Download Ethiopia`s Agricultural Policy Challenges

Case Study
Key Dialogue Questions (KDQ)
1. Should the lead sector for economic
development be agriculture or industry,
given that Ethiopia is a non oil-dependent
developing country?
2. Should more priority be given to
smallholder farms or private commercial
farms, given the context of the agriculture
sector of Ethiopia?
Role of agricultural sector in
economic development of Ethiopia
 Agrarian and non-oil dependent developing country
 Agriculture is the backbone of its economy:
 main livelihood for > 85% of the population;
 accounts for about 45 % of GDP;
 almost 90 % of exports/foreign exchange earnings
originate from agriculture sector;
 Main source of industrial raw materials for agroindustries.
 Two major sectors of agriculture: Smallholder and
the large - scale farming sector
Smallholder sector
 Predominantly mixed crop and livestock
semi-subsistence farming
 accounting for 83% - 95% of all cultivated
land and of agricultural production
 low levels of modern inputs use and heavy
dependence on rainfall
 vulnerable to the vagaries of nature
(unpredictable rainfall & recurrent drought)
 Low productivity, very limited market share
and insignificant saving and investment
Large -scale farming
 Ethiopia did not inherit colonial commercial farm.
 Growth of the sector started with the establishment of
farms in the 1950s/60s (by elite, nobility, etc).
 The Derg/Military regime nationalized the farms to;
 Operate as state-owned enterprises after 1975:
 A ministry to manage & develop new state farms through
the allocation of a large budget,
 Socialist policy (forbid land ownership > 10 ha) retarded
growth of large scale private farm sector for 17 years
 Post1991 market and price liberalization which resulted in;
 the privatisation of many sate farms while the rest are still
operating as parastatal/public enterprises
 Stimulated private investment in large scale commercial
farm development by domestic and foreign) and the steady
growth of the sector over the past two decades
Post 1991 Agricultural Sector policy
 Agricultural development -led industrialisation (ADLI);
 Lead- role of agriculture in development policy.
 Agriculture as the basis in the conceptualisation of growth,
policy guidelines and poverty reduction.
 The key challenge for reducing poverty and providing the
foundation for long-term growth is to ensure rapid and
sustained increases in land and labour productivity.
 Agriculture is the main source to generate primary surplus
that fuel the growth of other sectors notably, industry
 ADLI is made the policy in strategic development plan;
 Poverty reduction programme (SDPRP) and MDG
 Plan for Accelerated and Sustainable Development to End
Poverty (PASDEP), for 2005-2009/10
 Growth and Transformation Plan (GTP) strategic framework
for the period 2010/11 -14/15.
Agricultural growth strategy
 ADLI strategy further refined during PASDEP with
Emphasis on commercialisation of agriculture,
strong private sector growth and intensification of
marketable farm products.
 The fundamentals of the GTP strategy include:
 A shift to produce high value crops,
 a special focus on high-potential areas,
 facilitating the commercialization of agriculture,
 supporting the development of large-scale
commercial agriculture (where it is feasible).
 PASDEP implementation as the main instrument for
delivering agricultural growth through strong push for
intensification to increase yield and productivity in
the smallholder sector.
Public Expenditure Pattern
 A high share of expenditure for pro-poor and
development oriented sectors
Fig: Trends in pro-poor expenditure (%of total
gov. expenditure)
%of total expenditure
16
14
12
Education
10
Health
8
6
Road
4
Water
2
0
Agriculture and Rural
Development
Public expenditure
 While average pro-poor expenditure was approximately 54%




