ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Livestock Sector Policy Analysis Using an Economy-Wide Model for Ethiopia

AuthorsAyele Gelan, ILRIErmias Engeda, IFPRI ESSP-IIA. Stefano Caria, DRMFSS

Ethiopian Economic Association ConferenceJuly 21, 2011Addis Ababa

1

LIVESTOCK’S IMPORTANT ROLE IN THE ECONOMY

• Livestock’s macro role in production often not emphasized• Growing demand for meat• Forward linkages: draft power, manure• Backward linkages: feed• Livestock products and agro-processing

• How high are macro linkages from livestock sector growth?• How much income growth and poverty reduction can we generate

with livestock sector growth?• General equilibrium analysis needed to capture these

PREVIOUS WORK EMPHASIZES ROLE OF CEREALS

• CAADP limited initial recognition of role of livestock sector

• Diao Pratt (08) conclude that “growth in staples is the priority for poverty reduction”• Combining growth in staples and livestock has high economic multipliers &

strong poverty reduction gains in food deficit areas

• Dorosh and Thurlow (09)’s poverty-growth elasticities• cereals have highest rural poverty reduction potential

APPROACHES OF PRESENT WORK• Developing a herd dynamic module • Coupling the herd dynamics with the economy-wide

model • Nesting the biological and the economic processes• Establishing stock-flow relationships in existing

economy-wide models (e.g. livestock as capital and livestock products)

• Revising and improving the system of economic accounts in existing models (e.g., draft power as capital in cropping, breeding stocks as capital in livestock, etc)12

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Young female

Sale of live animals

costs of keeping young animals

+ +

SCHEMATIC REPRESENTATION OF HERD DYNAMICS AND PRODUCTIVITY

Production and economic flows (off-take, in-takes and others) Reproduction and growth (growth, births, deaths)

Immature female

Mature female

Births

Young male

Immature male

Off-takes

Sales of products

=

=

Yields/animal

+

TR

Other economic

uses

+

Mature male

costs of keeping immature animals

costs of keeping mature animals

Female deaths

Male Deaths

TC

-

=

Gross margin

Condensed and adapted SAM for Ethiopia(ETH birr million, 2005)

AEZ-1 AEZ-2 AEZ-3 AEZ-4 AEZ-5 P-1 P-2 P-3 Nag FDD Inv Ex Total

Livestock activities by AEZs

AEZ-1 114 6 71 191AEZ-2 5553 173 1907 7632AEZ-3 983 25 754 1762AEZ-4 3372 124 942 4437AEZ-5 745 17 3205 3967

Livestock products

Live animals (P-1) 940 7268 2229 701 11138

Poultry (P-2) 32 316 -6 27 369

Milk (P-3) 430 6990 0 52 7473

Non-agri 4 164 38 96 86 99

Factors Labor 128 5155 1184 2990 2671 Land 59 2313 540 1352 1210

Taxes 365 20 428 Imports 6 5 67 79 Total 191 7632 1762 4437 3967 11138 369 7473 1402 14574 2223 780

The model and simulations

Dynamic CGE model for Ethiopia

• We use Dorosh and Thurlow’s 09 model ˃ General equilibrium: the model represents different

markets, all reaching equilibrium˃ Dynamic: the model is solved recursively

• Model is calibrated for Ethiopia using 2005/06 EDRI Social Accounting Matrix˃ 5 AEZs, 97 activities, 66 commodities, 27 factors

Closures• Factor closures:• Labour , livestock and land fully employed and mobile• Capital fully employed and activity specific

• Macro closures• Marginal propensity to save is fixed, investment adjusts• Tax rate fixed, government savings adjusts• Foreign savings fixed, exchange rate is flexible

Simulate realistic TFP shocks…• We simulate Total

Factor Productivity (TFP) shocks to various subsectors

• Base growth follows 98-07 trend

• Additional shocks as in Dorosh Thurlow 2009˃ Obtained in discussions with

MoA and CAADP

Simulation Shocks

BASE All Ag commodities grow at 98-07 trend

CEREAL Cereals + enset grow faster

CASH CROP Cash crops and pulses grow faster

LIVESTOCK Livestock activities grow faster

CAADP All Ag commodities grow faster

…different across sub-sectors

CEREA

L

CASH CROP

LIVES

TOCK

10,000

12,000

14,000

16,000

18,000

20,000

22,000

Size of sub-sector in 2005

Mill

ion

Birr

Cereal only

Cash crop only

Livestock only

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

2.2%

0.6%

0.5%

4.3%

2.4%

3.1%

Weighted average of TFP shocks to subsectors

Accerelated BasePercentage

Results

Agricultural GDP 2006-2015

2006 2007 2008 2009 2010 2011 2012 2013 2014 201560000

65000

70000

75000

80000

85000

90000

Base Cereal onlyCash crop only Livestock only

Mill

ion

Birr

Stronger linkages for livestock & cash crops

Sub-sector Ag sector GDP GDPBASE 3.7% 6.4%CEREAL 6.4% 4.6% 6.6%CASH CROP 4.1% 4.2% 6.5%LIVESTOCK 5.5% 4.5% 6.7%CAADP 5.9% 7.0%

Average growth rates 2009-15

• CEREAL has highest sub-sector growth

• But comparable Ag sector and GDP growth

• A 1 pct point of CEREAL sector growth impacts Ag sector (and overall GDP) less than growth in LIVESTOCK and MARKET

Different economic linkages at work

Livestock has good export performance

1%

84%

15%

Shares of agricultural export value

CEREAL

CASH CROP

LIVESTOCK

BASE

CEREAL

CASH CROP

LIVEST

OCK9.5%9.6%9.7%9.8%9.9%

10.0%10.1%10.2%10.3%10.4%10.5% -1.0%

-0.9%-0.8%-0.7%-0.6%-0.5%-0.4%-0.3%-0.2%-0.1%0.0%

2005-15 % change in total export and real exchange

rate

Export pct changeReal EXR pct change (right axis)

Perc

enta

ge

Perc

enta

ge

Livestock raises income from labor and land the most

humid lowland

humid cereal

humid enset

drought prone

pastoralist

0% 20% 40% 60% 80% 100%

Factor income of the poor

Land Labour Livestock

Labour

Land

Livestock

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

% increase 2009-15 in factor income: poor HH

LIVESTOCK CASH CROPCEREAL

Percentage

Price effects strengthen CEREAL effect on consumption poverty

• The evolution of poor HHs consumption similar for each simulation

• Price effects more than compensate lower income effect of CEREAL˃ Cereals about 25pct of whole

consumption basket˃ Rural poor HHs consumption

thus grows faster

BASE

CEREAL

CASH CROPS

LIVESTOCK

0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

3.58%

4.36%

3.89%

4.02%

Average growth rate 2009-15 of rural poor HHs food consumption

Percentage

Conclusions

Livestock’s re-casted role• Livestock has important economic linkages

• Especially when taking into account complementarities with crop production due to draft power

• Livestock growth increases the incomes of the poor expanding incomes from labor and land

• Livestock limited role in consumption limits its consumption poverty reduction potential• This may be moderated in the future

FUTURE EXTENSIONS• By far the most important extension (in both

modelling contexts) - strengthening crop-livestock interactions (e.g. crop residue)

• From social accounting to environmental accounting (i.e., a third level nesting: biological => economic => environment)

• Livestock-environment interactions

• Livestock-demographic-economic relationships (the livestock revolution story)

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