1. FOOD SECURITY
WITHOUT FOOD
TRANSFERS?
A CGE ANALYSIS OF ALTERNATIVE
POLICIES TO TACKLE FOOD
INSECURITY IN ETHIOPIA
A. Stefano Caria DRMFSS (MoARD), Seneshaw Tamru
IFPRI/EDRI
and Gerawork Bizuneh IFPRI/EDRI
2. Introduction
2
Food Security in Ethiopia
Persistent availability problem
1960-2001: per capita food availability always significantly below
requirement (Demeke et al, 2004)
High number of people with insecure access
Number of estimated food transfer beneficiaries trending
upwards (Demeke et al, 2004)
Numerous utilization issues
Acute watery diarrhoea (AWD), malnutrition, child wasting and
stunting prevalent
3. How to Tackle Access and
Availability? Subsidies or
3
Transfers?
Productivity Increament through fertilizer
subsidy
Lower cost of inputs- benefits farmers
Higher production: availability
Lower prices -for consumers: access
Food transfers based on local procurement
Transfers used to address access
Higher prices benefit farmers
Stimulate more production: availability
4. Why Interest in Transfers from
4
Local Procurement and Subsidies?
Transfers effective in raising food consumption, but
incomplete “additionality” (Dorosh & Del Ninno, 2002)
Fertilizer subsidies have proved effective in the
past:
Malawi experience: higher application rates and yields
(Gilbert et al, 2009)
Role in Green Revolution in Asia (Demeke, 2004)
In Ethiopia, given declining soil fertility and land
availability constraints, food production growth has to
happen at the intensive margin (increasing land
productivity)
But high cost of inputs
5. The Ethiopian Fertilizer Market
5
Before 1993: Govt Monopoly
93-00: significant private sector participation
2000-present Regional Holdings first and later
Cooperative Unions dominate the market
140.00
120.00
1993: 15% subsidy 100.00
1995: 30% subsidy
Kg /ha
80.00
1996: 20% subsidy 60.00
40.00
20.00
February 1997: Subsidy Removed
0.00
Marked fall in fertilizer
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
application rates
Cereals All crops
6. The Simulations
6
IFPRI standard static CGE model
EDRI 2005 SAM
17 sectors
Separate accounts for teff, wheat, maize, non traded agriculture & fertilizer
No regional disaggregation
Factors closures…
Labour is not fully employed and is mobile across sectors
Land is fully employed and mobile
Capital is fully employed and activity specific
Marginal propensity to save is fixed; investment adjusts
Tax rate fixed, government savings adjusts
Foreign savings fixed, exchange rate is flexible
DPI is numeraire (CPI flexible)
7. Fertilizer Subsidy, Transfers from
7
Local Procurement… and both
FERT:
50% decrease in fertilizer price through a subsidy on imported fertilizer
A realistic fertilizer demand response to fertilizer subsidy
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Used a micro simulation model based on empirically estimated yield functions
to quantify the likely effects of additional fertilizer application on national yields
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LOCAL: ������ ������ ������
No subsidy on fertilizer and No change in food aid wheat imports
Increase in wheat transfers to rural poor through local procurement
We also assume wheat transfers have a 0.25 MPC
10kg transfer increases counterfactual HH consumption by 2.5 kg
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FERTL:
50% decrease in fertilizer price as in FERT
Some food aid wheat imports replaced by local procurement
same level of local procurement as in LOCAL
8. Micro simulation model- based on empirically
estimated yield functions
To quantify the likely effects of additional
fertilizer application on national yields
Four steps:
First, we measure the increase in fertilizer application
rate.
Second, we allocate the additional fertilizer consumed
to enumeration areas (EAs) - simple sharing rule.
Third, we use the yield function estimated in
Asrat, Bizunesh, and Seyoum Taffesse (2010) to predict
yields for every EA with the old and new fertilizer
quantities.
Fourth, we compare average predicted yields across
EAs with the old and new fertilizer quantities, calculating
9. Partial Eq Cost of the subsidy and
a transfer of the same cost to the
9
gov’t
The Partial Eq cost of the subsidy to the
government is: ������������������������ ∗ ������������������������������������ ∗ ������������������ ∗ ������������������������������������
������������������
pwm - World price 0.729
tm- Subsidy 0.707
EXR1- Exchange rate post-subsidy 1.019
QM1- Fertilizer demand post-subsidy 2.230
Total cost of subsidy 1.171
The subsidy will cost 1.171 billion birr. 1.061 billion birr
of wheat can be transferred for the same cost:
Total cost of wheat transfer 1.171
Total logistic costs 0.110
Total amount transferred (value) 1.061
11. Cereal Production & Supply:
11
Availability of Food
% Change in Domestic Subsidies (FERT +
Production FERTL) cause
40.0 higher production
35.0 and supply gains for
30.0
all cereals
25.0
20.0 FERTL increases
15.0 domestic production
10.0 of wheat further
5.0
0.0
Food transfers
Teff Wheat Maize (LOCAL) affect
FERT FERTL LOCAL production and
supply of wheat only
12. Income Effects: Purchasing
12
Power
HH Income: % Change From Fertilizer subsidy
Baseline (FERT + FERTL)
6.00
raises income of
all HHs
5.00
4.00
3.00
Wheat transfers
2.00
(LOCAL) deliver
highest income
1.00
gains for rural
0.00
poor
Rural Poor Urban Poor
But small-no
FERT FERTL LOCAL
gains for other
13. Cereal Consumption of the Rural
13
Poor: Access
25 Fert subsidies (FERT
FERT FERTL LOCAL and FERTL) increase
20
consumption of all
cereals
Lower prices and higher
15 incomes contribute to
access
Food transfers
10
(LOCAL) increase
wheat consumption
5 only
Transfers and small
income effect increase
0 access
Teff Wheat Maize NT ag Higher cereal prices
tend to lower access
14. [1] This is calculated as the ratio of absolute change in GDP over absolute change in government savings.
General Equilibrium Effects
14
Same partial eq cost for all simulations, but in general eq
revenue and expenditure (ie govt net revenue) change
Fertilizer subsidy (FERT + FERTL) income effect has positive
effect on govt tax revenue
Subsidy with local procurement most cost-effective at delivering
GDP growth
% Change in real % Change in gov savings DGDP/ GE costs
GDP (GE cost)
FERT 1.9 -19.2 2.27
FERTL 2.6 -19.9 3.03
LOCAL 0.3 -22.6 0.30
15. Conclusions
15
Subsidy with Local Procurement has a
strong Food Security Response
Fertilizer subsidy with local procurement (FERTL)
delivers:
The best domestic production and supply (availability)
response for all cereals
Large household consumption (access) response for all cereals
Smaller loss in government net revenue
Locally procured transfers (LOCAL)…
Generate little general supply response compared to fertilizer
subsidy
Large consumption response (access), especially wheat
Harm food consumption of other groups; mis-targeted food
16. Productivity increament is effective
16
in tackling Chronic Food Insecurity
Ranking of policies in terms of cereal consumption
of the rural poor (access) depends on our
assumptions on productivity & MPC:
If high productivity & low MPC, fertilizer subsidies
to be preferred for improving access to food of rural
poor
Ranking in terms of cereal supply (availability) is
more robust to different productivity and MPC
assumptions
High agricultural productivity growth, coupled
with local procurement, delivers an effective
17. Conclusion…
17
However, Policies focusing on one dimension of
the yield function alone, such as fertilizer
subsidy, are unlikely to deliver the necessary
improvement in yields.
Food transfers may still be the most effective
short-to mid-term answer to food access
insecurity when high return agricultural
productivity policies are not available.