Market Imperfections for Tractor Service Provision in Nigeria

Hiroyuki Takeshima. 2017. Market Imperfections for Tractor Service Provision in Nigeria: International Perspectives and Eempirical Evidence. Feed the Future Innovation Lab for Food Security Policy Research Paper 42. East Lansing: Michigan State University

EXECUTIVE SUMMARY
Agricultural mechanization often accompanies agricultural transformation. In some countries in Africa south of Sahara (SSA), such as Nigeria, the mechanization process appears slow despite the declining share of the agricultural sector in the economy and employment. Knowledge gaps exist regarding this slow mechanization process, and filling these knowledge gaps is important in identifying appropriate policies on agricultural mechanization in Nigeria.

In Nigeria, despite the scarcity of tractors, average horsepower and prices of tractors appear high. These patterns are different from the experiences in other parts of the world where initially tractor horsepower was often smaller, such as Asia, or farmers were better endowed with land and wealth, such as Latin America. In Nigeria, joint ownership of tractors is rare, and formal loans are often unavailable due to high transactions costs. IFPRI’s survey in Kaduna and Nasarawa states in 2013 suggested that the spatial mobility of tractors is generally low and the use of tractors is highly seasonal. There do not seem to be plausible explanations for the seeming dominance of large tractor use based on available information on prices and soils. Nevertheless, these patterns seem driven by the own initiative of the private sector rather than by government policies.

Indivisibility of large tractors and limited mobility of supplies may cause imperfections in the custom tractor hiring market. In order to distinguish the impacts of technology adoption at the extensive margin from those at the intensive margin, in the empirical analyses for the research presented here we tested these hypotheses focusing on the differences among marginal adopters of tractor hiring services and non-adopters with similar characteristics. The results are three-fold: (1) adoptions patterns of tractor services are partly explained by basic factor endowments, suggesting that the market for custom hiring is in some way functioning efficiently in response to economic conditions; (2) adoptions are, however, affected by supply-side factors, including the presence of large farm households (and thus potential tractor owners) within the district, and (3) per capita household expenditure level differs significantly between the marginal adopters and non-adopters with similar characteristics. This difference seems to arise from adoption per se, rather than the intensity of adoption, which is consistent with the hypothesis of imperfection in the custom tractor hiring market.

KEYWORDS
Tractor, market failure, double-hurdle model, generalized propensity score, Nigeria, Africa south of the Sahara

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