Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: This paper integrates traditional economic variables, soil properties and variables on soil conservation technologies in order to estimate agricultural output among small-scale farmers in Kenya’s central highlands. The study has methodological, empirical as well as policy results. The key methodological result is that integrating traditional economics and soil science is highly worthwhile in this area of research. Omitting measures of soil capital can cause omitted variables bias since farmers’ choice of inputs depend both on the quality and status of the soil capital and on other economic conditions such as availability and cost of labour, fertilizers, manure and other inputs. The study shows that: (i) models which include soil capital and soil conservation technologies yield a considerably lower output elasticity of farm-yard manure; (ii) mean output elasticities of key soil nutrients like nitrogen (N) and potassium (K) are positive and relatively large; (iii) counter to our expectations, the mean output elasticity of phosphorus (P) is negative; (iv) soil conservation technologies like green manure and terraces are positively associated with output and yield relatively large output elasticities. The central policy conclusion is that while fertilizers are generally beneficial, their application is a complex art and more is not necessarily better. The limited local market supply of fertilizers, combined with the different output effects of N, P and K, point at the importance of improving the performance of input markets and strengthening agricultural extension. Further, given the policy debate on the impact and usefulness of government subsidies to soil conservation, our results suggest that soil conservation investments contribute to increase farmers’ output. Consequently, government support to appropriate soil conservation investments arrests soil erosion, prevents downstream externalities and assists farmers’ efforts to increase food production and food security.

Keywords: micro analysis of farm firms; resource management

JEL-codes: Q12; Q20

36 pages, January 27, 2009

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