Benjamin Davis, Alberto Zezza and Stefania di Giuseppe Annual Bank Conference on Africa Paris, June 23, 2014 AGRICULTURE IN AFRICA TELLING FACTS FROM MYTHS Income diversification patterns in rural Sub-Saharan Africa: Reassessing the evidence

Page 2 “East Asian countries grew rapidly by replicating, in a much shorter time frame, what today’s advanced countries did following the Industrial Revolution. They turned their farmers into manufacturing workers, diversified their economies, and exported a range of increasingly sophisticated goods. Little of this process is taking place in Africa. … Optimists say that the good news about African structural transformation has not yet shown up in macroeconomic data.” (Rodrik, 2013)

Page 3 Is Africa different when it comes to rural income diversification? Revisit the facts: Are rural households in Africa diversifying less out of agriculture than elsewhere? Spatial aspects of income diversification in Africa – Agricultural potential – Distance from urban centers – Small vs large cities Implications: – Structural change – Welfare – Approach to rural development

Page 4 Diversification and RNF literature: Not so many myths after all Large rural non-farm (or off-farm) sector (though estimates vary) Positively related to household income and GDP Role of assets (edu, land, infrastructure) Barriers to entry, dualism (high/low skills/returns) Likely good for poverty reduction; mixed evidence on inequality But despite efforts: – Data issues remain (comparability, measurement issues) – Is there an African specificity? – Not much on spatial analysis

Page 5 Countries included in the study Ethiopia (2011) Ghana (1992, 1998 and 2005) Kenya (2005) Madagascar (1993) Malawi (2004 and 2011) Niger ( ) Nigeria (2004 and 2011) Tanzania (2009) Uganda ( and ) Nepal (1996 and 2003) Bangladesh (2000 and 2005) Tajikistan (2003 and 2007) Pakistan (1991 and 2001) Nicaragua (1998, 2001 and 2005) Indonesia (1993 and 2000) Bolivia (2005) Guatemala (2000 and 2006) Albania (2002 and 2005) Ecuador (1995 and 1998) Bulgaria (1995 and 2001) Panama (1997 and 2003) Vietnam (1992, 1998 and 2002)

Page 6 We use the following income categories 7 income categories: 1.Crop production 2.Livestock production 3.Agricultural wage employment 4.Non-agricultural wage employment 5.Non-agricultural self- employment 6.Transfer 7.Other Agricultural income –crop + livestock + agricultural wage Non agricultural income –non-agricultural wage + non- agricultural self + transfer + other On farm –crop + livestock Non farm –non-agricultural wage + non- agricultural self Off farm –agricultural wage + non- agricultural wage + non- agricultural self + transfers + other

Page 7 Rural households in most countries have an on farm activity Log of 2005 PC GDP

Page 8 And a large share a non farm activity (non agricultural wage and self emp)

Page 9 Increasing share of non agricultural income with GDP: Is Africa different?

Page 10 Or just still at lower levels of GDP?

Page 11 Similar story for non agricultural wage income—increasing with GDP

Page 12 Do rural households in African have a tendency towards more on farm specialization?... Household defined as specialized if receives more than 75 percent of income from single source and diversified if no single source is greater than 75 percent

Page 13 … Possibly! Decreasing, but still high, specialization in on farm activities in Africa

Page 14 Increasing specialization in non agricultural wage income with GDP

Page 15 Most African countries specialize in on farm activities, while most non African are diversified

Page 16 Implications for welfare: Stochastic dominance analysis Tanzania Malawi

Page 17 The role of geography: Theory and literature Von Thünen (1842) New economic geography: Institutions vs geography (Mostly macro, x-country) Agglomeration, dispersion forces Micro studies: Fafchamps et al. (Nepal); Foster and Rosenzweig (India); Diechmann et al (Bangladesh); Yamano and Kijima (Uganda) Interaction of location, ag potential, mediated by infrastructure, tradability, wages, etc.

Page 18 Basic hypotheses on diversification and location (theory and literature) Specialization outside of farming Nonlinearities, interactions complicate the picture Distance to cities Agricultural potential LowHigh Low++(?) High+(?)-

Page 19 The role of geography: Our estimates Multinomial logit of specialization categories On-farm specialization the base Quadratic terms for distance, ag. potential Interaction term b/wen distance and ag potential Non-linearities not included unless jointly significant Separately for different city sizes (20K to 1 mln.)

Page 20 The role of geography: Results “It depends…”: Non-linearities matter, the role of distance changes with potential and city size Role of distance more muted where ag potential is high Smaller towns linked to diversification; larger towns to non-ag

Page 21 Malawi: Non ag wage specialization, ag potential, and distance from cities Small town Large city High potential flatter: Ag driving Low potential, small towns: Non-ag higher with distance Low potential, large cities: Non-ag higher declines with distance

Page 22 Tanzania: Non ag wage specialization, ag potential, and distance from cities Mid-size town Large city Low potential, mid-size towns: Non- ag lower with distance High potential flatter: Ag driving (with nuances) Low potential, large cities: Non-ag higher declines with distance

Page 23 Conclusions Diversification patterns in Africa do not seem to differ markedly, for given GDP pc Non-farm and household welfare We know about barriers to entry: Role of education Need to consider spatially explicit policies: – Ag potential – City size – Land abundance Data now allow for more in-depth, spatially explicit analyses Need (and opportunity) for revitalizing ‘rural development’ discourse in Africa?

Benjamin Davis, Alberto Zezza and Stefania di Giuseppe Annual Bank Conference on Africa Paris, June 23, 2014 AGRICULTURE IN AFRICA TELLING FACTS FROM MYTHS Income diversification patterns in rural Sub-Saharan Africa: Reassessing the evidence

Page 25 Decreasing share of on farm income (crop and livestock)—is Africa different?

Page 26 Little trend towards diversified portfolios with GDP— but SSA countries less often have diversified portfolio

Page 27 Variations in returns to agricultural and non-agricultural activities High productivity/high return sub-sector – Confined mostly among privileged, better-endowed groups in high potential areas – Significant barriers to entry or accumulation in terms of land, human capital, and other productive assets. May prevent more marginalized households from taking advantage of opportunities offered by more dynamic segments of rural economy. Low productivity segment serves as a source of residual income or subsistence food production and as refuge for rural poor – Covers activities such as subsistence agriculture, seasonal agricultural wage labor, and various forms of off farm self- employment.

Page 28 Share of on farm income decreases with wealth status—and off farm income increases

Page 29 Diversified portfolio does not vary with wealth; increasing specialization off farm, decreasing on farm