Sustaining CAADP Momentum: Growth and Investment Analysis

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Information about Sustaining CAADP Momentum: Growth and Investment Analysis

Published on April 3, 2014

Author: resakss



"Sustaining CAADP Momentum: Growth and Investment Analysis" presented by Godfrey Bahiigwa at 10th CAADP PP Meeting Durban, South Africa March 19-21, 2014

IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Sustaining CAADP Momentum: Growth and Investment Analysis Godfrey Bahiigwa – IFPRI/ReSAKSS 10th CAADP PP Meeting Durban, South Africa March 19-21, 2014

Where is Africa’s agriculture with CAADP@10?  Africa’s agriculture has been growing. In the last decade, SSA agriculture grew by 3.4% while population grew by 2.5% => rising per capita production  The amount of PAE for Africa as a whole increased from about $0.39 billion on average per country in 2003 to $0.66 billion on average in 2010, representing an average increase of 7.4 percent per year  However, only 13 countries have surpassed the target in any only 7 have surpassed it in more than one year  The GHI of 2013 indicated that only 2 countries experience extreme hunger, compared to seven in 2006


2013 GHI

IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Agricultural Growth, Public Investment and Poverty Reduction in Mozambique

Drivers of Agricultural Growth, 2002-12  Agriculture is still a key sector for growth in Mozambique » Total GDP grew at 7% per year and agriculture accounted for 16% of this expansion.  Roots and cereals are the main crops » But their GDP grew at only 1.9% and 0.8% per year, respectively » Their share of agricultural GDP halved in ten years  Agricultural growth was mainly driven by horticulture » Grew at 12.4% per year (mainly bananas, pineapples, onions, tomatoes) » Horticulture accounted for 71% of all agricultural growth » Horticulture’s share of agricultural GDP doubled over ten years

Decomposing Crop Growth, 2002-12  Reallocating land from low-value cereals and roots to high-value horticulture was the main source of crop growth (64%) » General land expansion accounted for 32% » Land productivity gains accounted for only 4% -20 0 20 40 60 80 100 120 All crops Cereals Roots Pulses and oilseeds Horticulture Traditional cash crops Contribution to crop GDP growth (%-point) Land expansion Land reallocation Land productivity Source: Benfica et al. (2014)

Summary of Growth Trends  Positive trends » Evidence of structural transformation during the 2000s as land resources were reallocated towards higher-value crops » This was driven by foreign investors (bananas) and local businesses (tomatoes), and so public policy may be more important than public investments in supporting further horticultural growth  Less-positive trends » Continued reliance on land expansion rather than productivity gains » Weak performance of major food crops (i.e., cereals and roots), which is probably holding back national poverty reduction » Stronger role for public investment in food crops

Public Agricultural Spending  Agriculture’s spending share has remained fairly constant » At about 5.5% of the total budget during 2002-2012  There is a new, ambitious investment plan (called PNISA) » Doubles agriculture’s share to an average 11% during 2013-2017 Source: World Bank (2011) and Benfica et al. (2014) 5.5 5.4 13.2 12.9 10.7 9.4 8.8 3 8 13 18 2002 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Agricshareofbudget(%) Historical agricultural spending Business-as-usual projection PNISA

PNISA’s Spending Portfolio  Large increase over historical spending » US$3.8 billion over five years (half of this is new spending) » US$43 per rural inhabitant (i.e., about 7% of GDP per capita in 2012)  PNISA diversifies historical spending patterns » Focus on irrigation, R&E and input subsidies 31% 31% 9% 10% 19% PNISA spending portfolio Irrigation R&E Subsidies Other MINAG Fisheries & roads Source: Benfica et al. (2014)

Evaluating PNISA  Benfica et al. (2014) estimate the impact of PNISA spending on agricultural growth and poverty reduction  Ask two main questions: » Is increasing in agricultural spending under PNISA enough to achieve growth and poverty goals? » Can outcomes be improved by altering the investment portfolio?

