AN ASSESSMENT OF THE EFFECT OF SUBSIDIZED FERTILIZER ON FARMER PARTICIPATION IN COMMERCIAL FERTILIZER MARKETS IN NORTH RIFT REGION OF KENYA

One of the most outstanding economic issues concerning input subsidies in many third world countries is their effect on commercial fertilizer purchases. This is particularly so in countries like Kenya where subsidized fertilizer distribution exists side-by-side with commercial market outlets. The objective of the national fertilizer program designed in 2009 in Kenya was mainly to encourage fertilizer use through public support to local fertilizer manufacturers and strengthening local fertilizer distribution channels. However, the effect of the subsidy program on commercial fertilizer market outlets in general is not known. This study assessed the level of displacement of commercial fertilizer sales by subsidized fertilizer as well as the factors affecting the quantity of subsidized fertilizer received by households in the North Rift region of Kenya. A structured questionnaire was used to collect primary data from 1,023 households. Descriptive statistics were used to characterize the fertilizer market in the North Rift of Kenya. A double-hurdle model was employed to assess the effect of subsidized fertilizer on farmer participation in commercial fertilizer market outlets. Results show that most of the subsidized fertilizer went to the wealthier, male-headed, more educated households with more land and higher non-farm incomes. This means that the beneficiaries of the national fertilizer subsidy were households with the resources to purchase fertilizer from commercial sources in the absence of a subsidy. Reducing the quantity of subsidized fertilizer to the bare minimum is likely to make wealthy households shy away from the subsidized fertilizer thereby allowing poorer households to acquire the subsidized fertilizer. xiii In addition, households with strong social networks with the chair of the village fertilizer subsidy vetting committee received significantly more subsidized fertilizer. This is an indication that the process of identifying the beneficiaries of Kenya’s national fertilizer is prone to substantial capture by social elites through rent-seeking and exclusivity. Access to subsidized fertilizer reduced households’ probability to participate in commercial fertilizer market in the North Rift of Kenya by 29 percent. This indicates that the national fertilizer subsidy is suppressing commercial fertilizer outlets. On average, an extra kilogram (kg) of subsidized fertilizer displaced 0.22 kg of commercial fertilizer, ceteris paribus, indicating that the national fertilizer subsidy has a potential to crowd out commercial fertilizer. This may not augur well in a liberalizing economy such as Kenya’s. The study recommends that the government of Kenya should consider strengthening the current National Accelerated Agricultural Inputs Access Program (NAAIAP). A program targeted to resource-poor households where farmers access fertilizers through vouchers that can be redeemed from the agro-dealers like in Nigeria. This will enhance the transparency, equity and inclusiveness of the subsidy program which the current one does not