Download 1 - African Development Bank

Agricultural Transformation and Youth Employment
in Africa: Nigerian Case Study
Kwabena Gyimah-Brempong
Department of Economics
University of South Florida
Tampa, FL 33620
[email protected]
&
Nigeria Strategy Support Program
IFPRI-Nigeria
Abuja, NIGERIA
and
Chinonso Etumnu
Nigeria Strategy Support Program
IFPRI-Nigeria
Abuja, NIGERIA
[email protected]
1
Abstract
This paper investigates the degree to which agricultural transformation can
be used as a mechanism for creating employm ent for the youth in Africa.
Youth unemployment is one of the major pressing social problems facing
Africa today. In spite of the fact that an overwhelming proportion of the
labor force in Africa is employed in the agricultural sector, discussions of
employment policy sidestep this sector. The paper reverses the traditional
assumption in the literature that agriculture’s role in high income
employment is one of labor release. We argue that given the relatively large
size of the sector and small size of the “industrial” sector, meaningful
r e d u c t i o n in youth u n e m p l o ym e n t in Africa can only come from
employment generation i n the agricultural sector. We look at international
experience for guidance and illustrate with Nigeria’s Agricultural
Transformation Agenda. We conclude that there is indeed scope for
substantially increasing high rates of employment for the youth in the
agricultural sector, provided the agricultural sector is transformed and the
youth provided with appropriate training to take advantage of the jobs
created.
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1.
Introduction
Developing countries are faced with the challenge of eradicating poverty and hunger. Despite
the progress made in reducing the number of poor people in the world from 1.8 billion (41.8
percent) in 1990 to 1.4 billion (25.2 percent) in 2005, it is projected that 1 billion people (15.0
percent) will still be living on less than 1.25 dollars per day in 2015 (Tsakok, 2011). The
World Bank (2008) estimates that about 70 percent of Sub- Saharan Africans, and South
Asians, 33 percent of East Asians, and 12 percent of Latin Americans live in poverty based on
head count ratio of 2 dollars a day.1 A majority (70 percent in 2013) of these people live in
rural areas, and they depend on agriculture for their livelihoods. Given these conditions, the role
of agricultural growth in poverty reduction seems obvious. Nevertheless, a serious problem of
agricultural policy today is how agriculture can be transformed to eradicate extreme poverty and
hunger.
Youth unemployment is undoubtedly another major socio-economic problem in Sub- Saharan
Africa. Sub-Saharan Africa is home to the youngest and fastest growing population in the
world, with over 330 million people aged between 15 and 25, of whom about 195 million
currently live in rural areas (Brooks et al., 2013). A yearly influx of over 10 million young
people into the rural labor market of Sub-Saharan Africa, in search of limited farm and non-farm
employment opportunities, is expected to continue until 2050. If the high rate of youth
unemployment is not effectively tackled by policy makers, Africa may witness another “Arab
Spring” that is likely to result in a massive social upheaval. Generating employment for young
people and promoting agricultural productivity should thus be perceived as complementary
development efforts which will have positive impacts on economic and social stability in the
region.
In response to the potential problems posed by exceedingly high youth unemployment,
Nigeria as part of its ambitious Agricultural Transformation Agenda (ATA) has made youth
employment one of the priority objectives of the ATA. According to Dr. Adesina, Honorable
Minister of Agriculture, it is envisaged that the ATA will generate 3.5 million new jobs in the
agricultural sector, with most of them going to the youth and females. While this is a lofty goal,
it is not clear which subsectors of the agricultural sector will create these jobs, which segment of
the commodity chains will produce the jobs, and how the jobs will be created. Even if the jobs
are created, will the youth have the appropriate skills and willingness to take these jobs? It is
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The internationally accepted poverty level is 2 dollars per day.
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also not clear what policies will be required to create these jobs. Surprisingly, very little
research attention has been paid to employment creation in the agricultural sector in Africa.
This paper takes some “baby steps” in this direction.
