1. 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

2. 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

3. 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..

4. Population growth remains strong in Eastern, Central and Western Africa

5. Economic growth slower in the next decade

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

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

8. Sub-Saharan Africa: Outlook to 2025

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

10. 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

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

12. 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

13. 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..

14. 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 % 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

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

16. Higher SSA livestock production stimulated by lower feed prices

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

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

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

20. SSA food consumption increases only modestly

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

22. 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

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