Financial Markets, Investment and Productivity in Agriculture - - PowerPoint PPT Presentation

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Financial Markets, Investment and Productivity in Agriculture - - PowerPoint PPT Presentation

Oct 25, 2023 237 likes •507 views

Financial Markets, Investment and Productivity in Agriculture Christopher Udry Yale University Root of rural poverty is low agricultural productivity i. Yields mostly stagnant, improving recently, ag output/ag population not moving, output

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Financial Markets, Investment and Productivity in Agriculture

Christopher Udry

Yale University

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SLIDE 2

Root of rural poverty is low agricultural productivity

i. Yields mostly stagnant, improving recently, ag output/ag population not moving, output growth generated by extensification ii. Irrigation essentially does not exist iii. Fertilizer use: north America 200 kg/ha; Africa 20 kg/ha

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Start with a simple question

  • Why is fertilizer use so low?
  • This is not the essential question, but perhaps

can be answered

  • Prices are high (infrastructure, pop density)
  • But, even at market prices, use appears to be

profitable

  • Looks uniform
  • Ask people
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SLIDE 4

Despite consistent responses

  • 1. Barriers are dramatically different across

countries

  • 2. Even within communities, heterogeneity

is a key feature

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SLIDE 5

Credit Policy Lessons Preview

  • Credit constraints rarely the primary

barrier to improving farm profitability

  • Take-up of credit is often low

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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SLIDE 6

How might credit market constraints affect technology adoption?

  • Farmers don’t have cash to cover

the upfront costs of adoption

  • Farmers don’t have collateral to

back a loan

  • Farmers don’t have financial

literacy needed to use credit

  • There is no credit available
  • Farmers struggle to save income

from one harvest to the next

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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SLIDE 7

Does improving access to credit help?

  • Access to financial products can affect

agricultural activity:

  • Switching to higher-value crops
  •  crop-related expenditures
  •  fertilizer use

Ashraf et al. 2009; Crepon et al. 2013; Tarozzi et al. 2013; Beaman et al. 2014; Karlan et al. 2013; Carter et al. 2013; Osei et

  • al. nd

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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SLIDE 8
  • But in most cases, access to credit has no

effect on farm profits

  • I will discuss 3 cases

Ashraf et al. 2009; Crepon et al. 2011; Karlan et al. 2013

Does improving access to credit help?

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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SLIDE 9
  • 1. Capital constraints in Ghana?

MiDA agriculture program in Ghana takes

  • ff from this.
  • 5 years (2007-12), >$60 million
  • 30 hours of agronomic training to almost

70,000 farmers

  • $230 “starter pack” of seed + fertilizer
  • Randomized roll-out to FBOs
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Osei, Osei-Akoto and Udry (2013) use the randomization in the program to show that

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Osei, Osei-Akoto and Udry (2013) use the randomization in the program to show that … little changed

  • Small increases in input use (less than the value of

the ‘starter pack’)

  • Nothing observed on yields, output, income, welfare
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Credit is not the only constraint

  • Increasing access to credit alone rarely

improves farmer income

Karlan et al 2013

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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SLIDE 13

Credit is not the only constraint

  • Increasing access to credit alone rarely

improves farmer income

  • 2. Credit and the poor:

Maize Farmers in the Northern Region (Karlan, Osei, Osei-Akoto and Udry)

  • Uninsured risk is often the binding

constraint

Karlan et al 2013

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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Credit is not the only constraint

  • Increasing access to credit alone rarely

improves farmer income

  • 2. Credit and the poor:

Maize Farmers in the Northern Region (Karlan, Osei, Osei-Akoto and Udry)

  • Uninsured risk is often the binding

constraint Insurance … Cash… Insurance+Cash...Control

Karlan et al 2013

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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.2 .4 .6 .8 1 1000 2000 3000 4000 Control Insurance

p-value of KSM test of equality of distributions= .05

CDF of Total Costs

.2 .4 .6 .8 1 1000 2000 3000 4000 Control Capital

p-value of KSM test of equality of distributions= .21

CDF of Total Costs

.2 .4 .6 .8 1 1000 2000 3000 4000 Control Both

p-value of KSM test of equality of distributions= .07

CDF of Total Costs

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SLIDE 16

.2 .4 .6 .8 1 1000 2000 3000 4000 Control Insurance

p-value of KSM test of equality of distributions= .05

CDF of Total Costs

.2 .4 .6 .8 1 1000 2000 3000 4000 Control Capital

p-value of KSM test of equality of distributions= .21

CDF of Total Costs

.2 .4 .6 .8 1 1000 2000 3000 4000 Control Both

p-value of KSM test of equality of distributions= .07

CDF of Total Costs

Innovations for Poverty Action Ghana Agricultural Insurance Programme

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SLIDE 17

Take up of credit is low

Carter et al 2013; Banerjee et al. 2013; Beaman et al. 2014

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

Only half the farmers took up vouchers for fertilizers and seeds in Mozambique

½

Only 30% of eligible households borrow from MFIs

30%

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  • 3. Even in one place, households

face varied constraints

  • Mali (Beaman, Karlan, Thuysbaert, Udry

2014)

The most productive farmers are more likely to borrow

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SLIDE 19
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300 310 320 330 340 350 360 370 380

control grant in no-loan village grant to non- borrowers in loan village Annual Farm Profits

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Summary: Policy Lessons

  • Credit constraints are not a primary

barrier to increasing farm profitability.