A decline in the population engaged in agriculture and agriculture’s contribution to GDP as
national income increases characterizes structural transformation. This suggests that agriculture
plays a passive role in the creation of jobs as the economy develops; its role is limited to the
provision of food, and release of labor and savings to the urban industrial sector, and the
provision of markets, among others. However, given the relatively large agricultural sector
in African countries and the relatively slow growth rate (and even slower pace of employment
generation) of the industrial sector, is it possible to turn to the agricultural sector to generate
employment for the population generally and for the youth in particular? Under what
circumstances can this be possible? Surprisingly, few studies investigate agricultural
transformation as a mechanism for employment generation for the youth.
In 2003, the African Union established the Comprehensive Africa Agriculture
Development Programme (CAADP) to help member states spur and sustain economic
growth through agricultural-led development. Nigeria, a signatory to CAADP, has also
embarked upon an ambitious agenda of transforming the agricultural sector to increase
productivity, incomes, and create employment for the youth under its Agricultural
Transformation Agenda (ATA) through value additions along the agricultural value
chains. The ATA aims to create over 3.5 million jobs for youths and provide over 2
billion dollars in income for Nigerian farmers, in addition to increasing the production of
key staples by 20 million metric tons to ensure food security in the country. Nigeria is
one of the African countries undergoing the early stages of a demographic transition in which
the dependent population becomes small relative to the working population. The working
population in 2013 is estimated at over 54 million people. Among the working population (1559 years), over 50 percent (15 million people) of young people are unemployed. Trends in age
dependency ratio show that the number of unemployed youths might double by 2020. This
transition presents an opportunity for Nigeria to reap the demographic dividend if the youths are
engaged productively. Engaging the youths in productive employment has the potential to
increase national incomes per capita and save the country from the possibility of youth
restiveness currently witnessed in some parts of the country.
This paper investigates agricultural transformation as a mechanism for increasing youth
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employment and reducing rural poverty. Specifically, it investigates the following questions:
(i) what is the potential of the agricultural sector to generate employment for the youth of
Nigeria; (ii) what have been the experiences of other countries in using agricultural
transformation as a job-creation tool for the youth and are these experiences transferable to
Nigeria?; (iii) which types of jobs can be created for the youth under the ATA?; which
agricultural products (commodities) are likely to create the most jobs for the youth? what
levels along the value chains will these jobs be created (production, transportation,
processing, warehousing), and what role can the private sector play in achieving the youth
employment objective?, and (iv) what effect does input price policy have on the ability of the
agricultural sector to generate enough jobs for the youth? In this paper we define agriculture to
include activities related to the production, processing, transporting, storage and marketing of
agricultural output as well as the provision of inputs into agriculture and the youth of Nigeria as
young persons of ages 18-35, who are citizens of the Federal Republic of Nigeria (FGN, 2001).
We shall argue that, based on readily available resources, agriculture holds the greatest potential
to create jobs, provide greater security and earning potential in Africa, particularly Nigeria.
This paper is organized as follows: In the following sections, we first review the literature on
agricultural development and employment creation with an emphasis on the youth. Second, we
provide a conceptual framework and discuss why we think Nigeria’s agriculture holds the
greatest potential to generate employment in the country. The relative size of the agriculture
sector, its growth rate and contribution to economic growth as well as employment-to-output
ratio in comparison with other sectors are discussed. Third, we consider agriculture
interventions in other parts of the world that resulted in massive retention/absorption of labor in
agriculture. We look at the employment generation impacts of the Asian green revolution,
the community forestry development programme of Nepal and the transformation of the cotton
sector of Burkina Faso as case studies. Fourth, we consider Nigeria’s agricultural value chains
that could provide job opportunities for the youths. We will focus on the opportunities for
employment in the rice value chain. Fifth, we provide policy implications for poverty reduction
and youth employment in Nigeria and African countries generally. The sixth section concludes
the paper.
