A Search for Productive Equilibrium

With the introduction of new technologies such as fertiliser and hybrid seeds, agricultural productivity has experienced an unprecedented rise in the past decades in almost all parts of the world. Not so in Sub-Saharan Africa, however, where yields have remained stagnant and adoption of modern agricultural technologies have woefully lagged behind.

Why?

Data from farm demonstrations in Sub-Saharan Africa certainly show that yield returns to modern inputs are as high as in other parts of the world – a finding that puts paid to the explanation that soil and climatic conditions in Sub-Saharan Africa are not conducive to the use of modern technologies.

Why then do farmers not plant modern seeds and apply fertiliser in their fields?

One piece of the puzzle appears to be that average yields obtained from the demonstration plots under highly controlled conditions, are simply not representative of the yields and – more importantly – the returns farmers can achieve on their own plots.

The profitability of modern inputs also varies a lot across farmers. In particular, there is evidence that farmers are quite rational in their decision to adopt modern inputs or not.

Given these findings, we want to know how yields on demonstration plots can be high, yet low – and variable – on farmer’s plots. A potential solution to this puzzle is that inputs available in the market simply do not yield very high returns, in other words, technology available to farmers is not of high quality, and therefore yields lower returns than those seen in controlled farm experiments. Certainly, anecdotes abound that both seeds and fertilisers available in the market are of poor quality – perhaps because of poor storage and handling or outright fraud.

Yet, we simply do not know how widespread and serious a problem this is. To learn whether poor quality fertiliser and hybrid seeds can help explain why farmers choose to farm with traditional methods, mystery shoppers could be sent to a random sample of local agriculture retailers.

A measuring of the nutrient content of the fertiliser would then show that 30pc of the nutrient was missing and that there was substantial variation in quality that was not linked to prices. Bad fertilisers were thus just as costly as good ones.

Given the data generated by agricultural experiment, we could compare the yields of hybrid seeds bought from retailers, with those of seeds bought from producers (authentic) and yields from traditional farmers’ seeds. Specifically, by comparing different moments of these yield distribution, one can conclude that the quality of a bag of hybrid seeds bought from a local retailer is only as good as a bag mixed 50:50 with authentic hybrid and traditional seeds.

Such experimental data also show estimate yields as a function of the nutrients (the percentage of nitrogen) contained in fertiliser. There are large and significant returns to fertiliser – for each additional per cent of nitrogen, yields increase by roughly 50kg per hectare. Relating this to the average nutrient level found in the fertiliser bought from local retailers, many farmers are losing almost one tonne of maize per hectare compared to authentic inputs, due to poor quality fertiliser – a loss that is approximately 50pc of the revenue from traditional farming.

Combining the experimental yield data with information on the price of maize, inputs and labour costs, we could also calculate whether investing in fertilizer and hybrid seeds available in the market is profitable. The answer was a resounding ‘no’. Overall, only 20pc of fertiliser samples applied to hybrid seeds bought locally were profitable, and only one sample yielded a return above 10pc. In contrast, if inputs were authentic, the returns would be uniformly positive and all samples would have yielded a return in excess of 30pc. Hence, a rational profit-maximising farmer would simply not find these technologies profitable.

Why are the low-quality inputs on the market?

The questions should really be how such a low quality and low adoption equilibrium can persist and how one can break out of it. As such, the data do not just give us average yields, but also allow us to estimate the whole distribution of yields on small-scale experimental plots. They show that yields vary hugely – even for a given level of fertiliser and seed quality; In such an environment, it is difficult even for rational farmers to infer the quality of inputs from the size of their harvest, and ongoing work shows that an equilibrium in which sellers sell low quality inputs and few farmers buy, can persist.

The solution to breaking such an equilibrium might lie in integrating farmers meaningfully into markets and supply chains. If farmers sell to agricultural trading companies then the latter have incentives to supply high quality inputs as that increases their revenue.


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