modelling the poverty impacts of livestock policy change...

A Living from LivestockPro-Poor Livestock Policy Initiative

PPLPI Steering Committee MeetingFAO Headquarters, Rome27-28 June 2006

David Roland-HolstJoachim Otte &

Saule Kazybayeva

Modelling the Poverty Modelling the Poverty Impacts of Livestock Policy Impacts of Livestock Policy Change: Evidence from Change: Evidence from Vietnam and SenegalVietnam and Senegal


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Otte, Roland-Holst, & Kazybayeva2

Contents

1. Introduction2. Livestock and Rural Poor Livelihoods3. Smallholders and Food Supply4. HPAI – Challenge and Opportunity from a

Major Animal Disease Risk5. Conclusions


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Introduction

• Livestock’s potential to improve livelihoods of the rural poor depends on complex economic linkages and behavior.

• In recognition of this, a special research component of PPLPI is dedicated to elucidating the economic fundamentals of smallholder livestock production.

• The goal of this work is support more effective pro-poor policies at all levels.


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Integrated Poverty Assessment for Livestock Policy (IPALP) - Schematic Overview

CountryCountry

MethodMethod

FocusFocus

MacroMacro

MesoMeso

MicroMicro Data D

evelopment

Data D

evelopment

Static

Analysis

Static

Analysis

Policy S

imulatio

n

Policy S

imulatio

n

VietnamVietnam

SenegalSenegalPeruPeru

For each country, a toolkit and training module can be produced for capacity development.......


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2. Livestock and Rural Poor Livelihoods

• With the benefit of improved sector data and detailed microeconomic surveys, we are seeing again and again the importance of livestock to smallholder livelihoods.

• The challenge before us is to translate livestock dependence into a sustained source of income growth.

• In most of the cases examined so far, improving the terms for smallholder participation in food markets offers the best means of doing this.


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West Africa: National Livestock Dependence

Averages(27.5%, 28%)

Source: Cheik Ly, 2006OECD

GuineaLiberia

Ivory Coast

Mauritaina

Cape Verde

Mali

NigerBurkina

SenegalGuinea-BissauGambia

Sierra Leone

GhanaBenin

Togo

Nigeria

0

20

40

60

80

100

0 20 40 60 80 100 Livestock in Total GDP, 2000 (percent)

Liv

esto

ck in

Tot

al G

DP, 1

990

(per

cent

)


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Senegal: Poverty Headcounts

0

10

20

30

40

50

60

70

80

90

Kolda

Dakar

Ziguinch

orDiourb

elSan

t-Louis

Tamba

counda

Kaolac

k

Thies

Louga

Fatick

Nationa

l

LDI

Pov

erty

Hea

dcou

nt P

erce

nt

$1/day National Poverty Line

NationalAverages


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Vietnam: Poultry Income

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

.00 .20 .40 .60 .80 1.00

Cumulative Population Share

Cum

ulat

ive

Inco

me

and

Poul

try

Rev

enue

Total IncomePoultry IncomeEquality

Poultry incomeis far more equitablydistributed thantotal income !

Sample of 600/65,000 representative households, rural and urban income quintiles for each of 60 provinces. (VHLSS:2002)


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Vietnam: Pig Income

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

.00 .20 .40 .60 .80 1.00

Cumulative Population Share

Cum

ulat

ive

Inco

me

and

Pig

Rev

enue

Total IncomePig IncomeEquality


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Microeconomic Fundamentals

There are three ways to improve the balance sheets of farmers:

1. Increase output 3. Reduce Cost2. Increase price


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Vietnam: Generic Livestock PromotionAll Livestock

0

5

10

15

20

25

30

35

40

45

50

0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000

Household Income per Capita

Perc

ent C

hang

e in

Hou

seho

ld In

com

e

← Poorer Richer →

All Livestock: Simulated 7% annual productivity growth 2005-2015


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3. Smallholders and the Food Supply

• In most developing countries, the majority of rural income arises from marketing food products.

• Livestock’s contribution to this income depends on complex market supply chains extending from the farm gate to urban and even foreign households.

