The impact of COVID-19 on household income and participation in the agri-food value chain: Evidence from Ethiopia

From Firenze University Press Journal: Bio-based and Applied Economics (BAE)

Margherita Squarcina, Department of Agricultural Economics and Rural Development, Georg-August-University

Donato Romano, Department of Economics and Management, Università Degli Studi di Firenze

The COVID-19 pandemic caused unprecedented disruptions in many value chains at domestic as well as global levels (Moosavi et al., 2022), including the bioeconomy and specifically the agrifood value chains (AFVCs) (Devereux et al., 2020), although significant heterogenous effects were reported. Although some segments of AFVC such as farming have been initially less affected by restriction decisions, downstream segments such as food services, restaurants, and retail as well as midstream segments such as pro-cessing, logistics, and transportation, have been impact-ed since the onset of the crisis. The general conclusion of early studies is that the COVID-19 impact is differ-entiated across different segments of the AFVC as well as within each segment (Diao et al., 2020; Tamru et al., 2020; Tesfaye et al., 2020). The pandemic and the related restrictions imple-mented by governments raised many challenges to indi-viduals and households participating in the AFVC. The ability to absorb, adapt, and even transform the way a livelihood is gained by individuals and households — in short, their resilience to the COVID-19 shock — has been often limited by many factors such as access to technology, financial services, or social safety nets3. Indeed, many agents had limited options to cope with the COVID-19 shock, resulting in income reduction or job loss and eventually increasing poverty and food insecurity. Assessing COVID-19 impacts across AFVC segments and identifying the main factors that determined those impacts on AFVC participants and their options to adapt to the “new normal” is then crucial for designing appropriate responses and targeting the groups most in need should a shock similar to COVID-19 occur again in the future. Using Ethiopia as a case study, this study aims at: (i) assessing which segments of the AFVC have been most affected by the pandemic, in terms of labor participation and income loss; and (ii) identifying which factors at the household level have mostly influenced the impact of COVID-19 on income, and specifically on farm income. Ethiopia has been selected for several reasons. Its econ-omy is mainly based on agriculture, which accounts for 34% of GDP (World Bank, 2021), 80% of the population depends on agriculture (Njeru et al., 2016), and small-holder farming accounts for 95% of agricultural produc-tion (Tigre and Heshmati, 2022). However, new com-mercial and gig economy clusters are emerging in the country, as is the case of intensive vegetable cultivation in the central Rift Valley (Minten et al., 2020). These new activities challenge small farmers’ and small enterprises’ participation in the AFVC, which are compound-ing with already existing structural constraints such as low access to credit and extension, weak labor market, and high transaction costs (Croppenstedt et al., 2003; Bryan et al., 2009; Asfaw et al., 2011; Harvest SA, 2012). In such a situation, the COVID-19 shock could push smallholder farmers and small and medium enterprises out of the market. The first case of COVID-19 in the country was reported on March 13th, 20204. In the same month, the federal government implemented a set of containment measures, such as school closure, physical distancing, and restrictions on gathering and transportation (Baye, 2020). In April, a five-month state of emergency was declared, though economic activities continued to operate. Although farmers could keep working, they faced many challenges. With borders shut, imported inputs were more difficult to find and their price increased (Hirvonen et al., 2021b, 2021c, and 2021d). Moreover, restrictions on movement made it almost impossible for farmers to reach the markets. This eventually led to a drop in agri-food sales, particularly of some vegetables such as tomatoes, papaya, and watermelon (Molla, 2020). The travel restrictions also doubled transport costs, with a further domino effect on production, raising the farmgate and retail prices of some products, such as tomatoes (Hirvonen et al. 2021b). Additionally, since many farmers could not store their goods — particularly perishable produce — they were forced to accept the low prices set by buyers (Ababulgu et al., 2022). Hired labor was also affected. Many rural workers returned to their homes and the reduced labor supply pushed up the costs of labor (Agajie, 2020). Effects were driven also by the fear of contagion. People associated raw vegetables with infection, reducing their purchases (Hirvonen et al., 2021a; Tamru et al., 2020). This