ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

1

Emerging Demand for Tractor Mechanization in Ethiopia

Guush BerhaneIFPRI/Ethiopia Strategy Support Program

Mechanization and Agricultural Transformation in Asia and AfricaSharing Development Experiences

June 18-19, 2014 Beijing, China

Outline of presentation

1) MotivationToo much focus on low-potential, densely-populated,

fragmented-land storyThe ‘three Ethiopia’ and what we don’t know so far

2) Recent developments and land potential in Ethiopia: major investments in road (& soon railway!) connectivity.3) Case study: the conditions for mechanization and emerging trends - consistent? 4) Recent public and private experimentations on mechanization.

4) Challenges for mechanization and way forward.

Motivation

Is the evidence consistent with the conditions for mechanization?1) Mechanization determined by Land-labor ratio (the demand for labor from non-

agricultural sectors) Demand for agricultural products,

when labor is abundant and land is small and fragmented, mechanization is not profitable (Binswanger, 1986).

2) Mechanization will contribute little to growth in densely populated countries where land constraints are binding (labor is abundant relative to labor) and labor is not moving out from agriculture – it will only inefficiently substitute labor or animals.

3) Mechanization is unlikely to be derived by wage increases in countries with high proportion of its population living in agriculture even if the rest of the economy grows faster.

Is the pessimism in recent literature about land potentials, commercialization, and mechanization real?

1) Portraying relatively land abundant African countries (e.g., Ethiopia) as land constrained, swamped with population pressures of “disturbing scenarios of Malthusian proportions”- Focus on selected drought-prone, densely populated areas and

ignore the bigger (national) picture – the ‘three Ethiopia’

- Neglect huge land resources and irrigation potentials.

- Misleading conclusions (policy makers, donors, and some of us researchers).

2) The same literature (in fact, same people) challenge commercial mechanized farming, romanticizing it as ‘land grabbing’, ‘elite capture’, ‘the new neo- colonialism’, etc.

What you find and don’t find in the literature

about Ethiopia

Ethiopia: basicsLandmass of 1.14 million

square KM.Land-locked but very close

to the sea, middle east and European markets; and importantly, one of the gates to Africa!

Complex agro-ecology: Elevated central plateau

(1000 – 3000 masl, often pleasant climate throughout the year –average temp between 18 – 25 degree C;

Largely unutilized lowlands (both wet and dry)

Beautiful mountain terrains but rendering efforts to provide access to markets and services difficult.

Agriculture - main stay of the economy

• Provide 80% of employment, 80% of foreign exchange, and 40% of GDP

• About 14.7 million farm households, • Crop production: 13.5 million ha• Grazing land: 2million ha• Average land holding per household : 1.25 ha• Agriculture production is mainly rainfed. • Two rainy seasons (June – September (Meher season) and

February – May (Belg season)• Substantial irrigation potential but realized is limited,

(12 major river basins, ground water resources, and fresh water lakes)

The central highlands the most densely populated but still few areas > 300 persons per square km. Close to 50% of the

country’s poor people live in these food deficit, central highland areas

The central highlands, densely populated and mostly food deficit areas are the most researched parts of ‘Ethiopia’ that most people know:

Vast sparsely populated areas

1) Moisture deficit zone. Covers 32% of land, 47% of population, and 39% of permanent

crop output. Rainfall is generally below 600 mm/year2) High rainfall zone. Covers 24% of land, 43% of population, and 51% of permanent

crop output. Rainfall tends to exceed 800 mm/year. 3) The lowland zones. Covers 44% of land but 10% of population, and currently

produces only 10% of crop output. Further classified as the pastoralist (eastern and south

eastern parts) lowlands and the high potential western lowlands

Rainfall is lower than 600 mm/year in the pastoralist eastern lowlands.

