Incomplete markets, land and fertilizer use in Ethiopia Workshop on An African Green Revolution Tokyo December 7-8, 2008

Alternative views  Africa needs its Green Revolution and it can’t wait. Africa can feed itself if farmers get the inputs they need – what theory are we waiting for? Jeffrey Sachs, Fertilizer Summit 2006  (T)here may be a role for non-fully rational behavior in explaining production decisions. Duflo, Kremer and Robinson (2008)

Why does it matter  Constraints on productivity Hard to imagine green revolution technologies without increase in fertilizer use Sources of organic fertilizer is limited Sources of land for fallowing limited  Required for sustained land fertility Can deplete soils to point of no return  Most of Africa’s poor are in rural areas  Growth in agriculture productivity often leads economic growth

Reasons why fertilizer use is low in Africa  Transport and transaction costs Distance from farm to consumer is great and infrastructure is poor  Low output to input price ratio for fertilizer and complementary inputs Small scale means more middlemen and higher transaction costs  Farmer characteristics Farming skills and ability to take on risk  Education, age, wealth  Training, extension services  Farm and plot characteristics Tenure, rental status (fertilizer as an investment) Soil characteristics Heterogeneity of farm characteristics  Extension services less exact  Harder to learn from neighbor

Data description  Survey data Two rounds 2004, 2006  Ethiopian Economic Association and World Bank 115 villages stratified by agroecological zones and regions 2,140 panel households Plot level data (sort of)  Matching problem first round Information on extension history of farmer Information on rental status of plots  Spatial data Infrastructure Climate and weather

Technology choices  All crops

Selection model for chemical fertilizer  Standard input demand equation Relative prices Organic fertilizer use Land and capital Seed type Land characteristics Farmer age, education, wealth  Additional layer of factors that determines when fertilizer is applied or not Ownership of land Additional transaction costs related to isolation Access to credit Membership in organizations that facilitate access to fertilizer Extension services Cattle/oxen for organic fertilizers

Survey Sites

Improved seeds and input use

Ethiopia Roads, cities and survey sites

Implied travel time to city of 50,000 or more

Regional variation

Crop variation

Fertilizer delivery

Credit

Credit and extension bundle

Rental land and fertilizer use

Extension effectiveness

Help  Intention is to focus on maize and second round of survey to make use of plot-level data Is there scope for estimating multiple crops together?  Aggregate or disaggregated If not, how to account for other production choices  How to solve the endogeneity problem Credit, seed type, possibly extension