ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

The impact of increased teff production on Ethiopia’s economy

Ermias Engeda, IFPRI ESSP-II / EDRITodd Benson, IFPRI, Washington, DC

Conference on “Improved evidence towards better policies for the teff value chain”10 October 2013Addis Ababa

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1. The study • Government of Ethiopia has ambitious goals for

increasing overall production of teff Broader objectives are increased growth of Ethiopian economy,

higher incomes for producers, & lower prices for consumers• Teff sub-sector investments have wider economic effects:

On economic growth in linked sectors & sub-sectors (both agricultural & non-agricultural)

On consumer & producer incomes and household welfare On prices

Investigated these effects using an economy-wide model Computable General Equilibrium (CGE) model of the Ethiopian

economy

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Study components • Two elements:

1. Investigate impact of a 13.3 percent increase in national production of teff on economic growth, incomes, and prices• Corresponds to a 25 percent increase in teff production in the 209

target woredas of the Teff Initiative of the Ethiopian Agricultural Transformation Agency (ATA)

• Physical increase in production of 460,000 mt

2. Examine how such a production increase in teff will lead to different economic impacts from similar production increases in wheat and maize• Does teff have unique economic properties, at least in comparison to

wheat and maize? • Or are all cereals in Ethiopia the same in these respects?

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2. CGE model of Ethiopian economy• Economy-wide model

Built from Social Accounting Matrix of economy of Ethiopia• A balanced accounting of all economic transactions that take place

within the economy • Relies on household & agricultural surveys, national accounts, and a

broad range of other data on production and consumption in Ethiopia• SAM refers to sectors, factors and households in the economy

• Permits examination of disaggregated effects of sub-sectoral changes along several dimensions Highly disaggregated – 24 sub-sectors in agriculture sector Spatially disaggregates the agricultural economy into 5 agro-

ecologically defined zones that are economically interlinked Defines model households to capture household-level effects

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Spatial disaggregation of CGE model

1. Humid lowlands2. Moisture sufficient

highlands – Cereal-based

3. Moisture sufficient highlands – Enset-based

4. Drought prone ‐highlands

5. Pastoralist – Arid lowland plains

• 14 household types are defined in model Poor and non-poor in 7 areas

Poor are defined as households in lowest 40 percent of population ranked by per capita expenditure

7 areas: Large urban centers, including Addis Ababa Smaller urban centers Rural households in each of the 5 agro-ecological zones for the model

Here report economic effects of the increase in teff production on 6 aggregations of these household types rural & urban; rural poor & non-poor; urban poor & non-poor

Model households in Ethiopia CGE model

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3. Method• First, establish baseline conditions of the economy • Apply production acceleration “shock” to teff sub-sector and run

model Here used CGE model in static manner - one-off scenario of sharp increase

in production Model assumes production increases achieved through improved

efficiency in use of factors of production – not through increases in use of land or labor

• Run different national production shocks for wheat and maize to come up with similar 460,000 mt of additional production for each

• Examine effect of these production increases on outcomes of interest – economic growth, incomes, & prices

• Teff production shock defined by ATA Teff Initiative aims a 25 percent increase in 209 target woredas

• Similar physical increase applied to wheat & maize to assess differences in economic impact of similar increase in production of other cereals

Teff, wheat, and maize production shocksTeff Wheat Maize

Current production , ‘000s mt (2011 production figure) 3,457 2,798 4,960

Increase in production, ‘000s mt (production shock) 460 460 460

Total increased production, ‘000s mt 3,917 3,258 5,420

National production increase, % 13.3 16.4 9.3

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4a. Results – Teff, economic growth

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• Agriculture sector makes up 45% of GDP; teff makes up 7.6% of agriculture sector

• Here show economic growth due to teff production increase over baseline conditions

• See strong economic growth in cereal highlands Also in drought-prone highlands,

where teff grown Positive growth, if more limited, in

enset zones where teff is not common

Base-line Teff, %

Overall 122.2 0.6Agriculture sector 58.8 1.2

Cereal highlands 25.4 1.7

Enset highlands 8.0 0.5

Drought-prone highlands 15.2 1.4

GDP baseline unit: billions of ET Birr

Teff, income growth

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• All household groups benefit from increased teff production

• Urban consumers see greater relative benefit than do rural producers Urban non-poor likely are

greatest beneficiaries of increased teff production

Reflects the effect of lower price of teff on real income, since it is one of the major items in urban consumption bundle.

