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The impact of low quality fertilizer on wealth effect

The impact of low quality fertilizer on wealth effect. Ling Yee Khor, Manfred Zeller University of Hohenheim, Stuttgart, Germany. 17 th ICABR Conference Ravello, Italy, 18-21 June, 2013. Motivation. How does wealth level of farmers affect fertilizer use?

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The impact of low quality fertilizer on wealth effect

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  1. The impact of low quality fertilizer on wealth effect Ling Yee Khor, Manfred Zeller University of Hohenheim, Stuttgart, Germany 17th ICABR Conference Ravello, Italy, 18-21 June, 2013

  2. Motivation • How does wealth level of farmers affect fertilizer use? • Positive (Lamb, 2003; Abdoulaye and Sanders, 2005) • Negative (Ariga et al., 2008) • Insignificant (Kaliba et al., 2000) Ling Yee Khor, Manfred Zeller

  3. Motivation • Value of substandard and fake inputs in China in first half of 2011 • US$ 24 million • (Source: Xinhua News Agency) • Substandard and fake inputs in Bangladesh, Cambodia, Nigeria, Tanzania, Vietnam Ling Yee Khor, Manfred Zeller

  4. Data • Research Center for Rural Economy (RCRE) of China • Stratified random sampling in Hebei province • Year 2004 to 2008 • 894 households • 4218 observations Ling Yee Khor, Manfred Zeller

  5. Fertilizer Use in Hebei • Mean: • 600 kg / hectare • Maximum: • 4000 kg / hectare Sources: China Rural Statistical Yearbook (2003) and RCRE Data (2004 – 2008) Ling Yee Khor, Manfred Zeller

  6. Uncertainty Model • Robison and Barry (1987) • Expected Value – Variance (EVV) method Risk aversion of an individual Certainty equivalent of profit Variance of profit Expected value of profit Ling Yee Khor, Manfred Zeller

  7. Wealth Effect on Fertilizer Use F = fertilizer use; W = wealth, λ = risk aversion • High wealth: Wealth effect is positive • Low wealth: Wealth effect is not clear Ling Yee Khor, Manfred Zeller

  8. Wealth Index vs Income • Income • Livestock • Wealth index • Henry, Sharma, Lapenu, and Zeller (2003) • Multi-dimensional • 4 categories: human capital, food security, • living condition, and other assets Ling Yee Khor, Manfred Zeller

  9. Constructing a Wealth Index (I) 45 potential variables from Research Center of Rural Economy (RCRE) • Correlation with benchmark • Expected sign • Statistically significant • Few missing data • Principal Component Analysis • Loading factor • Source: Henry et al. (2003) • 13 variables left: • Human capital (5) • Food security (0) • Living condition (3) • Other assets (5) Ling Yee Khor, Manfred Zeller

  10. Constructing a Wealth Index (II) • 13 variables left: • Human capital (5) • Food security (0) • Living condition (3) • Other assets (5) • Loading factor as weight • Household data of 13 wealth variables  1 wealth index for each household • Source: Henry et al. (2003) Ling Yee Khor, Manfred Zeller

  11. Preliminary Results Theoretical Wealth + 1) 2) 3) -- + Ling Yee Khor, Manfred Zeller

  12. Preliminary Results Empirical Notes: ** p < 0.05 Annual net income per cap in Hebei villages ~ US$ 360 (one of the highest in China) Annual net income per cap in Yunnan villages ~ US$ 210 (one of the lowest in China) Source: China Rural Statistical Yearbook (2003) Ling Yee Khor, Manfred Zeller

  13. Summary and Outlook • Theoretical section shows that wealth effect changes due to uncertainty and risk averseness • cannot test this empirically, due to a lack of dataset in our research region with risk preference data • Both theoretical and empirical analyses show that wealth effect can change when we move from low wealth farmers to high wealth farmers Ling Yee Khor, Manfred Zeller

  14. References Abdoulaye, T. and Sanders, J. H. (2005). Stages and determinants of fertilizer use in semiarid African agriculture: The Niger experience. Agricultural Economics, 32(2):167--179. Ariga, J., Jayne, T. S., Kibaara, B., and Nyoro, J. K. (2008). Trends and patterns infertilizer use by smallholder farmers in Kenya, 1997-2007. Food security collaborative working paper no. 55169, Department of Agricultural, Food, and Resource Economics, Michigan State University. Henry, C., Sharma, M., Lapenu, C., and Zeller, M. (2003). Microfinance Poverty Assessment Tool. Technical Tools Series No. 5. Consultative Group to Assist the Poor and The World Bank, Washington, DC. Kaliba, A. R., Verkuijl, H., and Mwangi, W. (2000). Factors affecting adoption of improved maize seeds and use of inorganic fertilizer for maize production in the intermediate and lowland zones of Tanzania. Journal of Agricultural and Applied Economics, 32(1):35--47. Lamb, R. L. (2003). Fertilizer use, risk, and off-farm labor markets in the semi-arid tropics of India. American Journal of Agricultural Economics, 85(2):359--371. Robison, L. J. and Barry, P. J. (1987). The Competitive Firm's Response to Risk. Macmillan Publishing Company, New York. Wang, G. 2011. China cracks down on counterfeit seeds, pesticides. Internet. Xinhua News Agency. Available http://news.xinhuanet.com/english2010/china/2011-05/19/c_13883191.htm. Zeller, M., Sharma, M., Henry, C., and Lapenu, C. (2006). An operational method for assessing the poverty outreach performance of development policies and projects: Results of case studies in Africa, Asia, and Latin America. World Development, 34(3):446--464. Ling Yee Khor, Manfred Zeller

  15. Thank you

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