Innovations to broaden and deepen markets including niche and preferential markets Page 45

58. 4. Complementarities Significant evidence of importance of complementarities Need to think on a value chain approach Need to learn from experience with compacts on infrastructure In Africa roads and electricity are extremely costly for users One of the major restrictions to trade underachievement is infrastructure Page 46

60. open to new technologies

62. minimal regulationPage 47

66. complement and extend these for application in rural and peri-urban areas.Page 48

67. 6. Leapfrogging Not need to repeat what happen in the past and what was done in developed countries – clear example is the cellular industry Use best technologies Use green infrastructure – this could be an advantage in SSA Page 49

68. Page 50 Thanks!