Christopher B. Barrett Vet Med 6273 Guest Lecture January 31, 2012

Overview Livestock’s role in east African economic development Wealth accumulation and mortality risk Market risk Conclusions

Livestock’s role in development Livestock as input Manure: mitigating soil degradation, spatial redistribution of nutrients Traction services Transport services Result: Improved productivity of agricultural or non- agricultural enterprises.

Livestock’s role in development Livestock as a production system Milk and blood (and social prestige): renewable outputs from a single animal Meat, hides and skins: nonrenewable output from a single animal Reproduction: dividends from the asset Result: Income stream generated directly by livestock

Livestock’s role in development Livestock as a quasi-financial asset, providing savings and insurance Store of value (walking bank) Sometimes sold to stabilize incomes Collateralizable for credit Result: Livestock can play a valuable role where access to conventional financial products is limited or where such products are unattractive.

Wealth accumulation and mortality risk Not everyone is equally able to acquire or maintain livestock  Agroecological differences (disease, aridity, etc.)  Lumpiness of investment (Dercon, JDE 1998)  Threshold effects (Lybbert et al. EJ 2004)  Herder ability (Santos and Barrett 2006)

Wealth accumulation and mortality risk Pronounced cattle cycles are commonAnd accumulation dynamics are often highly nonlinear Examples from Boran pastoralists, southern Ethiopia, per Lybbert et al. (2004 EJ)

Mortality risk: Resource competition: Is there really a “tragedy of the commons” any place lacking private land rights? Rainfall Disease How idiosyncratic or covariate are these risks (i.e., what’s the best way to deal with them)? In southern Ethiopia, we find that, rainfall aside, mortality risk is idiosyncratic w/o any significant tragedy of the commons effect (see also McPeak 2005, Human Ecology, similar findings from northern Kenya). But rainfall is a major covariate risk (on which, more later). Wealth accumulation and mortality risk

(a) Ln(Average community herd size) Mortality rate Fig. 3. LOESS estimates of mortality rates, conditioned by (a) average community herd size and (b) own herd size, southern Ethiopian Boran pastoralists 0246 (b) Ln(Own herd size) Wealth accumulation and mortality risk

Livestock market risk  Prices fluctuate dramatically  covary negatively with mortality … wealth hypervariable in livestock, unlike cropping systems where market prices covary negatively with yields, thereby stabilizing incomes and wealth.  rainfall, quarantine, seasons affect prices dramatically  limited spatial market integration, i.e., major price disconnects across distinct geographic markets Nairobi-Marsabit price differentials (“basis”)

Livestock market risk Estimated Effects of Drought On Livestock Prices (hypothetical drop of 200 and 300 mm over 3 and 12 months, respectively) Percent Price Change MalesFemales Camels Marsabit Moyale CattleMarsabit Moyale GoatsMarsabit Moyale SheepMarsabit Negative correlation exists between price and mortality because rainfall drives both lactation/reproduction and mortality. - big variation among species Source: Barrett et al. (2003 J. African Economies)

Livestock market risk For animals traded long distance, intermarket margins are the source of most livestock price risk. For animals traded locally, local market conditions key: - Auction vs. dyadic exchange - # traders/lorries (partly a function of food aid backhaul capacity) - vet services availability is negatively associated with market price due to vet care endogeneity in markets (reflects disease problems that drive price down)

Livestock market risk Animal disease control measures matter to prices (Barrett et al., 2003 J. African Economies) Estimated Effects of Quarantine On Livestock Prices Percent Change MalesFemales CamelsMarsabit Moyale Nairobi CattleMarsabit Moyale Nairobi GoatsMarsabit Moyale-1.1 Nairobi SheepMarsabit Nairobi0.20.1

Livestock market and mortality risk Risks are much broader than just livestock, however, and livestock- related risk is minor to many livestock-dependent peoples - Livestock disease, prices and pasture availability of greatest concern to wealthier men in Ethiopian/Kenyan pastoralists(Smith et al., JDS 2001) - Poorer households more concerned about food security, human health, (Doss et al. World Dev’t 2008). - Development priorities among pastoralists are typically related to health, education and security, not livestock production/marketing (McPeak et al. J. Dev’t Studies 2009)

Index-based livestock insurance Drought-related covariate livestock mortality risk is key. A new, commercial index-based livestock insurance (IBLI) product launched in Marsabit, northern Kenya in Jan 2010.commercial index-based livestock insurance (IBLI) Now being adapted and extended to Ethiopia and expanded to other ASAL districts in Kenya. Also being adapted to other contexts (e.g., hornbills conservation in southern Thailand, Chantarat et al. PNAS 2011)

Conclusions Livestock play a major role in rural development in east Africa - as inputs to ag/non-ag enterprises - as production systems - as quasi-financial asset But … - not everyone has equal access - mortality and market risk are considerable and tend to be mutually reinforcing, making livestock keeping a high risk-high reward activity. - working on developing viable insurance for livestock assets

Thanks very much for your comments and questions!