Closing Yield Gaps. Or Why are there yield gaps anyway?

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2 Closing Yield Gaps Or Why are there yield gaps anyway?

3 Closing Yield Gaps: Large potential to increasing food production Major cereals: attainable yield achieved (%) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 1 Average yield gaps for maize, wheat and rice. These were measured as a percentage of the attainable yield achieved circa the year Yield gap in each grid cell is calculated as an area-weighted average across the crops and is displayed on the top 98% of growing area.

4 Intermediate causes Input use: Irrigation High Yielding Seed variety Fertilizers (and depleted soils) Environmental Constraints?

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7 Major cereals: average N fertilizer application rate (kg N ha 1 ) Major cereals: area irrigated (%) % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 3 Management intensity of nitrogen fertilizer and irrigated area 14 varies widely across the world s croplands. a, b, Fertilizer (a) and irrigation (b) values are area-weighted averages across major cereals. 2 N A T U R E V O L M O N T H

8 3000 Fertilizer grams per hectare 1500 East Asia and Pacific South Asia Sub-Saharan Africa Latin America & Caribb Year World Bank World Development Indicators

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15 Deeper Causes What governs the decisions made by farmers on the use of inputs (and technologies)? Why do some farmers not apply inputs which can increase their yields?

16 Hypotheses I. Perhaps inputs would not really increase yields where these farmers live because of environmental constraints. II. Inputs are not really profitable, even if they increase yields (and Seem profitable to an outsider). III. Farmers are not sufficiently familiar with improved technologies and their advantages, or are unable to apply them

17 Hypothesis I seems wrong

18 Deeper causes Informational barriers Human capital? Credit constraints Risk Marketing and supply chains Small land holding? Poverty traps?

19 Room for Policy? Informational barriers Human capital? Education / Extension / Marketing Credit constraints Risk Marketing and supply chains Small land holding? Poverty traps?

20 Room for Policy? Informational barriers Human capital? Credit constraints Risk Marketing and supply chains Finance / Insurance / Infrastructure Small land holding? Poverty traps?

21 Room for Policy? Informational barriers Human capital? Credit constraints Risk Marketing and supply chains Small land holding? Land Consolidation? Poverty traps?

22 Room for Policy? Informational barriers Human capital? Credit constraints Risk Marketing and supply chains Small land holding? Poverty traps? One-time intervention!

23 Designing Policies Many ideas for interventions, policies, and solutions. Every proposed intervention should be: Scalable Financially Implementation (Govt. vs NGO) Sustainable 23

24 Hypothesis II - Prices q= amount of inputs y(q) = yield as a function of inputs p = sale price of crop c = cost of inputs Profit = p X y(q) c X q Maybe p is lower than we realize? Maybe c is higher than we realize?

25 Fertilizer Subsidies? Logic for external intervention? No: farmers make optimal decisions. Subsidies are distortive. Yes: fertilizer prices are too high. need to help farmers out of poverty traps. Yes : external interventions can help farmers do what is good for them

26 Fertilizer use in Kenya (Duflo-Kremer-Robinson) Study 1: randomly apply fertilizer in some farmers fields: found very high returns to even very small amount of fertilizers. Why are farmers not using it? Can lack of cheap credit explain it? Behavioral problems : impatience and present biased preferences can reduce investments.

27 Fertilizer use in Kenya (Duflo-Kremer-Robinson) Study 2: randomly assign farmers to three groups: Control group Heavy subsidies (50% of cost) Small, time limited discounts after harvest Third treatment had larger effects at reduced costs.

28 Hypothesis II - Credit Profit = p X y(q) c X q Maybe c is higher than we realize? Smallholder farmers face strong liquidity constraints. If c is not available to farmers, they need to borrow it. But failure in credit markets means that the cost of borrowing is very high. Microfinance?

29 Hypothesis II - Risk Profit = p X y(q) c X q Many sources of risk: Pests, Weather! Semi arid tropics: low and unreliable rainfall. y(q) is not certain it s stochastic. Risk aversion: Outcome with low expected value but lower risk can be preferable to an outcome with higher expected value but greater risk

30 Hypothesis II - Risk Insurance a means of sharing risk across multiple agents that have uncorrelated risks! ensuring the expected outcome. Formal Insurance is unavailable to most smallholder farmers. Issues with insurance provision: Moral hazard Adverse selection Index insurance

31 Research Question Would provision of credit and/or insurance lead smallholder farmers to use more inputs?

32 Credit and Subsidy AGRICULTURAL DECISIONS AFTER RELAXING CREDIT AND RISK CONSTRAINTS* Dean Karlan, Yale University, IPA, J-PAL and NBER Robert Osei, University of Ghana - Legon Isaac Osei-Akoto, University of Ghana - Legon Christopher Udry, Yale University December, 2013 Abstract The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment. Binding credit market constraints and incomplete insurance can limit investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The binding constraint to farmer investment is uninsured risk: When provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing with the farmer s own receipt of insurance payouts, with the receipt of payouts by others in the farmer s social network and with recent poor rain in the village. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, imperfect trust that promised payouts will be delivered and overweighting recent events.

33 Agricultural and Hunger How to fight hunger / malnutrition? Increase food supply (60s-70s) But food security was found to be not about food availability Increase incomes, either through food production or otherwise But caloric intake was found to be inelastic in income Shift diets, including through agricultural interventions The evidence is weak/mixed

34 Agricultural and Hunger Shifting diets through agricultural interventions: Increasing income Direct production: Home gardening, Aquaculture, Small scale fisheries, Poultry development, Animal husbandry, Dairy development Biofortification

35 Figure 1.1 Pathways of impact of agricultural interventions on nutrition Participation in the programme Technology adoption household income food expenditure Caloric, protein and micronutrient intake Nutritional status Diet composition This review assesses agricultural interventions along the logical pathway shown in Figure 1.1 using five indicators: programme participation; household income; diet diversity; micronutrient intake; and nutritional status. The choice of the specific metric for each indicator is not only based on a judgment of what we believe is the best metric available for each indicator, but also on the availability of data in the reviewed studies. Table 1.3 lists and briefly describes the indicators considered. Programme participation is assessed through programme participation rates, particularly among vulnerable groups such as the poor, women and children. Household income is total household income rather than income from agriculture

36 Table 1.1 summarises the characteristics of previous systematic reviews and their conclusions regarding the nutritional impact of agricultural interventions. These reviews covered different periods, employed different criteria for inclusion, and covered different types of agricultural interventions. Some regularities are however Table 1.1 Summary of reviews of the impact of agricultural interventions on nutrition Review Period covered Studies Interventions Nutritional impact Berti et al. (2003) All agriculture: home gardens, animal husbandry, cash cropping, irrigation, land reforms, credit and Mixed results World Bank (2007) extension, duck-fish promotion All agriculture: agricultural commercialisation, horticulture, animal source food, and mixed interventions Ruel (2001) Interventions designed to increase production and intake of micronutrient-rich food through: home gardens, animal husbandry, aquaculture and nutrition education Leroy and Frongillo (2007) Kawarazuka (2010) Not specified (but oldest study is 1987 and most recent is 2003) Not specified (but oldest study is from 2000 and most recent is in 2009) 14 Animal interventions: aquaculture, dairy production and poultry production Mixed results Some evidence of impact on vitamin A intake but evidence is scant and studies are poorly designed Some evidence of impact but few studies available and often poorly conducted 23 Aquaculture and small-fisheries Few studies available and very little evidence of impact

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