Title: Farm Technology Adoption under Market Imperfections: Evidence from the Fertilizer Market in Northern Ethiopia
Abstract: ABSTRACT. This paper examines households' participation in fertilizer markets based on the data from a survey conducted in 2003 in Tigray, Ethiopia. Most previous empirical studies mainly focus on the extent of fertilizer use by treating the production and consumption decision separately. This paper, however, presents a static farm household model that accounts for a simultaneous decision making in production and consumption. Our results indicate that the likelihood of fertilizer adoption and the intensity of the input use are mainly explained by access to credit, labor endowment, consumer-worker ratio and livestock ownership. Both the likelihood and the intensity of fertilizer use decreases with the age of the household head, distance to the information center and availability of irrigation.JEL Codes: O13; R20Keywords: rural households; farm technology adoption; market participation; Tigary(ProQuest: ... denotes formulae omitted.)1. IntroductionIn Africa, soils are depleted in many places and practices that are aimed at increasing soil fertility, including use of fertilizer, are not commonplace. For instance, East African highlands face rapid land degradation due to soil erosion and nutrient depletion (FAO, 1986; Grepperud, 1996; Stoorvgel and Smauling, 1990). This degradation is due to erosive cropping pattern, low levels of fertilizer use, deforestation and excessive population pressure on agriculture. Hence, agricultural productivity in Africa is lower than in other regions. Moreover, available technologies that show great promise in field studies are not widely adopted.In the early 1990s, Ethiopia reformed its fertilizer policy toward a free market approach. The Ethiopian government liberalized and demolished the monopoly on fertilizer importation and distribution held by the parastatal Agricultural Inputs Supply Corporation (then renamed the Agricultural Inputs Supply Enterprise). However, the Ethiopian government reversed its market reform policy and has been heavily supporting fertilizer credit programs in recent years (Spielman et al., 2010).Citing a study by the World Bank, Zerfu and Larson (2010) reported that between 1991 and 1995, fertilizer use and intensity in Ethiopia rose dramatically from 110,000 metric tons (21 kg/ha) to 300,000 (35 kg/ha) in 1999, levels that compare favorably with many countries in Africa. Nevertheless, in subsequent years, fertilizer consumption and intensification fluctuated considerably and intensification has only recently showed a steady upward trend. Consequently, the use of productivity enhancing inputs such as chemical fertilizer, improved seeds, and pesticides is very low.Many policy makers view the limited use of fertilizer as a key proximate cause of slow pace of agricultural productivity growth in Africa. Moreover, it is alo mentioned that high cost and low profitability, risks of fertilizer use, low use efficiency and unavailability of fertilizer as major factors of low use of fertilizer in Africa. Wakeyo (2013) investigates if water harvesting technologies induce fertilizer use using panel data collected from Ethiopian farmers in two regions in 2005 and 2010. His results indicate that water harvesting, total landholding, farm capital, and education significantly increase the probability of fertilizer use whereas the price of fertilizer and distance to market decrease the probability of fertilizer use.Only few studies (e.g. Zerfu and Larson, 2010) mentioned market failure as one of the arguments for low use of fertilizer. Market imperfections are common in rural areas of Ethiopia. One of the major causes of market imperfections is a significant transaction costs caused by poor infrastructure, especially roads. High transportation cost increases the price of inputs and lowers the farmgate price of goods destined for distant urban centers (Zerfu and Larson, 2010). If input demand is hindered by a lack of infrastructure (such as transportation) or by market failures (such as credit or insurance), then the private marginal cost will be higher than the private marginal benefit of using the input and a public intervention may be required to decrease private costs and encourage input use. …
Publication Year: 2014
Publication Date: 2014-03-01
Language: en
Type: article
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