Determinants of farm households' cropland allocation and crop diversification decisions: The role of fertilizer subsidies in Malawi

Abstract

This study analyzes how fertilizer subsidies to maize production in Malawi affects farm households’ crop choice, cropland allocation and crop diversification level. The analysis is based on a three-year household survey data collected in 2006, 2007 and 2009 from six districts across Malawi; two of the districts are in the central region while four districts are in the southern region. Crop choice and cropland allocation patterns are examined using the generalized least square (GLS) model within which the control function approach is applied to control for endogeneity arising from having access to fertilizer subsidy. In this study, the access to fertilizer is used as a binary endogenous regressor in the crop choice/cropland allocation and crop diversification equations. The Simpson’s index of crop diversification is used as the dependent variable in the assessment of the relationship between farm households’ access to fertilizer subsidy and crop diversification level. This relationship is analyzed using the treatment effect model in order to overcome the endogeneity problem. Model estimations are based on pooled panel data. Empirical results indicate that farm households’ cropland allocation patterns and the subsequent crop diversification levels are sensitive to fertilizer subsidy program. In particular, the results showed that farm households’ access to fertilizer subsidy is associated with a decrease in the cropland allocation to maize and pulses while there is an increase in cropland allocation to ground nuts, roots-tubers and tobacco. In terms of crop diversification, the study findings suggest that farm households’ access to fertilizer subsidies promote crop diversification. The results illustrate that fertilizer subsidies to maize positively contribute to promoting farm households’ crop diversification levels through intensified maize production. This has implications for household welfare; crop diversification enhances stability of household incomes through the mitigation of price and crop production risks and shocks.