Food Policy 67 (2017) 93–105

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Food Policy
journal homepage: www.elsevier.com/locate/foodpol

Agricultural input credit in Sub-Saharan Africa: Telling myth from facts

Serge G. Adjognon a, Lenis Saweda O. Liverpool-Tasie b,⇑, Thomas A. Reardon b
a
World Bank Group (WBG), Development Impact Evaluation Unit (DIME), Development Research Group (DECRG), USA
b
Department of Agricultural, Food, and Resource Economics, Michigan State University, East Lansing, MI, USA

a r t i c l e i n f o a b s t r a c t

Article history: Recent evidence shows that many Sub-Saharan African farmers use modern inputs, but there is limited
Available online 24 October 2016 information on how these inputs are financed. We use recent nationally representative data from four
countries to explore input financing and the role of credit therein. A number of our results contradict
Keywords: ‘‘conventional wisdom” found in the literature. Our results consistently show that traditional credit
Africa use, formal or informal, is extremely low (across credit type, country, crop and farm size categories).
Farm inputs Instead, farmers primarily finance modern input purchases with cash from nonfarm activities and crop
Credit
sales. Tied output-labor arrangements (which have received little empirical treatment in the literature)
Rural nonfarm employment
appear to be the only form of credit relatively widely used for farming.
Ó 2016 The World Bank. Published by Elsevier Ltd. This is an open access article under the CC BY IGO
license (http://creativecommons.org/licenses/by/3.0/igo/).

1. Introduction were generally dismantled in the 1990s and 2000s during Struc-
tural Adjustment. We hypothesize that few farmers use govern-
It is generally accepted that Sub-Saharan Africa (SSA) farmers ment credit now.
often have low yields which could be increased, all else equal if they Second, government subsidies to farmers to buy fertilizer were
bought more ‘‘external inputs” (chemical fertilizer, pesticides, and common before Structural Adjustment. The subsidy was adminis-
seeds). Moreover, it is often asserted after liberalization and priva- tered as a reduction of fertilizer price, or as a coupon to farmers
tization dismantled many government farm credit programs in the (as a direct transfer). Many input subsidy programs were elimi-
1990s (Kherallah et al., 2002), that small farmers face severe credit nated by Structural Adjustment. However, in several SSA countries
constraints and that this is a cause of low use of external inputs they were partially revived in the mid-2000s on the heels of con-
(Kelly et al., 2003; Morris et al., 2007; Poulton et al., 1998, 2006). cerns that fertilizer use had dropped since Structural Adjustment.
Yet Sheahan and Barrett (2014) find that SSA farmers now pur- Malawi and Tanzania governments provide many farmers a cou-
chase more external inputs than in the 1990s, and much more than pon for fertilizer sufficient for an acre. The Nigerian government
is generally asserted in the debate. Farmers are thus financing had a subsidy scheme during our study period (2010
2012) but
inputs somehow. Is it by credit? If so what kind? Is it by own cash our analysis showed only 5% of the farmers bought fertilizer from
sources from crop sales and labor sales? These issues lead us to the government sources that disbursed the subsidy.
three research questions we address here: (1) how do farmers Third, private-sector banks tend, according to much of the liter-
finance input purchases? (2) Is there a correlation between finance ature, to lend little to farmers (Poulton et al., 1998, 2010). The rea-
source and farm size and thus ‘‘inclusiveness” of the financial sons given are that banks face high transaction costs in rural areas,
arrangement used? (3) Is there a relation with crop type and thus farmers tend to lack collateral, and lending is risky because recov-
relation to cash crop versus food crops? ery rates are low (Dorward et al., 2009). We hypothesize that few
To derive hypotheses for these questions, we briefly review the farmers obtain bank credit, but those that do are larger farmers
literature concerning the potential finance sources for inputs. (based on work by Zeller and Sharma (1998) in Cameroon, Ghana,
First, government credit was common before the 1990s for both Madagascar, and Malawi).
farmers producing cereals as well as export cash crops. The Fourth, informal credit from friends and family and local
schemes generated fiscal deficits and suffered frequent non- moneylenders is often presented as a significant source of funds
recovery, considered ‘‘strategic default” used by farmers as de facto for farmers to buy inputs and consumption items (Poulton et al.,
insurance after bad harvests (Poulton et al., 1998). These schemes 2006; Zeller and Sharma, 1998). Our hypothesis is thus that infor-
mal credit is important to all strata of farmers.
⇑ Corresponding author. Fifth, finance from ‘‘tied output-credit” or ‘‘interlinked credit”
E-mail address: [email protected] (L.S.O. Liverpool-Tasie). arrangements (Bardhan, 1980; Poulton et al., 1998) involve an out-

http://dx.doi.org/10.1016/j.foodpol.2016.09.014
0306-9192/Ó 2016 The World Bank. Published by Elsevier Ltd.
This is an open access article under the CC BY IGO license (http://creativecommons.org/licenses/by/3.0/igo/).
94 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

