<!-- Start of picture text --> 300%<br>200%<br>250%<br>150%<br>200%<br>100%<br>150%<br>50% 100%<br>0% 50%<br>0 50 100<br>0%<br>‐50% Price percentile 0 20 40 60 80 100<br>‐50%<br>‐100% Price percentile<br>‐100%<br>Fertilizer and hybrid seeds<br>Fertilizer Central Eastern<br>Hybrid seeds Northern Western<br><!-- End of picture text --> Source: Staff calculations using yield responsiveness and cost of inputs estimated in Bold et al. (2017) and wholesale prices from UBOS, 2000 ‐ 2012.

Next, we compare the returns from applying fertilizer and improved seed for four major regional crops in Uganda (UBOS 2009): maize in Eastern Uganda, beans and coffee in Western Uganda, and matooke in Central Uganda (Figure 3.6). As above, our returns vary with the distribution of output prices, while input costs remain fixed. See the Appendix for the method and values used in each of these calculations, including prices, fertilizer application rates, and yield responses. It is worth noting that we are not considering the effects of long‐term soil quality; the continuous use of improved seeds requires more nutrients and their use degrades soil quality in the long run. Thus, the non‐diminishing returns to improved seed use over the long‐term depend on the fertilizer use term; and therefore, we expect the returns to improved seed to be overstated, particularly if fertilizer use is as low as it is in Uganda.

We observe that returns to fertilizer are present across all crops, and high for a range of prices. For beans and maize, the median returns are 74 percent and 66 percent respectively. There are positive returns for both fertilizer and improved seeds across the entire range of prices, but the returns to investing in hybrid seeds and fertilizer together are no higher than investing in just fertilizer alone.<sup>11</sup> For matooke and coffee, tree‐based crops, median returns are 66 and 39 percent, respectively. Positive returns are present at all prices for matooke and for the top 75 percent of prices for coffee.<sup>12</sup> Robusta coffee requires the highest application rate of fertilizer (190 kg per hectare compared to 45 kg per hectare for matooke). Thus, at these rates of return, we should expect high rates of fertilizer use.

That said, the latter returns assume normal weather conditions, and under poorer weather conditions the financial returns likely disappear. If the yield gain is halved under bad weather conditions as some studies suggest (Christiaensen and Dercon 2011, Rosenzweig and Udry 2017), the financial returns become negative for all coffee prices and all but the top 25 percent of maize and matooke prices. In contrast, the return to fertilizer use on beans remains positive across the full range of prices (see Figure 3.7). The expected return for fertilizer use will depend on the full distribution of possible returns under all weather and price outcomes, which is not possible to estimate with the available data. However, if farmers are risk 11 These returns are also specific to the particular seed used and region, the Western region. For beans we used the returns from K132 and Kanyebwa seeds from Kaizzi et al. (2012).

12 Yield increases are taken from Nyombi et al. (2010) for matooke and van Asten et al. (2017) for coffee. In neither study were returns to improved planting materials for matooke or coffee, for example, considered.

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