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Do crop income shocks widen disparities in smallholder agricultural investments? Panel survey evidence from Zambia

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  • Kusunose, Yoko
  • Tembo, Solomon
  • Mason, Nicole M.

Abstract

We investigate whether the effects of negative crop income shocks in one season persist in subsequent seasons due to reductions in crop inputs. If bad seasons cause household cash constraints to bind, and this results in the scaling back of the next season’s production, the next season’s crop income is also compromised, potentially creating a poverty trap. Troublingly, households most susceptible to such a poverty trap mechanism are likely to be those that rely the most on own-farm production and have the fewest sources of liquidity—in other words, the poorest. We use data from a three-wave (2001, 2004, and 2008), nationally-representative survey of smallholder farm households in Zambia to test for the effect of rainfall shocks—interacted with measures of household liquidity—on investment in maize production in the following season. We focus specifically on the ability (or inability) of farm households to invest in own-farm maize production in the form of mineral fertilizer use, improved seed use, and area allocated to maize. We use three liquidity measures: livestock, regular off-farm wage employment, and access to subsidies/loans for fertilizer purchase. A priori, we predict that the presence of such liquidity sources will protect maize investments from negative income shocks in the previous seasons. These liquidity measures may be endogenous to the input decisions; we therefore use panel data methods and an instrumental variables/control function approach. Additionally, we test whether reduced maize inputs do indeed cause reduced maize income and, ultimately, total income. Our results show that the effects of rainfall shocks in one agricultural season persist into the subsequent season in the form of reduced maize inputs. The estimated effect of reduced inputs on the following season’s income, however, is modest. However, we must keep in mind that this estimated modest effect is the average effect across all sampled households. Whether this mechanism constitutes
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kusunose, Yoko & Tembo, Solomon & Mason, Nicole M., 2015. "Do crop income shocks widen disparities in smallholder agricultural investments? Panel survey evidence from Zambia," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205555, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205555
    DOI: 10.22004/ag.econ.205555
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