put buyer or input seller advancing the farmer cash for inputs or The paper proceeds as follows. Section 2 discusses data and
inputs in kind at the start of the season, and being reimbursed from sampling. Section 3 descriptively examines the purchase of ‘‘exter-
the farmer’s harvest. The literature presents this in two categories. nal inputs” and use of credit sources for those purchases, as well as
The first category is tied output credit from processing or export cash income sources. The analysis stratifies by country, farm size,
companies for traditional export cash crops as well as for non- and crop type (using the triad of crop categories in the SSA litera-
traditional crops like horticulture. The literature is ambiguous as ture: traditional export crops, non-traditional commercial crops
to the occurrence of this. On the one hand, a number of studies such as horticulture, and staple food grains). Section 3 focuses on
especially of particular schemes document this arrangement. On Nigeria to econometrically test for the effects of different cash
the other hand, some studies note that processing and export com- sources on fertilizer demand. The analysis uses panel data estima-
panies may not use this arrangement frequently or apply it to all tion techniques to more consistently identify the effect of RNFI on
farmers because they fear farmers will ‘‘side sell” (to other buyers) fertilizer demand by accounting for unobserved time invariant
or because there is a dearth of effective farmer cooperatives to household characteristics likely to affect participation in non-
enforce repayment among their members (Shepherd and Farolfi, farm activities and fertilizer demand. As far as we are aware, there
1999; Poulton et al., 1998, 2010; Chao-Béroff, 2014). are no other studies that have used nationally representative panel
The second category is interlinked credit from grain wholesalers data to explore the effect of non-farm activities on input demand.
and input dealers. This is commonly posited to be important in Most of the older literature (cited above) focused on qualitative
Asia (Bardhan, 1980; Conning and Udry, 2007) and in some reports analysis, comparison of means and ordinary least square (OLS)
hypothesized to be common in SSA (Pearce, 2003; Zeller and estimations that are potentially biased (e.g., Ellis and Freeman,
Sharma, 1998). 2004). More recent empirical work such as Oseni and Winters
In both cases farmers enter these ‘‘tied” arrangements princi- (2009) use cross sectional data while Smale et al. (2016) use panel
pally because formal credit markets idiosyncratically fail for them, data but do not use a nationally representative sample (they focus
and thus these are ‘‘second best” arrangements (Binswanger and on one maize producing region of Kenya).
Rosenzweig, 1986). We hypothesize that empirical analysis will
show that such arrangements are common in SSA, perhaps with
2. Data
a bias toward traditional cash crops.
A variant on the above is a tied output-labor market arrange-
We use data from the Living Standard Measurement Study
ment where farm workers advance labor in exchange for payment
(LSMS) household panel surveys in four countries. The most recent
(typically in kind but can be in cash) at harvest (Bardhan, 1984).
years of the panels are used for the descriptive analysis in all the
While discussion of this was common in the South Asia literature
countries, and the most recent two years for the econometrics
in the 1970s/1980s, to our knowledge it has not been examined
analysis in Nigeria. The sets are as follows: (a) the Malawi Inte-
empirically in SSA. We hypothesize that it exists in SSA. One justi-
grated Household Panel Survey (IHPS) of 2012/2013, with 3219
fication for this expectation is that labor by one household provided
farm households; (b) the second wave of the Nigeria Living Stan-
to another is monitored and upheld by local norms/customs and
dard Measurement Study – Integrated Survey on Agriculture
social pressure.
(LSMS-ISA) Panel for two years, 2010/2011 and 2012/2013, cover-
Sixth, household retained earnings such as from rural nonfarm
ing 3000 farm households; (c) the Tanzania National Panel Survey
employment and crop sales are in principle candidates for poten-
2012/2013, covering 3047 farm households; and (d) the Uganda
tial liquidity sources for farmers to buy inputs. Indeed,
National Panel Survey 2010/2011 covering 2109 farm households.
Haggblade et al. (2010) note that rural nonfarm income (RNFI) is
The surveys differ somewhat in the specific questions they use to
a main cash source of rural households in SSA, and Reardon et al.
elicit information on the variables of interest. We treat the survey
(1994) and Davis et al. (2009) hypothesize that RNFI is a key cash
datasets as uniformly as possible to ensure that the information is
source and determinant for input purchases, especially in the face
comparable. Where one set or the other lacks some information we
of idiosyncratic failure of credit markets. Yet the empirical litera-
note that in the table notes.
ture rarely compares household own-cash sources with credit as
In general, the surveys used a two-stage sample design. In the
potential liquidity sources for farmers to buy inputs. Zeller and
first stage, enumeration areas were selected in each district of
Sharma (1998) note that the literature on farm credit is largely
the country. Within each enumeration area a listing of households
independent of the literature on farm household income sources.
was done for the sample frame. A random sample of households
However, several studies in SSA provide evidence of the role of
was drawn from that frame. We selected only households doing
RNFI as a finance source for investments of rural households.
any farming. In the analyses, we use sampling weights from the
Aryeetey (1997) provides evidence of the latter for Ghana for rural
datasets to account for the survey design and construct nationally
microenterprises but not for agriculture. Some work has shown the
representative statistics. The weight for each household is the
impact of RNFI on external input use by African farmers (e.g.,
inverse of the probability of being selected based on the sample
Savadogo et al. (1994) for animal traction in Burkina Faso; Clay
frame structure.
et al. (1998) and Oseni and Winters (2009) for fertilizer in Nigeria
The data used are on farm households’ use of inputs and cash
and Rwanda), and for Asia (e.g., Stampini and Davis (2009) for
and in-kind arrangements to pay for them. The analysis is done
purchased seeds in Vietnam); some work has shown the effects
by crop, household, and plot. The data also have characteristics
of off-farm income on farm productivity (such as Rozelle et al.,
of the farm households such as nonfarm income, crops sales, loans
1999 for China). We thus hypothesize that own cash sources are
received, and farm size.
a significant determinant of input purchases.
The aim of this paper is to examine the above hypotheses and
thereby ‘‘update the landscape” of knowledge of SSA farm house- 3. Descriptive analysis of cropping and input purchases
holds’ sources of finance for external inputs. To our knowledge,
there has been no such survey-based analysis especially over coun- 3.1. Patterns in cropping
tries using recent and nationally representative data. We analyze
recent (2010
2012) LSMS data sets comprising 11,000 farm Table 1 shows crop composition by country and farm size
households in Malawi, Nigeria, Tanzania, and Uganda. strata. Crops are classified into sets: crops traditionally called ‘‘food
 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105 95

Table 1 Table 2
Share of households producing key cash and food crops across farm size strata. Source: Share of farm households who purchase external inputs. Source: Authors from LSMS
Authors from LSMS data. data

Crop types Farm size strata (ha) Share of farms with crop (%) Countries Farm Households buying Farm Households (%) by type of
external inputs (%) external inputs purchased
Malawi Nigeria Tanzania Uganda
Fertilizers Pesticides Seeds
Cash crops
0–0.49 4 10 4 26 Malawi 70 49 4 51
0.5–0.99 18 10 8 34 Nigeria 71 42 38 29
1–1.99 39 11 11 39 Tanzania 18 8 13 NA
2–4.99 49 20 14 46 Uganda 16 5 14 NA
5+ 28 14 18 54
All 17 11 11 37 Note: NA means information is unavailable in the dataset.

Food crops
Grains 3.2. Patterns in input purchases
0–0.49 98 69 61 70
0.5–0.99 99 87 74 83
1–1.99 99 86 79 86 Table 2 shows farmers’ purchases of ‘‘external inputs” – variable
2–4.99 99 84 83 81 inputs apart from labor, including inorganic fertilizer, seeds, and
5+ 100 88 85 81 pesticides.
All 99 77 76 80
First, there is a marked contrast between Nigeria and Malawi,
Horticulture with a high share of farmers buying external inputs (70%), com-
0–0.49 29 33 22 55
pared to Uganda and Tanzania (16% and 18% respectively). The
0.5–0.99 31 21 13 50
1–1.99 37 22 12 48 Malawi-Nigeria results are at odds with the traditional notion that
2–4.99 32 23 9 46 few farmers in SSA use external inputs but consistent with the
5+ 43 17 7 63 findings of Sheahan and Barrett (2014).1
All 31 28 13 51 One might say that the Nigeria and Malawi results are driven by
Legumes the fertilizer subsidy program. While that might be true in Malawi
0–0.49 62 29 12 76 where about 60% of households receive subsidized fertilizer
0.5–0.99 76 56 10 75
1–1.99 79 60 12 77
(Chirwa and Dorward, 2013), this is unlikely in the case of Nigeria.
2–4.99 77 53 16 82 While the Nigeria data show persistently high fertilizer use rates
5+ 93 54 16 82 across both survey years rounds, in 2010, when subsidized fertil-
All 71 42 13 78 izer was only channeled through the government, fewer than 5%
Tubers of the households who purchased fertilizer bought it from govern-
0–0.49 8 61 16 74 ment sources (the channel by which the subsidy was delivered).2
0.5–0.99 9 30 19 79
Second, among farm households buying external inputs, fertil-
1–1.99 14 34 19 74
2–4.99 16 39 18 76 izer and seeds are common purchases. The results are mixed for
5+ 0 49 20 71 pesticides. Many farmers buy pesticides in Nigeria, but not in
All 10 48 18 75 Malawi. Only about a half and a third of the farmers who buy
All food crops external inputs in Tanzania and Uganda buy fertilizer, yet a larger
0–0.49 100 98 95 100 share buy pesticides; this appears surprising, but is consistent with
0.5–0.99 100 98 97 99 Sheahan and Barrett (2014) for Uganda.
1–1.99 100 99 96 100
2–4.99 100 98 95 100
Table 3 disaggregates input purchases over five strata, very
5+ 100 99 97 99 small farmers (with less than 0.5 ha) to larger farmers with more
All 100 98 96 100 than 5 ha. Several points are salient.
First, across the countries and contrary to conventional percep-
tions, farmland is concentrated. We find 65–75% of the land but
only 20–25% of the farms in the medium and large farm strata
crops” (although they are often also sold for cash), including grains, (above 2 ha). Small farmers of less than 2 ha have only 25–35% of
horticulture products, legumes, and tubers (grown as a staple), and the land but 75–80% of the farms in Nigeria, Tanzania, and Uganda;
crops traditionally called ‘‘cash crops”, including tobacco, cotton, in Malawi the farms above two hectares are only 4% of the farms
tea/coffee, and edible oil crops. but nearly 40% of the land.
Several points stand out. First, as expected, grain farming dom- Second, surprisingly, the shares of farmers buying external
inates, but is not ubiquitous, as it is practiced by only about three- inputs do not differ much over small (up to 2 ha) versus med-
quarters of the farms in Nigeria, Tanzania, and Uganda, being near ium/large (above 2 ha): in Malawi, 71% versus 88%, Nigeria, 78 ver-
100% only in Malawi. There is little farm size bias in participation sus 83%, Tanzania, 15% versus 23%, and for Uganda, 14% versus 24%.
in food cropping. Over the countries on average nearly a third of But this masks differences in rates, or level of external input use
the farms grow horticultural crops, half grow beans/pulses, and a
third grow tubers. Food cropping is thus fairly diversified on
1
average. They covered Ethiopia, Malawi, Niger, Nigeria, Tanzania, and Uganda.
2
There is no explicit question in the Nigeria LSMS for whether a household got a
Second, by contrast, cropping of traditional cash crops is more
fertilizer subsidy. However, until recently, only the government sold subsidized
concentrated in every country. On average, only a fifth of farmers fertilizer; thus we assume that farmers buying from government sources are the only
grow traditional cash crops, and that is but a tenth if one excludes ones getting a subsidy (based on Takeshima and Nkonya, 2014). While this might be
Uganda. There is a marked correlation of the share of farms pro- an underestimate in 2012 (since it was possible starting in 2012 for farmers to
ducing any cash crop and farm size. The crop focus differs over purchase subsidized fertilizer from dealers in the market with a coupon) this is
unlikely since the new program was still very new (launched in 2012). We find the
countries, with tea/coffee and oil crops standing out in Uganda, very low numbers (and a tiny share) of farmers purchasing fertilizer from government
cotton and oil crops in Tanzania, oil crops in Nigeria, and tobacco sources in 2012 to be similar to those in 2010 (when the government was the sole
and cotton in Malawi. distributor of fertilizer).
96 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

