Effects of Agriculture on Economic Growth
The Ethiopian rural development strategy and policy fundamentally depend on small-scale farmer-led industrialization (ADLI) as an engine for economic development. ADLI builds on theories from the 1960s in which smallholder farming developed primarily to facilitate demand for industrial commodities and provide inputs for industrialization. ADLI aims at enhancing agricultural production for overall production growth, as well as investing in those industries with the most production linkages to rural areas.
This strategy assumes that inter-sectoral connections will reinforce the development momentum derived from increasing productivity in both sectors.
In this system, the agricultural sector obtains machinery, chemicals and consumer commodities from the industry in exchange for food and raw materials. ADLI aims to improve the productivity of agriculture by enhancing its practices through increased use of modern fertilizers, advanced seeds, training programs, and establishing infrastructure through small and medium scale irrigation, enhanced micro-financing, and promoting large-scale farming. The Ethiopian government considers advancements in smallholder farming as the center of the entire economic progress given that it accounts for over 80% of the total output.
Since 1992, Ethiopia has made a significant improvement in economic and social progress by implementing suitable strategies and directions that have been influential in enhancing the national economy. ADLI has introduced a new push towards creating a base conducive for overall developmental progress. It emphasizes that smallholding farming-led development will bring about accelerated economic growth, qualify its people to be beneficiaries of its output, and set a concrete basis for industrial development.
Considering its large size, the agricultural sector today and in the future, it’s imperative that continued efforts are made to make it more productive. By and large, it’s the principal employer, contributing most exports and the largest output. Although some labor has been shifted out of agriculture, considerable shifts are likely to take a long time. Moreover, it has been a vital determinant of poverty alleviation for the past two and a half decades. Each percent of GDP growth reduces by 0.55 percent, but each percent of agricultural growth reduces poverty by 0.9 percent. Consequently, further labor productivity improvements are indispensable for Ethiopia’s future prospects.
Why did ADLI focus on a broad-based small farmer strategy? Is there any reason behind it? As clearly indicated by the rural strategy, there is a need for a strong case for equity and efficiency in providing all Ethiopians with the human capabilities to participate in the overall development process – which is vital to the core principles of the government.
This implies providing basic services for all and steadily improving service packages over time. Under current plans, such a package is likely to include basic schooling, health service, water and sanitation, rural roads, nutrition, and food security – with rural electrification and telecoms as a further step. Another reason is that increasing the productivity of small farms is necessary and feasible to make rapid inroads into poverty in the medium term. Constructing scenarios for rapid income and poverty alleviation without broad-based productivity enhancements in cereals and other crops is difficult. This is because eighty percent of the total labor comprises smallholders engaged in farming, which is dependant on cereals that account for 89 percent of the total area under temporary crops (CSA, 2010). This data also aligns with our findings that agriculture still dominates and has a high share of GDP.