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High population growth in Ethiopia is aggravating farmland scarcity, as the agrarian share of the population stays persistently high, and also creates increasing demand for food and non-food biomass. Based on this fact, this study investigates welfare implications of intensification measures like interventions that improve access and use efficiency to modern farming inputs. Using a dynamic meso-economic modeling framework for Ethiopia, ex-ante scenarios that simulate a) decreased costs of fertilizer use and b) elevated efficiency of fertilizer application for all crops are run for a period of 20 years. Fertilizer-yield response functions are estimated (based on results from an agronomic crop model and actual survey data) and embedded into the economic model in order to get realistic marginal returns to fertilizer application. This is our novel methodological contribution in which we introduce how to calculate input use inefficiency based on attainable yield levels from agronomic crop model and actual yield levels. Simultaneous implementation of these interventions lead to annual yield increases of 8.7 percent for an average crop farmer compared to the current level. Increased fertilizer application is also found to be profitable for an average farmer despite price reduction for crops following increased market supply. As a result of price and income effects of the interventions, all household types exhibit welfare gain. Non-farming households, being net consumers, enjoy lower costs of living. Rural farming households enjoy even higher welfare gain than non-farming households because they consume a higher share from crop commodities that become cheaper, and because their farming profits increase.

Household Welfare Implications of Better Fertilizer Access and Lower Use Inefficiency: Long-Term Scenarios for Ethiopia