Technology Adoption in Agriculture: Lessons from Recent Research. Jakob Svensson IIES, Stockholm University

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1 Technology Adoption in Agriculture: Lessons from Recent Research Jakob Svensson IIES, Stockholm University

2 Stylized facts: Yield and output growth in agriculture in the past 40 years in Africa

3 Low agricultural yields! Growth driven by farming new land! 280 Yield ( =100) Asia Africa Area ( =100)

4 Low labor productivity Annual growth rate (%) Ag GDP/Ag population SSA SA EAP MENA LAC

5 Growing yield gap between SSA and the rest of the world Yields (ton/ha) SSA SA EAP MENA LAC

6 Technology Many agricultural experts see the use of modern inputs (e.g. fertilizers and HYV seeds), as the key to agricultural productivity. Is Africa lagging behind in adoption of modern technologies?

7 Irrigation uncommon Percent of arable & permanent cropland that is irregated SSA LAC MENA EAP SA

8 HYV crops often not used 90 Improved varieties as % of total crop area SSA LAC MENA EAP SA

9 Low rate of fertilizer adoption Kg of Fertilizer per ha of arable land SSA LAC MENA EAP SA

10 Technology for Africa? But maybe African soils or agroclimatic conditions are such that high yields are not attainable given available technologies?

11 Exploitable yield gaps for maize 6 5 Ton per hectare Malawi Ethiopia Nigeria Uganda Mali Mozambique Average national yield Average yield in farm demonstrations

12 The key question Given that fertilizers and hybrid seed (and other technologies) seemingly constitute profitable investments, why is the adoption of these technologies so low? Research has focused on market failures

13 Market failures Output and input market failures Lack of information and learning Credit constraints Imperfect insurance Imperfect property rights

14 Output market failures: Market access Percentage of rural population with poor access (more than 5 h) to market SSA SA EAP LAC

15 Output market inefficiencies Poor access to the market Uncertainty about the ability to sell (lacking storage capacity) Poor access to market price information, implies trading under uncertainty (possible friction)

16 Implications Traders with market power rather than farmers may be able to claim much of the profit from improved technologies Simultaneous adoption by farmers may increase local supply and depress prices. Adverse impact on expected profitability of modern technologies and willingness to adopt

17 Ongoing work by IGC researchers Improving access to market price information Infrastructure (rural road construction) Farmers associations and cooperatives Engaging the private sector

18 Input market inefficiencies Similar constraints in input markets: Distance to markets and low competition among traders High costs of inputs in Africa relative to Asia Relative price of fertilizers/output is twice as high in Africa cf to Asia Quality of the technology

19 Quality of the technology Anecdotal evidence of low quality of HYV seeds and fertilizers in local markets Why? Problems in handling and storage Counterfeiting and cheating Ongoing work by IGC researcher

20 Lack of information and learning Are farmers not using the new technologies because they are not aware of them? Or because they do not know how to use them properly? Affirmative answers to these questions are the underlying rational for agricultural extension worker programs Evidence from several studies suggest uncertainty of return

21 Ongoing work by IGC researchers Evidence of the impact of agricultural extension workers (AEW) is at best mixed Key problems: weak incentives and insufficient knowledge among AEW Focus by IGC researchers: How to strengthen and reform AEW program and understand the dynamics of learning

22 Imperfect insurance Adoption of new technologies may be risky A big part of this risk is driven by weather uncertainty (reliability of rainfall) As rainfall largely can be viewed as an aggregate risk, various informal insurance networks that are geographically close may be ill equipped to share risks Lacking insurance, otherwise profitable investment may not take place

23 Ongoing work by IGC researchers Demand and impact of rainfall index insurance Key point: Moral hazard problems less of a concern Preliminary results (Ghana): High demand for insurance Larger agricultural investment More riskier production choices

24 Ongoing work by IGC researchers But preliminary evidence Replicate in other countries? Farmers do not fully trust the insurer, which affects the likelihood that a formal insurance market can function

25 To sum up Low technology adoption rate in agriculture in can be explained by the presence of various market failures Ongoing research, partly by IGC researchers, to identify ways to identify and overcome these failures Important input into policy design