Rural poor, Urban poor, Market access, Agricultural growth, Poverty reduction,

Chamberlin, Jordan

Diao, Xinshen

Guatam, Madhur

Keough, James

Nin Pratt, Alejandro

Puetz, Detlev

Resnick, Danielle

You, Liangzhi

Yu, Bingxin

English

Research Papers in Economics

I IF FP PR RI I
®
INTERNATIONAL FOOD
POLICY RESEARCH INSTITUTE
sustainable solutions for ending hunger and poverty
W
ith a per capita income of only about 20 percent of the African average, Ethiopia is one of the world’s poor-
est countries. More than 85 percent of the country’s population lives in rural areas, where agriculture is
the main economic activity and where the poverty ratio is particularly high. In addition, stagnant agricultural
growth, together with unpredicted droughts, has resulted in persistent food crises and food insecurity. Hence,
any strategy for slashing Ethiopia’s poverty and hunger must focus on generating rapid and sustainable
growth in the agricultural sector.
To identify which kinds of investments have the greatest impact on agricultural growth, a deeper
understanding of the linkages between agriculture, economic growth, and poverty reduction is needed.
This brief is based on a spatially disaggregated, economywide model that enables analysis of growth
and poverty reduction linkages at national and regional levels from 2004 to 2015.The analysis con-
siders the results for growth and poverty reduction of continuing with business as usual and of
focusing on growth in four agricultural subsectors—staple crops, livestock, traditional exporta-
bles (coffee), and nontraditional exportables (selected fruits and vegetables, cotton, chat,
sesame seed, sugar, and other horticultural products).The results of the model analysis reveal a
number of conclusions for agricultural investment.
ETHIOPIA
LIVESTOCK GROWTH NEEDS TO BE COMBINED WITH STAPLE
CROP GROWTH TO REDUCE POVERTY 
Xinshen Diao and Alejandro Nin Pratt, with Madhur Gautam, James Keough,
Jordan Chamberlin, Liangzhi You, Detlev Puetz, Danielle Resnick, and Bingxin Yu
GROWTH OPTIONS AND POVERTY REDUCTION
The livestock growth scenario assumes annual productivity
growth of 7.6 percent and results in GDP and AgGDP growth
rates similar to those modeled for staple crops. Nevertheless,
under the simulations, livestock sector growth has a smaller
GROWTH IN STAPLES IS THE PRIORITY FOR 
POVERTY REDUCTION
Growth in staple crops makes a greater contribution to
poverty reduction than any other agricultural or nonagricul-
tural sector modeled.A scenario for staple crop growth indi-
cates the capacity for 3.4 percent growth per year from 2004
to 2015.When one takes into account other economic link-
ages, this scenario results in gross domestic product (GDP)
growth of 3.9 percent per year and agricultural GDP
(AgGDP) growth of 3.5 percent per year. In the model,
growth in staple crops causes the rural poverty rate to fall to
37.7 percent—an additional 10 percentage points of poverty
reduction for the same year under the business-as-usual sce-
nario, in which growth follows its current trends, and 8 per-
centage points below the 2003 rural poverty rate.
Why does growth in staple crops have such a significant
effect? Cereals and other staple crops are the most important
income source for the majority of small farmers. Morerover,
the world in which Ethiopian farmers operate is unlikely to
change in the next 10 years,and increased domestic supply of
staple crops will continue to be the most important source of
food energy for both rural and urban poor consumers.With
improved access to regional or world markets,Ethiopian farm-
ers could export wheat to its East African neighbors like Kenya,
for Ethiopia is the largest wheat producer in the region and
Kenya is a wheat importer.Better market access and improved
production conditions,such as irrigation,will also give farmers
more opportunities to diversify.Many subsistence crops,like
oilseeds and pulses,that are grown extensively among poor
farmers can become marketable commodities,and this shift
would further increase poor farmers’ cash income.This brief is based on:
X. Diao and A. Nin Pratt, with M. Gautam, J. Keough, J. Chamberlin, L.You, D. Puetz, D. Resnick, and B.Yu, .2005.Growth Options and Poverty      
Reduction in Ethiopia:A Spatial, Economywide Model Analysis for 2004–15.DSGD Discussion Paper No.20. Washington,D.C.:IFPRI.
Xinshen Diao (x.diao@cgiar.org) is a senior research fellow in the Development Strategy and Governance Division (DSGD) at IFPRI;
Alejandro Nin Pratt (a.ninpratt@cgiar.org) is a research fellow in DSGD at IFPRI;Madhur Gautam (mgautam@worldbank.org) is a senior 