Table 3
Purchase of external inputs by farm size strata. Source: LSMS data.

Farm Farms in Farmland in Farms buying Fertilizer bought by Pesticides bought by Seed bought by Total inputs bought by
strata (ha) stratum (%) stratum (%) external inputs (%) stratum (%) stratum (%) stratum (%) stratum (%)
Malawi
0–0.49 45 13 65 30 12 28 30
0.5–0.99 33 24 69 21 11 34 22
1–1.99 18 24 79 29 40 23 29
2–4.99 4 11 91 19 30 13 19
5+ 0 27 84 1 7 2 1
Overall 100 100 100 100 100 100
Nigeria
0–0.49 53 8 62 30 19 55 30
0.5–0.99 20 12 78 25 20 17 23
1–1.99 15 16 83 23 24 13 22
2–4.99 9 22 82 16 21 8 16
5+ 3 43 85 5 16 7 8
Overall 100 100 100 100 100 100
Tanzania
0–0.49 20 2 13 5 5 NA 5
0.5–0.99 19 5 14 9 7 NA 9
1–1.99 24 14 17 20 13 NA 19
2–4.99 26 32 22 41 46 NA 42
5+ 11 47 24 25 29 NA 26
Overall 100 100 100 100 NA 100
Uganda
0–0.49 26 4 6 6 5 NA 5
0.5–0.99 24 10 16 9 10 NA 10
1–1.99 26 20 20 35 48 NA 44
2–4.99 19 30 20 34 25 NA 28
5+ 6 37 28 16 12 NA 14

Note: NA, information unavailable in the dataset.

External inputs include fertilizer, seeds and pesticides.

per hectare. Binswanger and Ruttan (1978) note that one should near absence of the use of any credit, formal or informal, tied with
expect smaller farms to use more external inputs as substitute input or output traders, in kind or in cash. The converse is that 94%
for land. Our data indeed show smaller farmers using more exter- use only their own cash to buy external inputs. This can be from
nal inputs per hectare than do the medium/large farms: while sales of crops and employment earnings (farm wage labor, migra-
medium/large farmers crop 70% of total farmland, they constitute tion, and RNFI), as discussed in more detail below.
only 35% of the external input purchase ‘‘pie”. This finding varies Moreover, among the tiny share of farmers buying external
little over input types. It also holds true across Malawi, Nigeria, inputs on credit, there is sharp variation over input types. There
and Uganda. The outlier is Tanzania, where medium/large farms tends to be 2–3 times more households getting some kind of credit
use external inputs almost as intensively as small farms. for fertilizer compared to seeds or pesticides.
Table 5a shows the shares of the farm size strata in all credit-
3.3. Farm input finance by farm size strata and crop categories based input expenditures. In Malawi, Tanzania, and Uganda, input
credit is roughly correlated with farm size – most of the credit-
Table 4 shows consistent evidence across countries of very low based external input expenditures are concentrated outside the
use of any form of credit to buy external inputs. On average, among below-one-hectare group. These results do not differ much over
farm households who bought external inputs, only about 6% used input types. Nigeria has the lowest share of farmers purchasing
any form of credit. As noted in the introduction, there has been a external inputs on credit (3%); it differs somewhat from the other
presumption in the literature that to the extent farmers buy exter- countries in that the great majority of the input credit is taken by
nal inputs, they do it at least with informal credit or trader credit. the ‘‘under 1 ha” group; however, this is still taken by merely a tiny
But the analysis here shows that conventional wisdom is not sup- share of the smallest farmers.
ported empirically, and it is not just a lack of formal credit, but a Table 5b shows the share of each external input’s expenditure
that a given stratum buys with credit. Input credit tends to be
much more important for the middle to higher farm size strata,
Table 4
Share of households purchasing external inputs that finance the purchase on credit. and extremely little for the smaller strata. It is also mainly in fertil-
Source: Authors from LSMS data. izer and very little in pesticides and seeds. In Malawi, Tanzania,
and Uganda, input credit is relatively substantial only for fertilizer.
Of those who bought Of those who bought the noted
external inputs, share input, share who bought on credit It averages 9% of fertilizer input outlay in Malawi but is concen-
buying on credit (%) by input type trated in the upper-small and medium farmers (1–5 ha) where it
Fertilizers Pesticides Seeds averages a fifth of external input expenditure. In Tanzania, the
share of input expenditure done on credit is correlated with land
Malawi 5 5 7 3
Nigeria 3 2 NA 3
size, with about 10% for smaller farmers and about a quarter and
Tanzania 11 14 7 3 a half for medium and larger farmers. For Uganda, it is only rela-
Uganda 6 14 4 NA tively important for the 1–5 ha group, where it reaches 40–50%
Note: NA implies information unavailable in the dataset.
of fertilizer expenditure. In Nigeria, the share is low for all types
Column 2 is the share among households who purchased at least one external of external inputs, with about 3% on average, differing little over
input. strata.
 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105 97

Table 5a
Credit-based expenditure on external inputs, by shares of strata. Source: from LSMS data.

Countries Farm size strata Buying on In all credit-based In all credit-based In all credit-based In all credit-based
credit (%) fertilizer outlay pesticide outlay seed outlay input outlay
Malawi
0–0.49 3 4 11 13 4
0.5–0.99 3 4 15 16 4
1–1.99 10 61 38 44 60
2–4.99 10 32 36 27 32
5+ 14 0 0 0 0
Overall 100 100 100 100
Nigeria
0–0.49 3 49 NA 13 45
0.5–0.99 5 22 NA 22 22
1–1.99 4 11 NA 62 16
2–4.99 1 2 NA 0 2
5+ 6 16 NA 3 14
Overall 100 NA 100 100
Tanzania
0–0.49 2 0 0 NA 0
0.5–0.99 6 4 3 NA 4
1–1.99 8 10 15 NA 10
2–4.99 20 36 69 NA 38
5+ 24 50 12 NA 48
Overall 100 100 NA 100
Uganda
0–0.49 0 0 0 NA 0
0.5–0.99 2 3 17 NA 5
1–1.99 11 57 54 NA 56
2–4.99 11 40 28 NA 39
5+ 0 0 0 NA 0
Overall 100 100 NA 100

Note: NA implies information unavailable from dataset.

