Fertilizer subsidies in Sub-Saharan Africa

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Opinions about the role of fertilizer subsidies in spurring agricultural development in Sub-Saharan Africa have fluctuated significantly over the past five decades. Many experts believe that

subsidies represent an essential method for achieving long term food security in Sub-Saharan Africa, while providing social support to Africa's poorest subsistence farmers. Yet previous universal subsidy schemes enjoyed only moderate success, raising concerns about whether the market distortions subsidies introduce can ever lead to a sustainable agricultural system.[1]
New practices in creating more targeted subsidies may be the key to achieving durable success.

Rationale

Despite the potential benefits to crop yields,

inorganic fertilizer application in Sub-Saharan Africa lags behind other developing regions. Average application in Sub-Saharan Africa is less than 10 kg per hectare, while the average application in Latin America and South Asia is nearly 140 kg per hectare.[2]
Sub-optimal or inefficient fertilizer use may result from farmers’ incomplete knowledge of its benefits or proper application techniques, inadequate (liquid) funds, or aversion to the risk associated with investing in a new input. Proponents of subsidies argue that they can help to mitigate these circumstances and bring fertilizer use up to optimal levels.

The implementation of subsidy programs may also be argued for equity reasons. Like other forms of social support (health, education spending) subsidies represent a redistribution of funds within a society, and can be an effective way to target

subsistence farmers (a disproportionately large amount of Sub-Saharan Africa's poor).[3]

Finally, subsidies may also create positive

government intervention through subsidies.[4]

1970-1985: government intervention

During the 1960s and 70s many countries in Africa provided subsidized fertilizer to their farmers though

state owned enterprises, or "parastatals," which generally enjoyed a monopoly on fertilizer distribution and import within the country. The fertilizer distributed by these enterprises sold at a universally reduced price, between 20 and 60 percent of the full market cost. Currency over-valuation
also created an additional "implicit" subsidy for imported fertilizer. These policies were seen as a way to counteract the effects of soil erosion and
depletion, and increase crop yields by bringing fertilizer within the reach of subsistence farmers.[5] This followed the dominant ‘modernization’ model of the period, which aimed to develop production systems in the sector through the promotion of new technologies like fertilizer and improved hybrid seeds.[6]

The subsidy programs often suffered from multiple problems. Inefficient bureaucracies contributed to delays in fertilizer delivery. Overstaffing and lack of efficiency incentives increased overall program costs. In cases of inadequate budgets, fertilizer was rationed, barring farmers from accessing sufficient amounts to apply to their crops. Finally, below market-level pricing disincentivized and displaced private distributors of fertilizer who no longer found it economically feasible to compete with subsidized fertilizer. This seriously jeopardized the financial sustainability of the programs.[5]

1985-2005: economic liberalization

The 1980s saw the rise of

allocative inefficiency, placed emphasis on the power of free markets to effect lasting development change and encouraged the minimization of the state's role in the economy.[7]

Practices encouraged by structural adjustment programs

During this period,

deficit reductions. Structural Adjustment Programs also led to the phasing out of most fertilizer subsidy programs.[9] Some of the African countries following these guidelines included Benin, Ghana, Madagascar, Senegal, Togo, Tanzania, Zambia, Cameroon, Malawi, and Nigeria.[4]

Effects of liberalization

Results of liberalization and subsidy phase-out were mixed. In a five-year study comparing before and after cases, fertilizer use in Cameroon, Senegal, Tanzania, Nigeria and Ghana declined 25-40 percent, while it increased 14-500 percent in Benin, Togo, Mali, and Madagascar. Subsidies may have been only one factor affecting the price and use of fertilizer.[4]

2005-present: new thinking in subsidies

Recently fertilizer subsidies have enjoyed renewed attention as a potentially potent tool for wide scale development in Africa.[10] Jeffrey Sachs, founder of the Millennium Promise Alliance has said of fertilizer use in Africa, that governments should "provide subsidized fertilizers to subsistence farmers so that they can produce enough to eat."[11] Recent successful programs in Malawi have also brought renewed attention to fertilizer subsidies.

