Smallholder access to purchased seeds in the presence of pervasive market imperfections and rainfall shocks : panel data evidence from Malawi and Ethiopia

Seed purchasing enables farmers to respond to adverse events that may cause chronic and temporary seed insecurity by allowing them to exploit opportunities associated with accessing new seeds. However, as with other inputs, seed purchasing is complicated by pervasive market imperfections and climate risk common in Sub-Sahara Africa. This study uses balanced household panel data for Malawi (2010-2018) and Ethiopia (2012-2016) and applies dynamic random effects Probit and Tobit models to assess how seed purchase decisions are affected by earlier participation in the market, lagged rainfall shocks, and historical climate variables. Our findings show that there are nonlinear effects of lagged seed purchase decisions on subsequent decisions with strong initial effects (weakening over time). For instance, initial maize seed purchase decisions are associated with about 11 and 22% higher probability of purchase and 1 and 2% higher shares of seed volumes purchased in later rounds in Malawi and Ethiopia, respectively. Seed purchase decisions also respond to climate variability and shocks. For instance, lagged drought shocks enhance subsequent maize purchase decisions in both countries. Historical average rainfall and temperature enhance maize seed purchase decisions in both countries. Overall, results point to state dependency on the demand side of the seed market, leading to selective access to purchased seeds. Also, seed purchase in smallholder farming is a liquidity and risk-dependent input choice. Policy efforts need to continue targeting reducing transaction costs and other barriers to entry into seed markets to enhance access to off-farm seed and support adaptation to rainfall shocks.