Column 3 pertains to farm households buying at least one external input.

Table 5b
Share of credit-based outlay in overall outlay per external input. Source: from LSMS data.

Countries Farm size strata Credit-based outlay in Credit-based outlay in Credit-based outlay Credit-based outlay in
total fertilizer outlay (%) total pesticide outlay (%) in total seed outlay (%) total ext. input outlay (%)
Malawi
0–0.49 1 3 2 1
0.5–0.99 2 5 2 2
1–1.99 22 4 8 21
2–4.99 18 4 8 17
5+ 0 0 0 0
Nigeria
0–0.49 6 NA 1 4
0.5–0.99 3 NA 3 3
1–1.99 2 NA 12 2
2–4.99 1 NA 0 0
5+ 11 NA 1 5
Tanzania
0–0.49 2 0 NA 2
0.5–0.99 12 4 NA 11
1–1.99 15 10 NA 14
2–4.99 26 12 NA 23
5+ 58 3 NA 48
Uganda
0–0.49 0 0 NA 0
0.5–0.99 12 3 NA 6
1–1.99 53 2 NA 17
2–4.99 40 2 NA 19
5+ 0 0 NA 0

Note: NA implies information unavailable in the dataset.

Column 3 is among households who purchased at least one external input.

3.4. Finance by crop type with an added focus on interlinked credit ular from processors in interlinked credit arrangements; food crop
producers also may access such interlinked credit from traders. To
Conventional perceptions from the literature, as discussed in test this, we explore the shares (by crop type) of farm plots on
the introduction, suggest that farmers growing traditional cash which inputs purchased on credit in interlinked relations are
crops would commonly access external inputs on credit, in partic- shown (Table 6). The findings are surprising.
98 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

Table 6 Table 7
Share of plots on which external inputs purchased with interlinked credit, by crop Shares of farmers using harvest to reimburse input credit. Source: Generated by
type. Source: from LSMS data. authors using LSMS data.

Malawi Nigeria Tanzania Uganda Countries Farm size strata Share of farmers Share of farmers using
using their harvest their harvest to repay
Cash crops
to repay labor external inputs
Tobacco 16 NA 87 81
received on credit received on credit (%)
Cotton 11 8 11 0
(%)
Tea/coffee NA NA 22 1
Oil crops 6 3 4 11 Malawi
All cash crops 14 4 26 8 0–0.49 37 1
0.5–0.99 45 3
Food crops
1–1.99 50 2
Grains 5 3 11 7
2–4.99 47 1
Horticulture 4 3 0 4
5+ 24 0
Legumes 5 2 11 6
All 42 1.8
Tubers 7 3 4 5
All food crops 5 3 10 6 Nigeria
0–0.49 26 1
NA implies information unavailable in dataset. 0.5–0.99 29 1
1–1.99 26 3
2–4.99 21 2
First, while there is a lot of variation over countries, the average
5+ 22 3
over all traditional cash crops is only 13%, lower than what would All 26 1.4
be expected from the literature on cash crops that suggests a wide
Tanzania
distribution of interlinked credit for cash croppers. This average 0–0.49 NA 0
masks variation over countries. Malawi and Tanzania average 0.5–0.99 NA 1
20% (the share, among all plots for this crop category, that receiv- 1–1.99 NA 1
2–4.99 NA 4
ing inputs purchased in interlinked credit arrangements). Nigeria
5+ NA 5
and Uganda average only 6%. All NA 1.9
The difference between the pairs of countries is mainly driven
Uganda
by tobacco in Tanzania and Uganda, where four-fifths of the plots 0–0.49 54 NA
are grown with inputs bought on credit from the processors. Also, 0.5–0.99 63 NA
that outlier is composed of a tiny group of tobacco farmers in the 1–1.99 74 NA
sample for each country, about 1% of the total sample. The limited 2–4.99 78 NA
5+ 81 NA
and ‘‘enclave” nature of tobacco farming and its correlation with
All 68 NA
farm size in those countries could explain why these are the main
cases where the conventional image of contract-farming related Notes: NA implies that information is unavailable in the dataset used.
credit is manifest. Removing the tobacco outlier (for just Tanzania
and Uganda) puts the overall credit share for cash crops about 6% – Malawi it is in an inverted-U shape relation with farm size. Thus
very close to that for food crops as noted below. one cannot say that this traditional-tying of labor and harvest is
Second, only 6% of all plots of food crops receive inputs pur- more a phenomenon of the smallest farmers holding on to an old
chased in interlinked credit arrangements. This is the first time practice, as one might expect, given our hypothesis that larger farms
in the literature this has been tested and demonstrated, and we are more apt to use monetized labor relations only. Moreover, Table 8
consider this a key contribution of this paper. shows that use of harvest repayment for labor is very minor for cash
To triangulate the above results on output/input credit arrange- crops (except for oil crops in Uganda where it is a quarter of farmers
ments, we examined the data in another section of the LSMS sur- using it), but is significant in food crops across the countries, such as
vey questionnaire, the management of crop harvests. We used about a third in horticulture and a quarter in grains. There is only a
farmers’ responses concerning use of part of their harvests to repay single situation (crop plus country) where this arrangement (using
advances for inputs from input or output traders and processors harvest to pay for inputs) is important for external inputs, and that
(especially for cash crops) for external inputs, and for labor. is for tobacco in Tanzania. This corroborates the results from above.
Table 7 shows the share of farmers using part of their harvests We conjecture that this high prevalence of the use of harvest to
for these ends. The main finding is that such ‘‘tied credit” is very reimburse for external inputs received on credit to produce
rare for external inputs (fewer than 2% of the farmers) across all tobacco in Tanzania is related to a widespread use of contract
study countries. This corroborates the results from above. For har- farming arrangement over tobacco production in Tanzania. If our
vest payment for external inputs, the shares are so small that there conjecture is true, we should expect to see more contract farming
are no interesting inter-strata differences. When we consider the (outgrower) arrangements over tobacco compared to cotton, tea/-
‘‘reimbursement of credit with the harvest” by type of crop, it is coffee, and oil crops. But in the Tanzania data set,4 we found that
very minor or zero for the other cash crops (except tobacco in Tan- only 1.8% of farmers are involved in outgrower schemes. In this tiny
zania, discussed above), and all of the food crops (Table 8). set, tobacco farmers dominate (as 78% of the plots in outgrower
By contrast, and reported for the first time in the SSA literature schemes are under tobacco, followed by cotton with 19%.
using cross-country surveys for comparison, we find that labor- Overall our results indicate that there is much less tied credit
output tying is much more common, with as many as 42% of the arrangement to finance external input than expected from the con-
farmers in Malawi, 26% of Nigerian, and 68% of Tanzanian farmers jectures in the literature. Even though those arrangements appear
doing this practice. (The dataset for Uganda did not allow this cal- to be more formal (from contract farming arrangements) and more
culation.)3 The patterns over strata differ by country. In Uganda, the likely for cash crops, we still see far less than expected (except for
share rises with farm size, in Nigeria it slightly declines, and in tobacco).

