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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
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