Modelling the Poverty Modelling the Poverty Impacts of Livestock - - PowerPoint PPT Presentation

A Living from Livestock

Pro-Poor Livestock Policy Initiative

PPLPI Steering Committee Meeting FAO Headquarters, Rome 27-28 June 2006

David Roland-Holst Joachim Otte & Saule Kazybayeva

Modelling the Poverty Modelling the Poverty Impacts of Livestock Policy Impacts of Livestock Policy Change: Evidence from Change: Evidence from Vietnam and Senegal Vietnam and Senegal

A Living from Livestock

Pro-Poor Livestock Policy Initiative

IPALP Otte, Roland-Holst, & Kazybayeva 2

Contents

• 1. Introduction
• 2. Livestock and Rural Poor Livelihoods
• 3. Smallholders and Food Supply
• 4. HPAI – Challenge and Opportunity from a

Major Animal Disease Risk

• 5. Conclusions

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Introduction

• Livestock’s potential to improve livelihoods of the

rural poor depends on complex economic linkages and behavior.

• In recognition of this, a special research

component of PPLPI is dedicated to elucidating the economic fundamentals of smallholder livestock production.

• The goal of this work is support more effective

pro-poor policies at all levels.

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Integrated Poverty Assessment for Livestock Policy (IPALP) - Schematic Overview

Country Country Country Country Method Method Method Method Focus Focus Focus Focus Macro Macro Meso Meso Micro Micro Data Development Data Development Static Analysis Static Analysis Policy Simulation Policy Simulation Vietnam Vietnam Senegal Senegal Peru Peru

For each country, a toolkit and training module can be produced for capacity development.

... ...

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• 2. Livestock and Rural Poor Livelihoods
• With the benefit of improved sector data and

detailed microeconomic surveys, we are seeing again and again the importance of livestock to smallholder livelihoods.

• The challenge before us is to translate livestock

dependence into a sustained source of income growth.

• In most of the cases examined so far, improving

the terms for smallholder participation in food markets offers the best means of doing this.

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West Africa: National Livestock Dependence

Averages (27.5%, 28%)

Source: Cheik Ly, 2006

OECD Guinea Liberia Ivory Coast Mauritaina Cape Verde Mali Niger Burkina Senegal Guinea-Bissau Gambia Sierra Leone Ghana Benin Togo Nigeria 20 40 60 80 100 20 40 60 80 100

Livestock in Total GDP, 2000 (percent) Livestock in Total GDP, 1990 (percent)

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Senegal: Poverty Headcounts

10 20 30 40 50 60 70 80 90 K

• l

d a D a k a r Z i g u i n c h

• r

D i

• u

r b e l S a n t

• L
• u

i s T a m b a c

• u

n d a K a

• l

a c k T h i e s L

• u

g a F a t i c k N a t i

• n

a l L D I Poverty Headcount Percent $1/day National Poverty Line

National Averages

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Vietnam: Poultry Income

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 .00 .20 .40 .60 .80 1.00 Cumulative Population Share Cumulative Income and Poultry Revenue

Total Income Poultry Income Equality

Poultry income is far more equitably distributed than total income !

Sample of 600/65,000 representative households, rural and urban income quintiles for each of 60

• provinces. (VHLSS:2002)

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Vietnam: Pig Income

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 .00 .20 .40 .60 .80 1.00 Cumulative Population Share Cumulative Income and Pig Revenue

Total Income Pig Income Equality

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Microeconomic Fundamentals

There are three ways to improve the balance sheets of farmers:

• 1. Increase output
• 3. Reduce Cost
• 2. Increase price

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Vietnam: Generic Livestock Promotion

All Livestock 5 10 15 20 25 30 35 40 45 50 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 Household Income per Capita Percent Change in Household Income

← Poorer Richer →

All Livestock: Simulated 7% annual productivity growth 2005-2015

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• 3. Smallholders and the Food Supply
• In most developing countries, the majority of rural

income arises from marketing food products.

• Livestock’s contribution to this income depends on

complex market supply chains extending from the farm gate to urban and even foreign households.

