Essays on Malawian agriculture: Micro-level welfare impacts of agricultural productivity; profitability of fertilizer use; and targeting of fertilizer subsidy programs

This dissertation comprises of three essays that address different aspects of agriculture in Malawi using a two-wave panel data collected by the National Statistical Office of Malawi with support from the World Bank Living Standards Measurement Study – Integrated Surveys on Agriculture (LSMS-ISA) program. Each essay stands alone as an independent study because of differences in research questions and the methodologies used in addressing the questions. The first essay analyzes the micro-level welfare impacts of agricultural productivity. Welfare is measured by various dimensions of poverty and food insecurity; and agricultural productivity is measured by maize yield and value of crop output per hectare. Depending on the measure of welfare, the impact of agricultural productivity was estimated with a household fixed effects estimator, a two-part estimator or a correlated-random effects ordered probit estimator. The results indicate that increasing agricultural productivity has the expected statistically significant welfare improving effect, but the magnitude of the effect is small given the attention that agriculture usually receives. Efforts to effectively improve the welfare of rural agricultural households should therefore go beyond increasing agricultural productivity. The second essay estimates the profitability of inorganic fertilizer use in maize production using fixed effects and multilevel models. The study finds that fertilizer use is generally unprofitable at prevailing market conditions when one assumes farmers incur positive transaction costs in the use of fertilizer. The main factor that drives low fertilizer profitability is low nitrogen use efficiency (NUE) which is estimated to range from 9.24kg to 12.09 kg on average, depending on the model specification. In order for fertilizer use to be profitable on average, the NUE would have to increase by at least 137% if maize output is valued at the farm gate price and by 50% if maize is valued at the lean season market price. Essay three provides guidance for the targeting of Malawi’s Farm Input Subsidy Program (FISP) by estimating the difference in inorganic fertilizer use efficiency and crowing out of commercial fertilizer by subsidized fertilizer between poor and non-poor households. The difference in inorganic fertilizer use efficiency is estimated with a multilevel model of maize yield while the difference in crowding out is estimated with a double hurdle model of demand for commercial, inorganic fertilizer. The results indicate that non-poor farmers are significantly more efficient in the use of inorganic fertilizer, but have significantly higher levels of crowding out, compared to poor. This suggests that there is a trade-off between targeting the non-poor farmers and targeting poor farmers. Further analysis of the trade-off however indicates that targeting non-poor farmers instead of poor farmers, after accounting for the difference in crowding out, would result in an overall yield gain of 3.14 - 4.33kg per kilogram of nitrogen. Therefore the food security objective of Malawi’s farm input subsidy program would be better served if non-poor farmers are targeted instead of poor farmers