Ethiopia is more than the food deficit, densely populated, highlands

More than 50% of food produced in food surplus areas

(where food availability per household is 70% higher than the national average)

See also rainfall distribution map

There is, at least, ‘three’ Ethiopia in terms of production potential …

56 million hectares of arable land (potential) not cultivated yet. Is the pessimism justified?

Land potential and cultivatedArea

(millions, ha)Share

of arable landTotal land 111.5 - Arable land 74.3 100% Under cultivation 18.0 24%

Irrigable (potential) 3.7 -

Already under irrigation 0.16 -

Available for commercial farms (% total & arable land) 3.0 4%

Source: Ministry of Agriculture, 2013

How accessible is this land? Why has not been used so far?

Cultivated (24% of arable)

Sparsely populated, high potential, western lowlands, recently targeted for large commercial farms

Recent irrigation schemes

Recent Critical Investments: Game

Changers?

1. Road connectivity: 1984

1. Road connectivity: 1994

1. Road connectivity: 2007 (old data)

SOURCE: IWMI (2010)

2. Ground Water Potential

Recently identified, new irrigation structures

Recent private sector led mechanized agriculture: sesame, cotton, etc

Are the conditions for mechanization in place & is the

evidence consistent?

1. Agriculture role declining but still substantial

2004/05 2005/06 2006/7 2007/8 2008/9 2009/10 2010/11343638404244464850

Share of Agriculture to GDP overtaken by services Sector

Agriculture Service Source: MoFED, 2012

2. Declining share of (projected) rural population but likely to stay high

1994 2007 2012 2017 2022 2027 2032 20370

10

20

30

40

50

60

70

80

90

10086.31 83.82

79.674.6

68.9

Rural population

Per c

ent

Source: CSA, 2014

3. Landholdings: average 1.25 ha/farm (AGP data)

upto 1 1.0 - 2.0 2.0 - 5.0 5.0 -10.0 above 100.05.0

10.015.020.025.030.035.040.045.050.0

44.3

30.5

20.3

3.3 1.5

Land size (ha)

% o

f hou

seho

lds

Case studyTractor Mechanization the evidence from a recent trip to

the field

The ‘Ethiopia’ you probably have never heard of!

Growing demand for mechanization in ‘relatively’ land abundant regions

Recent evidence of mechanization even from national datasets that sample small farms – evidence that there are around 12,000 tractors in the country

Small tractor Hand-held motorized

tiller

Motorized water pump

Improved oxen driven plough

0

1000

2000

3000

4000

5000

6000

698 700 741

5479N

umbe

r of h

ouse

hold

s

Evidence that mechanization completely substitutes labor or animal power may not be tenable. Animal traction is combined with tractors.

Evidence that mechanization is not an “either” “or” process. Both small and large farmers can mechanize if rental markets are allowed to flourish

Why combined use of technologies?Small farmers (< 10 ha), tractor is used when the rains

are late and land is dry and hard at first-plowing (Tractor renting is relatively expensive at $ 65/ha only for plowing)

Medium farmers (10 - 20 ha) that own tractors also own oxen, or else hire-in oxen for second-plowing, harrowing, and labelling. The thriving tractor renting-out markets make opportunity cost of tractors use for own farms high (sometimes even for the large farmer).

Large farmers (> 15 ha), owning tractors, rent-in and operate large farms (up to 100 ha and beyond) are fully mechanized.

This farmer has 10 ha of land, a tractor, co-owned with his neighbor, and 3 pairs of oxen.

Farmers believe that oxen plowing is more effective to take out weeds and has peculiar advantages to smooth the soil.

But, also tractor is used

for harrowing and labelling during planting (often with large scale operations).

Proudly in the field – touching base of realities

Why combined use of technologies?

Consistent with what has been observed in other countries (e.g., China), both tractors and tractor derivers move across districts.

Small tractors

covering large areas – making tractor (and driver) rents high!

The research team with the proud model farmer, his son & a DA

2002: He started small, first renting-in tractors for his 20 ha plus;

2004: bought an old tractor and started to expand by renting-in land; and renting-out the tractor;

2008: bought brand new tractor (USD 25, 000, now, valued at USD 70,000).

