Notes Toward a Research Program CHRISTOPHER UDRY Department

AfJARE Vol 5 No 1 September 2010 Christopher Udry The economics of agriculture in Africa: Notes toward a research program CHRISTOPHER UDRY Department of Economics, Yale University Why are agricultural yields so low and growing so slowly in Africa? Using simple models, this paper proposes a research program to uncover the reasons for the low levels of input intensity and slow pace of technological innovation in African agriculture. Attention is focused on the relative prices of output and factors of production, credit constraints, imperfect insurance, learning externalities and insecure property rights. A set of research projects is proposed to examine these hypothesized sources of low and slow growing productivity. Keywords: agriculture; technology adoption; Africa JEL codes: O33; Q18; O13 Comment se fait-il qu’en Afrique le rendement agricole soit si faible et que la croissance soit si lente ? Grâce à de simples modèles, cet article propose un programme de recherche pour découvrir les raisons responsables des niveaux faibles de l’intensité de la production et du rythme lent de l’innovation technologique de l’agriculture africaine. L’accent a été mis sur les coûts de rendement et les facteurs de production relatifs, les contraintes en matière de crédit, les assurances imparfaites, les externalités en matière d’apprentissage et l’insécurité des droits de la propriété. Cet article suppose que les facteurs énumérés ci-dessus représentent les causes d’une productivité faible et lente et propose un ensemble de projets de recherche qui les examinera. Mots-clés : agriculture ; adoption des technologies ; Afrique Catégories JEL : O33 ; Q18 ; O13 1. Introduction The World Development Report 2008 (World Bank, 2007) provides a vivid account of the recent history of agrarian change in sub-Saharan Africa. Figures 1, 2 and 3 reproduce perhaps the most striking trio of figures in the document. One can surely quibble with the numbers that underlie these figures. Nevertheless, the overall conclusion is quite clear and remarkable. The first shows that over the past 40 years agricultural yields have been remarkably low and slow growing in Africa: output growth has been a consequence of the extension of agriculture onto new land rather than any increase in yields. The second shows that labor productivity in African agriculture has grown at a very slow rate. The third shows that the intensity of input Correspondence: [email protected] 284 AfJARE Vol 5 No 1 September 2010 Christopher Udry application – irrigation, improved varieties, or fertilizer – has been similarly low and stable. These broad features of the recent past of agriculture in Africa cry out for explanation. 300 280 260 Asia 240 220 200 180 160 Sub-Saharan Africa 140 120 100 100 120 140 160 180 200 Area (1961=100) Figure 1: Expansion of area harvested and yield of cereals in Asia and sub-Saharan Africa, 1961–2004 Source: World Bank, 2007 4 3 2 1 Annual growth rate (%) 0 SSA SA EAP MENA LAC Ag GDP Ag GDP/Ag population Figure 2: Annual growth in agricultural GDP and agricultural GDP per capita of agricultural population by region, 1980–2004 Source: World Bank, 2007 Note: SSA: Sub-Saharan Africa; SA: South Asia; EAP: East Asia and Pacific; MENA: Middle East and North Africa; LAC: Latin America and Caribbean 285 AfJARE Vol 5 No 1 September 2010 Christopher Udry Irrigation 1962 (percent of arable and permanent 1982 SSA 4 SA 39 2002 EAP 29 MENA 33 ECA 11 LAC 11 0 5 10 15 20 25 30 35 40 45 Improved varieties of 1980 cereals SSA 24 2000 SA 77 EAP 85 MENA 48 LAC 59 01020 30 40 50 60 70 80 90 Fertilizer consumption 1962 (kilogram per hectare of arable and permanent cropland) SSA 13 1982 SA 98 2002 EAP 190 MENA 73 ECA 34 LAC 81 02040 60 80 100 120 140 160 180 200 Figure 3: Expansion of factor use in agriculture by region, 1962–2002 Source: World Bank, 2007 Note: SSA: Sub-Saharan Africa; SA: South Asia; EAP: East Asia and Pacific; MENA: Middle East and North Africa; LAC: Latin America and Caribbean; ECA: East Asia and Pacific. For irrigation in EAP, the percentage shrank between 1982 and 2002, hence the odd-looking bar. 2. Understanding low yields in African agriculture Why are yields and input intensity into agriculture so markedly lower in Africa than in other areas of the developing world? It is useful to recall the standard, workhorse agricultural household model to focus our discussion. The baseline agricultural household model with complete markets provides a useful starting place for thinking about features of the environment