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2
Agriculture’s Role in Nigerian Economy
The most populous African country, Nigeria, challenges the conventional wisdom that
economic development is part and parcel of structural transformation. While there was an
increase of about 40 percent in nonagricultural employment from 1960 to 2000, Nigeria’s real
GDP per capita unexpectedly declined by 300 dollars within the same period (Hazell et al.,
2010). These statistics indicate that Nigeria’s economy is either structurally transformed
without economic development or a pseudo-transformation had taken place. It also indicates
that population growth rate had been greater than economic growth rate in Nigeria. However,
since rural dwellers account for 50 percent of the entire population, and agriculture employs
70 percent of the total workforce and contributes over 40 percent of the GDP, the above
statement may be refocused on whether Nigeria’s agricultural sector still has the potential to
undergo a transformation that will increase incomes, generate employment and reduce poverty
in the country.
Prior to the oil boom of the 1970s, domestic agriculture met most of Nigeria’s food,
employment, raw material and foreign exchange earning needs through primary production.
The average annual agriculture contributions to Nigeria’s GDP then was 55 percent; the
services sector contributed 15 percent; wholesale and retail trade contributed13 percent,
industry 12 percent, and building and construction 5 percent. In 2011, four decades after the oil
boom, Nigeria’s economy had only undergone a marginal transformation with other sectors of
the economy making more contributions. The contribution of agriculture to GDP had fallen to
41 percent though it oscillated between 24 percent and 34 percent from the mid-1970s to early
2000s. As agriculture’s contribution to the GDP is still very large and largely in primary
production, value additions to agricultural produce through agribusiness and agroprocessing offer explorable avenues for job creation and poverty reduction.
Growth in Nigeria’s GDP over the 2008-12 period is attributed to the non-oil sector of the
economy. This growth was driven primarily by the consistent robust growth in agriculture,
along with the growth in other non-oil sub-sectors. Similarly, between 2000 and 2007,
agricultural growth was responsible for about half of the doubling of national GDP. The recent
GDP contributions and sectoral growth rates show that agriculture leads Nigeria’s domestic
economy. However, to make a significant reduction in the number of unemployed Nigerians,
concurrent growth in both the agricultural and non-agricultural sectors is desired. Aside from
the industrial sector which is by far more capital intensive than agriculture, the other nonagricultural sectors have grown considerably. These sectors are also less labor intensive than
agriculture and their growth is heavily dependent on the growth of the agricultural and
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industrial sectors, which makes them unattractive for the massive absorption of labor proposed
by the Nigerian government.
Table 1: Structure of Nigeria’s Economy, 1960-2011 (GDP (%) in
1990 constant basic prices)
Activity Sector 1960- 1971- 1981- 1991- 20011970 1980 1990 2000 2011
Building
Services
Trade
Industry
Agriculture
5
15
13
12
55
9
9
20
31
24
2
10
14
41
32
2
12
14
39
34
2
16
16
25
41
Source: 2011 CBN Statistical Bulletin
Table 2: Growth Rates of Nigeria’s Agriculture Sector
from 2005-10 (in %)
Activity Sector 2005
Agriculture
7.1
Crop Production 7.1
Livestock
6.8
Forestry
5.9
Fishing
6.0
Total GDP
6.5
Non-Oil
8.6
2006
7.4
7.5
6.9
6.0
6.6
6.0
9.4
2007
7.2
7.3
6.9
6.1
6.6
6.5
9.5
2008
6.3
6.2
6.9
6.1
6.6
6.0
9.0
2009
5.9
5.8
6.5
5.9
6.2
7.0
8.3
2010
5.6
5.6
6.5
5.8
6.0
8.0
8.5
Source: 2011 CBN Statistical Bulletin
The industrial sector is considered a major source of job creation in a developing economy. But
more employment is often needed in the country especially African countries than the
industrial sector can actually provide in the short run. Competitiveness of industries may also
imply that their effective demand on labor will be negative (Myrdal, 1965). This seems to be the
case in Nigeria. The growth in industry employment dropped by 4% while agricultural
employment increased by 0.9% between 2005 and 2009. This, coupled with the fact that it takes
over 110 people to produce 1 billion Naira of output in agriculture while it takes just 7 people
to produce 1 billion Naira of output in industry indicates the current potential of the industry
sector for job creation in Nigeria. Thus any effort to increase output in agriculture will absorb
more people than a corresponding effort in industry.
