Fertilizer adoption, credit access, and safety nets in rural Ethiopia

The purpose of this paper is to investigate the impact of access to credit and safety nets on fertilizer adoption in rural Ethiopia.

A panel data set collected in 2005 and 2007 on 278 households and over 5,700 plots from the Southern Highlands of Ethiopia is examined. The authors developed a theoretical model relating input use and credit contract under third-party credit collateral agreement. The estimation is based on instrumental variables regressions to account for the endogeneity of credit access, and safety nets in fertilizer demand equation.

Despite increasing trends in fertilizer and improved varieties adoption since mid-2003, only 22 percent of the plots in the sample is actually received fertilizer. Households with more assets measured by livestock wealth are more likely to adopt fertilizer but less likely to participate in the local credit market as they have better savings that could be used to buy fertilizer/improved seeds without credit contract. This suggests poorer farmers heavily depend on credit than wealthier. Participation in safety nets programs did not contribute for increased use of fertilizer suggesting that the program either competes with agricultural labor or the low wage income was not enough to pay for farm inputs.

The findings show that with a heavier reliance on credit by poorer farmers it appears that much might be gained by targeting policies toward increasing credit access to this group.

Studies that utilize repeated plot- and household-level observations are limited. To the knowledge, this is the first study showing the relationship between credit accesses, public work program and fertilizer adoption over time in rural Ethiopia.