IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Sustaining CAADP Momentum:Growth and Investment Analysis

Godfrey Bahiigwa – IFPRI/ReSAKSS

10th CAADP PP MeetingDurban, 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

IFPRI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

2006 GHI

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%All crops

Roots

Horticulture

-20 0 20 40 60 80 100 120

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)

2002

03 04 05 06 07 08 09 10 11 12 13 14 15 16 173

5

7

9

11

13

15

5.5 5.4

13.212.9

10.79.4

8.8

Historical agricultural spending

Business-as-usual projection

PNISA

Agr

ic s

hare

of b

udge

t (%

)

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)

Baseline scenario

Planned (PNISA)

Irrigation scenario

R&E scenario

Subsidies scenario

0

2

4

6

8

10

12

Input subsidiesResearch and extensionIrrigationOther agricultureFisheries and rural roads

Shar

e of

tota

l bud

get (

%)

Source: Benfica et al. (2014)

PNISA’s Impacts

Baseline PNISAAnnual 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

GDP Agriculture Industry Services0

2

4

6

8

10

12

14

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

2013 2014 2015 2016 2017 2018 2019 202020

22

24

26

28

30

32

34

36

38

40

42 National Poverty Rate

base Food crop led

Expt crop led Livestock

All ag Ag+nonag

( percent)

• 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 5.0Base 5.8 6.2Food crop-led 7.5 7.4

Export crop-led 6.5 6.4Livestock-led 6.1 6.4Agriculture 8.4 7.7Agr.+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!