Private sector participation is important for agricultural development - but not on its own

As policymakers and development practitioners aim to boost adoption of new technologies to promote sustainable agricultural development, they are increasingly turning to private sector companies for help. These companies can often provide marketing and financial incentives that the public sector cannot, making them an important potential pathway to reach farmers and increase their use of new technologies.

A recent paper in the Journal of Environmental Economics and Management looks at the role of private firms in encouraging the adoption of fertilizers that can potentially boost farm production while simultaneously protecting the environment. The results show that while the marketing strategy and discount vouchers provided by the firm did in fact increase initial uptake of the improved agricultural inputs, those impacts are unlikely to be sustained in the long term without additional support from the public sector.

The study centered on rice-farming households across 45 villages in Kwara State, Nigeria. The authors conducted a randomized controlled trial to see whether the participation of a private agricultural input firm would increase use of urea super granule fertilizer (USG), a more environmentally friendly alternative to the prilled urea commonly used in the region.

Thirty villages in the treatment group received the distributor’s standard marketing materials, which included an information campaign, a demonstration plot, and a guaranteed supply of USG through a local retailer. Half of the farmers in the treatment group were also given a 25 percent discount on the input.

Only 2 percent of households in the control group used USG at the time of the trial. Treatment households who received the marketing campaign, however, increased their USG use by 24 percentage points, and households who received both the marketing campaign and the discount increased their use by an additional 8 percentage points.

The marketing campaign alone reduced use of prilled urea by 17 percentage points among treatment households. Households who received both marketing and the discount (i.e., those who increased their use of USG the most) also reduced their farm’s nitrogen losses by between 1.17 and 2.35 kg/ha, highlighting the environmental benefits of USG application.

However, the authors found that use of NPK, a complementary input that can increase USG’s effectiveness, also decreased slightly. This raises an important point when it comes to marketing campaigns: Such campaigns need to clearly explain how a new technology works, including the inputs and practices that should be used along with it.

While the trial did increase adoption of USG among treatment villages, those villages did not see a subsequent increase in rice yields. This lack of productivity-enhancement could be due to the failure of the marketing campaign to emphasize recommended practices necessary for farmers to benefit from USG’s full productivity effects, as mentioned previously.

Of course, in order for private sector companies to provide marketing and financial incentives for agricultural development, they need to see some benefit as well. The results showed that, in the case of this particular Nigerian firm, the provided discount would only be profitable if USG production costs were roughly one-quarter of the non-discounted selling price.

Without more substantial profits for private sector actors and increased yields for farmers, the private sector incentives tested in the trial would not be sufficient to increase adoption of environmentally friendly agricultural inputs. The authors suggest that to successfully scale USG adoption, the input would need to be bundled with complementary inputs to increase yields and reduce farmers’ per hectare input costs. Such support would likely need to come through public sector interventions to encourage the use of complementary practices.

In other words, agricultural development will likely need to rely on strengthened partnerships between the public and private sectors. Such partnership can better spread out the risks associated with adoption of new technologies while leading to productivity gains, boosted food supplies, and reduced negative environmental impacts.

Sara Gustafson is a freelance writer and communications consultant.