Incomplete Markets and Fertilizer Use: Evidence from Ethiopia

21 Pages Posted: 20 Apr 2016

See all articles by Daniel Zerfu

Daniel Zerfu

University of Gothenburg

Donald F. Larson

Global Research Institute

Date Written: March 1, 2010

Abstract

While the economic returns to using chemical fertilizer in Africa can be large, application rates are low. This study explores whether this is due to missing and imperfect markets. Results based on a panel survey of Ethiopian farmers suggest that while fertilizer markets are not altogether missing in rural Ethiopia, high transport costs, unfavorable climate, price risk, and illiteracy present formidable hurdles to farmer participation. Moreover, the combination of factors that promote or impede effective fertilizer markets differs among locations, making it difficult to find a single production technology that is uniformly profitable -- perhaps explaining the inconsistency between field studies finding large returns to fertilizer use in Ethiopia and survey-based studies finding fertilizer use to be uneconomic. The results suggest that households with greater stores of wealth, human capital and authority can overcome these hurdles. The finding offers some encouragement, but also implies a self-enforcing link between low agricultural productivity and poverty, since low-asset households are less able to overcome these problems. The study suggests that the provision of extension services can be effective and that lowering transport costs can raise the intensity of fertilizer use by lowering the cost of fertilizer and boosting the farmgate value of output.

Keywords: Climate Change and Agriculture, Fertilizers, Crops and Crop Management Systems, Access to Finance, Fertilizers & Agricultural Chemicals Industry

Suggested Citation

Zerfu, Daniel and Larson, Donald F., Incomplete Markets and Fertilizer Use: Evidence from Ethiopia (March 1, 2010). World Bank Policy Research Working Paper No. 5235, Available at SSRN: https://ssrn.com/abstract=1569336

Daniel Zerfu

University of Gothenburg ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Donald F. Larson

Global Research Institute ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

HOME PAGE: http://https://sites.google.com/site/decrgdonaldflarson/

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