ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Cities and agricultural transformation in Ethiopia

Joachim Vandercasteelen, Seneshaw Tamru, Bart Minten and Johan Swinnen

IFPRI ESSP

EEA, July 21st, 2011Addis Ababa, Ethiopia

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1. Introduction

• Agricultural transformation in Africa deemed important but progress has been slow

• Several hypotheses explaining agricultural transformation:1. Boserup-hypothesis

2. Induced innovation theorem

3. Market driven intensification

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1. Introduction • Urbanization important new factor

Cities of more than 300,000 people 1975 2000 2025

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1. Introduction

• Some numbers:- People living in cities in Sub-Saharan Africa increased by 160%

between 1990-2014- Urban population in Africa expected to triple by 2050 (1.3 billion

people)

• Urbanization important economic impacts, associated with structural transformation

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1. Introduction • Important effects on agriculture and food markets:1. Urban residents often do not grow own food2. Urban residents have different diets3. Urban residents richer and willing to pay more for food

• Most of the literature focused on changes in crops or off-farm employment

• Relatively little evidence on impacts on staple crops

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1. Introduction

• Look at the case of Ethiopia and at teff• Question: “How does proximity to urban centers affect farmers’

agricultural production environment and practices?”• Important changes in Ethiopia in this area

1996/1997 2010/2011

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1. Introduction

• Urbanization: 3.7% to 14% between 1984 and 2007

• One quarter of the urban population living in Addis

• In 2012: 17% in cities

• Projections urban population:- 5.4% annual growth- Urban population to increase from 15.2 in 2012 to 42.3 million in 2034- In 2028: 30% of population in cities

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2. Background on teff

• 23% of total grain area• Most important crop in value terms in the country (2.5 billion USD in

2013/14)• Most important cash crop in the country (750 million USD) • Teff more readily eaten by urban consumers• High income elasticities• Rapid growth of cities and income growth leading to increasing

demand for teff

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3. Methodology • Stratified random sample in 2012

• 1,200 farmers in five major teff production zones.

• Urban proximity main independent variable; two components: Cost of transporting teff:

1/ From the farm to the market center2/ From the market center to the Addis wholesale market (by truck)

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4. Non-parametric regressions - Advantage: No functional form specified in advance

- Local polynomial smoothing estimates

- Do for three major outcomes:1. Prices2. Input3. Intensification

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4. Non-parametric regressions - prices

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4. Non-parametric regressions – use of inputs

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4. Non-parametric regressions – intensification

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5. Multi-variate regression• Strong effect of urban proximity on:- Prices- Use of inputs - Measures of intensification (land and labor productivity)- Profits

• No strong effects of population pressure; smaller farms not associated with higher farm incomes per hectare

• We find overall a strong direct effect (not only through prices)

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6. Explaining the direct effect• Channel 1: Transaction costs

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6. Explaining the direct effect• Channel 2: Monetization of production factors

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6. Explaining the direct effect• Channel 3: Access to information and knowledge

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7. Conclusions • Link of urban areas with rural hinterland not well understood

• Study agricultural linkages in the case of Ethiopia, where larger share of the rural population “connected” to a city

• Strong positive effect of urban proximity on:- Output prices but also on wages and land rental rates

- Input and factor market use

- Labor and land productivity

- Profitability

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7. Conclusions

• Important effect of prices (“indirect effect”)

• However, other effects matter significantly as well (transaction costs, knowledge, information) (called “direct effect”)

• Beneficial effect of urbanization on intensification by rural producers of staple crops

• In contrast to rural population increases (population density increases)

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7. Conclusions

• Implications:

1. Ensure appropriate infrastructure and low transportation costs

2. Ensure that cities can grow

3. Ensure that appropriate inputs and knowledge are available