3
Of interest (but not reported in Table 7) is that tying land access and output
4
markets was not found to be common. That is, the land tenure section of the surveys There is no information about contract farming in the datasets of the other
showed that sharecropping was extremely limited. countries to allow us to compare this pattern across countries.
 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105 99

Table 8
Financing inputs on credit with harvest across key cash and food crops. Source: Generated by authors using LSMS data.

Crops types Share of plots where harvest is used to repay (advanced) labor (%) Share of plots where harvest is used to repay external inputs (%)
Nigeria Malawi Uganda Tanzania Nigeria Malawi Uganda Tanzania
Cash crops
Tobacco 0 2 0 NA 0 2 NA 79
Cotton 10 0 0 NA 0 1 NA 6
Tea/coffee NA NA 1 NA NA NA NA 3
Oil crops 8 0 25 NA 0 0 NA 0
Food crops
Grains 17 22 27 NA 1 1 NA 1
Horticulture 18 32 36 NA 1 0 NA 0
Legumes 9 21 25 NA 1 1 NA 0
Tubers 5 29 30 NA 1 1 NA 0

Notes: NA implies that information is unavailable in the dataset used.

3.5. Households’ use of loans not specifically linked to input Integrated Survey on Agriculture (LSMS-ISA); the panel version of
transactions the nationally representative dataset used in previous sections.

We use the term ‘‘loans” for credit unconnected directly and

4.1. Conceptual and empirical framework
specifically to transactions of outputs or inputs. Loans can come
from formal sources (banks), semi-formal sources (micro-
The fertilizer purchase decision follows a standard input
finance), and informal sources (friends, relatives, cooperatives,
demand function derived from a constrained household utility
etc.). The survey data show that households take loans, but rarely
maximization problem (Sadoulet and de Janvry, 1995). Fertilizer
for agriculture. In Nigeria 38% of the farmers took loans (but there
demand can be expressed as a function of output and input prices,
is no information in the survey on the purpose of the loan). In
risk proxies, complementary and substitute farm capital, and rele-
Malawi, 23% of the households took a loan, but only 5% of them
vant shifter variables such as crop type. We consider the decision
did so for farming. In Tanzania, only 11% took loans, of which 2%
to purchase fertilizer and then the intensity of use.
for farming. This is striking because one would expect credit-
In each case
constrained farmers to use these loans to finance farm input pur-
chases. For Uganda the survey did not report loans. Y it ¼ f ðX it ; uit Þ
Instead, the data show that the loans were taken mainly for
nonfarm business startups and non-farm enterprise inputs (40% where Y it refers to the binary input use variable or the quantity of
in Malawi, 24% in Tanzania) and for food consumption (31% in fertilizer purchased (in kg), while X it refers to a vector of controls
Malawi and Tanzania).5 As our regressions show below, a key factor that explain fertilizer demand. uit ¼ eijit þ ci is a composite error
that determines fertilizer purchase is engaging in nonfarm enter- term comprising time invariant unobservable heterogeneity (ci )
prises. Thus it appears that farmers prefer to use loans to finance and time varying unobserved characteristics eit of our input demand
the set up/expansion of their nonfarm enterprises but use the gener- function. We model the farmer’s fertilizer purchase decisions using
ated cash from these nonfarm enterprises to finance external input the standard unobserved effects binary dependent variable model
purchases for their farms. (Green, 2000; Wooldridge, 2010). The intensity of fertilizer use is
modeled using the unobserved effects Tobit model to account for
the corner solution nature of the dependent variable (Wooldridge,
4. Determinants of fertilizer purchases in Nigeria
2010). In both models, ci represents the unobserved effect parame-
ter, modeled using the Mundlak (1978) special case of the approach
This section infers how farmers finance their input purchase by
of Chamberlain (1982) called correlated random effects (CRE):
estimating the determinants of fertilizer purchases by Nigerian
farmers. Our analysis emphasizes the roles of the main cash ci ¼ w þ X i n þ ai ;
sources of farm households, including RNFI (from both wage and
self-employment), crop sales, and loans, in rapidly descending
order of importance. We also control for agricultural productivity ai jX i  Normalð0; r2a Þ
risks (captured by zone rainfall variability), as well as regional dif-
where X i represents time averages of the explanatory variables. The
ferences (north versus south) in decisions on fertilizer purchase.
CRE model is preferred over alternative methods such as the fixed
We focus on the Nigeria case to abstract from possible issues of
effects (FE) and random effects (RE) models in the case of non-
the fertilizer subsidy directly driving fertilizer purchase, which
linear models (Wooldridge, 2010). However, for comparison, we
could be an issue if we were to do the analysis on Malawi and Tan-
estimate the linear model with household FE given its suggested
zania as noted above.6 We use the two available waves (for 2010
conceptual robustness over nonlinear models such as the Probit
and 2012) of The Nigeria Living Standard Measurement Study-
and Tobit (Angrist and Pischke, 2008).
5
Consistent with the CRE model, the determinants of the fertil-
Zeller and Sharma (1998) also found that 50–90% of formal and informal loans in
izer purchase decision and the level of use are estimated using
their African study countries went to consumption-related purchases. Poulton et al.
(2010) also make this point in a general way. pooled Probit and pooled Tobit regressions, respectively. Each
6
Even in 2012, when it was possible that farmers purchased subsidized fertilizer regression equation includes a set of explanatory variables as well
from agro-dealers in the private market less than 5% of farmers could have done so. as the time averages of the explanatory variables. A Wald test of
According to the Federal Ministry of Agriculture and Rural Development about 1.6 joint significance of the time average variables is performed to test
million farmers participated in the government subsidy program in 2012 (FMARD,
2015). According to the LSMS-ISA surveys, there were over 32.5 million households in
whether a traditional random effects model would be appropriate.
Nigeria in 2012. Even if we assume the program only allowed 1 participant per A dummy variable for the time period is included to account for
household, this would amount to about 5% of farmers. time-specific factors that affect fertilizer demand.
100 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

Although the use of the FE and CRE models address potential to purchase fertilizer, participate in non-farm self-employment,
biases due to time invariant unobserved heterogeneity, conditional participate in non-farm wage employment, take a loan, and sell
strict exogeneity implies there is no endogeneity after controlling crops).
for the time-invariant unobservables. If this assumption fails our As in the single equation estimations, we control for specific
estimates might be biased. To minimize any remaining bias from time-invariant unobservable heterogeneity and include time-
time-varying unobservables, we include various observable char- varying covariates.
acteristics to proxy for a number of unobservables. Conditional The explanatory variables used in the models and their levels
on the covariates used, the likely major source of endogeneity are reported in Table 9. The variable sets and key descriptive points
should be time invariant and thus addressed by the CRE approach are as follows.
(corroborated with FE results). However, since it is not possible to First, three (potential) sources of input finance are included in
completely rule out endogeneity due to time-varying unobserv- the model: (1) a dummy variable for RNFI, including self-
ables, these results are interpreted as correlates rather than causal employment and wage employment; (2) crop sales per hectare of
effects. land; and (3) a dummy variable for any member of the household
As an alternative specification, we also consider the likelihood having taken a loan the year before the survey period. Table 9
that the decision to work in RNFI, sell crops, or take a loan might shows that around 60% of households have at least one member
be jointly made with the decision to use fertilizer. A farmer may in RNFI self-employment and around 20% with a member with
decide to engage in non-farm activities (or take a loan or sell some wage employment. The RNFI patterns are similar in the North
of his crops) to get cash to purchase inputs including fertilizer. Fur- and South. Table 10 shows that together they are about three-
thermore, the joint decision process could be due to unobserved quarters of rural household cash income in 2012. Crop sales in
characteristics that determine both non-farm participation (taking the South were more than double those in the North. In both
a loan and selling crops) and input use such as labor availability regions they average about a quarter of cash incomes. Note from
and networks. Consequently we estimate a seemingly unrelated Table 10 that livestock sales and remittances are tiny compared
multivariate Probit regression. Given the non-linearity of our out- with these other sources. Also note that the cash levels of the credit
come variables and the recursive structure of the model, we do not transactions for external inputs are very low compared to cash
face the classical identification issue common in linear SUR (Wilde, incomes.
2000; Smale et al., 2016). This system approach offers an efficiency Second, we included several socio-economic variables (gender,
gain by taking into account correlations among the residuals of the age, and education of the household head, as well as the depen-
equations in a system of equations capturing the binary decisions dency ratio and distance from the market) to proxy for systematic

Table 9
Summary statistics of variables used in the regression analysis, Nigeria, South, North. Source: Generated by authors using LSMS data.

