Fertilizer Use by Smallholder Households in Northern Ethiopia: Does Risk Aversion Matter?

This is a chapter in a book entitled "Agricultural Investment and Productivity: Building Sustainability in East Africa" edited by Gunnar Köhlin and Randall Bluffstone, 2011.

Ethiopia has one of the highest nutrient depletion rates in sub-Saharan Africa, a situation nowhere more evident than in the highlands of Tigray Regional state in northern Ethiopia. Fertilizer use in Tigray is also estimated to be one of the lowest in the country and therefore in the world. Besides public-led soil conservation programs that aimed in increasing crop productivity since 1970s, promoting yield-enhancing inputs, particularly chemical fertilizers were also used to address the problem of nutrient depletion and declining crop productivity. The program reported some impressive results, including in Tigray, where fertilizer use increased 13%.

There are several explanations for what many consider the limited adoption of innovations by smallholders with the risk averting behavior being the common one. This chapter explores the link between risk aversion and fertilizer use by examining whether the probability and intensity of fertilizer use is affected by household risk aversion. This is done while controlling for factors such as tenure security, soil/plot characteristics, household and village factors, and possible selection bias.

The result indicate that risk aversion, as measured by the average constant partial risk aversion coefficient, positively  affects households' decisions to use fertilizer, but it has no effect on applications per hectare.