the impact of low quality fertilizer on wealth effect ling yee khor, manfred zeller university of...
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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
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 2
Motivation
Introduction Theory Empirical Methodology Results Summary
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 18.06.2013 Page 3
Motivation
Introduction Theory Empirical Methodology Results Summary
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 18.06.2013 Page 4
Introduction Theory Empirical Methodology Results Summary
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 18.06.2013 Page 5
Introduction Theory Empirical Methodology Results Summary
Fertilizer Use in Hebei
• Mean:600 kg / hectare
• Maximum:4000 kg / hectare
Sources: China Rural Statistical Yearbook (2003) and RCRE Data (2004 – 2008)
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Uncertainty Model
• Robison and Barry (1987)
• Expected Value – Variance (EVV) method
2
2ECE
Introduction Theory Empirical Methodology Results Summary
Certainty equivalent of profitCertainty equivalent of profitRisk aversion of an individualRisk aversion of an individual
Expected value of profitExpected value of profit Variance of profitVariance of profit
W
F
W
F
dW
dF
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 7
Wealth Effect on Fertilizer Use
• High wealth: Wealth effect is positive
• Low wealth: Wealth effect is not clear
F = fertilizer use; W = wealth, λ = risk aversion
Introduction Theory Empirical Methodology Results Summary
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 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
Introduction Theory Empirical Methodology Results Summary
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 9
Constructing a Wealth Index (I)
13 variables left:• Human capital (5)• Food security (0)• Living condition (3)• Other assets (5)
13 variables left:• Human capital (5)• Food security (0)• Living condition (3)• Other assets (5)
45 potential variables from Research Center of Rural Economy (RCRE)
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)
Correlation with benchmark• Expected sign• Statistically significant• Few missing data
Principal Component Analysis• Loading factor
Source: Henry et al. (2003)
Introduction Theory Empirical Methodology Results Summary
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 10
Constructing a Wealth Index (II)
13 variables left:• Human capital (5)• Food security (0)• Living condition (3)• Other assets (5)
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)
Loading factor as weight
Household data of 13 wealth variables 1 wealth index for each household
Source: Henry et al. (2003)
Introduction Theory Empirical Methodology Results Summary
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 11
Preliminary Results
Introduction Theory Empirical Methodology Results Summary
Theoretical
Wealth
--
+
+
1)
2)
3)
Ling Yee Khor, Manfred Zeller 18.06.2013 Page 12
Preliminary Results
Introduction Theory Empirical Methodology Results Summary
Empirical
Variable ProvinceWealth category
Low High
Wealth indexHebei -21.230** -2.118
Yunnan 91.818** -2.000
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)
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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
Introduction Theory Empirical Methodology Results Summary
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 in fertilizer 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 18.06.2013 Page 14
References
Introduction Theory Empirical Methodology Results Summary