Variables Nigeria South North

2010 2012 2010 2012 2010 2012
Household head is Male (0/1) 88 87 76 74 96 96
Age of the household head (years) 51 52 56 57 47 49
Household dependency ratio 1.1 1 0.9 0.8 1.2 1.1
Household head has formal education (0/1) 60 60 71 70 52 53
Household resides in an urban area (0/1) 13 12 18 17 10 8
Land holding size (hectares) 0.9 0.8 0.5 0.4 1.2 1
Agricultural assets index 0.3 0.2 0.4 0.1 0.2 0.3
A household member is engaged in Non-Farm self-employment (0/1) 56 60 51 57 60 62
A household member is engaged in off Farm wage employment (0/1) 23 18 24 23 23 15
Household received any loan (0/1) 39 40 36 42 42 39
Household received loan from formal source (0/1) 3 5 3 8 3 3
Household received loan from informal source (0/1) 18 19 18 24 18 16
Household received loan from friends or relatives (0/1) 28 29 22 26 33 30
Value of sales per ha of land cultivated (in 000 Naira) 43 43 65 69 30 30
Use fertilizer (0/1) 45 45 25 21 59 61
Purchase Fertilizer (0/1) 41 42 23 20 55 56
Fertilizer price (in Naira per kg) 85 103 93 106 80 100
Distance to Nearest Market (km) 71 70 66 66 75 73
Coefficient of variation of rainfall 94 95 68 68 111 112
Share of land cultivated allocated to grains crops 43 44 15 16 59 59
Share of land cultivated allocated to legumes crops 16 17 1 1 25 25
Share of land cultivated allocated to tubers crops 28 25 58 53 10 10
Share of land cultivated allocated to oil crops 3 3 5 6 2 2
Share of land cultivated allocated to horticulture crops 7 8 15 18 3 3
Share of land cultivated allocated to cotton 0 0 0 0 0 0
Share of land cultivated allocated to tobacco 0 0 0 0 0 0
Share of land cultivated allocated to tea/coffee 0 0 0 0 0 0
Share of land cultivated allocated to other crops 3 3 7 7 1 0
Geographic zones
North central 17 17 0 0 29 27
North east 20 20 0 0 34 34
North west 22 24 0 0 37 40
South east 20 19 49 49 0 0
South south 13 13 31 32 0 0
South west 9 7 21 19 0 0

Note: Means of binary variables are expressed in percentage.

 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105 101

Table 10
Sources of cash income in Nigeria, North, and South, 2012. Source: Generated by authors using LSMS data

Income sources Household cash sources (000 naira) Share of cash from each source (%)
Nigeria South North Nigeria South North
Cash income
Profit from household enterprises 119.9 110.2 127 46.2 38.0 53.5
Wage income 77.7 105.4 57.3 29.9 36.3 24.1
Crop sales (gross) 60 71.4 51.7 23.1 24.6 21.8
Livestock net sales 1 1.1 0.9 0.4 0.4 0.4
Remittances 1.1 2 0.4 0.4 0.7 0.2
Total cash 259.6 290.1 237.3 100.0 100.0 100.0
Inputs credit transactions 0.4 0.1 0.6 0.2 0.03 0.3
Inputs non credit transactions 10.8 4.2 15.6 4.2 1.4 6.6
Total input purchase 11.1 4.2 16.2 4.3 1.4 6.8
Hired labor value for harvest only 12.9 7.5 16.9 5.0 2.6 7.1
Imputed value of own crop output 140.5 88.7 178.6 54.1 30.6 75.3

Note: The numbers in the left panel are zero-in averages. The shares on the right are based on ratio of number on the left to the total cash value. Inputs include fertilizer, seeds,
and pesticides. For each value in the table, instead of deleting outliers we winsorized them i.e. replace top 10% values by the highest value within 90% of the distributions, thus
creating a pile up at the top without changing the distribution (Cox, 2006).
For imputation of value of own crop output method, we estimate unit prices of crops for crops that were sold, and then we use the median price in the local governments and
multiply by harvest quantities to get the value of crop sales.
The harvest labor for planting activities is missing in the 2010 dataset, and therefore we focus on the harvest labor only in both years.
The values reported for the cash sources are nominal values for each year.

differences in resource access, transaction costs, productive struc- results are generally consistent and in line with the literature on
ture, and the number of years of experience in farming (Feder et al., fertilizer demand. However, they reveal substantial differences
1985). between northern and southern Nigeria. Most relevant determi-
Third, we included household-level asset variables, in particu- nants of fertilizer purchases show higher significance in the North
lar, farm size and agricultural quasi-fixed assets (tractor, plow, irri- compared to the South. This possibly reflects the North using more
gation pump, and so on). The latter were captured using an asset fertilizer and therefore is more responsive to various determinants
index computed using the principal component analysis approach than the South.
(Filmer and Pritchett, 2001). Note from Table 9 that the farms in We find that participation in non-farm self-employment has
the North are roughly double the size of those in the South. positive and significant effects on fertilizer purchases. The esti-
Fourth, we included shares of crop types in the cropped area of mated APE (Average Partial Effects) indicates that participation in
the farm. In general, there is much more grain cropping and much it raises the likelihood of purchasing fertilizer by about 7%. This
less tuber and horticulture cropping in the North compared with result is consistent across both the South (10% increase) and the
the South. This is roughly correlated with rainfall levels. North (5%). These findings coincide generally with the descriptive
To account for zone and region effects, we include the following findings above, and corroborate earlier findings of nonfarm income
sets of variables. on input purchase, such as Adesina (1996) for Ivory Coast and
First, we have dummy variables representing the six main zones Oseni and Winters (2009) for Nigeria. However, contrary to Oseni
(Northeast, Northwest, Southeast, Southcentral, and Southwest), and Winters (2009), we find that wage employment did not appear
reflecting different infrastructural and growing conditions. Also as a significant determinant of fertilizer purchase and even has a
at a broad level, we have a dummy for urban versus rural areas negative coefficient, perhaps due to wage employment drawing
(as there is farming by households classed in urban areas). In addi- members away from the farm area and thus competing with farm-
tion to the overall (country level) analysis, we estimate regional- ing (as Smale et al., 2016 hypothesizes)7. Moreover, neither RNFI
level parameters for the Northern and Southern regions (the sub- variable is a significant determinant of the amounts of fertilizer pur-
regions as noted above). As mentioned by Oseni and Winters chased, according to the Tobit results. The balance between farm and
(2009), there are important cultural and socio-economic differ- non-farm competition for resources on one hand, and the relaxation
ences between the two regions which can affect the way farmers of cash constraints to allow financing of agriculture inputs on the
respond to changes in determinants of inputs use. Table 9 shows other hand, determine the observed effects of non-farm employ-
that compared to the South, the north of Nigeria is more rural ment. In our case, they seem to cancel each other out, especially
and traditional, with larger household sizes, greater poverty, and when we look at the effect on fertilizer amounts.
less education. While lagged access to loans positively affects fertilizer pur-
Second, we have several variables at a more disaggregate level, chase, the effect is significant only in the North. A closer investiga-
the LGA (the ‘‘local government area”). These include the price of tion of the types of loans taken by farmers shows that loans from
fertilizer, and agricultural productivity risk. The latter is captured friends and relatives (rather than loan from formal and semi-
by the coefficient of variation of rainfall in the LGA, hypothesized formal institutions) drive most of these results (with the regres-
to reduce the demand for fertilizer, especially in the absence of sions using different kinds of loans as explanatory variables not
ex-post risk mitigation opportunities and lack of credit and insur- shown in the tables). This could illustrate the fact that loans, and
ance mechanisms (Dercon and Christiaensen, 2011). in particular loans from formal and semi-formal institutions, are
limited for agricultural investment. Given the risks related to agri-
4.2. Regression results cultural activities, formal and semi-formal credit suppliers are