• Our research on these linkages indicates that the terms of this market participation are far from achieving their potential to help the rural poor.


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Wages9%

Self-employment

18%

Other11%

Marketed Agriculture

62%

Vietnam: Rural Income Sources

Source: 2002 VLSS


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Linkage Analysis with SAMs

• Multiplier analysis with Social Accounting Matrices (SAMs) offers a convenient way to examine livestock’s linkages across the economy.

• To date, we have developed five SAMs for Vietnam and three for Senegal, working with different aggregations to look at a variety of income-expenditure linkages.


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Multiplier Linkages to HouseholdsVietnam (Vn) and Senegal (Sn) Compared

Because of their more diverse linkages to the economy, higher income groups generally enjoy larger multiplier effects.

VnPoultryVnPigVnCattleVnOthLvstkSnLvstk

0

5

10

15

20

25

30

35

40

HRur01 HRur02 HRur03 HRur04 HRur05 HUrb01 HUrb02 HUrb03 HUrb04 HUrb05

Hou

sedh

old

Inco

me

Mul

tiplie

rsPe

rcen

t of V

alue

from

New

Liv

esto

ck D

eman

d


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0

5

10

15

20

25

30

35

40


Rel

ativ

e an

d Ab

solu

te In

com

e E

ffect

s (p

erce

nt)

Relative Absolute

but livestock income is more important to Senegal’s rural poor.

More livestock income goes to higher income groups,

Senegal: Income Effects from Livestock


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Policy Simulation

• Using simulation models, we can assess a wide variety of policies ex ante.

• Because we develop these models with consistent macro-micro datasets, we can evaluate economywide linkages and detailed incidence such as poverty alleviation.

• Here we look at two generic kinds of scenarios:• Policies targeted to improve livestock production• Policies to improve market access


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Simulations of Producer Support and Trade Liberalization: Senegal

-5

0

5

10

15

20

25

30

35

40

45


Per

cent

Cha

nge

in A

nnua

l Inc

ome

Higher income groups capture most of the gains from generalist policies.

Three Generic Scenarios:

Prod – Doubling of livestock productivity

KSub – 20% capital subsidy to livestock sector

TLib – Unilateral trade liberalization

Pro-poor policies need targeting.


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4. HPAI – Challenge and Opportunity from a Major Animal Disease Risk

• Pathogens associated with livestock pose a challenge to public health and economic security at the national and global levels.

• A dramatic recent example of this is Highly Pathogenic Avian Influenza, which has potentially momentous consequences for human society.

• Smallholder livestock producers can be seriously threatened by conventional measures to fight diseases like this.

• On the contrary, we believe disease risk management can be an opportunity to improve their circumstances.


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Risk Management from a Development Perspective

• HPAI presents an unusual opportunity for international cooperation because poor rural households can contribute the global commons of disease prevention.

• Their participation in this effort is unlikely to be voluntary, and indeed should be rewarded if success is to be achieved.

• To make such policies effective, economic analysis of incentives and localized design and implementation are needed.


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Percent5

101520253035404550556065707580859095

100

HH Farm Ent. Farm Poultry Ind. Food Process

ExportU

rban HH

Rural H

H

Production Processing Distribution Demand

What Can go Wrong: Resource Flows in the Poultry Sector

Thailand VietnamPercent

5101520253035404550556065707580859095

100

Urb H

HR

ural HH


Control Points


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Control and Displacement

Percent5

101520253035404550556065707580859095

100


Urb H

HR

ural HH

Percent5

101520253035404550556065707580859095

100

HH Farm Ent. Farm Poultry Ind. Food Process


ExportU

rban HH

Rural H

H

There are significant risks that control strategies could permanently displace small producers. This could adversely impact local food security, poverty, and inequality.

Thailand Vietnam


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Vietnam:Household Income Effects of a 50% Cull

-35

-30

-25

-20

-15

-10

-5

0

5

.00 .10 .20 .30 .40 .50 .60 .70 .80 .90 1.00

Cumulative Share of National Income

Perc

ent C

hang

e in

Hou

seho

ld In

com

e

Poorer Richer


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Reducing HPAI Risks while Safeguarding Livelihoods• If policy makers want to reduce HPAI risks to

animal and human populations, without undue adverse effects on the poor, they need cost-effective means to identify local outbreaks and contain them.

