Take out the farmer: An economic assessment of land expropriation for urban expansion in Bahir Dar, Northwest Ethiopia

In Ethiopia, the demand for land for urbanisation is primarily met by converting rural land through expropriation. However, land expropriations are adversely affecting the previous land users by reducing the amount of production and their sources of income. In Bahir Dar, one of the fastest-growing cities in Ethiopia, approximately 300 landholdings are expropriated each year, on average, for urban expansion. This paper assesses the land expropriations to examine whether they offer economically appropriate compensation for the previous land users. Land expropriations for urbanisation between 2007/2008 and 2016/2017 were analysed based on data on land expropriation and its compensation payment obtained from the Bahir Dar City Land Administration and Management Office. Data were analysed using an exponential growth model and a stochastic budgeting technique in which Monte Carlo simulations are performed. Between 2007/2008 and 2016/2017, more than 1500 ha of land were included in the city’s boundary through expropriation from 2900 landholders. The affected farmers received compensation that represents only 37 per cent of the value of current crop yields and its growth. The current compensation scheme ignores the impact of inflation on the prices of crops and assumes constant yields. It also excludes the value of crop residuals. We propose a workable discounted compensation framework that considers crop price and yield growths. This will make the compensation scheme more appropriate and make the affected farmers better off.