Returns on Investments  Results indicate that Mozambique generates low returns on its investments compared to other countries » Using irrigation raises crop revenues by 8.6%, compared to 73% in Mali (Dillion 2011) » Receiving a visit by an extension agent raises crop revenues by 26%, compared to 67% in Uganda (Benin et al. 2011)  Unit costs are also quite high in Mozambique: » Irrigation: US$2,287 per hectare » R&E: US$231 per farmer » Subsidies: US$268 per farmer (based on Malawi’s FISP costs)

Investment Scenarios, 2013-17  Five scenarios: » Baseline maintains recent growth and spending trends » Planned scenario implements PNISA (both scale and composition) » Others scenarios reprioritize PNISA (e.g., more irrigation) 0 2 4 6 8 10 12 Baseline scenario Planned (PNISA) Irrigation scenario R&E scenario Subsidies scenario Shareoftotalbudget(%) Input subsidies Research and extension Irrigation Other agriculture Fisheries and rural roads Source: Benfica et al. (2014)

PNISA’s Impacts Baseline PNISA Annual spending per farm household $72.8 $153.4 GDP growth rate 6.5% 7.4% Agricultural growth rate 4.5% 7.3% Poverty rate in 2017 44.5% 41.0% Increase in total GDP per dollar spent (BCR) $1.07 People lifted above pov. line per $1000 spent 1.7 Doubles public agricultural spending Achieves CAADP growth target Small positive return on investment Doesn’t target poor, but reduces poverty

Reprioritizing PNISA  Spending on R&E is the main driver of poverty reduction » But irrigation and subsidies are better investments for accelerating agricultural growth  Farm input subsidies provide a more immediate return on investment compared to irrigation or R&E » Subsidies may an option for short-term growth and poverty reduction  Irrigation mainly benefits the South of Mozambique, whereas R&E is better at reaching the lagging North and Center

Conclusions (1)  Mozambique did not achieve CAADP’s growth and spending targets during 2002-12 » 4.5% agricultural growth, and 5.5% agric. Budget share  But there are both positive trends and some causes for concern in the country’s recent performance » Evidence of a positive shift towards higher-value horticulture (mainly driven by the private sector) » Slow food crop growth makes rural poverty reduction difficult (stronger role for public investment?) » Government unveiled a new large-scale agricultural investment program

Conclusions (2)  Mozambique achieves quite low returns on its public investments compared to other African countries  PNISA doubles rural per capita public spending » Overcomes low returns and exceeds CAADP 6% agric. growth target » Significantly reduces poverty by promoting food staples  It will be challenging to fund such a large investment program » Will require an additional US$1.8 billion over five years  Government can scale back PNISA while still achieving its goals » Reprioritize away irrigation, which is a third of PNISA spending » Focus on raising the returns to public investments

IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Agricultural Growth, Public Investment and Poverty Reduction in Rwanda

Agricultural growth  Rwanda has experienced the most rapid agricultural growth » 5.2% per year from 1999-2012 » 5.7 % per year from 2006-2012  Such growth led to rapid reduction in poverty » Between 2005/6 and 2010/11 real per capita income has increased by  40% for the poorest 20% of households  20 % for the second and third quintiles  Less than 20 for the fourth quintile

Drivers of Agricultural Growth  Agricultural growth driven mainly by the food crops subsector Subsectors Growth rates Food crops 6.2 Export crops 2.9 Livestock 3.3 Others 3.0

Evaluating PSTA III  Rwanda’s PSTA III has an agricultural growth target of 8.5% percent per year  What subsectors in agriculture will help Rwanda achieve this growth target?  What will be the impact on growth and poverty reduction?  What level of public investment is required to achieve such growth target?

Annual GDP and sector GDP growth rates 0 2 4 6 8 10 12 14 GDP Agriculture Industry Services Base Food crop led Expt crop led Livestock led All agriculture All Sectors GDP target (Vision 2020) Ag. GDP target (PSTA III) • Rwanda can achieve the 6% CAADP target with additional TFP growth rate in any or all of the subsectors • However, the growth gap between the national growth target 8.5 and base-run is only narrowed by additional TFP growth in food crops or in all the subsectors • Combined growth scenario will help to achieve national growth target

Poverty Reduction 20 22 24 26 28 30 32 34 36 38 40 42 2013 2014 2015 2016 2017 2018 2019 2020 ( percent) National Poverty Rate base Food crop led Expt crop led Livestock All ag Ag+nonag • Under the current trend, Rwanda cannot achieve the MDG goal by 2015, rather by 2020 • But if it follows combined growth scenario, it will achieve the MDG goal (30%) by 2017 • Increasing productivity in agriculture alone reduce poverty rate to 26.5% by 2020

Required Public Expenditure in agriculture Scenarios AgGDP growth rate Share of required agr. spending in total government spending (2020) Initial level 5.7 5.0 Base 5.8 6.2 Food crop-led 7.5 7.4 Export crop-led 6.5 6.4 Livestock-led 6.1 6.4 Agriculture 8.4 7.7 Agr.+nonagr. 8.5 6.6 • To achieve the 8.5% agricultural growth, Rwanda needs to allocate 6.6% of its budget to agriculture, which is higher than the historical trend (5%) but lower than the 10% CAADP target

Thank You!

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