The urban unemployment rate (17.1% in 2011) clearly indicates the failure of the industrial
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sector to utilize the labor force that migrated to the urban areas. Between 2003 and 2011,
the urban poverty level increased by 6.2 percentage points and the urban population
growth rate stood at about 4% per year. The contribution of industry to GDP growth has also
dropped in recent years. From 2001 to 2005, the Nigeria economy grew at 11.4% per year;
industry contributed only 1.8% to this growth whereas agriculture contributed 6.8%. The
contribution of the industry sector in the 2006-11 period was insignificant while agriculture
contributed 2.6% of the economy’s 6.8% growth rate. Although it is envisaged that
investment and effective demand can remain high enough to create jobs in industry, the trend
of employment-to-output ratio and sectoral contribution to GDP of industry suggests that the
industry sector is less favorable for a massive job creation endeavor in Nigeria.
Can the expansion of the agricultural sector generate enough jobs for Nigerians? And can it
provide jobs that will appeal to the youths?2 History of the agricultural sector shows that
Nigeria was the world’s leading exporter of groundnuts, had 27 percent of the world’s export
share of palm oil, 18 percent of the world’s export of cocoa and 1.4 percent of the share of
cotton in 1961. Many people were employed in the export value chains of these cash crops.
Excluding job losses, it is estimated that annual export opportunities lost from the four
commodities mentioned above amount to 10 billion dollars. The strong appreciation of the
Naira due to the oil boom resulted in the less competitiveness of Nigeria’s agricultural exports in
global markets and the relative decline in the cost of imports, including food. Food imports are
currently increasing at an unsustainable rate of 11% per annum and depending on imports is a
disincentive to local production and employment generation.
However, Nigeria has abundant land, water and labor resources, and favorable climatic
conditions suited for food import substitution and job creation in agriculture. Agricultural
land area is estimated at 71.2 million hectares in Nigeria about half of which is currently being
utilized. The semi-arid north and equatorial south receive varying amounts of rainfall
ensuring a rich crop diversity ranging from short season cereals, sorghum, millet and wheat
in the north to cassava, yams and rice in the wetter areas. In the south, cash crops such as
cocoa, coffee, rubber, oil palm, sugar and ginger are grown, while in the drier north cash
crops include cotton, groundnuts and tobacco (Aregheore, 2009). The north central region of
Nigeria is recognized as the food basket of the nation. Coincidently, the region has the lowest
unemployment rate, 9% in 2010. Given that a majority of north-central Nigerians are employed
in agriculture, the sector has demonstrated its ability to solve Nigeria’s unemployment
challenge.
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3.
Literature Review
As indicated in the introduction, two contrasting schools of thought characterize the role of
agriculture in job creation during the process of economic development. The literature on the
role of agriculture in creating employment during the process of economic development is
rooted on the works of “structuralists” school that sees agriculture’s role in development as a
passive one of releasing labor to the modern industrial sector. According to this school (e.g.
Lewis: 1954, Fei/Ranis: 1964), the process of economic growth begins with the reallocation of
labor from the low productivity agricultural sector to the high productivity industrial sector. Of
necessity then agricultural employment has to decrease if the economy is to grow and
“modernize”. This, of course, assumes that: (i) labor productivity in the agricultural sector is
(and will continue to be) lower than it is in the industrial sector, (ii) the rate of job creation in the
industrial sector is faster than the growth of the labor force combined with the rate at which
labor is transferred to the agricultural sector, and (iii), the skills of labor transferred from the
agricultural sector meet the skill needs of the industrial sector. The high rates of unemployment
even among educated youth in Africa as well as the rapid increases in agricultural productivity
associated with the “green revolution” suggest that these assumptions are not met.
The new thinking about agriculture’s role in development, at least in the early transition
recognizes that the small and relatively slow growing industrial sector cannot create enough jobs
for the rapidly growing labor force as well as those transferred from the agricultural sector.
