RURAL MARKETS, NATURAL CAPITAL AND RURAL MARKETS, NATURAL CAPITAL AND DYNAMIC POVERTY TRAPS IN EAST AFRICA DYNAMIC POVERTY TRAPS IN EAST AFRICA

Discussion of Prototype CLASSES* Model Discussion of Prototype CLASSES* Model Presently Under Development:Presently Under Development:

A Work in ProgressA Work in Progress

*CLASSES = Crops, Livestock and Soil in Smallholder Economic Systems*CLASSES = Crops, Livestock and Soil in Smallholder Economic Systems

Problem StatementWhy do we see persistent rural poverty?

And why does this appear to be both cause and consequence of depletion of natural capital, especially soils?

What sorts of policy or project interventions can help smallholder farmers escape from persistent poverty and natural capital degradation?

CLASSES Objectives• Provide a simulation tool that replicates

household-level welfare and resource dynamics that are heterogeneous over time and across initial conditions

• Learn about system behavior, particularly in response to alternative possible policy or project interventions (e.g., ex ante impact assessment).

Implication of Objectives:

• Develop a dynamic model capable of simulating a “closely coupled” human and biophysical system

• Model should allow for stochastic exogenous factors (e.g. input and output prices, rainfall, etc.)

• It should display a disaggregated system in terms of specific enterprises observed in the system

Why System Dynamics Approach? • It offers a tractable approach to studying a system in which most

variables are endogenous and in which out-of-equilibrium behavior is of explicit interest.

• It is possible to integrate or nest micro-economic or biophysical models in a modular SD model.

• It does not impose an optimizing behaviour on the farmer based on the assumption of perfect information.

• Can integrate multiple data sources and types.

• It offers a simple way of visualizing the structure of feedback and causal loops that generate potentially complex dynamics. Relatively easy to communicate to policymakers and to use.

ASSET STOCK- Land quality (soil depth)- Land quantity- Livestock- Labour quality (educ.)- Labour quantity (family size)- Non-farm/monetary

CONSUMPTION AND INVESTMENT

OUTPUT REALIZATION- Tea- Home gardening- Field crops (maize, rice, beans, etc.)- Fodder- Intensive/extensive livestock - Trees- Non-farm/off-farm income

EXOGENOUS FACTORS-Weather-Factor prices-Output prices-Health

INPUT ALLOCATION ACROSS ENTERPRISES- Land- Labour - Livestock- Fertilizer

State variables

Control variables

CLASSES: A Simple Description

• As each period begins, the household allocates its productive assets across different enterprises based on expected returns conditional on exogenous conditions (e.g., expected rainfall, prices).

• Input allocation choices are based on their relative attractiveness from the farmer’s perspective, reflecting the system design.

• A production function then generates output of each enterprise based on stochastic realization of exogenous variables.

• Output affects next period asset stocks directly through impact on the biophysical system (e.g., soil depth, livestock reproduction).

• Households make consumption and investment decisions that then affect next period’s asset stocks.

• The cycle begins again.

The Temporal Dimension

• Decisions made at seasonal frequency • Value of an activity is the sum of both current and

future discounted returns, with all the future compressed into a single value function term.

• If (endogenous?) discount rate is high and/or current returns do not satisfy immediate needs (e.g., nutritional minima), investments become unattractive.

Input Allocation Within The System(Illustrative response to change in exogenous variables)

Change in land shares by change in Fertilizer Feed

Mean Price Price Wages

RainfallTea - - ? - - ++

Maize & beans + + + -

Fodder crops + ++ + --

Home gardens - - - +

CLASSES – Input Allocation Module

Initial Farmlandarea

Farmland area

Share of area intea

Share of area inFodder

Area under field crops

Share of area underField Crops

Share of area underHome garden

Share of areaunder Maize

Share of area undermaize and beans

Share of area underother crops(root crops)

