Module 5 Buffer Role of Agriculture in Times of Crisis: The Ghanaian Experience

1. Module 5Buffer Role of Agriculture in Times of Crisis: The Ghanaian Experience Principal Investigator: Daniel Bruce Sarpong Collaborator: S. Asuming-Brempong Department of Agricultural Economics & Agribusiness University of Ghana, Legon-Accra GHANA

2. Background to the study • Ghana’s economy hit by internal and external shocks: mid 1970s to mid 1980s • Some Macroeconomic crisis indicators • Labor Market severely affected

3. Buffer Role of Agriculture Broadly defined Agriculture’s ability to absorb non-agricultural dependent HH in urban and rural areas in times of macroeconomic shocks/crises

4. CONTEXT OF STUDY • Primarily focuses on the positive externality role of agriculture in the economy. • 1983 - 2000 • Specifically on the implicit value of the informal insurance role that HH play in supporting family members who lose jobs acquired upon migrating to urban areas

5. General Objective To document, assess and characterize agriculture’s ability to act as a buffer when economic shocks hit the urban labor market and how agriculture influences non-agricultural dependent HH.

6. Methodology of the Study • Data • Descriptive Evidence of macroeconomic crises in Ghana • Descriptive Evidence regarding labor market adjustments • Descriptive evidence of Formal/informalsafety nets

7. Methodology continued... • Analysis of the role of agriculture in times of crisis: • Descriptive evidence at Macro-level • Descriptive evidence at Micro-level

8. Methodology continued….. • Econometric work (HH level) : implicit value of the informal insurance role • The test is based on the Remittance function(Stark, 1991; Lucas and Stark, 1985, Hoddinot, 1992; etc)

9. Remittance Function contd…. • The basic model for urban to rural transfer is: R = d0 + d1y + d2W + d3Z + d4FA + d5MA + d6 Mills R i + di Xi + ei • For the rural to urban transfers, the estimated model is: R = b0 + b1y + b2Xi + b3Z + ui • An equation of the probability of being employed is estimated: Pi = c + g Xi +  Di Z = (1 – Pi) is derived • The main hypothesis tested where Ho is the null and Ha the alternative, is: • Ho: d3 = 0 • Ha: d3 > 0

10. KEY RESULTS Agriculture role at the macro level during crisis (the widely perceived fundamental contributions of agriculture) • employment • exports • revenue (general and for social services) • food supply • etc

11. Results contd…... • Ease of entry into agriculture • allowed the populace to draw directly on nature (food/nutrition/diet shifts) • reactivation of rural enterprises utilising local inputs such as wood and wood extracts • etc

12. Results contd…At the micro level………..Agriculture role at the micro level during crisis:Reverse migration Source: Table adapted from Canagarajah and Mazumdar (1997)

13. Results contd….. Reverse migration effects and incomes in rural vrs urban areas Source: Canagarajah and Mazumdar (1997). AEU--Adult equivalent units

14. Results contd….. Agriculture role at the micro level during crisis: Remittances (value of cash, food or goods) Proportions 1991/92 GLSS 3 • From Urban to Rural households: 5.7 percent of total remittances from urban • From Rural to Urban households: 36 percent of total remittances from rural 1998 GLSS 4 • From Urban to Rural households: 3.1 percent of total remittances from urban • From Rural to Urban households: 52 percent of total remittances from rural Absolute (real 1991 cedis) 1991/92 GLSS 3 • From Urban to Rural households: 2 billion cedis • From Rural to Urban households: 9 billion cedis 1998 GLSS 4 • From Urban to Rural households: 2.9 billion cedis • From Rural to Urban households: 26.3 billion

15. MIGRANTS REMITTANCE EQUATION: Dependent variable: log (REMIT) • VARIABLE DESCRIPTION ALL MIGRANTS (Estimated Coeff) (Only variables statistically significant reported) Constant 3.215* Emprisk Z 7.3277*** log (FPCI) 0.3771*** log (LAND) 0.1451*** DCHILD*SEX 0.5666* SEX (Male = 1) 0.6367*** Location of H of H in rural coast 0.3407* Educ of H of H (Kinder + Prim) 0.4161* Educ of H of H (Mid + JSS) 0.3850* Dummy for Spouse 1.1678*** N = 252 (*), (**), (***) Sig. at 10, 5 and 1 percent

16. HEADS OF HH REMIT EQUATION: Dependent variable: log (TOTREMIT) • VARIABLE DESCRIPTION ALL Heads of H (Estimated Coeff) (Only variables statistically significant reported) Constant 3.0015*** Emprisk Z -2.2179** log (PCI) 0.6188*** DCHILD 0.2490*** DCHILD*SEXM 0.2429** Where migrat lives (Accra) -0.1633* Where migrat lives (Kumasi) 0.2001** Educ of H of H (Learnt Trade) 0.2759** Dummy for Spouse 0.6544*** Dummy for Kin -0.2633*** N = 1,918 (*), (**), (***) Sig. at 10, 5 and 1 percent

17. Deductions and Policy Implications Focusing on the buffer role of agric at the HH level, the main conclusion is • The rural household support system points to a much more enhanced role of the rural sector as an institutional set-up complementing an incompleteness in formal social security markets. Agriculture (rural HH) is not just a source of food, employment, income and of labor supply. The question is: How do we enhance the existence and effectiveness of this positive externality whereby agriculture (the rural sector) engages in unemployment risk sharing schemes? We see that: • As RHPCI increases, there is an increase in remittances from migrants (premiums goes up, increasing investment funds at the rural level) • As RHPCI increases, there is increased remittances to migrated HH members to cushion economic effects The solution lies in helping the rural sector reduce aggregate risks in income through increased rural activity diversification. The policy implications include • Rural infrastructure improvements (roads, electricity, education, health) • PSI -like focus, etc These are areas where government policies could focus to enhance the role of agriculture in response to mitigating macro-shocks in an economy.