Therefore the agricultural sector has to play a significant role in employment creation and
poverty reduction. This line of thinking, evidenced by Fields (2002) traditional sector
enrichment growth typology argues for increased agricultural production and job creation
through the intensification and transformation of agriculture, including value additions in the
agricultural value chain as well as other non-farm rural sector activities. Because the literature
is relatively large and well established, we only briefly mention some of the recent studies on
the subject.
Ungor (2013) develops a theoretical model of agricultural productivity and the dwindling share
of agricultural employment during the process of structural transformation as argued in the
structural transformation models. He calibrates this model for several countries throughout all
regions of the world and fits a very strong fit to the model in all regions of the world. However,
the model does not investigate the issue of how jobs are created or destroyed during the process
of agricultural transformation, the focus of this study. The paper also does not investigate
whether it is possible to use agricultural transformation as a mechanism for job creation during
the transition.
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Dries, Caian, and Kancs (2012) use sub-sectoral data in agriculture to investigate the dynamics
of the agricultural labor market in EU countries. They conclude that while EU CAP policies
create jobs in sub-sectors of the agricultural sector in EU countries, it destroys jobs in other subsectors of agriculture. They conclude that the net effect of these dynamics is that there is very
little aggregate job creation in the agricultural sector as a result of these policies although there
job increases and decreases in different sub-sectors. Barkley and Wilson (2001) investigate the
effects of the introduction of alternative agriculture on employment in agriculture. Defining
alternative agriculture as the introduction of new crops, new uses of old crops or new varieties
of the same crop, they conclude that job creation from alternative agriculture is too insignificant
to be used as basis for employment policy.
Gillespie and Mishra (2011) use US farm level data to investigate how the impact of off-farm
employment opportunities in the rural area affect the decision to go into farming and the choice
of the type of farming to engage in. They find that the availability of off-farm employment to
supplement on-farm incomes is important on the decision to go into farming. Moreover, the
desire to have off-farm employment is an important determinant of the type of farming that
farmers get into. For example, farmers who are interested in off-farm employment as well are
more likely to go into dairy farming compared to hog farming.
Hazell and Ramasamy (1992) find that the introduction of the high yielding varieties of rice and
the accompanying complementary inputs of fertilizer, irrigation, and pesticides in India, did not
only increase productivity in rice and increase rural incomes, it also significantly increased
employment, especially non-farm employment, in rural India. Chidoko and Zhou (2013)
investigate the effects changes in agriculture on employment in rural Zimbabwe. They find that
decreased investment in the agricultural sector in Zimbabwe did not only lead to decreased
employment on the farm but also of off farm employment relating to agro processing, transport,
marketing and packaging.
Petrick et al (2013) investigate the effects of increased agricultural investment on rural
livelihoods in Kazakhstan using village level data. They find that increased agricultural
investment significantly increased both on-farm and off-farm employment, increased wages, and
increased household incomes. More off-farm jobs were created than on-farm jobs as a result of
this increased agricultural investment. As a result of the increased agricultural investment, rural
poverty rates decreased from 25% in 2000 to 5% in 2010. Moreover, the increased income was
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not accompanied by high inflation as the general price level double while nominal incomes
quadrupled within the period. This was the result of increased productivity in the agricultural
sector.
Petrick and Zier (2012) use panel data to investigate the effects of the European Union’s (EU)
Common Agricultural Policy (CAP) subsidy on agricultural sector employment in EU member
countries. They find mixed results. While CAP subsidy leads to increased employment in some
EU countries, it leads to decreased employment in others. The key determinant of the
employment effect is the structure of agricultural production and labor markets across member
countries: countries that produce crops using labor intensive technologies employ more people
as a result of the subsidy while countries whose agricultural production is more capital intensive
tend to use the subsidy to invest in labor saving technologies, thus decreasing employment in
agriculture. The conclusion is that there is not general rule in the use of agricultural policy to
generate employment across countries---context matters. Margarian (2012) comes to similar
conclusions using broad geographic and time series data from the EU.
