|Agricultural Growth Linkages in Sub-Saharan Africa - Research Report 107 - Abstract (IFPRI, 1998, 4 p.)|
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CHRISTOPHER L. DELGADO, JANE HOPKINS, AND VALERIE A. KELLY
WITH PETER HAZELL, ANNA A. McKENNA, PETER GRUHN, BEHJAT HOJJATI, JAYSHREE SIL, AND CLAUDE COURBOIS
How much extra net income growth can be had in rural areas of Africa by increasing the spending power of local households? The answer depends on how rural house-holds spend increments to income, whether the items desired can be imported to the local area in response to increased demand, and, if not, whether increased demand will lead to new local production or simply to price rises. For every dollar in new farm income earned, at least one additional dollar could be realized from growth multipliers, according to Agricultural Growth Linkages in Sub-Saharan Africa, Research Report 107, by Christopher L. Delgado, Jane Hopkins, and Valerie A. Kelly, with Peter Hazell, Anna A. McKenna, Peter Gruhn, Behjat Hojjati, Jayashree Sil, and Claude Courbois.
While earlier studies have predicted disappointing growth stemming from spin-off effects resulting from increases in farm incomes in Africa, this report finds that the potential for additional demand-led growth in rural Africa is likely to be much higher than previously thought. Overall, the report shows that adding $1.00 of new farm income should be able to increase total household income by $2.88 in Burkina Faso (including the original $1.00 of stimulus), $1.96 in Niger, $2.48 in the Central Groundnut Basin of Senegal, and $2.57 in Zambia (Figure 1).
The net spin-off effects from growth in agriculture are at least as high as the immediate returns.
Demand-led growth arising from the demonstrated desire of consumers to spend large shares of new income on specific types of goods and services in local economies could reach these higher expectations under a specific set of circumstances. First, increments to rural household incomes are spent in large part on goods and services that are produced locally. Second, the local goods in question often do not have good substitutes that can be imported cheaply. Third, underused productive resources are available in local areas, which can be drawn into production by increased local demand for the things that they can produce. Such underused resources are only likely to be found if high transfer costs and other transaction costs limit the possibilities for increasing exports from the local region enough to eradicate unemployment stemming from inadequate local consumer demand. The rural zones studied in this report exhibit all three characteristics to varying degrees.
Using detailed household-level data gathered weekly or biweekly for one year in the 1980s in Burkina Faso, Niger, Senegal, and Zambia (with additional insights gained from field work in Zimbabwe), the report divides individual commodities and services into two sectors, farm and non-farm, and into two tradability categories, tradable and nontradable. Tradables, in this report, are defined as goods that, in theory can always be imported or exported at a price governed by markets outside of the zone in question. Nontradables are all goods, including bulky or perishable foods such as coarse grains and fresh meats, that are seldom traded and have no close tradable substitutes, as well as services, which by definition are nontradable. The farm sector includes all raw and unprocessed crops and livestock products, while everything else, including all processed farm goods, is considered to be in the nonfarm sector. In Africa, a great deal of nonfarm activity, such as services and processing, occurs on-farm rather than in market towns and villages as in Asia.
The report does not delve into the question of where the burst of new income that would jumpstart the rural economy and release demand would come from, but it assumes that the most likely source would be technological progress in agriculture or improvement in export prices for cash crops, since farm-produced tradables are more likely under African conditions to be competitive outside local areas than non-farm tradables. However, even in those rare cases where rural manufactures are viable exports in Africa, the effect of spending the new income in local areas is still likely to be to elicit new production of nontradable consumer items.
The report does not directly answer the question of whether demand increases for nontradables will be met entirely through new production or in part by price increases. It is assumed that all new demand for nontradables is met by new production through the pulling into production of underemployed labor and land. Because of this oversimplification, the quantitative multipliers in the report should be discounted by about 30 percent to arrive at conservative estimates of the true average linkages. However, the full multipliers illustrate the maximum gains that could be achieved if a facilitating environment permitted rural resources to flow into the production of goods and services that are increasing in demand.
