3rd ReNAPRI Conference, Nairobi, OECD-FAO Agricultural Outlook: The impact of higher crop productivity growth  on SSA markets Presentation to the 3rd ReNAPRI Conference, Nairobi, November 10-11, 2016

Motivation OECD-FAO Agricultural Outlook – 2016-2015 Special chapter on Sub-Saharan Africa Agricultural output is growing strongly in SSA, but demand is growing faster. Crop output has increased rapidly in the past due to important  gains in area Greatest potential to increase incomes lies in increased productivity The OECD-FAO Agricultural Outlook 2016 notes the importance of productivity growth and other measures to accommodate it Higher productivity may have implications for markets. Who gains most from higher productivity growth and where? What commodities are most interesting for investment in enhancing productivity? What factors affect the gains from enhanced productivity This presentation uses the basis of the OECD-FAO Outlook and Aglink-Cosimo model: Study impacts of higher crop yield growth on markets and market agents Shapes of supply/demand curves/ price transmission affect assessments

Factors underlying the OECD-FAO Outlook for Sub-Saharan Africa Demographics remain key a factor Population growth remains strong at over 2.5% Urbanisation, but rural population still expanding Agriculture important to urban households, on farm and through value chain.. Limited off-farm jobs Economic growth strong but generally lower than previous decade Risk for investment to slow The agriculture share of GDP continues to fall Emerging medium scale producers More responsive to market mechanisms Productivity rising from a low base in many areas Spatial market linkages remain challenged by high transportation and border transaction costs, policies Other factors are Population growth and demographics -> a further 28% population growth is projected over the Outlook, compared to 11% for global population… Currently more than 60% of population is under 25 Agriculture remains very important to both rural and urban households, both on farm and throughout the rest of the value chain.. Off farm jobs remain somewhat limited, growth rates have been slow and therefore innovative ways to engage these youth in the agricultural sector will be increasingly important going forward, to improve food security and enhance poverty reductions.. Furthermore there is the changing farm structure to consider.. Land acquisitions in the region have increased dramatically and in some cases this has increased the concentration of land, leading to the emergence of medium and large scale farms in a region that has traditionally been dominated by large numbers of small scale producers The key uncertainty then relates to the implications of such changes on productivity going forward. The question there relates to who is buying the land, genuine farm businesses vs. higher income, often well connected urban households where farming may not be the main priority..

Population growth remains strong in Eastern, Central and Western Africa

Economic growth slower in the next decade

SSA will remain one of the World’s fastest growing agricultural sectors

Generally, share of agriculture in total GDP will continue to fall in SSA

Sub-Saharan Africa: Outlook to 2025

Except for coarse grain, growing net trade deficit in key commodities of SSA

Increasing productivity is an important component for growth, but difficult to achieve The potential for increasing productivity of agriculture in SSA is large, but difficult Productivity levels are generally at comparatively low levels, but small adjustments may have large impact  Strong political will to increase productivity exists – Malabo declaration to double productivity by 2025                           Increasing productivity is difficult: Slower economic growth/lower commodity prices inhibits public and private investment Increasingly lower share of agriculture in total GDP moves investment demands in other sectors Rising production lowers market incentive prices – good for technology adopters, but may leave others to adapt

Crop yields point to substantial opportunity for growth with considerable yield gaps: Maize

Application of fertilizers in SSA is low -but increasing in some regions Right axis Left axis Note: Source FAOSTAT. Data on Fertilizer in nutrient equivalents/total area harvested 2014

Policy environment matters The African Union has recognised the need for a vibrant and sustainable agricultural sector, hence the CAADP was prioritised through commitments to allocate at least 10% of national budgetary expenditure to its implementation.. Hence policies have been an important aspect of the growth path exhibited by the sector.. A fairly recent study by MAFAP covering 10 countries across the region, reflects a tendency towards recurrent programs such as input subsidies and direct intervention through strategic reserves and government procurement programs. Particularly in Malawi, more than 70% of ag expenditure has been targeted at input support programs. The success of these programs remains somewhat disputed, if you look at Malawi and Zambia, the have achieved some success in raising yields, but expenditure on these programs have been huge and its often been at the expense of broader investment in infrastructure, research and development? So there could have been other benefits..

Higher SSA productivity scenario: Increase crop yield growth by 2%/yr across SSA Impact of shifting yield for all crops by an additional 2% each year from 2016 to 2025 - 22% higher in 2025 than in the base scenario OECD-FAO Aglink-Cosimo model simulation: Provides impact at the global level world markets of higher SSA yields      Examine impacts for selected countries and regional groups.                Results are illustrative, not precise General shocks in percentage imply differential impacts depending on levels in the baseline by country and by crop which may not be realistic

Higher SSA production by 2025 from higher yields, somewhat offset by impact lower prices

Higher SSA livestock production stimulated by lower feed prices

Higher SSA production increases global supply and drives global crop prices down

Lower world prices, and higher production result in much lower domestic prices depending on trade positions – maize

Agriculture GDP rises depending on share of affected crops in total GDP and supply response

SSA food consumption increases only modestly

Higher production exceeds consumption increase, resulting in an improved trade balance

Conclusions The OECD-FAO Agriculture Outlook projects a growing agricultural trade deficit as strong production growth fails to match stronger consumption growth Prescribes greater attention to productivity growth Greater attention to reduce spatial transaction costs and improve market efficiency                                       The Aglink-Cosimo model was used to simulate the impact much higher crop yield growth in SSA for comparison to the base projection Indicate considerable impact on world markets from reduced import demand from the SSA region By 2025, higher yield growth yields to about 7.5% GDP growth in agriculture, 2.5% consumption growth, and a stabilized trade deficit compared to the base projection Much lower domestic producer prices arise as country crop production moves toward export position. Results are indicative – greater research is required on issues related to spatial price transmission and market linkages

Application of fertilizers in SSA is low Note: Source FAOSTAT. Data on Fertilizer in nutrient equivalents/total area harvested 2014