ESTIMATING FERTILIZER DEMAND AND OUTPUT SUPPLY FOR MALAWI SMALLHOLDER AGRICULTURE

Implementing both a two-step procedure to separate substitution and expansion effects and a single equation method, the demand for fertilizer and output (maize and tobacco) response for Malawi's smallholder farmers have been estimated. The own-price elasticities for fertilizer, maize and tobacco are -0·82,1·08 and 0·46 from the two-step procedure compared with -1·08, 1·60 and 0·60, respectively, using the single equation procedure derived from the indirect profit function. Even though the expansion effects are not of the same order of magnitude as the substitution effects, the results demonstrate that, indeed, some adjustment in input or output occurs through expansion effects. The econometric analysis also reveals that the response of fertilizer demand and output supply to own prices is much higher than cross-price responses. This study finds insignificant statistical effect of fertilizer price on maize and tobacco outputs. However, the prices of these products significantly influence fertilizer consumption. © 1990.