determined a significant reduction in local market sales as well as exports (Ababulgu et al., 2022).Although anecdotal evidence exists on the impacts of COVID-19 on AFVC participation and income, rigorous empirical studies based on household-level survey data are few. Josephson et al. (2021) used the World Bank phone-based surveys of Ethiopia, Malawi, Nigeria, and Uganda to document the socioeconomic impacts of the pandemic. They found that 77% of households across the four countries experienced an income loss in the immediate aftermath of the pandemic. However, the authors were not able to measure how much of the loss can be directly determined by the pandemic, given the descriptive nature of their analysis. According to this study, Ethiopian households are significantly less likely to experience an income loss compared to those from the other three countries. More recently, the same dataset has been used by Rudin-Rush et al. (2022) to document trends in food security over the twelve months after the onset of the COVID-19 pandemic. This study reports a sharp increase in food insecurity in the aftermath of the pan-demic, with a subsequent gradual decline. Furthermore, rural households were more negatively affected than urban households in terms of food security. IFPRI conducted a series of monthly phone-based surveys between May and August 2020 (i.e., up to five months after the pandemic onset) interviewing near-ly 600 households in Addis Ababa (Hirvonen et al., 2021a). More than half of respondents reported a fall in income relative to their average pre-pandemic income at the same time of the year (Hirvonen et al., 2020), with the proportion of affected households increasing from May to July (Hirvonen et al., 2021a). Poorer households more likely reported income losses, with a significant worsening of household food security and nutritional status. Income loss and unemployment were identi-fied as the most common shocks experienced by the respondents (Abate et al., 2020; de Brauw et al., 2020; Hirvonen et al., 2020). Despite income loss, Zhang et al. (2022) found that the population in Addis Ababa was not affected on average in terms of food security. How-ever, the situation in other regions of the country was much different, especially in rural areas and among vul-nerable individuals and households (Abay et al., 2023, Zhang et al., 2022).Hirvonen et al. (2021b) relied on a large value chain survey administered by IFPRI in February 2020 and fol-low-up phone interviews collected in May 2020 to ana-lyze the disruption of the vegetable value chain from the main producing areas in the Central Rift Valley to Addis Ababa, including changes in prices and adjustments in the marketing activities of the participants — from farmers to wholesalers and retailers. They found that nearly 60% of the smallholders and more than 60% of the investors reported less income than usual. They also found that the pandemic in Ethiopia disrupted trade not only between neighboring countries but also among sub-national geographies, thus determining high volatility in agricultural prices (Hirvonen et al., 2021b). However, they found that the changes in wholesale and retail mar-keting margins were relatively low, suggesting a resilient response of the domestic food value chains during the pandemic in Ethiopia. Although these studies provided important early estimates of the effects of the pandemic on relevant indi-cators of welfare, they present some limitations. Some of them are based on a non-representative sample. The study of Hirvonen et al. (2021d) focuses on the vegeta-ble value chain only, while Hirvonen et al. (2021b) focus only on households living in Addis Ababa. Most of the existing studies focus only on one or a few points in time, failing to capture the evolving impact of COVID-19 over time. Other studies look at the impact on employment, such as Khamis et al. (2021), but they do not spe-cifically disaggregate the analysis across AFVC segments. Our study aims to address these limitations contributing to estimating the magnitude of AFVC disruption caused by the COVID-19 pandemic in Ethiopia over a relatively longer time (seven months from the pandemic onset) and looking specifically at differentiated impacts on various AFVC segments. It also helps to identify the main factors that contributed to offset the negative consequences of COVID-19 shock and to keep adequate levels of income for AFVC participants. Although the data present some limitations in terms of representativeness (cf. Section 2), we think the findings emerging from this study are relevant not only because they provide a better under-standing of the COVID-19 impact in Ethiopia, but also because they can contribute to a better management of COVID-19-like crises should they emerge in the future.

DOI: https://doi.org/10.36253/bae-13404

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