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Tuesday, 23 September 2008

Agriculture and national growth...

A new IFPRI paper develops a computational general equilibrium (CGE) to examine the extent to which agriculture growth would help poverty alleviation in Zambia. (Health warning : CGE models are highly dependent on the assumptions, and their conclusions should be treated with caution). Summary of conclusions below:

A dynamic CGE model is herein developed and used to examine the contribution of accelerating growth in various agricultural crops and sub-sectors in a meeting the CAADP target of 6% agricultural growth, as supported by raising agricultural expenditure to at least ten percent of the government’s total budgetary resources. The impact of agricultural growth at the macro- and microeconomic levels, as well as on poverty, was also estimated. The major conclusions of this study are summarized below.

Six Percent Agricultural Growth is Achievable but Will be Challenging

The CGE model results indicate that if Zambia can achieve reasonably ambitious improvements in crop yields and sub-sector growth, then it will be possible for the country to achieve the CAADP target of six percent agricultural growth during 2005-2015. Agricultural growth at 6.1 percent per year would increase overall GDP growth from 5.6 to 5.3 percent per year. This higher growth rate would reduce national poverty to 51.9 percent by 2015, which is lower than the 57.7 percent poverty rate that would have been achieved without the additional agricultural growth. This means that the higher growth under the CAADP scenario would lift an additional 780,000 people above the poverty line by 2015.

Not Everyone Will Benefit Equally under the CAADP Growth Scenario

Most households are expected to benefit from faster agricultural growth, and the distribution of additional incomes under the CAADP scenario is relatively even. However, farm households growing higher-value export-oriented crops stand to gain more than households that rely more on food crops or livestock. Furthermore, households in agro-ecological Zones 1 and 2a benefit more than households in the more remote zones of the country. Finally, while rural households benefit more than urban households, not leastbecause the former are more dependent on agricultural incomes, urban households also benefit. This is because urban agriculturalists make up a significant share of agricultural producers in Zambia, and because agricultural commodities are an important part of the consumption baskets of both urban and
rural households. As such, while rural poverty falls by an additional 6.4 percentage points, urban poverty falls by 4.8 percentage points.

The Composition of Agricultural Growth

MattersComparing the effectiveness of growth driven by different sub-sectors in reducing poverty and encouraging broader-based growth, we see that a one percent growth driven by either cereals or root crops has considerably larger impacts on poverty reduction than similar growth in export-oriented crops. This is because yield improvements in these crops not only benefit households directly by increasing incomes from cereals and root crop production, but also indirectly by allowing farmers to diversify their land allocation toward higher-value crops. Food crops and fisheries also have stronger growth-linkages to nonagricultural sectors, thereby stimulating broader economy-wide growth and poverty reduction. However, the high growth potential of export crops relative to that of the food crops means that export-led growth will still account for a large share of overall poverty reduction under the CAADP scenario. Furthermore, the small initial size and geographic concentration of certain food crops, such as root crops, means that their potential contribution to national-level growth and poverty reduction is limited, at least over the short term. Taken together, our findings highlight the importance of broad-based agricultural growth, but accord a high priority to maize, roots, and smallholder export crops.

Agricultural Spending Needs to Increase Substantially

Increasing agricultural growth to meet the CAADP growth target will require additional investment in the sector as well as improvements in the efficiency of public spending. It would be helpful to reforming public institutions, particularly those with any agriculture-related functions, to improve the provision and delivery of agricultural public goods and services. Our investment analysis indicates that aggregate government spending on agriculture would have to grow by about at least 17 percent per year in order toachieve and sustain the six percent agricultural growth targeted by the CAADP. This implies that the government will need to allocate at least eight percent of its total budgetary resources to agriculture by 2015. However, this spending scenario assumes that the government is able to invest more efficiently than the average sub-Saharan African country, realizing a 0.3 percent increase in agricultural GDP for every one percent increase in total agricultural spending. If this is not the case and the government can only achieve a modest return on its spending, say a 0.15 percent increase in agricultural GDP for every one percent increase in total agricultura l spending, then public spending on agriculture in Zambia would have to grow at about at least 27 percent per year in order to reach the CAADP six percent growth target during 2005-2015. This would mean that the
government would have to allocate at least 18 percent of its total budget to the agricultural sector. Thus, it is important that the government not only meet and exceed the CAADP agricultural spending target, but also greatly improve the efficiency of its agricultural investments.

Halving Poverty by 2015 Seems an Insurmountable Challenge

Although agricultural growth has strong linkages to the rest of the economy, leading to substantial overall growth in the economy and increases in incomes of both rural and urban households, achieving the CAADP target of six percent agricultural growth is insufficient to halve poverty by 2015. To achieve this more ambitious target, both agriculture and non-agriculture would need an average annual growth rate around ten percent per year. These growth requirements are substantial, as are the associated resource requirements. However, while the MDG1 target appears to be beyond reach, achieving the CAADP target should remain a priority for Zambia, as its growth and expenditure scenario is more reasonable, and will substantially reduce the number of poor people living below the poverty line by 2015 and significantly improve the well-being of both rural and urban households.

1 comment:

  1. The problem with using models is that they will just be models and not what really pertains the situation on the ground. The question is, how should that increased budget be used when we refer to agriculture? is it for creation companies that distribute fertiliser and equipment produced from South Africa and China? Why not stimulate production of those inputs by Zambian companies? It is an aggregate of activities by these support industries that will create jobs.

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