• Our research on these linkages indicates that the

terms of this market participation are far from achieving their potential to help the rural poor.

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Wages 9% Self- employment 18% Other 11% Marketed Agriculture 62%

Vietnam: Rural Income Sources

Source: 2002 VLSS

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Linkage Analysis with SAMs

• Multiplier analysis with Social Accounting

Matrices (SAMs) offers a convenient way to examine livestock’s linkages across the economy.

• To date, we have developed five SAMs for

Vietnam and three for Senegal, working with different aggregations to look at a variety of income-expenditure linkages.

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Multiplier Linkages to Households

Vietnam (Vn) and Senegal (Sn) Compared

Because of their more diverse linkages to the economy, higher income groups generally enjoy larger multiplier effects.

VnPoultry VnPig VnCattle VnOthLvstk SnLvstk

5 10 15 20 25 30 35 40 HRur01 HRur02 HRur03 HRur04 HRur05 HUrb01 HUrb02 HUrb03 HUrb04 HUrb05

Housedhold Income Multipliers Percent of Value from New Livestock Demand

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5 10 15 20 25 30 35 40 HRur01 HRur02 HRur03 HRur04 HRur05 HUrb01 HUrb02 HUrb03 HUrb04 HUrb05

Relative and Absolute Income Effects (percent) Relative Absolute

but livestock income is more important to Senegal’s rural poor. More livestock income goes to higher income groups,

Senegal: Income Effects from Livestock

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Policy Simulation

• Using simulation models, we can assess a wide

variety of policies ex ante.

• Because we develop these models with

consistent macro-micro datasets, we can evaluate economywide linkages and detailed incidence such as poverty alleviation.

• Here we look at two generic kinds of scenarios:
• Policies targeted to improve livestock production
• Policies to improve market access

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Simulations of Producer Support and Trade Liberalization: Senegal

• 5

5 10 15 20 25 30 35 40 45

HRur01 HRur02 HRur03 HRur04 HRur05 HUrb01 HUrb02 HUrb03 HUrb04 HUrb05 Percent Change in Annual Income

Higher income groups capture most of the gains from generalist policies.

Three Generic Scenarios:

Prod – Doubling of livestock productivity KSub – 20% capital subsidy to livestock sector TLib – Unilateral trade liberalization

Pro-poor policies need targeting.

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• 4. HPAI – Challenge and Opportunity from a

Major Animal Disease Risk

• Pathogens associated with livestock pose a challenge to

public health and economic security at the national and global levels.

• A dramatic recent example of this is Highly Pathogenic

Avian Influenza, which has potentially momentous consequences for human society.

• Smallholder livestock producers can be seriously

threatened by conventional measures to fight diseases like this.

• On the contrary, we believe disease risk management

can be an opportunity to improve their circumstances.

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Risk Management from a Development Perspective

• HPAI presents an unusual opportunity for

international cooperation because poor rural households can contribute the global commons of disease prevention.

• Their participation in this effort is unlikely to be

voluntary, and indeed should be rewarded if success is to be achieved.

• To make such policies effective, economic

analysis of incentives and localized design and implementation are needed.

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Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 HH Farm

• Ent. Farm

Poultry Ind. Food Process Export Urban HH Rural HH Production Processing Distribution Demand

What Can go Wrong: Resource Flows in the Poultry Sector

Thailand Vietnam

Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Urb HH Rural HH Production Processing Distribution Demand

Control Points

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Control and Displacement

Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Production Processing Distribution Demand Urb HH Rural HH Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 HH Farm

• Ent. Farm

Poultry Ind. Food Process Production Processing Distribution Demand Export Urban HH Rural HH

There are significant risks that control strategies could permanently displace small

• producers. This could adversely impact local food security, poverty, and inequality.

Thailand Vietnam

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Vietnam: Household Income Effects of a 50% Cull

• 35
• 30
• 25
• 20
• 15
• 10
• 5

5 .00 .10 .20 .30 .40 .50 .60 .70 .80 .90 1.00

Cumulative Share of National Income Percent Change in Household Income

Poorer Richer

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Reducing HPAI Risks while Safeguarding Livelihoods

• If policy makers want to reduce HPAI risks to

animal and human populations, without undue adverse effects on the poor, they need cost- effective means to identify local outbreaks and contain them.