in which African farmers operate that provide initial hypotheses for why yields and input intensities are low. Further explanations suggest themselves when we enrich the model by considering some of the market imperfections that might be important for many farmers in Africa. Three possible imperfections are particularly salient. The possibilities that farmers face binding credit constraints and incomplete insurance markets and hold insecure property rights are potentially important explanations for the broad patterns we observe in African agriculture. As a consequence, we need a model that permits some dynamics and risk. 286 AfJARE Vol 5 No 1 September 2010 Christopher Udry Therefore, consider a farmer with a planning horizon over periods t T (say, t 0,1,...T ), and we index the potential states of nature that can occur in each period by s S . Let cst be a vector of goods consumed by the farmer in state s of period t, and c be the concatenation of all those vectors. Similarly, let lst be the leisure consumed by the farmer in state s of period t, and l be the concatenation of those numbers. Let the farmer’s preferences over consumption and leisure, then, be summarized by the utility function u(c,l). 1 Farmers have access to a farming technology summarized by the production function Fs (Lt1, X t1, At1) , which designates the amount of output produced in period t if state s occurs given inputs of labor Lt1 , non-labor inputs (like fertilizer) X t1 , and land At1 . We assume that Fs (.) is increasing in all its arguments, concave and continuously differentiable. We start by assuming that the farmer is faced with complete markets, that is, there are complete product, labor and land rental markets, he can borrow or lend freely and can buy insurance for each state of nature. This is equivalent to assuming that there exist prices for each commodity and input in each period and each state. Designate the vector of these prices for consumption goods as pst , inputs as qt , labor as wt , land as rt , and farm output as st . The farmer's endowments of land and labor, which may vary across periods, are designated e e At and Lt . In this case, the farmer's problem can be described as max u(c,l) c,l, Lt , X t , At (1) subject to e e wt Lt rt At t wt lt pstcst 0 tT sS (2) c,l,L , X , A 0,l Le , t t t t t (3) where t st Fs (Lt 1, X t 1, At 1) w t 1Lt 1 qt 1X t 1 rt 1At 1. sS (4) 1 A common special case specification would be Von Neumann-Morgenstern preferences: T t u(c,l) st v(cst ,lst ) t0 sS where st is the probability of state s occurring in period t . 287 AfJARE Vol 5 No 1 September 2010 Christopher Udry (2) is the full-income budget constraint: simply put, it states that the farmer’s aggregate expenditure on consumption and leisure, over the entire planning period and across all possible states of nature, must be no higher than the value of his endowment of land and labor, plus the profits he earns on his plot. In any state, and at any period, those profits, in turn, are simply the value of output (at that state- and period-specific price) minus the cost of all inputs (including, of course, the farmer’s own labor, which may be part of Lt ). Farmers choose inputs in period t 1, before the realization of the state in period t.2 In this case, the problem has the well-known recursive feature that leads to the separation of production from consumption decisions by the farmer. Notice that the farm input decisions {Lt1, X t1, At1} appear only in (4) (and the non-negativity constraints), and that increases in t relax the farmer’s budget constraint. Hence the farmer’s problem can be written as max u(c,l) c,l (5) subject to e e wt Lt rt At t wtlt pst cst 0 tT sS (6) and e c,l 0,lt Lt . Where the farmer chooses only consumption and leisure and the t in equation (2) has been replaced by t , which is the maximized value of profit: t max st Fs (Lt1, X t1, At1) wt1Lt1 qt1 X t1 rt1 At1 L , X , A t1 t 1 t 1 sS (7) Production decisions, then, are separable from consumption choices: the farmer simply maximizes profits at the competitive market prices. His preferences over risk, his impatience, his desire for leisure versus specific consumption goods are all irrelevant to the production choice. The farmer increases the intensity of use of any particular input until its marginal value product equals its cost. For example, if fertilizer is the i th element of X , then the 2 The reader will have noticed that the probability that state s occurs in period t, st, appears nowhere explicitly in this problem.

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