The Role of Income Diversification, Transaction Cost and Production Risk in Fertilizer Market Participation

Past agricultural input market participation studies have generally ignored the joint influence of income diversification, transaction cost and production risk on input market participation decisions. This study develops an analytical framework that jointly incorporates the three factors and other household factors in farmer-fertilizer market participation decisions. The framework is then tested by analyzing the entry and intensity decisions of fertilizer market participation in semi-arid eastern Kenya, at the farm level. Transaction costs and production risk negatively influence both the entry and intensity decisions, while income diversification positively influences the entry decisions. These results are confirmed by nested likelihood ratio tests which show that inclusion of each of the three factors improve the explanatory power of both the entry and intensity decision models except in one case: inclusion of income diversification in the intensity decision model. Inclusion of all three factors is therefore strongly recommended in future agricultural input market participation studies.

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Conference Paper/ Presentation
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JEL Codes:
Q13; Q18
Series Statement:
Contributed Paper

 Record created 2017-04-01, last modified 2018-01-22

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