Distortions to agricultural incentives in Ethiopia

Distortions to agricultural incentives in Ethiopia

Over the past half century, Ethiopia has gone through three ideologically distinct political regimes: the monarchic regime during 1950-1974, the central planning regime during 1974-1991, and the regime that has been in power since the collapse of Derge regime in May 1991. Each shift in political regime has been marked by dramatic change in economic policies with direct implications for the agricultural sector in terms of both accesses to factors of production and marketing of inputs and outputs. During the monarchic regime, the land tenure system was complex, private transfer of land was practically non-existent, and ownership was skewed with the state and the church maintaining control over large shares of agricultural land. In fact, it was one of the central forces that mobilized rural peasants and urban intelligentsia, with the popular slogan, 'land to the tiller', which eventually brought down monarchic regime in 1974.

The objective of this chapter is to trace out the broad policies under different political regimes and examine how they affected agricultural incentives, economic growth, structural changes, and poverty over time. The author provide a brief history of politics and policy evolution, examine the trends in growth and structural changes across sectors and within agriculture, catalog the changes in agricultural pricing, taxation, and investment policies, and estimate the extent of distortions to agricultural incentives for selected commodities. The analysis covers the time period 1981 to 2005, and generates estimates of distortions for eight commodities which together account for about 80 percent of export value and about 60 percent agricultural value added.