We note that none of the studies mentioned above focuses specifically on an African country
and where they do, they do not do so in a country that is focused on transforming the
agricultural sector and specifically focused on using agricultural transformation as a means of
creating jobs for the youth. In addition, none of these studies focuses on the mechanisms
through which jobs can be created in the agricultural sector or at what stage in the agricultural
value chain most of these jobs will be created. Also not discussed are who creates these jobs
and what the role of markets (labor markets) play in the process. We attempt to discuss some of
these issues below.
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Agricultural Employment: Some Successes
In the previous section, we attempted to show that growth of employment in the non-agricultural
sector of Nigeria will not be enough to absorb the rapidly increasing working population in the
country. In this section, we review efforts of governments that made significant impacts in
reducing unemployment in the past through a strategy of agricultural development.
The Asian green revolution is one agricultural development strategy that impacted on
agricultural employment. It was driven by a technology revolution which comprised of a
package of inputs – irrigation, improved seeds, fertilizers and pesticides – coupled with
government support that exponentially increased the yield of wheat and rice in particular, and
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use of labor in the region (Ruttan, 1977, Johnston and Cownie, 1969). Annual growth rate in
agricultural work force during the green revolution era (1967-1982) was 1.92 in China, 1.59 in
India, Pakistan 2.41 and Thailand 2.17. These growth rates indicate increases in agricultural
employment which was behind the reduced pace of rural-urban migration that would have
mounted pressure on the Asian industrial revolution.
The green revolution had significant impact on agricultural employment. Specifically, increases
in the demand for family labor, hired labor and wage rates were observed (Pandey, 1972).
Demand for labor increased especially on large farms (Shah and Shah, 1970; Dixit and Singh,
1970). For instance, in Punjab, India, Sharma (1974) find that the introduction of high yielding
Mexican wheat required more inputs, including labor. There was substantial increase in farm
employment to the extent that local supply of labor could not meet labor demand which resulted
in the hiring of migrant laborers as observed in the introduction of the new rice technologies
(Kikachi and Hayami, 1983). The new wheat technologies attracted migrants even from the
urban areas and thus reduced both rural-urban migration and urban poverty. The increase in
labor use was for most farm operations, it therefore ensured that farmers and hired laborers were
gainfully employed for the entire cropping season. There was also a positive correlation between
the size of the farms and increase in the use of labor input. Bigger farms were more labor
intensive than smaller farms and labor use increased by 5 percent in the smallest farms and 84
percent in the largest farms. The increase in labor demand was high enough to hike wage rates
in favor of laborers. As a result, between 1967 and 1970, wage rates for ploughing, sowing and
harvesting operations increased by 79 percent, 77 percent and 102 percent respectively (Sharma,
1974).
The wheat revolution generated agricultural employment at varying levels based on the source
of power adopted. Ahmed (1976) compare the employment generation impact of high yielding
variety crops and traditional crops based on the source of power. The use of unassisted humancum-animal power and simple traditional implements generated more employment than the
other power techniques. Farms in Pakistan where traditional wheat is replaced by HYV wheat
generated additional employment of 205 man-hours per hectare (increase of 49%) and produced
614Kg of additional output. In similar farms in India, the additional employment generated is
335 man-hours (increase of 58%) and 1,819kg of additional wheat is produced per hectare. The
rice revolution had similar impacts on agricultural employment during the Asian green
revolution (Otsuka et al 1994). Some of these impacts are also recorded in Sharma, (1974). In
Bangladesh, for instance, the adoption of the HYV rice generated additional employment of
between 273 (30%) and 439 (50%) man-hours and doubled the yield. Only a 12% increase in
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additional employment and 9% increase in yield were recorded in the HYV farms in the
Philippines. The overall impact of the Asian green revolution on agricultural employment seems
positive with a cumulative increase in the annual rate of agricultural employment of 1.76
percent.
