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Working paper 33 - Off-Farm Work And Farm Production Decisions:Evidence From Maize-Producing Households In Rural Kenya

Abstract

A major challenge facing farming in developing countries has been the need to raise farm incomes through increased agricultural productivity. One acceptable means has been the diffusion of new production techniques, especially use of chemical fertilizers, and high yielding varieties and pesticides. However, a major impediment to the adoption of such productivity enhancing inputs has been the unavailability of liquid capital particularly cash to finance such expenditures. Another well documented fact is the risk averse nature of most rural decision makers in developing countries, yet use of such modern inputs is likely to not only increase the expected returns, but the accompanying risks as well.

Despite these problems, both credit and crop insurance markets are lacking in most developing countries, thus limiting the use of these modern inputs. This difficulty is especially great for food crops, which lack the institutional arrangements that sometimes relieve credit constraints for cash crops. In the absence of credit facilities, farm practices especially those requiring capital may be dependent on existing sources of income. Under these circumstances, it is plausible that earnings from off the farm may often be used to compensate for the missing and imperfect credit markets by providing ready cash for input purchases as well as other household needs. In addition, off farm earnings could be used to spread the risk of using these modern farm inputs. To the extent that farmers choose traditional over modern inputs in order to lower their risk, any mechanism that allows farmers to smooth consumption will raise the use of modern inputs and increase farm productivity.

This paper explores the extent to which off farm work affects farm production decisions through reinvestment in farm input use and intensification. We estimate farm input demand functions for fertilizer and improved seed for Kenyan maize producers. The results indicate differences in off farm work effects across different inputs and off farm activity types. While the results suggest possible use of off farm earnings for input purchase especially for those without other forms of credit, the ‘combined’ input package seems to represent a substantially greater commitment and orientation, one possibly not attractive to those with higher off farm earnings. Thus, while engagement in off farm work may allow some partial intensification, it may also compete with farming at higher levels with households shifting their resources to other uses perhaps with higher returns than agriculture. We find the presence of a regular source of earnings to be the driving force behind any reinvestment behaviour.

Key words: Off-farm work; Input intensification; Credit; Kenya

Off-Farm Work And Farm Production Decisions:Evidence From Maize-Producing Households In Rural Kenya

 

   

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