Both rural and urban non-poor are better endowed with productive resources. Thus, they enjoy higher income gain.

Base-line Teff, %

Overall 133.0 0.37Rural 98.0 0.32 Rural poor 24.8 0.22 Rural non-poor 73.1 0.35Urban 35.0 0.52 Urban poor 5.0 0.51 Urban non-poor 30.0 0.52Income baseline unit: billions of ET Birr

Teff, price changes

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• Strong reduction in teff price with increased production

• Prices for other commodities increase slightly with increased teff production Increased efficiency of teff

production releases factors to other crops

Increased production of all crops increases incomes

But increase in production of other crops is insufficient to meet new level of demand from higher incomes, so prices rise, except for teff

Teff, %Teff -11.86

Wheat 0.27Maize 0.17Barley 0.17

Sorghum 0.20Pulses 0.19

Oilseeds 0.05Milk 0.23

Meat 0.09Analysis based on prices relative to 2005 base year, so actual prices not reported.

4b. Results – Cereals comparison, economic growth

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• Increases in national production of teff leads to greater overall economic growth than similar increases for maize & wheat Reflects the higher price of

teff relative to wheat and, especially, maize

But geographic differences Reflect differing comparative

advantage for production and different patterns of consumption of these cereals in different zones

Teff, % Wheat, % Maize, %Overall 0.6 0.4 0.4Agriculture sector 1.2 0.8 0.8

Cereal highlands 1.7 1.2 1.7

Enset highlands 0.5 0.9 1.1

Drought-prone 1.4 0.7 -0.1

GDP baseline unit: billions of ET Birr

Cereals comparison, income growth

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• Increased teff production provides superior increases in incomes relative to the other cereals, expect for the rural poor Reflects value of increased

teff production relative to that of wheat & maize – teff has a higher price

• Teff & maize show sharp rural/urban income growth distinctions. Wheat does not.

Teff, %Wheat,

%Maize,

%

Overall 0.37 0.29 0.26

Rural 0.32 0.29 0.23

Rural poor 0.22 0.28 0.16

Rural non-poor 0.35 0.29 0.25

Urban 0.52 0.30 0.33

Urban poor 0.51 0.29 0.32

Urban non-poor 0.52 0.30 0.33

Income baseline unit: billions of ET Birr

Cereals comparison, price changes

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• Increased production leads to expected price declines for the three cereals Somewhat larger first-round

price decline for teff

• Price increases seen for the other commodities Increased wheat production

leads to highest price increases in other commodities.

Teff, %Wheat,

%Maize,

%Teff -11.86 0.24 0.17

Wheat 0.27 -7.11 0.22

Maize 0.17 0.24 -8.23

Barley 0.17 0.24 0.16

Sorghum 0.20 0.25 0.14

Pulses 0.19 0.25 0.17

Oilseeds 0.05 0.83 0.12

Milk 0.23 0.32 0.16

Meat 0.09 0.13 0.11

Analysis based on prices relative to 2005 base year, so actual prices not reported

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5. Discussion• Analysis shows that investments to intensify and increase teff

production will result in: Strong economic growth that is superior to maize and wheat at similar

levels of production increase. This is particularly the case in areas of Ethiopia where teff is agro-ecologically suited. Teff is highest value cereal.

Important income gains, in particular for urban households Lower teff prices with higher production, enabling increased consumption

• Given these benefits, should investments in teff supplant those for increasing wheat and maize production? No. Given higher yields and yield potential of wheat and maize, less costly to

attain target production increase with those crops than with teff The three optimally exploit different agro-ecological conditions Diversity in cereal and other staple food production contributes to national

food security

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6. Implications • Increased teff production offers important economic

benefits. These benefits are captured through continued investments: In developing technologies to improve teff production In improving better and on-time input access for farmers In improving post-harvest practices to minimize losses

• However, it is better to balance investments across staple food crops A teff specific strategy alone is not in Ethiopia’s interest Adopt a zonal approach to planning investments to increase crop

production. Will ensure exploitation of different agro-ecologies across Ethiopia with optimal crops for each.