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

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  • Olale, Edward
  • Cranfield, John A.L.

Abstract

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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Bibliographic Info

Paper provided by International Association of Agricultural Economists in its series 2009 Conference, August 16-22, 2009, Beijing, China with number 49929.

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Date of creation: 2009
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Handle: RePEc:ags:iaae09:49929

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Related research

Keywords: Income diversification; transaction cost; production risk; Agricultural and Food Policy; Consumer/Household Economics; Production Economics; Risk and Uncertainty; Q13; Q18;

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  12. Kelly, Valerie A., 2005. "Farmers' Demand for Fertilizer in Sub-Saharan Africa," Staff Papers 11612, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  13. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
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