Agricultural development strategies adopted in some countries have also had impacts on job
creation. One of these strategies is the cotton sector reforms in Burkina Faso. The reforms
focused on strengthening local institutions and building capacity, market liberalization and
increased private sector participation and resulted in tremendous increase in output; from
150,500 tons in 1995 to 690,000 tons in 2007, which translates into an increase of US$165
million in export earnings. About 1.85 million people are currently involved in the cotton sector
value chain. Of these people, 250,000 are farmers who were newly lured into cotton sector
between 1994 and 2003. Within the same period, the share of cotton farmers and their
households increased from 11.3 to 19.9 percent of agricultural employment. The number of
households increased from about 99,000 in 1996 to 177,000 in 2006. The welfare of all farmers
involved in the sector has been enhanced as well. During the 1995 to 2003 period, there was a
sharp rise in household income between 19 percent to 43 percent and a sharp decline in poverty
rates from 62 to 47 percent. These impressive indicators of the welfare of people involved in the
cotton sector in Burkina Faso are largely attributed to the government reforms.
The community forestry of Nepal provides us with further evidence of the impact of an
agricultural development strategy on employment generation. During the past three decades, the
government of Nepal has gradually ceded the forest land under its management to rural
communities while providing policy and program supports. About 70 percent of the country’s
population now benefit at varying degrees from the forest resources in the country. As at 2008,
there were 14,439 community forestry groups covering 75 percent of the districts in the country.
Households that are directly engaged in community forestry programs (1.7 million) make up 32
percent of the total population, and together they manage 1.2 million hectares of forest land.
Among these people, in Koshi Hills, Nepal, about 138,000 people are involved in employment
opportunities in community forestry such as forest management, community development,
office management/office secretaries, teachers and enterprises. The total employment generated
amount to over 800,000 person-days of paid employment.
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5.
Conceptual Framework
Through what mechanisms can agricultural transformation create a large number of jobs to
employ the youth in African countries? From the discussions above, it can be deduced that
agricultural transformation can create employment opportunities for the youth through several
mechanisms, including output effect, technology effect, expansion of acreage effect, and the
effect of what can be termed as changes in the industrial organization of the agricultural sector--expanding the processing, storage, packaging transporting and marketing of agricultural
products as well as researching, producing, and marketing of inputs to the agricultural sector.
The output, acreage expansion and technology channels have been discussed in the literature.
What has not been very well discussed is how changes in the industrial organization of
agriculture brought about by agricultural transformation can generate additional employment for
an economy. A change in the industrial organization of agriculture refers to changes the way the
agricultural sector is organized---like a vertically integrated industry in which agriculture is
organized. The industrial organization of agriculture also encompasses the objectives of
agricultural practices---whether agriculture is for subsistence or for maximizing economic value.
Transformation of agriculture implies that agriculture is not treated as a subsistence industry but
a business and that value be added at every stage of production---from the farm (through
processing, warehousing, packaging, transporting, wholesaling, distribution, retailing) to the
table. In addition, agricultural transformation requires the need for new and improved inputs
which in turn have to be researched, produced, and distributed to farmers and agro-processes.
Employment is created along these areas in agriculture (the so-called value chains); indeed more
jobs can be created along these value chains than can be created in farming.
While we do not present a formal model of employment creation under agricultural
transformation, we provide a very rough sketch of the mechanisms through which agricultural
transformation can create a large number of jobs in this section. We assume that the supply of
labor to the agricultural sector will respond to demand in the sector without introducing labor
shortages in other sectors of the economy. We note that while we assume the supply of labor to
the agricultural sector is highly elastic, we do not assume an infinitely elastic supply response ad
in Lewis (1954). We therefore concentrate on the demand side of the agricultural labor market.