• The information needed to accomplish this exists, but it has until now been very difficult to obtain and implement.

• Evidence suggests that local communities are well aware of infection patterns, but reporting processes are plagued by inefficiency and incentive problems.


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Socially Effective Risk Management

Recognizing economic realities in livestock production and livelihoods, we propose a three part program to manage animal disease risk:

• Surveillance• Control• Traceability


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SurveillanceWe are beginning research to examine alternative

policy designs that facilitate early detection of outbreaks.

• Effective surveillance combines • incentives for collective responsibility and self-reporting• takes account of resource constraints of different

communitiesto develop mechanisms that • reduce health risk • protect economic survival of the producers.


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Control• Cost effective decentralization of control capacity

is essential to the long-term success of disease management.

• In the HPAI epicenter countries, this will require new command and incentive relationships between district and provincial authorities, the central government, and outside stakeholders (NGOs, aid agencies, etc.).

• Regional participation and coordination are necessary for sustained risk reduction.


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TraceabilityDefined:• An important class of strategies are

mechanisms to trace the movement of agricultural products through the food supply chain.

• Traceability has value for government, consumers, and producers, reducing health risk while increasing the effectiveness of demand targeting and raising value-added by origin.


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Traceability: Advantages for Stakeholders

Government - Testing moves downstream to reduce search costs (funneling), from extensive to intensive screening, reducing scope of surveillance systems.

• Accountability: Increased risk for noncompliance.• Rapid Identification: Reduced scope and time for disease

incubation, lowering mutagenic risk.• Lower Control Cost: More effectively targeted culling.Consumers• Food and disease risk reduction• Quality improvement• Product differentiation


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Traceability: Producer Advantages

• Market access/value chain participation• Technology transfer• Extension services • Network externalities (CE, marketing

boards, producer coops)


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Traceability: Producer Behavior

Incentive Effects:• Certification/branding and quality incentives (e.g.

French AOC wine, coffee)• Brands are collateralizable assets• Bargaining power Program Implications:• Voluntary participation for value chain entry• Experiment with membership fees to finance SPS

infrastructure


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Market Flow: Resources and IncomeSupply Chain – Resource Flow

Incentives:Quality

Technology Transfer

Behavior:Market ParticipationRisk Management

Producers

Value Chain – Income Flow

Consumers

Distributors

Processors

Distributors

Retailers

Traceability


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.0

.5

1.0

1.5

Unla

bele

d

Labe

led

Unla

bele

d

Labe

led

Unla

bele

d

Labe

led

Unla

bele

d

Labe

led

Unla

bele

d

Labe

led

Farmer Distributor Processor Distributor Retailer

Poul

try V

alue

Poultry Value Chain

Initial Price

Upgrade Price


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5. Conclusions• Livestock can make a substantial

contribution to poverty reduction, but pro-poor policies need targeting

• Effective, market oriented livestock promotion has significant potential to• Increase output quantity, quality, and prices• Reduce cost with improved distribution

technology


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Conclusions - HPAI• Policies toward HPAI and other significant animal

diseases in developing countries necessarily implicate the rural poor majority.

• These people need to be recognized as part of the solution to reducing disease risk, not the problem.

• Despite the global momentum for rapid and intensive measures to control poultry stocks and restructure management practices, socially effective policies must address the economic and institutional realties poor rural majority populations.


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HPAI 2• Because of diverse initial conditions, national

policies cannot be decentralized effectively without close attention to local incentives. One size will not fit all local conditions.

• Driving the problem underground can increase contagion risk and more seriously disrupt rural markets/livelihoods.

• Well designed monitoring and traceability systems can improve the terms of market access for the rural poor, making them better off as a result of risk reduction policies.


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DISCUSSIONDISCUSSION

modelling the poverty impacts of livestock policy change...

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