cooperatives), more households in Amhara and Oromia have access to credit than households in Tigray and SNNP. The average obtainable credit ceiling is also higher in Oromia and Amhara.

Limited wealth and limited credit may have cumulative effects as well, as farmers fail to make fixed investments in land improvements and essential farm implements. The efficacy of fertilizer also depends on land preparation. The Ethiopian Agricultural Research Institute best practice guides suggest three to five cycle of pre-harvest land preparation to get the optimal results from fertilizer applications. However, among surveyed farmers, 57 percent of households report that they lack land-preparation tools.

Reluctance on the part of market agents to extend credit is understandable, as 62 percent of households ran into difficulty repaying an input loan on one or more occasions. The survey revealed three major reasons for default: low yields due to rain failure; low output prices; and the timing of repayments, in particular being forced to repay immediately after harvest when output prices are depressed.

The survey also points to inadequacies in the performance of agents marketing fertilizers. Timely and adequate supply of fertilizer is one of the major problems reported by households surveyed in the 2004 round. More than 70 percent of the households reported that fertilizer is often supplied late and around 40 percent of the households reported that supplies were inadequate. The survey results also point to high fertilizer prices and inflexible credit repayment schedules as problems that constrain fertilizer use.

There are also historical reasons why Ethiopian fertilizer markets may be incomplete. The structure of fertilizer markets in Ethiopia has constantly changed since the mid-1990s when, following the fall of the Derg regime, the state monopoly on the distribution of fertilizer was lifted. By 1996, 67 private wholesalers and about 2,300 retailers handled roughly two-thirds of the fertilizer market (World Bank, 2006). By the study period, this had dramatically changed. By 2004, a combination of companies with potential political affiliations and a public enterprise, the Agricultural Input Supply Corporation, dominated the wholesale market, with cooperatives handling an increased share of the wholesale market. By 2006 fertilizer was distributed to farmers through a combination of extension agents, local governments and cooperatives, and some private retailers.<sup>24</sup> Despite the resulting complexity of the fertilizer market, Heisey and Norton (2007) found that, on average, the margins between farmgate and import prices for fertilizers in Ethiopia compare well to similarly calculated margins in South Africa and other African economies – although the margins are still high in comparison to Asia or Latin America. At the same time, Mezgebo (2005) notes large regional differences in fertilizer margins, suggesting heterogeneity in how local markets function.

The changing structure of fertilizer markets came as a consequence of a government decision to promote “packets” of high-yielding seeds, fertilizers and extension services. Following a set of successful pilots, the approach was rapidly expanded under Ethiopia’s Participatory Demonstration and Extension

> 24 A 2006 report by the Ethiopian Economic Association/ Ethiopia Policy Research Institute (EEA/EEPRI) estimated that the public sector handled about 70 percent of the retail market. See Gebremedhin, Hoekstra and Tegegne (2006) on the evolving role of extension agents in Ethiopia.

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