The benefit from fertilizer/nutrient application in monetary terms should be high enough to motivate farmers to use fertilizer. Crop response trials should provide the necessary data on benefit-cost ratios and these can be made known to farmers through extension programmes. Both the existence of the benefit and its awareness by farmers are equally important to create demand.
The farmer's purchasing power is dependent on two factors: affordability and cash liquidity. The input-output price ratio, i.e. the number of kilograms of produce required to buy a kilogram of fertilizer/nutrient, is one indicator of affordability. For a given fertilizer application, if the yield improves due to better seeds, the higher is the revenue to the farmer and, therefore, the more affordable is fertilizer. Prices, therefore, need not be the only means of making fertilizer application attractive. Better crop management and integrated use of inputs cause an upward shift of yield response making fertilizer application worthwhile.
Adequate overall availability, good infrastructure and effective logistics management are essential to ensure that forecast demand is converted into sales. While farmers may actually need and are able to buy fertilizer, this demand cannot materialise unless fertilizer is transported and stored with wholesalers and retailers in time for seasonal application. Experience shows that, in most developing countries, availability of fertilizer and its proper distribution are factors severely limiting fertilizer use. Correction of these factors can bring about an immediate increase in consumption.
Rainfall and its distribution over time and space is the basic determinant of fertilizer consumption. Even if all other factors are favourable, failure of seasonal rains adversely affects demand. Vulnerability to failure of rains increases the risk to the farmer of using fertilizer and may make him reluctant to use it even if cost-benefit calculations are positive.
While the foregoing factors influence the conversion of potential into effective demand, the potential itself is dependent on the following factors:-
extent of available land;
actual area cultivated;
amount, distribution and reliability of rainfall;
area under irrigation, which determines the scope for multiple cropping;
availability and adoption of fertilizer-responsive seed varieties;
cropping pattern which determines the quantity of nutrients needed;
soil characteristics and nutrient content;
size of holdings - if holdings are small, a large portion of produce is retained for consumption and fertilizer demand tends to be more sensitive to price.
In developing countries characterised by small holdings and subsistence farming, fertilizer demand tends to be price sensitive. When the fertilizer price goes up in relation to the produce price, consumption tends to fall in the short-run until technological adjustments or other factors improve yield response to neutralise the effect of the price increase. In Asian countries, for example, a good monsoon can have the effect of tempering the adverse consequence of marginal fertilizer price increases. Similarly, new seed varieties shift yield response upwards, thus mitigating the effect of a fertilizer price increase. Increased credit availability exerts a similar influence. The rising trend in fertilizer consumption in many developing countries cannot be fully explained by the input-output price relationship. The trend is supported by increasing benefit opportunities offered by high yielding varieties, extended irrigation, etc. even in the face of marginally deteriorating fertilizer-crop price ratios. An adverse change in the fertilizer output price ratio has a short-run effect on demand but this has the potential to be neutralised through effective use of other inputs and better management practices.