• The information needed to accomplish this

exists, but it has until now been very difficult to

• btain and implement.
• Evidence suggests that local communities are

well aware of infection patterns, but reporting processes are plagued by inefficiency and incentive problems.

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Socially Effective Risk Management

Recognizing economic realities in livestock production and livelihoods, we propose a three part program to manage animal disease risk:

• Surveillance
• Control
• Traceability

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Surveillance

We are beginning research to examine alternative policy designs that facilitate early detection of

• utbreaks.
• Effective surveillance combines
• incentives for collective responsibility and self-reporting
• takes account of resource constraints of different

communities

to develop mechanisms that

• reduce health risk
• protect economic survival of the producers.

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Control

• Cost effective decentralization of control capacity

is essential to the long-term success of disease management.

• In the HPAI epicenter countries, this will require

new command and incentive relationships between district and provincial authorities, the central government, and outside stakeholders (NGOs, aid agencies, etc.).

• Regional participation and coordination are

necessary for sustained risk reduction.

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Traceability

Defined:

• An important class of strategies are

mechanisms to trace the movement of agricultural products through the food supply chain.

• Traceability has value for government,

consumers, and producers, reducing health risk while increasing the effectiveness of demand targeting and raising value-added by

• rigin.

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Traceability: Advantages for Stakeholders

Government - Testing moves downstream to reduce

search costs (funneling), from extensive to intensive screening, reducing scope of surveillance systems.

• Accountability: Increased risk for noncompliance.
• Rapid Identification: Reduced scope and time for disease

incubation, lowering mutagenic risk.

• Lower Control Cost: More effectively targeted culling.

Consumers

• Food and disease risk reduction
• Quality improvement
• Product differentiation

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Traceability: Producer Advantages

• Market access/value chain participation
• Technology transfer
• Extension services
• Network externalities (CE, marketing

boards, producer coops)

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Traceability: Producer Behavior

Incentive Effects:

• Certification/branding and quality incentives (e.g.

French AOC wine, coffee)

• Brands are collateralizable assets
• Bargaining power

Program Implications:

• Voluntary participation for value chain entry
• Experiment with membership fees to finance SPS

infrastructure

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Market Flow: Resources and Income

Supply Chain – Resource Flow

Incentives:

Quality Technology Transfer

Behavior: Market Participation Risk Management

Producers

Value Chain – I ncome Flow

Consumers

D i s t r i b u t

• r

s P r

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e s s

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s D i s t r i b u t

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s R e t a i l e r s

Traceability

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IPALP Otte, Roland-Holst, & Kazybayeva 33 .0 .5 1.0 1.5 Unlabeled Labeled Unlabeled Labeled Unlabeled Labeled Unlabeled Labeled Unlabeled Labeled Farmer Distributor Processor Distributor Retailer Poultry Value

Poultry Value Chain

Initial Price Upgrade Price

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• 5. Conclusions
• Livestock can make a substantial

contribution to poverty reduction, but pro- poor policies need targeting

• Effective, market oriented livestock

promotion has significant potential to

• Increase output quantity, quality, and prices
• Reduce cost with improved distribution

technology

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Conclusions - HPAI

• Policies toward HPAI and other significant animal

diseases in developing countries necessarily implicate the rural poor majority.

• These people need to be recognized as part of the

solution to reducing disease risk, not the problem.

• Despite the global momentum for rapid and

intensive measures to control poultry stocks and restructure management practices, socially effective policies must address the economic and institutional realties poor rural majority populations.

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HPAI 2

• Because of diverse initial conditions, national

policies cannot be decentralized effectively without close attention to local incentives. One size will not fit all local conditions.

• Driving the problem underground can increase

contagion risk and more seriously disrupt rural markets/livelihoods.

• Well designed monitoring and traceability systems

can improve the terms of market access for the rural poor, making them better off as a result of risk reduction policies.

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DISCUSSION DISCUSSION