  • Take-up of credit is often low, suggesting

that other constraints play an important role

  • In some cases, agricultural activity and

profits increase when access to capital is improved

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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Summary: Policy Lessons

  • There is evidence of positive selection into

borrowing: high marginal productivity farmers who are credit constrained borrow

 Policy Lessons Preview  Credit Market Inefficiencies  Emerging Lessons  ATAI Projects  Summary

About Credit Information Risk Input/Outputs

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Resources

atai-research.org

International Growth Centre

www.theigc.org

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References

  • Ashraf, N., Giné, X., & Karlan, D. (2009). Finding missing markets (and a disturbing epilogue): Evidence

from an export crop adoption and marketing intervention in Kenya. American Journal of Agricultural Economics, 91(4), 973-990.

  • Ashraf, N., Karlan, D., & Yin, W. (2006). Tying Odysseus to the mast: Evidence from a commitment

savings product in the Philippines. The Quarterly Journal of Economics, 121(2), 635-672.

  • Augsburg, Britta, Ralph de Haas, Heike Harmgart, and Costas Meghir. 2012. Microfinance at the Margin:

Experimental Evidence from Bosnia and Herzegovina. Working Paper, September.

  • Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2013). The miracle of microfinance? Evidence from

a randomized evaluation. (No. w18950). National Bureau of Economic Research.

  • Beaman, L., Karlan, D., Thuysbaert, B., & Udry, C. (2014). Self-Selection into Credit Markets: Evidence

from Agriculture in Mali.

  • Burke, M., & Miguel, T. (2013). Selling low and buying high: An arbitrage puzzle in Kenyan villages.
  • Carter, M. R., Laajaj, R., & Yang, D. (2013). The Impact of Voucher Coupons on the Uptake of Fertilizer

and Improved Seeds: Evidence from a Randomized Trial in Mozambique. American Journal of Agricultural Economics, 95(5), 1345-1351.

  • Crépon, B., Devoto, F., Duflo, E., & Pariente, W. (2014). Estimating the impact of microcredit on those

who take it up: Evidence from a randomized experiment in Morocco. Working Paper.

  • De Janvry, A., McIntosh, C., & Sadoulet, E. (2010). The supply-and demand-side impacts of credit market
  • information. Journal of Development Economics,93(2), 173-188.
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SLIDE 25

References

  • Duflo, E., Kremer, M., & Robinson, J. (2009). Nudging farmers to use fertilizer: Theory and experimental

evidence from Kenya (No. w15131). National Bureau of Economic Research.

  • Field, Erica, Rohini Pande, John Papp, and Natalia Rigol. 2013. Does the Classic Microfinance Model

Discourage Entrepreneurship Among the Poor? Experimental Evidence from India. American Economic Review 103 (6): 2196–2226.

  • Giné, X., Goldberg, J., Silverman, D., & Yang, D. (2012). Revising commitments: Field evidence on the

adjustment of prior choices. (No. w18065). National Bureau of Economic Research.

  • Giné, X., Goldberg, J., & Yang, D. (2010). Identification strategy: A field experiment on dynamic

incentives in rural credit markets.

  • Gine, X., Karlan, D., & Ngatia, M. (2011). Social networks, financial literacy and index insurance. Mimeo.
  • Karlan, D., Osei, R. D., Osei-Akoto, I., & Udry, C. (2012). Agricultural decisions after relaxing credit and

risk constraints. (No. w18463). National Bureau of Economic Research.

  • Kaboski, Joseph P, and Robert M Townsend. (2011). A Structural Evaluation of a Large-Scale Quasi-

Experimental Microfinance Initiative. Econometrica 79 (5): 1357–1406

  • Kaboski, Joseph P., and Robert M. Townsend. The impact of credit on village economies. American

economic journal. Applied economics 4.2 (2012): 98.

  • Matsumoto, T., Yamano, T., & Sserunkuuma, D. (2013). Technology adoption in agriculture: evidence

from experimental intervention in maize production in Uganda. In An African Green Revolution (pp. 261- 278). Springer Netherlands.

  • Osei, R., Osei-Akoto, I., and C. Udry (2013). The Importance of Farmer Training in changing the

Subsistence Nature of Agriculture: The Case of MCA-Ghana Programme”

  • Tarozzi, A., Desai, J., & Johnson, K. (2013). On the impact of microcredit: Evidence from a randomized

intervention in rural Ethiopia.