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

Abstract

Purpose -The purpose of this paper is to investigate the impact of access to credit and safety nets on fertilizer adoption in rural Ethiopia. Design/methodology/approach -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.Findings -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. Practical implications -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. Originality/value -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.

Demand for a labor‐based drought insurance scheme in Ethiopia: a stated choice experiment approach

“…The surveys were conducted in a cluster of four districts in the south‐central highlands of Ethiopia: two districts each in Southern Nations Nationalities and Peoples Region (SNNPR: Damot Sore and Wondo Genet) and Oromia Regions (Shashemene and Arsi Negele). Drought, the high price of improved seed and fertilizer, human diseases including malaria, and credit constraints and indebtedness are key challenges in the study areas (Tadesse, ). Annual crops such as maize, teff, wheat, sweet potato, and potato are important crops, and in some of the districts, households grow perennial crops such as coffee, enset (false banana), sugarcane and root crops (cassava, yam, and taro).…”

“…Intertemporal markets, such as credit and insurance markets, are poorly developed, and there are also financial constraints, which limit the ability to pay insurance premiums (Barrett et al., ; Carter, ). In addition, smallholder farmers not only lack the resources to pay for insurance but also operate in an environment where financial institutions are lacking and sometimes unwilling to provide these services because of collateral problems (Shee and Turvey, ; Tadesse, ).…”

“…Although both work‐for‐food and work‐for‐cash programs encourage investment in agricultural production and may help households to overcome short‐term income shocks (Bezu and Holden, ), empirical evidence is mixed. In most cases, the benefits from these safety net programs are not enough to make the required investment in agriculture beyond their use to support daily caloric consumption for food‐insecure households (Tadesse, ). The income from these safety net programs can easily be diverted because of the cash and credit constraints of resource‐poor farmers in Africa.…”

Adoption and impact of index-insurance and credit for smallholder farmers in developing countries

“…More insight into the impact of linking insurance and credit is needed since there is limited 27 information in the literature regarding the potential effect of bundling insurance and credit, for 28 example on the extent to which insurance would reduce the cost of borrowing and make 29 credit more accessible to the smallholder farmers (Tadesse et al, 2015). In this paper we 30 review the most recent scientific literature on one specific form of insurance: index-insurance.…”

Weather index insurance for managing drought risk in smallholder agriculture: lessons and policy implications for sub-Saharan Africa

“…For instance, farmers in rural Ethiopia equate taking loans as falling into an abyss where escape is not possible (Tadesse 2014). Moving towards insured loans (via interlinking credit with insurance such as demonstrated in Kilimo Salama, Kenya case study) may thereby provide improved access to modern agricultural technologies in risk-prone regions as long as insurance providers manage the relevant risks (Clarke and Dercon 2009;Carter 2009).…”