Average budget shares (ABSs) measure the percentage of total household expenditures going to a given group of goods, and marginal budget shares (MBSs) measure the percentage of an increment to income that goes to those goods, making it possible to assess the direct impact of income changes on consumption. Figure 2 presents ABSs and MBSs for food and nonfood goods and services in the four countries studied. On average, the rural households sampled spent 72 to 85 percent of their total incomes on food items and 62 to 74 percent of additions to income on food. Such high expenditures on food dramatically point out the extent of poverty in Africa: many people are so poor that they have little income left over once they purchase adequate food supplies.
Overwhelming shares of average income and increments to income are devoted to food in Africa.
When expenditures are examined from the standpoint of tradables versus nontradables, households in Burkina Faso and Zambia devote large shares of income (both average and marginal) to nontradable goods (Figure 3). In Niger and Senegal, tradables are more important, but nontradables still command a hefty share of incremental income (47 percent in Niger and 32 percent in Senegal). Detailed analysis of the expenditure data for these countries indicates that rising rural incomes are likely to lead to net increases in demand for many items that cannot be profitably imported, mainly local, unprocessed food items, certain processed foods, local inputs for farming, and services.
Farm nontradables account for the lion's share of consumption in Burkina Faso and Zambia but are less important in Niger and Senegal, where more basic foods are tradables.
Sustained growth in rural incomes that is widely distributed across households is capable of unlocking significant additional growth. By focusing on tradability issues, the report shows that widespread growth in the incomes of rural households in Africa can play a major role in mobilizing underused resources and encouraging employment in nontradable sectors. The effect of broad increases in spending on the kinds of non-tradables that rural people consume - dairy products, fruits, vegetables, some starches, services, local agricultural implements, and so forth - can mobilize labor, capital, and land outside peak periods, creating viable income opportunities. According to the report, even small increments to rural incomes that are widely distributed can make large net additions to growth and improve food security.
Only growth in exports, probably originating in the farm sector, is likely to provide the widespread and recurring income growth needed for economically sustainable rural growth. For growth linkages to be part of a sustained pattern of economic development, the initial income shock from the tradable sectors must be regularly reproduced. Only the sustained production and sale of tradable commodities can do this. Groundnuts, cotton, and animal products have traditionally played this role in the countries studied, but nontraditional exports of high-value fruits and vegetables could also contribute.
Conversely, technological change, investment, or other stimuli to the nontradable consumer sectors, such as handicrafts and service provision, are likely to be one-shot, unsustainable ventures unless the tradable sectors are also expanding. Without regularly recurring sources of demand inside the local area, stemming from recurring injections of income from outside the local zone, increases in the supply of nontradable consumer items will only lead to unsold products. The report indicates that demand for these items was strongest in those areas where outside income sources were most evident.
The results show that there is little support for the view expressed in the earlier literature on Asia that the consumption patterns of the rural rich are more oriented to growth than those of the poor. Whereas in Asia the rich typically spend higher shares of increments to income on nontradable manufactured goods and services, in Africa, according to this report, the poorest one-third of households in three of the five comparable country samples had higher MBSs for nontradable items than the richest one-third of households (Figure 4). This is probably because food is more likely to be a nontradable item in Africa than in Asia. (However, this finding ignores the fact that the rich may invest more of their income than the poor.) While it may be over-interpreting the results to infer that growth policies should direct income to the poor, there is clearly no basis for directing growth-oriented policies exclusively to the rich.
A larger share of additional income of the poor goes to farm nontradables such as coarse grains, meat, and fruits and vegetables than that of the rich (except in Niger).
Finally, more attention should be paid to increasing the supply-responsiveness of major nontradable rural consumption items, including local starchy staples and livestock products. For growth to continue unabated, people must have a ready supply of the goods they wish to purchase at reasonable prices as their incomes go up. How to increase the elasticity of supply of the nontradables that had the largest MBSs in this report is a subject for further research. Successfully promoting exports without paying attention to nontradable consumer items could lead to rising prices for local goods and increased costs of subsistence and production - both inimical to export-led growth.
Please send me a copy of Agricultural Growth Linkages in Sub-Saharan Africa, by Christopher L. Delgado, Jane Hopkins, and Valerie A. Kelly, with Peter Hazell, Anna A. McKenna, Peter Gruhn, Behjat Hojjati, Jayashree Sil, and Claude Courbois.