Government fertilizer subsidy and commercial sector fertilizer demand: Evidence from the Federal Market Stabilization Program (FMSP) in Nigeria

• Published in: Food policy Vol. 47; pp. 1 - 12
• Main Authors: Takeshima, Hiroyuki, Nkonya, Ephraim
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01-08-2014; Elsevier Science Ltd
• Subjects: Agricultural policy; Agricultural subsidies; Cross sections; Cross-sectional analysis; Crowding out; Crowding-out effect; Demand; Double-hurdle model; Farmers; Farms; Fertilizer subsidy; Fertilizers; Fertilizing; Households; Markets; Nigeria; Parallel markets; Prices; Probability; Sample selection; Specifications; Subsidies; Subsidies (financial); Nigeria; Crowding out; Sample selection; Double-hurdle model; Nigeria; Fertilizer subsidy; Parallel markets
• ISSN: 0306-9192; 1873-5657
• DOI: 10.1016/j.foodpol.2014.04.009

•We examine the effects of fertilizer subsidy program on commercial fertilizer demand.•We examine the previous fertilizer subsidy program in Nigeria.•We construct pseudo-panel data.•We apply a system of endogenous censored regressions with double-hurdle model.•The FMSP discouraged participation into commercial fertilizer market.
We examine how the previous fertilizer subsidy program in Nigeria (FMSP) affected the demand for commercial fertilizer. We apply an endogenous double hurdle model to a pseudo-panel and cross-section data of farm households. The methodology accounts for potential endogeneity of commercial fertilizer price with subsidy. Our specification is also appropriate where few farmers report the use of both subsidized and commercial fertilizer. We find that 100kg of subsidized fertilizer supplied to a farm household reduced the probability of its participation into commercial fertilizer market by 10–21% points, while not affecting fertilizer use upon participation.