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The Demand for Fertilizer When Markets Are Incomplete: Evidence from Ethiopia

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An African Green Revolution

Abstract

The under-utilization of fertilizers is viewed as a hurdle to the adoption of more productive and sustainable agricultural techniques in sub-Saharan Africa. In this chapter, we investigate the role incomplete markets play in determining the use of chemical fertilizers among Ethiopian farmers with the aim of identifying policies that would encourage the adoption of profitable and sustainable agricultural practices. The results of regression analysis show that high transport costs, illiteracy, adverse local climates, and limitation in risk and credit markets are major constraints on the functioning of fertilizer markets, suggesting that government actions to close knowledge gaps and lower transportation costs can increase fertilizer use among farmers.

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Notes

  1. 1.

    Henao and Baanante (2006), reported in Morris et al. (2007), estimate that 85% of African farmland suffer soil nutrient loses at a rate of 30 kg per year or greater.

  2. 2.

    See, for example, the African Union (2006), issued during the 2006 Africa Fertilizer Summit.

  3. 3.

    Demeke et al. (1998) noted that 790 kg of grain is needed to meet the minimum calorie requirement assuming 156 kg/person/year grain requirement for a household of five.

  4. 4.

    See Byerlee et al. (2007) for a discussion of government policy aimed at promoting fertilizer use in Ethiopia.

  5. 5.

    For a related discussion in the context of Ethiopia, see Croppenstedt and Demeke (2003).

  6. 6.

    See the general discussion in Sachs et al. (2004). Morris et al. (2007) provide estimates based on case studies from Africa.

  7. 7.

    Gregory and Bumb (2006) provide examples. Xu et al. (2009b) discuss how heterogeneity in local conditions affects the profitability of fertilizer use.

  8. 8.

    For example, see studies by Bacha et al. (2001), Croppenstedt and Demeke (2003), Fufa and Hassan (2006), Wubeneh and Sanders (2006), and Alem et al. (2010) have looked at different variants of this issue in Ethiopia.

  9. 9.

    The alternative is that zero-use outcomes are voluntary corner-solutions that are optimal from the household’s perspective.

  10. 10.

    A related double-hurdle model is often used in cross-section studies, including the study by Croppenstedt and Demeke’s (2003) mentioned earlier. The applied component is a mixed-model that combines a probit model of adoption with a truncated model of intensity. The focus of the model is on the conditional demand for fertilizer once the adoption hurdle has been cleared (Duan et al. 1984) As Ahn (2004) points out, the distinction between the hurdle and selection models blurs in the case of panel data when the non-zero population varies over time.

  11. 11.

    LIMDEP 9 is used to estimate the model. See Greene (2007) for greater detail.

  12. 12.

    For a discussion of how adoption rates are expected to spread with time, see Feder and Umali (1993).

  13. 13.

    By design, the survey is meant to capture the diverse geography of Ethiopia, and may not be nationally representative of Ethiopian farmers.

  14. 14.

    Survey sites were matched with data from the closest weather station.

  15. 15.

    For instance, the Ethiopian Ministry of Agriculture study recommends a lower dose of fertilizer per hectare (at 150 vs. the usual 200 kg/ha.) for vertisols soil type with improved Durhum wheat seed type.

  16. 16.

    A 2006 report by the Ethiopian Economic Association/Ethiopia Policy Research Institute (EEA/EEPRI) estimated that the public sector handled about 70% of the retail market.

  17. 17.

    On a technical note, errors associated with two components of the model are correlated, as expected. See the lower panel of Table 11.3.

  18. 18.

    There is some empirical evidence that wealthier households tend to avoid riskier inputs (Pitt and Sumodiningrat 1991). In our study, this does not appear to be a dominant effect.

  19. 19.

    Marenya and Barrett (2009a) and Matsumoto and Yamano (2009) provide evidence that the organic content of soils, which can be built up through the application of organic fertilizer, increases the efficacy of chemical fertilizers.

  20. 20.

    Nkonya et al. (1997) report a similar finding.

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Authors and Affiliations

  1. African Development Bank, 15 Avenue du Ghana, 323-1002, Tunis-Belvedère, Tunisia

    Daniel Zerfu Gurara

  2. Development Research Group, World Bank, 1818 H Street, NW, Washington, DC, 20433, USA

    Donald F. Larson

Authors
  1. Daniel Zerfu Gurara
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  2. Donald F. Larson
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Corresponding author

Correspondence to Donald F. Larson .

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Editors and Affiliations

  1. National Graduate Institute for Policy S, Roppongi 7-22-1, Minato, 106-8677, Tokyo, Japan

    Keijiro Otsuka

  2. , Research Group, World Bank, H Street, NW 1818, Washington, 20433, District of Columbia, USA

    Donald F. Larson

Appendix

Appendix

Table 11.A.1 Estimation results of fertilizer application function in Ethiopia from the base model and alternative model
Full size table

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Gurara, D.Z., Larson, D.F. (2013). The Demand for Fertilizer When Markets Are Incomplete: Evidence from Ethiopia. In: Otsuka, K., Larson, D. (eds) An African Green Revolution. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-5760-8_11

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