Ethiopia’s Agricultural Policy Challenges

1. Ethiopia’s Agricultural Policy Challenges Case Study

2. Key Dialogue Questions (KDQ) • Should the lead sector for economic development be agriculture or industry, given that Ethiopia is a non oil-dependent developing country? • Should more priority be given to smallholder farms or private commercial farms, given the context of the agriculture sector of Ethiopia?

3. Role of agricultural sector in economic development of Ethiopia • Agrarian and non-oil dependent developing country • Agriculture is the backbone of its economy: • main livelihood for > 85% of the population; • accounts for about 45 % of GDP; • almost 90 % of exports/foreign exchange earnings originate from agriculture sector; • Main source of industrial raw materials for agro-industries. • Two major sectors of agriculture: Smallholder and the large - scale farming sector

4. Smallholder sector • Predominantly mixed crop and livestock semi-subsistence farming • accounting for 83% - 95% of all cultivated land and of agricultural production • low levels of modern inputs use and heavy dependence on rainfall • vulnerable to the vagaries of nature (unpredictable rainfall & recurrent drought) • Low productivity, very limited market share and insignificant saving and investment

5. Large -scale farming • Ethiopia did not inherit colonial commercial farm. • Growth of the sector started with the establishment of farms in the 1950s/60s (by elite, nobility, etc). • The Derg/Military regime nationalized the farms to; • Operate as state-owned enterprises after 1975: • A ministry to manage & develop new state farms through the allocation of a large budget, • Socialist policy (forbid land ownership > 10 ha) retarded growth of large scale private farm sector for 17 years • Post1991 market and price liberalization which resulted in; • the privatisation of many sate farms while the rest are still operating as parastatal/public enterprises • Stimulated private investment in large scale commercial farm development by domestic and foreign) and the steady growth of the sector over the past two decades

6. Post 1991 Agricultural Sector policy • Agricultural development -led industrialisation (ADLI); • Lead- role of agriculture in development policy. • Agriculture as the basis in the conceptualisation of growth, policy guidelines and poverty reduction. • The key challenge for reducing poverty and providing the foundation for long-term growth is to ensure rapid and sustained increases in land and labour productivity. • Agriculture is the main source to generate primary surplus that fuel the growth of other sectors notably, industry • ADLI is made the policy in strategic development plan; • Poverty reduction programme (SDPRP) and MDG • Plan for Accelerated and Sustainable Development to End Poverty (PASDEP), for 2005-2009/10 • Growth and Transformation Plan (GTP) strategic framework for the period 2010/11 -14/15.

7. Agricultural growth strategy • ADLI strategy further refined during PASDEP with Emphasis on commercialisation of agriculture, strong private sector growth and intensification of marketable farm products. • The fundamentals of the GTP strategy include: • A shift to produce high value crops, • a special focus on high-potential areas, • facilitating the commercialization of agriculture, • supporting the development of large-scale commercial agriculture (where it is feasible). • PASDEP implementation as the main instrument for delivering agricultural growth through strong push for intensification to increase yield and productivity in the smallholder sector.

8. Public Expenditure Pattern • A high share of expenditure for pro-poor and development oriented sectors

9. Public expenditure • While average pro-poor expenditure was approximately 54% of total public expenditure (2001/02 – 2007/8), expenditure on agriculture and food security was about 12.6% of the total. • Strong commitment to continued agricultural growth; about 13 to 17 % of expenditure (far more than the average for SSA). • Food security nonetheless remains a key challenge as a large share of the sector budget goes to the Productive Safety Net Program (PSNP) & HH Asst Building Prog (HABP) • GoE & DP realised that success in long-term food security will require complementary efforts to enhance agricultural growth, and thereby reduce food prices and diversify rural livelihoods. • Thus, PADETES program for the intensification of smallholder agriculture during 1996/97 – 2004/05 EFY was allocated a large share of the agricultural growth expenditure.

10. PADETES program and performance • To achieve strong push for intensification • Three major Program components which are; • Regular extension packages: for cereal crops which are mostly seed and fertilizer; • Minimum packages: emphasizing natural resources management with traditional crop management); and • Household packages: providing farm households a menu of technology (water harvesting, dairy, apiculture, and horticultural production).

11. PADETES Program • PADETES capacity to deliver extension services • Roughly 8,500 Farmer Training Centres (FTCs) have been created throughout Ethiopia, • Development Agents (Das) trained increased from 2500 in 1995 to 63,000 (45,000 placed already in woredas/districts), • Built DAs and woreda/district staff; trained with technical skills, and are as specialists, • The development agent (DA) to farmer ratio had risen from 1:5000 to 1:800

12. Efficiency of Spending (PADETES) • The program reached about 40% of the roughly 10 million farm households • Succeeded in boosting input use (improved seed and fertilizer use increased by about 50 and 30%, respectively, from 1995 to 2005. • Increased use of improved inputs/fertilizer rate (higher than the African average). • But no change in average per capita agric. GDP and per capita grain production (results achieved are not as expected).

13. Large – scale commercial farm • Government support for the sector; • Tax incentives/exemption from custom duties • Infrastructure development (access road, power, other utilities, etc) • Small land tax and grace period for payment • Growth Performance of the large – scale sector • FDI inflow into agric. fluctuated between US$545mn & US$265mn/year from 2004-2007, • From 2000 - 2005, floriculture/horticulture sector was the main focus of FDI • Ethiopia is the 2nd largest flower exporter in Africa, (next to Kenya) • Agricultural investment was about 15% in 2010.

14. Total capital of domestic and foreign investment projects approved, mill Birr (1992/03 - 2010/11)

15. Total agricultural investment capital of approved projects (2006/07 - 2010/11)

16. Impacts of large – scale farm growth • Environmental concern and ‘land grab’ • Critics on the motives of FDI inflow, lack of long term growth impact; • Primary aim to secure the food demand in the investors’ countries • Financial returns instead of the traditional motives of efficiency and market-seeking • Lack of technology transfer and spill-over effect on domestic/smallholder farmers (Out-growers?) • Least impact on domestic market growth • Evidence unavailable to justify government support (e. g., tax incentives) to sector growth

17. Conclusion: KDQ KDQ1: Is ADLI appropriate? • Key arguments to increase the support for agriculture; • Is the major contributor to GDP • Has strong impact on poverty as it is source of livelihood • Generates the major share of foreign exchange • Provides raw materials for industry • Comparative advantage (land and labour) to produce surplus production and generate capital to finance industrial growth • Studies often show that growth based on agriculture makes a stronger contribution than industrial growth b/z • agriculture has greater multiplier effects • benefits from agricultural growth shared more equally

18. …. Continued KDQ • Key elements of the argument to increase support for industrial development are; • the perception that support for agriculture has not been as effective as hoped. • not clear yet whether public support for industry would experience challenges of a similar scale or nature to those experienced in the agricultural sector. • the view that industrial development will create more employment (absorb the excess labour in agriculture and also reduce urban unemployment) • others (create markets and demand for surplus supply of agricultural produces

19. …. Continued KDQ KDQ 2: Should more priority be given to smallholder farms or private commercial farms, given the context of the agriculture sector of Ethiopia? • strong M&E systems to evaluate the performance of support for both smallholders and large farms. • Policy analysis to judge based on; • The costs of support, including both the cost of delivering services and the loss of revenue arising from any tax incentives offered to investors in commercial farms • The impact of the programmes on the production of crops and livestock, implications of changes in production and prices on the exchange rate and the effect of this on consumers. • The implications of this for changes in the margins enjoyed by farmers, input suppliers and those involved in marketing produce.

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