Fantu Nisrane Bachewe and Alemayehu Seyoum Taffesse

International Food Policy Research Institute (IFPRI)(Ethiopia Strategy Support Program, ESSP-II)

A Conference on Improved evidence towards better policies for the teff value chain

10 October 2013Hilton Hotel, Addis Ababa, Ethiopia

An Economic Analysis of Teff Productivity, Efficiency, and Supply Response in Ethiopia

Presentation OutlinePresentation synthesis of parts of two works:I. Productivity and efficiency in teff productionII. Dynamic teff acreage demand (supply) response

Outline1. Background of study,2. Description of data used ,3. Results I: Productivity and efficiency,4. Results II: Teff acreage demand response, 5. Summary and policy implications.

Background• Crop production is dominated by subsistence farm households• Accounted for over 97% of grains area and output in 2008/9 (2001 EC)

• Relative productivity inform extent output can be increased with efficient management of existing resources• Results imply considerable potential for improvement

• Total factor productivity (TFP) and efficiency indices frequently used

• TFP often measured using output-input ratio

• Relative TFP and technical efficiency indices compare output per input ratio of each HH with the respective best performing HH -ratio

Aggregate output index

TFPAggregate input index

Background: TFP and efficiencyAll points on the production function/ frontier are technically efficient.

Relative to farmer at point A the one at:• B is technically efficient (output

oriented )– produces more, Y2, using the same aggregate input as A, X2.

• C is technically efficient (input oriented) -uses less input, X1, to produce the same output as A, Y1.

Relative to HHs at points A, B, and C the HH at point D is superior in TFP. • HH at D is technically efficient as B & C• Point D is scale efficient

• TFP performance superior at point D as Y*/X* higher than Y/X at any other point.

Background: Supply response• Magnitude of producers’ response for changes in market factors • Considered as important measure of level of competitiveness,

• Subsistence farmers characterized with low supply response• 62% grains consumed and 20% sold during 2008/9-10/11,

• We use acreage demand elasticity to measure producers’ response

• Information helps policymakers decide on interventions needed on • Ease of movement of inputs and other bottlenecks, • Social and physical infrastructure.

%Elasticity of acreage withrespectt o price

%change in acreagechange in price

Description of DataData set used in both studies• Collected by CSA and cover the meher season/s, • Includes four regions: Tigray, Amhara, Oromiya, and SNNP

Data used in TFP and efficiency analysis cover 2010/11 and• Derived from the AGP baseline survey,• Includes 3,221 teff producing HHs (42% of HHs in AGP baseline survey)

Acreage demand elasticities estimated using data• CSA’s annual Agricultural Sample Survey, • Cover the 2003/4-2010/11 period,• Average producers’ prices of teff from CSA also used.

Results I: Productivity and efficiency

Results: Productivity and efficiency• Two methods used to gauge relative performance-similar results

•Mean output oriented technical efficiency is 0.45 • Average HH’s output/input ratio about half of technically efficient HH• Implication for potential increase in output not straightforward• Depends on area cultivated and level of efficiency-positively related

•Mean input oriented technical efficiency is about 0.7,

•Overall performance in TFP averaged about 0.4• Performance in efficiency mixed among AGP and non-AGP HHs, however• AGP HHs have higher TFP• HHs in Tigray have higher indices followed by HHs in Amhara, Oromiya,

and SNNP, respectively

Results: Productivity and efficiency

Woreda typeOutput oriented

technical efficiency

Output oriented technical efficiency

Total factor productivity

Average 0.44 0.69 0.39Woreda

Non-AGP woredas 0.42 0.69 0.34AGP 0.45 0.69 0.41

RegionTigray 0.59 0.88 0.42Amhara 0.48 0.71 0.44Oromiya 0.40 0.62 0.38SNNP 0.27 0.57 0.24

Table 1: Relative technical efficiency and TFP.

Results: Potential increase in yields and output• Among HHs used in analyses teff yield averaged about 8 quintals/ha,• Gain in yields implied by technical efficiency: 9.8 quintals/ha (23% higher)• Highest gain in yields: 11.5 quintals/ha (44% higher)

• Average HH teff output is about 3 quintals,• Input oriented technical efficiency implied 0.7 quintals• TFP implied 1.2 quintals of teff output per HH ,

Table 2: Mean actual and optimal household teff yield and output.

Woreda/Region

Actual mean yields

(KG/ha)

Mean optimal yields (KG/ha)

Actual mean

output (KGs)

Mean optimal output (KGs)

Technical efficiency (input

oriented)

Total factor

productivity

Technical efficiency

(input oriented)

Total factor

productivity

Average 800 985 1,149 300 372 424WoredaNon-AGP 722 902 1,082 244 307 359AGP 840 1,028 1,184 329 406 458RegionTigray 728 789 1,030 288 303 385Amhara 954 1,161 1,328 345 433 487Oromiya 792 1,029 1,166 311 401 442SNNP 469 634 753  162 224 258

Results: Potential increase in total output• The 3,221 HHs used in the analyses jointly produced 0.97 thousand

metric tons (TMT) teff,• Removing technical inefficiencies could increase output to 1.2 TMT & • To 1.4 TMT if technical and scale inefficiencies were absent,

• HHs residing in zones sampled produced 1,123 TMT of teff,• Input oriented efficiency implies additional teff output of 295 TMT• With no technical and scale inefficiencies output could increase by 42%

to 1,590 TMT.

Table 3: Total actual and optimal teff output.

Woreda/Region

Actual total

output (000 MT)

Total optimal output of 3,221 HHs (000 MT)

Actual total output (000

MT)

Total optimal output of 3.87 million HHs (000 MT)

Technical efficiency

(input oriented)

Total factor

productivity

Technical efficiency

(input oriented)

Total factor productivity

Average 0.97 1.20 1.36 1,123 1,417 1,590WoredaNon-AGP 0.27 0.34 0.40 725 916 1,030AGP 0.70 0.86 0.97 398 502 561RegionTigray 0.16 0.17 0.21 30 32 40Amhara 0.44 0.55 0.62 468 586 662Oromiya 0.30 0.38 0.42 539 677 744SNNP 0.07 0.10 0.12  87 123 144

Results II: Teff acreage demand elasticities

Results: Acreage demand elasticities•Elasticity of teff acreage with respect to teff price is:• Long-run: 1.4.

• Increase in expected teff price from 5 to 10 birr induces increase in teff acreage from 0.5 to 1.2 hectares,

• Short-run: 0.34.

•Elasticity of acreage with respect to opportunity cost of teff• Long-run: -0.54, and • Short-run: -0.38.

• Own price elasticities in the middle relative to non-Ethiopia works • Long-run: range from 0.2 to 2, • Short-run: range between 0.01 and 1.2

Summary and policy implications.• Production performance indices imply significant inefficiencies• Considerable room to improve even within current technology and

input use levels, particularly among HHs cultivating smaller land

• Unlike theory long-run supply response high among teff producers,• Response to prices and returns considerable even in the short-run

• Despite regulations on land use and stated problems of access to other inputs, eg. fertilizer

• Recent past trends favor increases in teff production,• Policy interventions can affect supply even the short-run.

Thank you