Abstract:
A major challenge facing farming in developing countries has been the need to raise farm
incomes through increased agricultural productivity. One acceptable means has been the
diffusion of new production techniques, especially use of chemical fertilizers, and high
yielding varieties of seeds and pesticides. However, a major impediment to the adoption
of such productivity-enhancing inputs has been the unavailability of liquid capital
particularly cash to finance such expenditures. Another well-documented fact is the riskaverse nature of most rural decision makers in developing countries yet use of such
modern inputs is likely to not only increase the expected returns, but the accompanying
risks as well.
Despite these problems, both credit and crop insurance markets are lacking in most
developing countries, thus limiting the use of these modern inputs. This difficulty is
especially great for food crops, which lack the institutional arrangements that sometimes
relieve credit constraints for cash crops. In the absence of credit facilities, farm practices
especially those requiring capital may be dependent on existing sources of income. Under
these circumstances, it is plausible that earnings from off the farm may often be used to
compensate for the missing and imperfect credit markets by providing ready cash for
input purchases as well as other household needs. In addition, off-farm earnings could be
used to spread the risk of using these modern farm inputs. To the extent that farmers
choose traditional over modern inputs in order to lower their risk, any mechanism that
allows farmers to smooth consumption will raise the use of modern inputs and increase
farm productivity.
This paper explores the extent to which off-farm work affects farm production decisions
through reinvestment in farm input use and intensification. We estimate farm input
demand functions for fertilizer and impoved seed for Kenyan maize producers. The
results indicate differences in off-farm work effects across different inputs and off-farm
activity types. While the results suggest possible use of off-farm earnings for input
purchase especially for those without other forms of credit, the ‘combined’ input package
iv
seems to represent a substantially greater commitment and orientation, one possibly not
attractive to those with higher off-farm earnings. Thus, while engagement in off-farm
work may allow some partial intensification, it may also compete with farming at higher
levels with households shifting their resources to other uses perhaps with higher returns
than agriculture. We find the presence of a regular source of earnings to be the driving
force behind any reinvestment behavior.
