The Policy Research Working Paper Series paper titled "Profitability of Fertilizer Use in SSA: Evidence from Malawi" by Francis Addeah Darko, Jacob Ricker-Gilbert, and Talip Kilic aims to analyze the profitability of inorganic fertilizer use in maize production specifically in Malawi. The paper utilizes a two-wave, nationally representative panel of smallholder households' data to estimate household fixed effects, plot fixed effects, and multilevel regressions.
Key findings include:
- The nitrogen use efficiency (NUE) for inorganic fertilizer use in maize production is estimated to range between 9.2 to 12.1 kg of maize produced per kg of nitrogen applied. This indicates that fertilizer use is generally unprofitable at prevailing market prices, especially considering the positive transaction costs associated with fertilizer use.
- The profitability of fertilizer use is significantly influenced by the NUE. To make fertilizer use profitable, the NUE would need to increase by at least 137% if the value of maize is considered at the farmgate price, and by 50% if the value is considered at the lean season market price.
- The introduction of a fertilizer subsidy under the Farm Input Subsidy Program (FISP) in Malawi improves the profitability of fertilizer use by increasing the maize-nitrogen price ratio at all rates of subsidy (ranging from 0 to 100%). However, unless farmers can store their produce and sell during the lean season when the output price is relatively higher, they would benefit more by at least MKW 66.16 (US$0.18) per kg of subsidized nitrogen with the cash equivalent of the subsidy rather than receiving the fertilizer itself.
- Compared to the current rate of nitrogen application, the government-recommended rate of application is found to be between 116 to 119% more profitable on smallholder fields.
The paper concludes that improving fertilizer use efficiency and addressing the credit constraints faced by farmers could lead to significant productivity gains and increased profitability in maize production in Malawi, which is crucial for poverty reduction and food security in the region.