Perceived teaprice

Perceived milkprice

Perceived maizeprice

Perceived weatherconditions

<Perceived weatherconditions>

<Perceived teaprice>

Attractiveness of teacultivation

Attractiveness ofhome gardening

Attractiveness ofField crops

attractiveness offodder crops

Referenceattractiveness of tea

cultivation

Relative attractivenessof tea cultivation <Attractiveness of

Field crops>

<attractiveness offodder crops>

Responsiveness to teaprice changes

Responsiveness tofodder price changes

Relative attractivenessof fodder crops

<Attractiveness ofhome gardening>

<Attractiveness ofField crops>

<Attractiveness oftea cultivation>

Referenceattractiveness of fodder

crops

<Perceived maizeprice>

Perceived fodderprice

<Perceived fodderprice>

<Perceived fodderprice>

<Perceived maizeprice>

<Perceived milkprice>

<Perceived weatherconditions>

<Perceived teaprice>

Relative attractivenessof field crops

Responsiveness to fieldcrop price changes

Referenceattractiveness of field

crops

<Perceived fodderprice>

<Perceived maizeprice>

<Perceived milkprice>

<Perceived milkprice>

<Perceived teaprice>

Reference attractivenessof home gardening Responsiveness to home

gardening price changes

Relative attractivenessof home gardening Perceived home

gardening price

Attractiveness ofmaize monocrop

<Perceived maizeprice>

Perceived beanprice

Perceived Maize andBeans average price

Attractiveness ofmaize and beans

Relative attractivenessof maize monocrop

Perceived othercrops price

Relative attractivenessof maize and beans

Responsiveness to maizemonocrop price change

Responsiveness to beansand maize average price

changes

Attractiveness ofother crops

Relative attractivenessof other crops

Responsiveness to othercrops average price

changes<Perceived other

crops price>

<Perceived beanprice>

<Perceived Maize andBeans average price>

<Perceived maizeprice>

<Attractiveness ofmaize monocrop>

<Attractiveness ofmaize and beans>

<Attractiveness ofother crops>

<Relative attractivenessof fodder crops>

<attractiveness offodder crops>

Annual farmlandarea

<FINAL TIME>

<TIME STEP>

<INITIAL TIME>

Mean weatherconditions

Relative weatherconditions

Mean milk priceRelative milk price

Relative maizeprice

Mean maize price

Relative price ofmaize and beans

Mean price of maizeand beans

Relative fodderprice Mean fodder price

Relative tea price Mean tea price

fractional change infarmland area

Relative price ofbeans

Mean price ofbeans

Mean Price ofOther Crops

Relative price ofother crops

Fractional change intea area

Fractional change inHome garden area

Fractional change inarea under Field crops

Fractional area underother crops

Fractional changein area

Fractional change infodder area

<soil depth ratio>

CLASSES- Crop Production Module

production rate

Fertilizer usage

Fractional salesrate

reference fertilizerusage

referenceproduction rate

effect of fertilizer usageon production rate

effect of fertilizer usageon production rate table

fertilizer usageratio

grain price per ton

income rate

fraction of incomeavailable for purchasing

fertilizer

rate of expenditureon fertilizer

fertilizer price

initial grain instorage

effect of rainfall onproduction rate

rainfall historyaverage rainfall

rainfall ratio

effect of rainfall onproduction rate table

rainfall switchrainfall distribution

Price per TLU

Effect of animal manureon production rate table

Animal dung

Effect of animal manureon production rate

Average amount ofdung manure used

Amount of dungper TLU

Animal dunggeneration

dung flow

fraction of dung usedas crop manure

dung use ratio

Initial amount ofdung

Consumption(Human Welfare)

Animalfeed

Cut and carry

Effect of rainfall on cutand carry table

Effect of rainfall on cutand carry rate

Animal feedintake rate

Animal feed scalingup factor

<total farmpopulation>

Effect of animal feedavailability on animal feed

intake rate table

Initial amount of cutand carry

grain instorage

sales rate

<Animal salesrate>

Proportion of cropresidue fed to livestock

<Proportion of cropresidue fed to livestock>

<Animalpopulation>

<Animalpopulation>

<effect of soil depth onproduction rate>

<Calliandra sp.>

<Share of area intea>

CLASSES- Human population dynamics module

Young childrenBirths

MatureMaturation

ElderlyAging Deaths

Births per maturefemale per year

Maturationrate

Mature females

Aging rate

Femalefraction

total farmpopulation

HealthyIndividuals

InfectedIndividuals

infections

healthy contacts

contact ratefraction population infected

total population

healthy contacts withinfected individuals

infection rate

initial infected

Child mortalitydeaths

Adult mortalitydeaths

<fraction populationinfected>

CLASSES – (Early) Soils Module

Referenceerosion rate

Effect of productionrate on erosion rate

Effect of productionrate on erosion tableproduction rate

ratio

Soil depth

erosion rate

initial soil depth

effect of soil depth onproduction rate table

effect of soil depth onproduction rate

reference soildepth

soil depth ratio

Improvedfallow

Calliandra sp.<Improved fallowtechnology>

<production rate><reference

production rate>

CLASSES – Livestock Dynamics Module

effect of animal feed onnet birth rate table

animal births Animal deaths

Net birth rate

<Animal feed>

effect of animal feedon net birth rate

Net mortality rate

Animal sales rate 0

Animalpopulation

Sample simulation results: land allocation

• Initial farm land area of 0.8 ha i.e. the farm we visited in Madzu in January 2003

• Land allocation decisions are assumed to occur every year

• Simulate the effect of a change in maize prices on area planted in maize and tea

Simulated soil dynamics

00.10.20.30.4

Ha

1 2 3 4 5 6 7 8 9

Years

Smallholder land allocation to maize with and without a maize price

increment

Maize area withno maize priceincrement(Ha)

Maize area withmaize priceincrement(Ha)

Simulated soil dynamics

00.05

0.10.15

0.2

Ha

1 2 3 4 5 6 7 8 9

Year

Smallholder Tea Land Allocation With and Without Maize Price Increment

Tea area with nomaize price increment(Ha)

Tea area with maizeprice increment (Ha)

Simulated soil dynamics Soil depth

100

95

90

85

80

1 10 19 28 37 46 55 64 73 82 91 100Time (Month)

Soil depth : With small farm size with Maize Price increases cmSoil depth : With small farm size No Maize Price change cm

Group DiscussionCLASSES remains very much a work in progress.

We need feedback from the broader team on:(a) key phenomena and prospective interventions that will

need to be incorporated but might be absent right now, (b) the general feedback and causal loop structure of the

model,(c) how best to model some of the specific mechanisms of

interest, especially those not yet in this model (e.g., labor allocation or investment choice),

(d) presentational issues of relevance to making this accessible and attractive to end-users in government ministries, donor agencies and NGOs.