We assume that the aggregate demand for labor in the agricultural sector depends on the total
output in the agricultural sector (Q), the relative real wage in agriculture (Wa), the prices of
other inputs into agriculture (especially land), agricultural technology (T), and the structure of
industrial organization of agriculture (Ω). Formally, the labor demand function can be written
in the general form as:
La = L(Q, Wa, T, Ph, Ω)
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Where Ph is the price of agricultural land, and all other variables are as defined above. From the
discussions above, we assume that the first derivative of agricultural labor demand with respect
to output and structure of agricultural industrial organization is positive while that with respect
to agricultural wage is negative. The signs of the first derivative of labor demand with respect
to T and Ph cannot be determined a priori. A decrease in the price of land has two opposing
effects on the demand for labor; it may lead to a decrease of the labor/land ratio as farmers
substitute land for labor (farm less intensively) hence a decrease in labor demand in farming.
However, a decrease in the price of land may result in increased land under cultivation which
increases the demand for labor. More important the increase in output at the farm gate is also
likely to increase employment along the agricultural value chain. Whether employment
increases or decreases depends on the relative strengths of the negative and positive employment
effects.
Similarly technical change in agriculture can have both employment enhancing and employment
reducing effects at the same time depending on whether the technical change.is labor
augmenting such as the biological package or labor substituting such as the mechanical
package.. A change is labor demand resulting from a give technical change may be represented
as:
ΔL/ΔT = Q*(∂L/∂T) + L*(∂Q/∂T) + (∂L/∂Ω)(∂ Ω/∂T)
where the first RHS expression is the marginal change in employment resulting from technical
change holding all other variables constant while the last two RHS expressions are the
employment effects of technical change that works through output and structural change that
technical change engenders. As argued above, the last two expressions on the RHS are positive
for any technical change. For labor augmenting technical change the first RHS expression is
positive leading to an unambiguous increase in labor demand. For labor substituting technical
change, the first RHS expression is negative so whether technical change results in increased or
decrease employment creation in agriculture will depend on the size of the first RHS expression
relative to the combined magnitudes of the second and third RHS expressions. Given the
possible large employment effect of industrial organization change and the relatively large size
of the agricultural sector, it is likely that even a labor saving technical change could increase
aggregate employment in agriculture in low income countries such as Nigeria.
From our discussion, it is save to conclude that the growth in demand for agricultural labor,
hence employment in the agricultural sector depends on the growth of output in the sector,
growth in relative input prices, technical progress the agricultural sector, availability and growth
15
in price of land, as well as growth in the structure of the industrial organization of agriculture.
We have assumed that public policy does not play a role in employment creation in agriculture.
However, it is clear that public policies may enhance employment in the agricultural sector even
though they may not be targeted specifically at the agricultural sector. For example
infrastructural improvements, such as reliable power supply or good feeder roads can enhance
agro processing and therefore increase employment in this sector. Macroeconomic structural
factors may also affect employment in the agricultural sector. In the case of Nigeria for a
discovery and export of large of oil that led to the proverbial Dutch Disease.
6.
Employment Along Value Chains in Nigeria
Besides increasing agricultural incomes, food security while decreasing food imports the
Nigerian government’s Agricultural Transformation Agenda has also promised to generate 3.5
million new jobs over the course of the program. The commodity composition of these jobs is
as follows: rice, cassava, sorghum, cocoa, fish and aqua culture, wheat, among others4. [4. See
FMARD, 2011] Most of these jobs are targeted to go the youth and women as a way of
decreasing youth unemployment and ensuring gender equity agricultural development in
Nigeria. While there are few details of this program, according to the draft Concept Note, the
program envisage a heavy government (both state and federal government) involvement in
training, financing and enabling young people (university graduates and non-graduates alike to
go into commercial farming as well as into other agricultural sector businesses. It is envisaged
that most of these jobs are either self-created or government supported. Young graduate farmers
will be given land as well as subsidized loans and inputs. Absent is any discussion of the role
that product markets and labor markets play in the creation of jobs.
The model sketched above is more of a demand driven employment strategy---it is the demand
for labor that drives employment in the sense that the expansion of agricultural output, the need
to process and market this increased output as well as the need to produce inputs to be used in
the production of agricultural outputs that generates employment. Employment is generated by a
mixture of a large number of small and medium scale enterprises and a few large scale
enterprises that generate employment.
16
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