This study assessed the profitability of fertilizer use by farmers in rural Malawi using a two-wave nationally representative panel data. We find that fertilizer use is generally unprofitable at prevailing market conditions when farmers are assumed to be risk averse. In order for fertilizer use to be profitable on average, the nitrogen use efficiency (NUE) – the kilograms of maize obtained from a kilogram of nitrogen – would have to increase by 136%, 141% and by 50% if maize output is valued at farm gate price, harvest season market price and lean season market price respectively; or fertilizer ought to be subsidized at a rate of at least 72.43%, 71.67% and 41.34% respectively. Although fertilizer subsidy improves the profitability of fertilizer by increasing the maize-nitrogen price ratio, we find that at all rates of subsidy, unless farmers can store their produce and sell during the lean season where output price is relatively higher, they would be at least MK 66.16 and MK 61.81 per kg of subsidized nitrogen better off with the cash equivalent of the subsidy than with subsidized fertilizer when maize is values at farm gate price and harvest season market price respectively. We also find that the government recommended rates of fertilizer application is too high to be profitable at prevailing market conditions, but profitability at this rate of fertilizer application is over 100% higher than profitability at actual rate of application.


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