The economywide effects of teff, wheat, and maize production increases in Ethiopia: Results of economywide modeling

The government of Ethiopia is investing significant public resources to increase overall national production of teff, wheat, and maize. To better understand the likely economywide effects of increases of between 12 and 14 percent in the national production of these cereals, a set of production increase scenarios for each crop were run using a computable general equilibrium model of the Ethiopian economy. The analyses were extended to also consider the effects of several international wheat price and wheat import scenarios, a wheat subsidy program, and maize exports. Among the effects considered are changes in economic growth, prices, total household consumption, cereal and calorie consumption levels, and poverty measures.

The model estimates that the Ethiopian economy would be 1.4 percent larger if the desired production increases for all three cereals were jointly achieved. However, the cereal production increases do not bring about much change in the structure of the economy of Ethiopia. While the agriculture sector expands by 3.1 percent, there is virtually no increase in the size of the nonagricultural sector as a result of increased cereal production. The impact of these cereal initiatives on the consumption and welfare of various household groups in the country are uniformly positive—higher consumption and reduced poverty. However, different household groups benefit depending on which cereal sees its production levels rise. Teff production increases will provide greatest benefits for urban consumers, particularly poor urban households, while the economic benefits of increases in maize production will principally flow to rural households, both poor maize consumers and maize producers. The benefits of increased wheat production are more evenly shared.

Turning to the economic effects of the crop-specific policies or programs evaluated using the model, the analyses of wheat imports demonstrate that Ethiopia’s reliance on international sources for about one-fifth of the wheat that it consumes exposes it to volatility in international wheat markets. However, we also found that with a drop in wheat imports, Ethiopian wheat producers can be expected to produce about 80 percent of the reduction in imports. The analysis of the wheat subsidy program showed that this urban-targeted program results in lower welfare for rural households, as the increased income for wheat producers resulting from the increased demand associated with the subsidy program is smaller than the aggregate cost of the higher wheat prices that result, which unsubsidized rural wheat consumers must face. Finally, the results of the maize export scenarios were not unexpected—higher maize prices and reductions in maize consumption affecting the poor more than the nonpoor—while maize producers realize benefits to their welfare.