Tables 11a and 11b present the average partial effects of the 7
This is supported by our data as non-farm wage employment participants supply
determinants of fertilizer purchase overall in Nigeria and by region statistically significantly lower amount of labor a week, on average to agriculture
from the pooled Probit and pooled Tobit estimates. The CRE and FE (11.12 h) than non-participants (18.24) with a p value of 0.000.
102 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

Table 11a
Estimation results of determinants of fertilizer purchase (0/1) decision. Source: Generated by authors using LSMS data.

Variables Nigeria South North

CRE Probit Linear FE CRE Probit Linear FE CRE Probit Linear FE
Household head is Male (0/1) 0.050⁄ 0.115 0.026
0.010 0.131⁄⁄⁄ 0.637⁄⁄
[0.058] [0.177] [0.355] [0.861] [0.004] [0.049]
Age of the household head (years) 0.000
0.001 0.000
0.001 0.000
0.001
[0.740] [0.725] [0.654] [0.784] [0.876] [0.716]
Household dependency ratio
0.006
0.012 0.030 0.028
0.030⁄
0.034⁄
[0.669] [0.446] [0.169] [0.225] [0.052] [0.081]
Household head has formal education (0/1) 0.081⁄⁄⁄ 0.051⁄⁄ 0.056⁄⁄ 0.040 0.094⁄⁄⁄ 0.057⁄⁄
[0.000] [0.041] [0.046] [0.521] [0.000] [0.035]
Land holding size (hectares) 0.017 0.026⁄
0.033
0.013 0.031⁄⁄ 0.037⁄⁄
[0.220] [0.057] [0.260] [0.603] [0.036] [0.020]
Agricultural asset index 0.002 0.002 0.003 0.001 0.002 0.002
[0.267] [0.323] [0.403] [0.576] [0.349] [0.315]
Total Livestock Units index 0.652⁄⁄ 0.413
0.649 0.355 0.651⁄ 0.349
[0.049] [0.158] [0.656] [0.536] [0.080] [0.257]
LOG of crop sales in naira per ha of harvested land 0.001+ 0.001⁄ 0.000 0.000 0.001⁄ 0.001⁄⁄
[0.114] [0.071] [0.623] [0.597] [0.083] [0.049]
A household member is engaged in Non-Farm Self-employment (1/0) 0.070⁄⁄ 0.078⁄⁄⁄ 0.106⁄⁄ 0.135⁄⁄⁄ 0.052+ 0.062⁄
[0.012] [0.009] [0.020] [0.009] [0.149] [0.078]
A household member is engaged in wage employment (1/0)
0.022
0.019
0.025
0.022
0.006
0.004
[0.418] [0.545] [0.505] [0.595] [0.876] [0.918]
A household member took a loan (0/1) 0.056⁄⁄⁄ 0.060⁄⁄⁄ 0.045 0.047 0.069⁄⁄⁄ 0.076⁄⁄⁄
[0.009] [0.001] [0.203] [0.163] [0.009] [0.001]
Coefficient of variation of rainfall
0.003⁄⁄⁄
0.003
0.004⁄⁄⁄
[0.001] [0.623] [0.000]
LOG of fertilizer price in Naira per kg
0.017
0.019
0.015
0.003
0.017
0.033
[0.616] [0.481] [0.729] [0.920] [0.737] [0.438]
Share of total land cultivated allocated to grains crops 0.002 0.003⁄ 0.000
0.000 0.004⁄⁄ 0.003⁄⁄
[0.171] [0.061] [0.813] [0.711] [0.047] [0.047]
Share of total land cultivated allocated to legumes crops 0.001 0.002 0.001 0.000 0.003+ 0.002
[0.492] [0.173] [0.478] [0.829] [0.138] [0.199]
Share of total land cultivated allocated to tubers crops 0.001 0.002
0.000
0.001 0.004⁄ 0.002
[0.560] [0.207] [0.766] [0.217] [0.072] [0.179]
Share of total land cultivated allocated to oil crops 0.001 0.002 0.000
0.000 0.002 0.000
[0.558] [0.267] [0.809] [0.979] [0.560] [0.981]
Share of total land cultivated allocated to horticulture crops 0.002⁄ 0.003⁄ 0.001 0.001 0.004⁄ 0.003+
[0.092] [0.052] [0.360] [0.380] [0.091] [0.123]
Share of total land cultivated allocated to cotton
0.002 0.001
[0.387] [0.774]
Urban dummy variable (0/1) 0.089⁄⁄⁄
0.096 0.092⁄⁄⁄
0.118 0.050
0.143
[0.005] [0.701] [0.008] [0.189] [0.252] [0.607]
Household Distance in (KMs) to Nearest Market
0.002⁄⁄⁄
0.003
0.000
0.000
0.003⁄⁄⁄
0.006
[0.000] [0.771] [0.454] [0.990] [0.000] [0.259]
Year 2010 (0/1) 0.017 0.017 0.029 0.054⁄⁄⁄ 0.005
0.005
[0.237] [0.191] [0.154] [0.004] [0.784] [0.767]
Zone dummies
North east 0.095⁄ 0.071
[0.057] [0.185]
North west 0.324⁄⁄⁄ 0.310⁄⁄⁄
[0.000] [0.000]
South east
0.165⁄⁄⁄ 0.255⁄⁄⁄
[0.006] [0.000]
South center
0.229⁄⁄⁄ 0.169⁄⁄
[0.002] [0.011]
South west
0.400⁄⁄⁄
[0.000]
Constant 0.339 0.168 0.231
[0.662] [0.875] [0.669]
Number of observations 4843 4843 1670 1670 3173 3173
R-squared 0.027 0.045 0.037
Number of households 2730 995 1735

Note: ⁄⁄⁄, ⁄⁄, ⁄, and + indicate that the corresponding regression coefficients are statistically significant at the 1%, 5%, 10%, and 15% levels, respectively. Model estimated using
partial MLE estimation method. P values based on clustered standard errors between brackets. CRE stands for Correlated Random Effects while FE stands for Fixed Effects.

reluctant to provide loans for agricultural purposes, as they fear dominant sources of loans in each region. Friends and relatives
higher risk of default. Although we could not test specifically this seem to be a dominant source of loans taken by households in
hypothesis in Nigeria due to data limitations, as we noted above, the North compared with the South. Our analysis of the loan data
the data for Malawi and Tanzania show that consumption and in Nigeria from the LSMS (not shown in a table) provides some evi-
investment in business start-ups are by far the primary purposes dence for this. There are 22–26% of households reporting loans
of the loans taken by households. Besides, the fact that the effect from friends and relatives in the South, compared to 30–33% in
of loan is significant only in the North could be explained by the the North.
 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105 103

Table 11b
Estimation results of determinants of quantity of fertilizers purchased by farmers in Nigeria. Source: Generated by authors using LSMS data.

