Output price risk and fertilizer use decisions in Burkina Faso

We investigate whether the fluctuations of agricultural output prices may be a contributing factor to the low level of production intensification in developing countries. We analyze the specific effect of maize price risks on fertilizer use decisions in Burkina Faso, distinguishing between the predictable (trends and seasonality for example) and unpredictable (volatility) components of price fluctuations. By introducing these two components into Isik (2002)'s framework, we establish that both are theoretically expected to decrease fertilizer use. We conduct an empirical assessment of our model applied to the maize sector in Burkina Faso, by combining a database on local cereal markets and a panel database on farm households' production choices over the 2009-2011 period. We control for individual assets and access to fertilizers, and we establish that: higher maize prices increase fertilizer use; unpredictable maize price fluctuations decrease the level of fertilizer use; while predictable maize price fluctuations have no significant effect on fertilizer use. Our results suggest that policy-makers should focus on output price volatility, as a factor which may impede the intensification of agricultural production in Sub-Saharan Africa.