Discussion

Our results indicate that while the marginal and average agronomic returns to inorganic fertilizer use are generally positive, there are strong variations in these returns over our sample. We have shown that both early-season rainfall and available soil carbon are important conditioners of yield responses to nitrogen. Building on these agronomic response estimates, our economic analysis has stark implications. Even under relatively modest assumptions of last-mile transportation costs, the inclusion of estimated farmgate prices in relative profitability calculations reduces the attractiveness of fertilizer investments for a large share of our sample.
Our findings are likely to overestimate Tanzanian smallholders’ agronomic responses to fertilizer use and hence their economic incentives to use fertilizer, for several reasons. First of all, our sample consists of farmers in Tanzania’s maize belt, where agroecological conditions are generally more favorable than in most other parts of the country. Secondly, the fact that this analysis is based on focal plots, rather than on all plots, means that our analysis cannot be taken as representative of all maize production conditions, but rather of preferential conditions within the smallholder maize system. Farmer preferential allocation of maize crops to higher fertility, adequate soil organic carbon status field has been well documented (Mhango et al., 2013; Tittonell et al., 2008). As such, our estimates of agronomic and economic returns to fertilizer use are likely an upward bound on the true values for the system. Problems with acute soil organic carbon depletion and other soil fertility issues are likely to be much worse on average over the farming system as a whole.
Thirdly, our analysis uses the most favorable production function estimates, i.e. those resulting from the Fixed Effects estimation. Profitability analysis using the POLS and CRE estimators is even less profitable on average (although in most other respects estimation results are remarkably consistent). When we re-run the same economic analysis using the estimates of agronomic returns generated from the POLS and CRE estimation results, the share of farmers for with MVCR and AVCR estimates exceeding 2 is much lower.11For example, Table 7 shows that 71% of the sample has estimated AVCR values greater than 1.5. When we use POLS and CRE estimates corresponding to columns 2 and 4 in Table 2 as the basis of the calculation, the corresponding share of the sample with AVCR values great than 1.5 is just 13% and 1%, respectively.
Fourth, our estimates of farmgate maize/nitrogen price ratios, upon which profitability estimates critically depend, are conservative and likely to overestimate the ratio for many farmers. Our price ratio assumptions are somewhat higher than those used in other empirical analysis in the region. Sheahan et al. (2013) find an average maize/nitrogen price ratio of 0.083 for Kenya. Matsumoto and Yamano (2011) find ratios of 0.063-0.075 in Kenya and 0.044-0.027 in Uganda. The price ratio assumptions we employ in our analysis are likely to be optimistic; many farmers in Tanzania are likely to regularly face less-favorable farmgate price ratios. As such, our profitability analysis is likely biased upwards.
Finally, our results highlight important sources of uncertainty in both agronomic and economic returns to fertilizer investments. We see this particularly in the role of seasonal rainfall and rainfall distribution parameters in the production functions, but may also note that the large uncertainty around input, output and transportation prices faced by farmers means that calculating expected returns on fertilizer investments is highly uncertain even under optimal biophysical production contexts. The fact that soil carbon stocks have such a strong effect on yield responses in our sample is all the more striking given these considerations. What this means is that even for the most productive smallholders, the agronomic and economic returns to fertilizer use are quite variable, which would further impede the incentives of risk averse farmers to incur high capital outlays on fertilizers.
Taken together, these results indicate that efforts to spur fertilizer usage by smallholder farmers in Tanzania should not focus exclusively on blanket agronomic targets, which are based on average responses over large areas, but rather should carefully consider localized response rates. This is in alignment with conclusions from other studies, e.g. Nord & Snapp (2020), who studied soil fertility variability in the same geography. Investments in extension and promotion of integrated use of organic management practices in combination with fertilizer are urgently required if maize based systems are to be productive, which has clear implications for reform of input-based agricultural subsidies (Lal 2006; Adowla et al., 2019). Such policies will often miss the mark, as there is growing evidence – including this study – regarding the accumulation of active soil carbon as being necessary to raise yield responses sufficiently for nitrogen fertilizer to become economically attractive. This may be particularly valid for risk adverse farmers in areas facing high transport costs to regional input and output markets. Failure to address these issues may continue to stall the process of sustainably raising fertilizer use on the majority of Africa’s smallholder farms. There is rising urgency in this challenge, as the closure of the land frontier in many African farming areas has led to more frequent continuous cropping of plots, which, without greater usage of fertilizers, will certainly contribute to land degradation and rural poverty (Barbier and Hochard, 2012).
Success in investing in soil organic carbon can also help mitigate the variability of yields in the face of highly variable weather and a changing climate (Williams et al., 2016). Our analysis suggests that agronomic returns to nitrogen will have to increase substantially in order to offset the low and variable price margins that smallholder farmers typically face in countries like Tanzania.