The Economics of Soil Health Investment in Nigerian Smallholder Agriculture: A Dynamic Optimisation Approach

This study develops a dynamic optimisation model of smallholder farmer soil health investment decisions and empirically validates the model using a combination of experimental and observational data from Nigerian farming communities. Soil degradation is a fundamental long-run threat to agricultural sustainability in Nigeria, yet farmers systematically underinvest in soil health management relative to the socially optimal level. Understanding the economic drivers of this underinvestment is essential for designing effective policy interventions. This study develops a dynamic programming model of optimal soil health capital accumulation that incorporates soil productivity dynamics, farmer time preferences, credit constraints, insecure land tenure, and uncertainty about future agricultural returns. The model generates predictions about how these factors jointly determine optimal organic matter investment, erosion control, and fallow period decisions. Empirical testing combines a soil carbon measurement panel on 200 farming households in Kogi and Benue States over three seasons with structural model estimation and a randomised experiment testing the causal effect of land tenure security on soil investment. Findings reveal that discount rates among sampled farmers are significantly higher than market rates, reflecting liquidity constraints and income uncertainty that shorten investment horizons. Land tenure insecurity reduces soil health investment by an estimated 28 percent compared to the tenure-secure optimum. Credit constraints amplify the discount rate effect. The study contributes an original dynamic soil investment model and recommends integrated tenure security and credit access programmes as the most effective soil health investment policy.

Keywords: soil health investment, dynamic optimisation, smallholder farming, Nigeria, land tenure.