Saturday, November 12, 2011

Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya
Abstract: We model farmers as facing small fixed costs of purchasing fertilizer and assume some are stochastically present biased and not fully sophisticated about this bias. Such farmers may procrastinate, postponing fertilizer purchases until later periods, when they may be too impatient to purchase fertilizer. Consistent with the model, many farmers in Western Kenya fail to take advantage of apparently profitable fertilizer investments, but they do invest in response to small, time-limited discounts on the cost of acquiring fertilizer (free delivery) just after harvest. Calibration suggests that this policy can yield higher welfare than either laissez-faire policies or heavy subsidies.
For the average farmer in our sample, who farms 0.93 acres of land, these estimates imply that using fertilizer would increase maize income net of input costs by about $9.59 to $15.68 per season, on a base of about $89.02.
Using one half teaspoon of fertilizer per plant increases yield by about $25.22 per acre and costs $19.83 per acre. Without accounting for the extra labor associated with fertilizer use, the rate of return is 106 percent on an annualized basis.
For a subset of farmers who used both quantities on test plots in the same season, the extra maize from using 1 teaspoon is valued at only $11.61 per acre at a cost of $20.46. Accounting for labor costs, this corresponds to a negative gross return over a season of approximately -52.5 percent at full price, but about a 41 percent gross seasonal return under a two-thirds subsidy. On an annualized basis, the returns under a 2/3 subsidy are well over 100 percent per year, well above the rate of return to the first unit of fertilizer at full prices.

Using fertilizer can have a substantial overall effect in increasing total income.... We estimate that the average farmer harvests maize worth about $95.72 per acre per season. Using top dressing fertilizer on an acre would cost $19.83. At annualized net returns of 52-85 percent per year, this corresponds to an increase in agricultural income of $10.31-$16.86, or 10.8 percent-17.6 percent of annual income. Since the average farmer in the sample over which we estimated these returns has 0.93 acres of l and, we estimate that using fertilizer would increase agricultural income net of costs by about $9.59 to $15.68, on a base of about $89.02. Thus, while using fertilizer would not immediately allow such farmers to exit from poverty, these are still sizeable income gains.

Despite the potential returns to applying limited quantities of fertilizer as top dressing, only 40 percent of farmers in our sample report ever having used fertilizer and only 29 percent report using it in at least one of the two growing seasons before the program.
The overall welfare effect clearly depends on the estimated returns to fertilizer....If we use relatively high estimates of the additional labor required to use fertilizer, the overall welfare benefit of the Savings and Fertilizer Initiative (SAFI) is 0.016, compared to -0.178 for heavy subsidies. At lower estimates of the additional labor hours associated with  fertilizer, the benefits are 0.029 and -0.119, respectively. For the particular parameter values we examine, the costs of heavy subsidies relative to laissez faire exceed their benefits, but this conclusion will clearly be sensitive to assumptions on parameters on profitability.

by Esther Duflo 1, Michael Kremer 2 and Jonathan Robinson 3
American Economic Review
1. J-PAL, MIT and Paris School of Economics
2. Harvard University and BREAD, Duke University
3. University of California, Santa Cruz and BREAD, Duke University
Volume 101, Issue 6; October, 2011; Pages 2350–90. DOI:10.1257/aer.101.6.2350

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