Local-Economy Impacts of Cash Crop Promotion

Local-economy impacts of cash crop promotion by J. Edward Taylor Edward Whitney Heng Zhu IFAD 40 RESEARCH SERIES 1 The IFAD Research Series has been initiated by the Strategy and Knowledge Department in order to bring together cutting-edge thinking and research on smallholder agriculture, rural development and related themes. As a global organization with an exclusive mandate to promote rural smallholder development, IFAD seeks to present diverse viewpoints from across the development arena in order to stimulate knowledge exchange, innovation, and commitment to investing in rural people. The opinions expressed in this publication are those of the authors and do not necessarily represent those of the International Fund for Agricultural Development (IFAD). The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of IFAD concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The designations “developed” and “developing” countries are intended for statistical convenience and do not necessarily express a judgement about the stage reached in the development process by a particular country or area. This publication or any part thereof may be reproduced for non-commercial purposes without prior permission from IFAD, provided that the publication or extract therefrom reproduced is attributed to IFAD and the title of this publication is stated in any publication and that a copy thereof is sent to IFAD. Authors: J. Edward Taylor, Edward Whitney, Heng Zhu © IFAD 2019 All rights reserved ISBN 978-92-9072-942-6 Printed September 2019 Local-economy impacts of cash crop promotion by J. Edward Taylor Edward Whitney Heng Zhu IFAD 40 RESEARCH SERIES Acknowledgements This study owes its support to the Government of Uganda, the United Nations International Fund for Agricultural Development (IFAD), Kalangala Oil Palm Growers Trust (KOPGT) and Bidco Uganda Ltd. We are greatly indebted to the Ministry of Agriculture team comprising Richard Kabuleta, Steven Kayongo, Maxmillian Tusiime and David Gavamukulya for their excellent assistance throughout the project. We would like to thank IFAD’s country director, Alessandro Marini, IFAD's Lead Economist Romina Cavatassi and two anonymous IFAD referees for their comments and insights. Special thanks go to our dedicated LEWIE enumeration team: Saidah Namusoke, Kato Frobisha, Aaron Edeu, Hellen Apo, Shakira Mbwali, Doreen Wagaba, Georginah Tondo, Carol Kisakye, Patricia Akot, Emilly Kibukuna, Hilda Nakabugo and Sandra Mary Kaitesi. Without their dedication, this research would not have been possible. Any mistakes and inaccuracies remaining in this article are solely the responsibility of the authors. About the authors J. Edward Taylor is a Professor of Agricultural and Resource Economics at the University of California, Davis. He is a Fellow of both the Agricultural and Applied Economics Association (AAEA) and the American Association for the Advancement of Science (AAAS). Ed co-authored the award-winning book Beyond Experiments in Development Economics: Local Economy-wide Impact Evaluation (Oxford University Press, 2014), Essentials of Development Economics (University of California Press, 2015), Essentials of Applied Econometrics (University of California Press, 2016) and Worlds in Motion: Understanding International Migration at the End of the Millennium (Oxford University Press, 2005). He is listed in Who’s Who in Economics as one of the world’s most cited economists. Ed has advised numerous foreign governments and international development agencies on matters related to economic development, and he has been an editor of the American Journal of Agricultural Economics. Edward Whitney is a PhD student in the Agricultural and Natural Resource Economics Department at the University of California, Davis. His primary research focuses on infectious diseases and natural resources in developing countries. Heng Zhu is a PhD candidate in the Agricultural and Natural Resource Economics Department at the University of California, Davis. His primary research involves migrants and displaced populations. Oversight: Paul Winters, Associate Vice-President, Strategy and Knowledge Department. Advisory Board: Fabrizio Bresciani, Shirley Chinien, Edward Heinemann, John Hurley, Bruce Murphy, Lauren Phillips, Paolo Silveri and Abdelkarim Sma. Editorial Management Team: Aslihan Arslan, Helen Gillman and Laura Sollazzo. 2 Table of contents Acknowledgements ................................................................................................................... 2 Abstract .................................................................................................................................... 4 1 Introduction ........................................................................................................................... 5 2 Background .......................................................................................................................... 7 2.1 Survey background ....................................................................................................... 8 2.2 Household demographics and livelihood activities............................................................... 8 2.3 Land use and oil palm activity �� 12 2.4 The emergence of the tourism industry ........................................................................... 14 3 LEWIE model calibration ....................................................................................................... 15 3.1 LEWIE methodology ................................................................................................... 15 3.2 Household and activity taxonomies ................................................................................ 16 3.3 Estimation of model parameters .................................................................................... 16 4 Results ................................................................................................................................ 19 4.1 Impact of additional acreage in oil palm .......................................................................... 19 4.2 Impacts of oil palm price shocks .................................................................................... 22 4.3 Impacts of increased productivity on oil palm plantations ................................................... 23 5 Conclusion ........................................................................................................................... 25 References .............................................................................................................................. 27 Appendix ................................................................................................................................ 29 3 Abstract A number of studies have examined the direct impacts of cash crop production on producer households. This is the first to quantify the general equilibrium impacts of introducing a new cash crop into a poor isolated economy, including impacts on environmentally sensitive fishing activities. We find that the introduction of oil palm production explains the striking growth in income in Uganda’s Ssese Islands, including large-scale production spillovers to non-palm sectors, as well as a significant reduction in pressure on the Lake Victoria fishery. It appears that oil palm development, via a project that connected a commercial aggregator with small-scale farmers, enabled an economy at a low-level equilibrium to transition to a higher equilibrium state, with positive spillovers across households as well as across production sectors. Econometric evidence confirms results from simulations using an island-wide general equilibrium model parameterized from new micro survey data. 4 1 Introduction Promotion of high-value cash crops frequently is an important component of agricultural intensification and diversification, especially in light of a rapid transformation and modernization of the global food system (Maertens et al., 2012; Mergenthaler et al., 2009; Reardon et al., 2009). The links between cash crop production and rural incomes are both direct and indirect. Govereh and Jayne (2003) found evidence that cash crop production can have synergistic effects on other household activities, including investments in food production. Gockowski and Ndoumbé (2004) concluded that export crop promotion in Cameroon indirectly facilitated agricultural diversification. Masanjala (2006) reported that cultivation of burley tobacco in Malawi was associated with higher income as well as higher food purchases. Not all research is optimistic, however. Some question whether export-oriented agricultural development is as environmentally sustainable as food production for domestic consumption. Barbier (1989) rejects this assertion for Indonesia, finding that major cash crops, including oil palm, are associated with significantly less soil erosion than staple root crops and noting “the main obstacle to sustainable agricultural development is the failure of any economic policy, whether promoting food crops or exports, to address adequately problems of resource management”. Others question whether cash crop promotion impacts poverty in areas with missing or imperfect capital and insurance markets,

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