Livestock Market and Mortality Risk

in East Africa

Christopher B. BarrettVet Med 6273 Guest Lecture

January 31, 2012

Overview Livestock’s role in east

African economic development

Wealth accumulation

and mortality risk Market risk Conclusions

Livestock’s role in development

Livestock as input Manure: mitigating soil

degradation, spatial redistribution of nutrients

Traction services Transport services

Result: Improved productivity of agricultural or non-agricultural enterprises.

Livestock’s role in development

Livestock as a production system

Milk and blood (and social prestige): renewable outputs from a single animal

Meat, hides and skins: nonrenewable output from a single animal

Reproduction: dividends from the asset

Result: Income stream generated directly by livestock

Livestock’s role in development Livestock as a quasi-financial asset, providing savings and insurance

Store of value (walking bank) Sometimes sold to stabilize

incomes Collateralizable for credit

Result: Livestock can play a valuable role where access to conventional financial products is limited or where such products are unattractive.

Wealth accumulation and mortality risk

Not everyone is equally able to acquire or

maintain livestock Agroecological differences (disease, aridity,

etc.) Lumpiness of investment (Dercon, JDE 1998) Threshold effects (Lybbert et al. EJ 2004) Herder ability (Santos and Barrett 2006)

0

10

20

30

40

50

60

70

Year

Med

ian

ho

use

ho

ld h

erd

siz

e Trend line: Herd1980+t = 51.3-1.7t

Wealth accumulation and mortality risk

Pronounced cattle cycles are common And accumulation dynamics are often highly nonlinear

Examples from Boran pastoralists, southern Ethiopia, per Lybbert et al. (2004 EJ)

Mortality risk: Resource competition: Is there really a “tragedy of the commons” any

place lacking private land rights? Rainfall Disease

How idiosyncratic or covariate are these risks (i.e., what’s the best way to deal with them)?

In southern Ethiopia, we find that, rainfall aside, mortality risk is idiosyncratic w/o any significant tragedy of the commons effect (see also McPeak 2005, Human Ecology, similar findings from northern Kenya). But rainfall is a major covariate risk (on which, more later).

Wealth accumulation and mortality risk

2.5 3.0 3.5 4.0 4.5 5.0 5.5(a) Ln(Average community herd size)

0.00

0.05

0.10

0.15

Mortality rate

Fig. 3. LOESS estimates of mortality rates, conditioned by (a) average community herd size and (b) own herd size, southern Ethiopian Boran pastoralists

0 2 4 6(b) Ln(Own herd size)

Wealth accumulation and mortality risk

Livestock market risk

Prices fluctuate dramatically

covary negatively with mortality … wealth hypervariable in livestock, unlike cropping systems where market prices covary negatively with yields, thereby stabilizing incomes and wealth.

rainfall, quarantine, seasons affect prices dramatically

limited spatial market integration, i.e., major price disconnects across distinct geographic markets

Nairobi-Marsabit price differentials (“basis”)

Livestock market risk

Estimated Effects of Drought On Livestock Prices(hypothetical drop of 200 and 300 mm over 3 and 12 months, respectively)

Percent Price Change

Males Females

Camels Marsabit -3.1 -4.6

Moyale -8.1 -11.9

Cattle Marsabit -22.1 -52.3

Moyale -33.4 -47.5

Goats Marsabit -14.6 -17.4

Moyale -12.2 -16.3

Sheep Marsabit -21.3 -34.1

Negative correlation exists between price and mortality because rainfall drives both lactation/reproduction and mortality.

- big variation among species

Source: Barrett et al. (2003 J. African Economies)

Livestock market risk

For animals traded long distance, intermarket margins are the source of most livestock price risk. For animals traded locally, local market conditions key:- Auction vs. dyadic exchange- # traders/lorries (partly a function of food aid backhaul capacity)- vet services availability is negatively associated with market price due to vet care endogeneity in markets (reflects disease problems that drive price down)

Livestock market risk

Animal disease control measures matter to prices (Barrett et al., 2003 J. African Economies)

Estimated Effects of Quarantine On Livestock Prices

Percent Change

Males Females

Camels Marsabit -9.1 -6.4

Moyale -6.2 -3.7

Nairobi 0.2 0.1

Cattle Marsabit -23.7 -12.2

Moyale -16.1 -7.4

Nairobi 2.4 2.2

Goats Marsabit -2.1 -2.4

Moyale -1.1 -1.0

Nairobi 0.4 -0.1

Sheep Marsabit -5.9 -2.7

Nairobi 0.2 0.1

Livestock market and mortality riskRisks are much broader than just livestock, however, and livestock-related risk is minor to many livestock-dependent peoples

- Livestock disease, prices and pasture availability of greatest concern to wealthier men in Ethiopian/Kenyan pastoralists(Smith et al., JDS 2001)

- Poorer households more concerned about food security, human health, (Doss et al. World Dev’t 2008).

- Development priorities among pastoralists are typically related to health, education and security, not livestock production/marketing (McPeak et al. J. Dev’t Studies 2009)

Index-based livestock insurance

Drought-related covariate livestock mortality risk is key. A new, commercial index-based livestock insurance (IBLI) product launched in Marsabit, northern Kenya in Jan 2010.

Now being adapted and extended to Ethiopia and expanded to other ASAL districts in Kenya. Also being adapted to other contexts (e.g., hornbills conservation in southern Thailand, Chantarat et al. PNAS 2011)

ConclusionsLivestock play a major role in rural

development in east Africa- as inputs to ag/non-ag enterprises- as production systems- as quasi-financial asset

But …- not everyone has equal access- mortality and market risk are considerable and tend to be mutually reinforcing, making livestock keeping a high risk-high reward activity.- working on developing viable insurance for livestock assets

Thanks very much for your comments and questions!