2012: bought combine harvester (USD 125,000), plans to buy one more!

Now: operates > 100,000 ha land; owns 3 big trucks, house in town, floor mills, 5 pairs of oxen etc…

Mechanization seem to have increased use of chemical fertilizers, improved seeds, and productivity

Yield: wheat up to 5 tones/ha (1.6 tones/ha); Barely up to 3 tones/ha (1.4 tones/ha);

Fertilizer and improved seeds applied;

USD 50,000 total annual gross revenue (crop sales, renting, etc);

As a result, harvester pays back in 7-10 years

If the rental market functions properly, land size does not matter whether or not mechanization follows large or small power machines

A number of experimentations

going on in Ethiopia recently

1. Public Sector: Adama Agricultural Machinery Industry – power tiller & tractors from china

Very recent efforts to introduce power-tillers (imported from China)

1. Public Sector: Adama Agricultural Machinery Industry – water pumps

2. Private Sector: some private importers/dealers mainly serving investors

A number of private importers and dealers already in business

They supply tractors and other machines to state (sugar) farms, unions, commercial investors,

They are not allowed to import and stock them at their sale points; rather they are dealers of specific manufacturers and import on behalf the investors

A 35% duty is levied for all those that do not have the investment license, including small farmers.

Recently, importers are allowed to stock tractor imports at bonded warehouses for 3 months; otherwise, sell at the 35% tax.

Importation process takes 4-6 months

The key messages1) Contrary to recent literature pointing to Boserupian, or even

Malthusian proportions, enormous land potential (potential to increase national food supply); Intensification and other income increasing strategies in the highlands

(high value fruits); Mechanization key instrument in this process (increases in fertilizer,

improved seed, yield)Emerging demand for mechanization (not just tractors: planters,

harvesters, threshers) Policy support during this incubation period critical

2) Is the pessimism in recent literature about land potentials, commercialization, and mechanization then real?

NO! Key potentials and endowments are not taken into account; There is no problem with being pessimist. The problem is conclusions derived from those analyses neglecting important information (simplistic assumptions) can be misleading.

The key messages

2) Is the evidence consistent with the conditions for mechanization?

Not all. Also some new conditions.- Climate change – rainfall has become more variable – planting &

harvesting unpredictable and time constrained- Maintaining oxen has become very expensive (like Bullocks in

India), but at the same time mechanization has come with more animal feed (straw).

- Wages risen, labor became more scarce (% terms), seasonal, (reason: schooling, massive infrastructure construction; migration in & outside of the country);

- Increased demand for food (agriculture becomes profitable)

Although, too early to claim that mechanization has taken off in Ethiopia, there is certainly a clear evidence of demand for mechanization, regardless of farm size. Rural population is declining, share of agriculture to GDP has declined and wages have risen recently, but not to the level of deriving mechanization. On the other hand, as in Bangladesh and other places, emerging demand for mechanization in the face of declining land holdings.

• Policy levelPotential heavy gov’t involvement at different levels:

strategic focus on promoting public sector import of tractors et al, which may undermine potential private players (technology choices!);

Tractor import policy also complicated by foreign exchange rationing and strategic public interests in this sector;

Tractor import is limited to those that are licensed commercial farms and completely prevents small farmers that are unlikely to get these licenses.

A new strategy is being designed – hopefully will address these issues

Challenges for mechanization in Ethiopia

• Financing of mechanization Limited access to loans and collateral required by banks

limits smallholder (or even large holder) mechanization;No insurance for large scale farmers, risk may limit

expansion;

• TechnicalLimited local technical skills & maintenance capacities Limited technical capacities to adapt machines to local

conditions (limited knowledge of local context).Farmers limited knowledge and opportunities to exploit

additional benefits of tractors or power tillers (young farmers emerging recently!)

Challenges for mechanization in Ethiopia

Thank you