economist and James Keogh (jkeogh@worldbank.org) a consultant at the World Bank;Liangzhi You (l.you@cgiar.org) is a senior scientist in the
Environment and Production Technology Division (EPTD) at IFPRI;Detlev Puetz (d.puetz@afdb.org) was a visiting research fellow;
Jordan Chamberlin (j.chamberlin@cgiar.org) a scientist;Danielle Resnick (der28@cornell.edu) was a senior research assistant and 
Bingxin Yu (b.yu@cgiar.org) is a research analyst in IFPRI’s DSGD.
2033 K Street, NW  •  Washington, DC 20006-1002 USA  •  Tel.: +1-202-862-5600  •  Fax: +1-202-467-4439  •  Email: ifpri@cgiar.org  •  www.ifpri.org
effect on poverty, which falls to 39.7 percent in 2015 driven by
livestock sector growth, compared with 36.7 percent driven
by staple crop sector growth.A key factor in this result is the
smaller share of poor farmer income derived from the livestock
subsector.Moreover,both the rural and urban poor consume far
fewer livestock products.Consequently,poor consumers in both
rural and urban areas benefit less from the lower prices of live-
stock products that increased production induces.
A combination of growth in both staple crops and live-
stock has a greater effect on poverty reduction in rural areas.
With this combination, simulation results indicate a drop in
rural poverty from 45.8 percent in 2003 to 33 percent in
2015.The linkage effect is particularly strong in the food-
deficit areas, where the poverty rate falls from its high 2003
level of 60.5 percent to 49.6 percent in 2015.
GROWTH IN EXPORT CROPS PLAYS A LIMITED ROLE IN
POVERTY REDUCTION
In the two export growth scenarios, output of both traditional
and nontraditional exportables is assumed to grow by 13 per-
cent.Yet the impact of this growth on poverty is small, reduc-
ing the poverty rate only 4.2 percentage points below baseline
levels to 40.2 percent.
A majority of poor farmers are often unable to adopt the
necessary technologies without significant extension support,
and the initial investments required for such commercial pro-
duction are also prohibitive. In addition, increased agricultural
export production, by definition, provides little direct benefit
to poor consumers in rural and urban areas, since such com-
modities are not in poor consumers’ consumption basket.
Promoting growth in this subsector, however, can indirectly
benefit poor people by creating more employment opportuni-
ties as a result of economic growth. Given that the most
important constraint to growth in agricultural exportables is
lack of market access,there is a strong need for reduced mar-
ket transaction costs and greater investment in transportation.
INVESTING IN MARKET MATTERS FOR HALVING POVERTY
Seventy percent of Ethiopian farmers are reportedly more
than half a day’s walk away from an all-weather road.The com-
bination of poor market access and high transportation costs
significantly increases the gap between consumer and produc-
er prices, which ultimately lowers the prices received by
affected farmers.According to the simulation, when growth in
the agricultural sector is combined with improved marketing
margins resulting from improved infrastructure, GDP growth
increases to 5.8 percent per year, and AgGDP growth increas-
es to 5.4 percent per year.The poverty rate under this sce-
nario falls significantly, from about 46 percent in 2003 to about
24 percent in 2015.When agricultural growth is augmented by
reduced market costs and an additional 1 percent annual
growth in nonagriculture, simulation results show that growth
in both GDP and AgGDP could reach about 6 percent per
year, enabling the national poverty rate to decline to 23 per-
cent in 2015, about half of the 2003 poverty rate.
CONCLUSION
Ethiopia faces dire challenges in alleviating poverty,let alone in
meeting the Millennium Development Goal of halving the inci-
dence of poverty by 2015 compared with 2000 levels.
Agriculture has the potential to play a central role in decreasing
poverty and increasing growth in Ethiopia,but agricultural
growth will require concurrent investments in roads and other
market conditions.
This brief has been printed on paper produced from an agricultural product known as Kenaf and is processed chlorine-free.
Copyright © 2006 International Food Policy Research Institute.All rights reserved. Sections of this document may be reproduced without the express permission of
but with acknowledgment to IFPRI. Contact ifpri-copyright@cgiar.org for permission to reprint.
For more information on the ECAPAPA-IFPRI program: www.ifpri.org/themes/ecapapa.htm

Ethiopia: growth options and poverty reduction

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Ethiopia: growth options and poverty reduction

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