El Niño and household debt

  • By Solomon Bogale and Adrian Cullis
  • 19/12/2016

A man and a boy load a donkey with jerrycans of water collected from a stream outside the village of Tsemera in Ethiopia's northern Amhara region, February 13, 2016. REUTERS/Katy Migiro

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In May 2016, some 140 Productive Safety Net Programme (PSNP) and non-PSNP households were interviewed in two severely drought-affected woredas: Raya Alamata in South Tigray zone and Kilte Awlaelo in Eastern Tigray zone.

The majority of households in the two woredas are dependent on rainfed farming, although households are increasingly dependent on irrigation, off-farm seasonal employment and seasonal trading. This is particularly true of poorer households that are
unable to produce enough food to meet their food and income needs from agriculture.

HOW DO HOUSEHOLDS USE ASSETS?
Householders note that at harvest cereals – sorghum, wheat, maize and teff – are divided, with a portion stored for household food consumption and a portion sold. The cash generated from sales is used for schooling, health care, livestock purchase, household improvements, farm inputs and technology, ceremonies and to pay off household debt.

Most smallholders also keep livestock – breeding stock, plough oxen and other animals – for fattening and sale. Livestock graze in communal pastures and arable stubbles.

As feed becomes depleted through the year, livestock are fed crop residues. Fattened animals
are sold ahead of seasonal festivals when prices are highest.

In drought years – including 2015 – livestock are sold and the income is used to purchase cereals
and legumes to fill the household food gap.

Livestock sales are therefore a useful proxy indicator of seasonal household wellbeing as well as an important asset for resilience and the smoothing of shocks when markets are available and prices are fair.

DECLINE IN HOUSEHOLD PURCHASING POWER
In normal years, cereal and legume prices typically fall after the onset of the September harvest and then decline to March the following year, which is followed by prices tending to stabilise through to June, before rising again to the August peak.

In contrast, the 2015 drought triggered price increases from August 2015 through to May 2016,
with average nominal price increases of 5.7%, 16%, and 15% for maize, sorghum and teff respectively, along with a 22.5% price increase for aggregate pulses.

During the same period, however, the price of wheat fell by 10.5%, due to the wheat quality
produced in 2015 – the result of the El Niño drought – and significant government imports.

In contrast, the price of livestock fell by 25% for plough oxen, 54% for cows and 38% for sheep and goats during the period of November 2014 to November 2015.

Individual household interviews during this case study confirmed that 90% of the households
interviewed sold livestock during the September 2015 to May 2016 period, including many that had sold more than one animal.

Households confirmed changes in prices had forced them to sell more animals to secure the equivalent amount of grain. The drought therefore triggered a collapse in livestock-cereals terms-of-trade and severely compromised household purchasing power.

TRENDS IN HOUSEHOLD INDEBTEDNESS
Interviews using a standardized questionnaire revealed 106 of the 140 households interviewed had taken additional loans during the September 2015 to May 2016 period.

The average size of these new loans was $102 for PSNP households and $112 for those categorised as non-PSNP. In addition, PSNP households had longer-term outstanding loans,
averaging $169, while those for non- PSNP households stood at $197.

At the time of the study, therefore, average total household indebtedness was $271 and $310 for PSNP and non-PSNP households, respectively.

CAUSES OF HOUSEHOLD INDEBTEDNESS
Interviewees offered the following reasons for household indebtedness:

• The 2015 failed belg and El Niño induced poor summer kiremt rains and poor meher harvest,
losing livestock production.

• Costs of agriculture inputs steadily rose, but with this particularly applying to fertiliser.

• Loan repayments were inappropriately timed.

• Religious and community festivals incurred high costs.

REASONS FOR BORROWING
In normal years, informants reported borrowing for productive purposes – purchase of agriculture inputs or purchase of livestock for breeding or fattening.

In contrast, as a result of the onset of drought condition and poor harvest, the primary purpose of loans had switched to the purchase of food to meet household food needs.

INFORMANT’S PERCEPTIONS OF INDEBTEDNESS
There was widespread agreement among informants that the main harvest was still
several months away, meaning poorer households with unmet food, health, schooling and other requirements would be forced to continue to borrow, as levels of support – PSNP and the emergency assistance – were inadequate.

Informants expressed concern that their increased level of borrowing meant they would not be able to clear all debt in 2016, even after the harvest, and that some of this would be carried over into 2017.

Many of the informants stated that the current level of indebtedness was a ‘major burden’ (70.8%) and that it would have long-term consequences on livelihoods.

While expressing concern for themselves, some articulated concerns for the landless and young families with young children, as it was felt they were particularly vulnerable to rising levels of indebtedness.

CONCLUSIONS
While informants attributed recent increases in household debt to the El Niño-driven drought, they also reported other factors impacting on current and longer term indebtedness, including year-on-year price-increases with regard to agriculture inputs.

The El Niño-driven drought has therefore only exacerbated levels of indebtedness in the smallholder farming community in the eastern part of Tigray.

Levels of household indebtedness are a cause of major concern for the vast majority of households in this area and many in this case study concluded that the effects of the 2015 El Niño-driven drought will continue through the remainder of 2016 and, potentially, into 2017 and
beyond if this drought is followed by others in the near future.

Households were concerned that, without increased assistance, they will have to continue
to sell assets – including livestock – and migrate in search of casual labour in nearby towns and cities.

Click here to view the full report on lessons from the 2015-2016 drought in Ethiopia.

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