of total public expenditure (2001/02 – 2007/8), expenditure on
agriculture and food security was about 12.6% of the total.
Strong commitment to continued agricultural growth; about 13
to 17 % of expenditure (far more than the average for SSA).
Food security nonetheless remains a key challenge as a large
share of the sector budget goes to the Productive Safety Net
Program (PSNP) & HH Asst Building Prog (HABP)
GoE & DP realised that success in long-term food security will
require complementary efforts to enhance agricultural growth,
and thereby reduce food prices and diversify rural livelihoods.
Thus, PADETES program for the intensification of smallholder
agriculture during 1996/97 – 2004/05 EFY was allocated a
large share of the agricultural growth expenditure.
PADETES program and performance
 To achieve strong push for intensification
 Three major Program components which
are;
 Regular extension packages: for cereal crops
which are mostly seed and fertilizer;
 Minimum packages: emphasizing natural
resources management with traditional crop
management); and
 Household packages: providing farm households
a menu of technology (water harvesting, dairy,
apiculture, and horticultural production).
PADETES Program
 PADETES capacity to deliver extension services
 Roughly 8,500 Farmer Training Centres (FTCs) have
been created throughout Ethiopia,
 Development Agents (Das) trained increased from
2500 in 1995 to 63,000 (45,000 placed already in
woredas/districts),
 Built DAs and woreda/district staff; trained with
technical skills, and are as specialists,
 The development agent (DA) to farmer ratio had risen
from 1:5000 to 1:800
Efficiency of Spending (PADETES)
 The program reached about 40% of the roughly 10
million farm households
 Succeeded in boosting input use (improved seed
and fertilizer use increased by about 50 and 30%,
respectively, from 1995 to 2005.
 Increased use of improved inputs/fertilizer rate
(higher than the African average).
 But no change in average per capita agric. GDP and
per capita grain production (results achieved are not
as expected).
Large – scale commercial farm
 Government support for the sector;
 Tax incentives/exemption from custom duties
 Infrastructure development (access road, power,
other utilities, etc)
 Small land tax and grace period for payment
 Growth Performance of the large – scale sector
 FDI inflow into agric. fluctuated between
US$545mn & US$265mn/year from 2004-2007,
 From 2000 - 2005, floriculture/horticulture sector was
the main focus of FDI
 Ethiopia is the 2nd largest flower exporter in Africa,
(next to Kenya)
 Agricultural investment was about 15% in 2010.
millions of Birr/year
Total capital of domestic and foreign investment
projects approved, mill Birr (1992/03 - 2010/11)
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
Domestic
Foreign
Total capital, mill Birr/year)
Total agricultural investment capital of
approved projects (2006/07 - 2010/11)
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
Domestic
Foreign
2006/07 2007/08 2008/09 2009/10 2010/11
Impacts of large – scale farm growth
 Environmental concern and ‘land grab’
 Critics on the motives of FDI inflow, lack of long term
growth impact;
 Primary aim to secure the food demand in the
investors’ countries
 Financial returns instead of the traditional motives of
efficiency and market-seeking
 Lack of technology transfer and spill-over effect on
domestic/smallholder farmers (Out-growers?)
 Least impact on domestic market growth
 Evidence unavailable to justify government support
(e. g., tax incentives) to sector growth
Conclusion: KDQ
KDQ1: Is ADLI appropriate?
 Key arguments to increase the support for agriculture;




Is the major contributor to GDP
Has strong impact on poverty as it is source of livelihood
Generates the major share of foreign exchange
Provides raw materials for industry
 Comparative advantage (land and labour) to produce
surplus production and generate capital to finance
industrial growth
 Studies often show that growth based on agriculture
makes a stronger contribution than industrial growth b/z
 agriculture has greater multiplier effects
 benefits from agricultural growth shared more equally
…. Continued KDQ
 Key elements of the argument to increase support
for industrial development are;
 the perception that support for agriculture has not
been as effective as hoped.
 not clear yet whether public support for industry would
experience challenges of a similar scale or nature to
those experienced in the agricultural sector.
 the view that industrial development will create more
employment (absorb the excess labour in agriculture
and also reduce urban unemployment)
 others (create markets and demand for surplus supply
of agricultural produces
…. Continued KDQ
KDQ 2: Should more priority be given to smallholder farms or
private commercial farms, given the context of the agriculture
sector of Ethiopia?
 strong M&E systems to evaluate the performance of support
for both smallholders and large farms.
 Policy analysis to judge based on;
 The costs of support, including both the cost of delivering
services and the loss of revenue arising from any tax
incentives offered to investors in commercial farms
 The impact of the programmes on the production of crops
and livestock, implications of changes in production and
prices on the exchange rate and the effect of this on
consumers.
 The implications of this for changes in the margins enjoyed
by farmers, input suppliers and those involved in marketing
produce.
THE END