The dynamics of soil degradation and incentives for optimal management in the Central Highlands of Ethiopia

Abstract

This thesis addressed two main issues. First, using an inter-temporal optimisation framework, the thesis analysed the tradeoffs between short and long-term objectives of soil use that smallholder farmers’ face in their production decisions. Second, using econometric models that account for simultaneity of choices and plot level data, the thesis explored the determinants of soil fertility and soil conservation adoption decision behaviour of smallholder farmers in the Central highlands of Ethiopia. Four major conclusions are drawn from the optimization results. First, steady state optimal output and input levels under the dynamic decision rule are found to be significantly higher than the static solutions suggesting that the static decision rule is sub-optimal. Second, current soil nutrient inputs and conservation efforts are well above the requirements of the static solutions suggesting smallholder farmers consider some of the long-term (dynamic) costs of soil degradation. Third, current farmer practices involve net nitrogen extraction of 16.2 kg/ha from bottomlands and 56.7 kg/ha from slopping lands entailing a total soil user cost of Birr 255 per ha and Birr 928 per ha, respectively. This suggests that current smallholder farmer practices discount the future heavily and hence over exploit the soil resource stock. Fourth, a comparison of steady state dynamic solutions when nutrient stocks are the sole determinant of soil quality with a situation where both nutrient stocks and rooting depth impinge on soil quality confirm the main hypothesis that the socially optimal path of soil use also depends on the nature of soil degradation smallholder farmers face on their plots. The econometric analysis of soil fertility and soil conservation adoption confirmed that awareness of soil degradation, public assistance with sharing initial costs of constructing soil conservation structures, improved security of land tenure and farmers’ education and access to information on soil degradation were found essential for farmers to adopt soil fertility management practices and invest in soil conservation. On the other hand, improved small farmers’ access to short-term credit for the purchase of inorganic fertilizers present a disincentive for long-term conservation practices, an important trade off with serious policy implications.