Department of Agricultural, Food, and Resource Economics Food Security Group

IDWP 135. Donald Snodgrass. 2014. Agricultural Transformation in Sub-Saharan Africa and the Role of the Multiplier, A Literature Review

EXECUTIVE SUMMARY:
In the coming decades, Sub-Saharan Africa (SSA) could see a major humanitarian crisis. If
rapid population growth continues and agricultural productivity rises slowly or not at all,
large increases in the working-age population and daunting problems of food supply, poverty,
and underemployment will result. Lowered population growth, job creation, and higher
agricultural productivity are all needed to avert impending disaster. If a way can be found to
bring about substantial increases in small farm productivity, the crisis may be averted.
Multiplier effects could increase the benefits that accrue to the rural economy.

Projections of food demand and supply for Africa are daunting. Demand for food is expected
to rise by 2.9% a year from now to 2050, largely as a result of population growth that could
expand the continent’s population from 1.1 billion today to 2.4 billion by 2050. Yet
productivity growth in agriculture averaged only 1% a year from 2001 to 2010. If that growth
rate were to persist until 2050, Africa would be able to meet only 25% of its total food
demand in that year. Obviously, greatly reduced fertility (the average woman gives birth
more than five times) and much faster growth in agricultural productivity are both needed.

Economic growth has resumed in the past 20 years in many SSA countries and several
positive signs of change have emerged, but the kind of far-reaching economic transformation
that accompanied long-term economic development in other world regions is not yet
apparent. To avert catastrophe over the coming decades, SSA must undergo radical economic
transformation. Its economic future must be very different from its past. At the macroeconomic
level, the relative importance of the agricultural sector in both gross domestic
product (GDP) and employment must decline sharply while the corresponding shares of
manufacturing, construction, and high-value services rise.

Yet it will be a long time before SSA’s economic structure is so radically transformed. What
happens in agriculture and the rural economy more generally will continue to be of great
importance for decades to come. Agriculture must grow to feed the rising population, earn
foreign exchange, supply labor to expand employment in the industrial and service sectors,
and provide a market for growing manufacturing output. To do all these things, the sector
itself must be transformed. Agricultural technology must be modernized, commercialization
increased, and non-agricultural rural activities made more productive so that they can provide
a rising share of income for rural households.

In low-income countries, such as most of those in Sub-Saharan Africa, development can be
described as agriculture-based. Agriculture’s contributions to development are enhanced by
the multiplier effect. Studies using varied methodologies have placed the average value of the
multiplier in SSA around 1.5. That is, a $1 increase in agricultural income—brought on, say,
by an investment or technological change—can raise national (or in some studies, non-farm
rural) income by $1.50.

The multiplier has three components: an initial stimulus to income growth, a transmission
mechanism, and a final impact. In the setting of SSA, possible initiating stimuli include
technological change and investment, including infrastructural investment, private
investment, and investment in human capital. Transmission works through several demand
and supply mechanisms that are described in this paper. In terms of impact, while some
aspects of the demand-side mechanism may weaken as countries develop, others will remain
and supply-side mechanisms involving linkages and spillovers will still be important. The
multiplier effect can help raise income levels in rural SSA and strengthen the pull effect on
rural non-agricultural enterprise.

The existence of the multiplier effect strengthens the case for investing in agriculture and
removing any remaining urban bias in government policies. It is important to realize,
however, that much of the multiplier’s power depends on boosting demand for locally
produced products and services that are non-tradable—either inherently (like construction
and many services) or effectively (like basic foodstuffs because of high transportation and
marketing costs). As markets broaden and trade with other regions and countries becomes
easier, the demand-side mechanism driving the multiplier effect may weaken. Even so, the
potential for positive externalities will remain. In the longer run, attention to linkages and
spillovers is likely to be the most important policy implication of the multiplier effect. This
requires improvements in features of the commercial environment for agriculture such as
better communications, improved ways of doing business, and heightened trust among
participants in commercial transactions. It also requires strengthened linkages between
farmers and global value chains, as well as domestic and foreign investors.

There has been much debate over appropriate strategies for agricultural development in SSA,
including whether a Green Revolution strategy to achieve dramatic increases in per hectare
grain yields is feasible. Although this effort faces many difficulties, alternative approaches
(such as primary reliance on commercial agriculture or extensive transfer payments to relieve
rural poverty) appear to pose problems that are at least as great.