Variables Nigeria South North

CRE Tobit Linear FE CRE Tobit Linear FE CRE Tobit Linear FE
Household head is Male (0/1) 65.803⁄⁄⁄ 139.042⁄⁄ 20.022 11.096 109.283⁄⁄⁄ 346.443⁄⁄
[0.003] [0.032] [0.333] [0.870] [0.007] [0.038]
Age of the household head (years) 0.086
1.871 0.220 0.828 0.319
2.984
[0.802] [0.297] [0.698] [0.619] [0.462] [0.200]
Household dependency ratio 0.941 4.056 24.422 10.978
11.982
0.741
[0.935] [0.847] [0.184] [0.727] [0.414] [0.978]
Household head has formal education (0/1) 31.943⁄⁄ 1.798 43.532⁄⁄ 8.492 29.495⁄ 9.200
[0.014] [0.953] [0.032] [0.910] [0.079] [0.782]
Land holding size (hectares)
49.135⁄⁄⁄
111.516⁄⁄⁄
44.826⁄
81.532⁄⁄⁄
59.393⁄⁄⁄
117.974⁄⁄⁄
[0.000] [0.000] [0.051] [0.001] [0.000] [0.000]
Agricultural asset index 1.779⁄ 1.372 1.948 0.838 1.721+ 0.915
[0.063] [0.228] [0.405] [0.511] [0.113] [0.599]
Total Livestock Units index 794.160⁄⁄⁄ 890.156⁄⁄
254.360 174.590 843.723⁄⁄⁄ 833.816⁄⁄
[0.001] [0.012] [0.832] [0.812] [0.002] [0.022]
LOG of crop sales in naira per ha of harvested land 0.277 0.046 0.048
0.164 0.531 0.433
[0.536] [0.940] [0.936] [0.859] [0.402] [0.571]
A household member is engaged in Non-Farm Self-employment (1/0) 16.582
12.894 57.657+ 2.836 7.946
5.306
[0.484] [0.750] [0.144] [0.965] [0.798] [0.917]
A household member is engaged in wage employment (1/0) 85.647 12.824
12.627 16.299 16.685 31.760
[0.796] [0.690] [0.702] [0.779] [0.490] [0.404]
A household member took a loan (0/1) 15.764 3.137 32.709 44.667 14.671
4.289
[0.341] [0.893] [0.218] [0.234] [0.479] [0.884]
Coefficient of variation of rainfall
2.147⁄⁄⁄
4.164
2.568⁄⁄⁄
[0.000] [0.356] [0.000]
LOG of fertilizer price in Naira per kg
31.291
56.164⁄⁄
35.938
60.673⁄⁄
28.953
64.421+
[0.208] [0.024] [0.293] [0.041] [0.437] [0.114]
Share of total land cultivated allocated to grains crops 1.088 18.904⁄⁄⁄
0.008
1.120+ 2.802⁄ 18.990⁄⁄⁄
[0.224] [0.005] [0.993] [0.147] [0.074] [0.004]
Share of total land cultivated allocated to legumes crops 1.019 19.196⁄⁄⁄ 0.926
0.400 2.504+ 18.899⁄⁄⁄
[0.301] [0.005] [0.488] [0.685] [0.111] [0.005]
Share of total land cultivated allocated to tubers crops 0.809 19.181⁄⁄⁄ 0.001
0.121 2.074 18.070⁄⁄⁄
[0.375] [0.004] [0.999] [0.805] [0.167] [0.006]
Share of total land cultivated allocated to oil crops 1.286 19.935⁄⁄⁄ 0.665 1.016 1.557 18.326⁄⁄⁄
[0.228] [0.003] [0.526] [0.250] [0.413] [0.005]
Share of total land cultivated allocated to horticulture crops 1.623⁄ 19.315⁄⁄⁄ 0.956 0.116 2.441 18.318⁄⁄⁄
[0.078] [0.004] [0.318] [0.802] [0.161] [0.006]
Share of total land cultivated allocated to cotton
7.072⁄⁄⁄
7.280⁄⁄
[0.009] [0.041]
Urban dummy variable (0/1) 48.053⁄⁄
229.742 57.901⁄⁄
99.588+ 18.113
255.808
[0.012] [0.339] [0.019] [0.146] [0.426] [0.344]
Household Distance in (KMs) to Nearest Market
1.074⁄⁄⁄ 1.853
0.435 3.524
1.208⁄⁄⁄ 2.646
[0.000] [0.538] [0.302] [0.326] [0.000] [0.544]
Year 2010 (0/1) 20.286⁄ 10.804 39.974⁄⁄⁄ 92.170⁄⁄⁄ 1.296
30.360
[0.070] [0.559] [0.009] [0.000] [0.938] [0.265]
Zone dummies 72.740⁄⁄⁄ 54.593⁄
[0.009] [0.072]
North east 179.017⁄⁄⁄ 172.165⁄⁄⁄
[0.000] [0.000]
North west
32.435 211.842⁄⁄⁄
[0.425] [0.000]
South east
155.953⁄⁄⁄ 105.926⁄⁄
[0.003] [0.021]
South center
241.589⁄⁄⁄
[0.000]
South west
1551.668⁄⁄ 89.799
1654.857⁄⁄
[0.031] [0.755] [0.031]
Number of observations 4843 4843 1670 1670 3173 3173
R-squared 0.059 0.050 0.083
Number of households 2730 995 1735

Note: ⁄⁄⁄, ⁄⁄, ⁄, and + indicate that the corresponding regression coefficients are statistically significant at the 1%, 5%, 10%, and 15% levels, respectively. Model estimated using
partial MLE estimation method. P values based on clustered standard errors between brackets.

The coefficient of variation of rainfall has, as expected, a and significant effect in both the North and the South. The farm
strongly negative effect on fertilizer purchase, but this is only sig- size effect is significant and positive only in the North, while it is
nificant in the North. This result is important as investments in negative but not significant in the South. Crop sales affect posi-
modern input use though generally profitable, are costly and can tively, but not significantly, the fertilizer purchase decision.
yield very low (or even negative) returns in case of negative The results of the seemingly unrelated regressions (available
weather shocks. upon request from authors, given space limitation) are also consis-
Other factors that significantly affect fertilizer purchase are as tent with the single equation results. Both the household and geo-
expected such as education of the household head with a positive graphical factors that affect demand and more importantly the
104 S.G. Adjognon et al. / Food Policy 67 (2017) 93–105

positive effect of non-farm self-employment and loans on fertilizer nonfarm sector, in manufacture and services, could benefit farm
use are maintained. However, the unexplained portions of the fer- input purchase and thus productivity and food security, and cer-
tilizer purchase equation and the other sources of cash (including tainly be an important complement to credit policies and
self-employment, crop sales and taking a loan) were not correlated programs.
for the most part suggesting that these decisions are not necessar-
ily made jointly and thus appropriately modeled using the single Acknowledgement
equation CRE and FE.
The authors acknowledge and appreciate financial support for
this work from the Bill and Melinda Gates Foundation, MSU AgBio
5. Conclusions Research, and USAID via the Food Policy Innovation Lab Program at
MSU. The authors are most grateful to Luc Christiaensen, Robert
Many believe that SSA farmers’ increasing their purchase of Myers, Nicole Mason, Mywish Maredia, Robert Shupp, Jeffrey
external inputs such as fertilizer, seed, and pesticides can bring a Wooldridge and two anonymous referees for their comments on
welcome increase in yields. It has also been observed (Sheahan earlier versions. Any views expressed or remaining errors are
and Barrett, 2014), and echoed in our paper, that the purchase of solely the responsibility of the authors.
these external inputs is definitely no longer absent in SSA and is
even very prevalent in some countries, contrary to the common
perception. There had not been a systematic exploration of how
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