How costly is it for poor farmers to lift themselves out of subsistence?
2006
O. Cadot | L. Dutoit | M. Olarreaga
Putting to an end two decades of anti-market policies, in the mid-1990s a wave of reforms swept across sub-Saharan Africa. They were intended to improve the effciency of agricultural markets by eliminating failed marketing boards and to reduce the distortions affecting producer prices and incentives. In retrospect, it seems as though these reforms have achieved a great deal less than was initially hoped. The transitory nature of poverty means that many farmers have been forced into and out of subsistence. The main objective of this paper is to provide estimates of the cost of moving out of subsistence for Madagascar's farmers.The analysis is based on a simple asset-return model of occupational choice. The study finds the following:the order of magnitude of entry cost seems to be very large - more than one year of the typical subsistence farmer's output valued at market pricessuch a large entry barrier implies the persistence of relatively large returns differentials between subsistence and market farming - it also makes subsistence farming a form of poverty trapbecause Malagasy agriculture has a very low productivity, it turns out that the opportunity cost of subsistence farming is small relative to the overall economy - moving all farmers out of subsistence would add a meagre 0.46 percent to Madagascar's GDPthe above results make it possible to identify farm characteristics likely to generate large gains if moved out of subsistence, yielding useful information for the targeting of trade-adjustment assistance programs.
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