Does fertilizer use respond to rainfall variability? Panel data evidence from Ethiopia

In this article, we use farmers' actual experiences with changes in rainfall levels and their responses to these changes to assess whether patterns of fertilizer use are responsive to changes in rainfall patterns. Using panel data from the Central Highlands of Ethiopia matched with corresponding village-level rainfall data, the results show that the intensity of current year's fertilizer use is positively associated with higher rainfall levels experienced in the previous year. Rainfall variability, on the other hand, impacts fertilizer use decisions negatively, implying that variability raises the risks and uncertainty associated with fertilizer use. Abundant rainfall in the previous year could depict relaxed liquidity constraints and increased affordability of fertilizer, which makes rainfall availability critical in severely credit-constrained environments. In light of similar existing literature, the major contribution of the study is that it uses panel data to explicitly examine farmers' responses to actual weather changes and variability. © 2010 International Association of Agricultural Economists.