Input vouchers

Input vouchers, or certificates allowing farmers to buy agricultural inputs (like fertilizer) at a reduced price, can more precisely target support than pre-structural adjustment universal subsidies. They may also complement the development of private markets, rather than de-incentivizing or undercutting them. The voucher programs are implemented as follows: a farmer receives a voucher that reduces the cost of fertilizer purchased from a private firm or distributor. The private firm can then redeem the voucher for cash plus a commission fee at a designated government facility. Thus the voucher represents a transfer of funds from the government to the farmer.[12]

In contrast to blanket subsidies, input vouchers are compatible with private-sector distribution, and must utilize market structures to function. They foster private sector development by guaranteeing a client base and

economy of scale. Proponents see them as a way to encourage greater adoption of fertilizer use without the blatant market distortions of earlier schemes. Importantly, an "exit strategy" is more feasible with the voucher program than with universal subsidies. As the private distribution network develops, the voucher can gradually be reduced in value, and be phased out entirely once private markets are functioning.[13]

Complementary practices

Input voucher programs rely heavily on complementary policies and practices in order to function effectively. For instance, some existing distribution networks (shops, or retailers) must be in place already in order to ensure wide penetration of the input. Some access to microcredit may be necessary to help defray even the initial subsidized costs. Furthermore, subsidized fertilizer programs are most effective when they encourage non-users (farmers who otherwise would not use fertilizer) to participate, thereby creating new sources of production.[13]

Concerns

Careful program design is needed to precisely target needy farmers, guard against "leakage" (in which wealthier farmers take advantage of the subsidy program) and maintain a degree of

opportunity costs by diverting public resources away from agricultural extension services, infrastructure building, or research and development.[5]

See also

References

  1. ^ Colin Poulton; Jonathan Kydd Andrew Dorwar. "Increasing Fertilizer Use in Africa: What Have We Learned" (PDF). Agriculture & Rural Development Department World Ban. Retrieved 25 March 2011.
  2. ^ "World Development Indicators 2010" (PDF). World Bank. Archived from the original (PDF) on 23 April 2022. Retrieved 14 March 2011.
  3. ^ IFAD. "Rural Poverty Report 2011: Enabling Poor Rural People to Overcome Poverty". Archived from the original (PDF) on 31 March 2022. Retrieved 14 April 2011.
  4. ^ a b c COMESA. "Getting Fertilizers to Farmers: How to do it? Who should do it? and Why it Should be Done?" (PDF). Fertilizer Symposium. AFRICA AGRICULTURAL MARKETS PROGRAM.
  5. ^ a b c Nicholas Minot; Tod Benson. "Fertilizer subsidies in Africa: are vouchers the answer". International Food Policy Research Institute (IFPRI). Retrieved 24 Feb 2011.
  6. doi:10.1016/0306-9192(96)00021-8
    .
  7. ^ Bello, Warden (3 June 2008). "Destroying African Agriculture". Foreign Policy In Focus.
  8. ISBN 0-321-27888-7
    .
  9. ^ Friis-Hansen, Esbern. "Agricultural Policy in Africa after Adjustment". CDR Policy Paper. Center for Development Research. Archived from the original on 13 July 2011. Retrieved 3 April 2011.
  10. ^ Isaac Minde; T.S. Jayne; Eric Crawford; Joshua Ariga; Jones Govereh. "Promoting Fertilizer Use in Africa: Current Issues and Empirical Evidence from Malawi, Zambia, and Kenya" (PDF). ReSAKSS Working Paper No. 1. Regional Strategic Analysis and Knowledge Support System. Retrieved 13 April 2011.
  11. ISBN 1-59420-045-9
    .
  12. ^ Thom Jayne; Nick Minot; Shahidur Rashid. "Fertilizer Subsidies in Eastern and Southern Africa Policy Synthesis #2" (PDF). Common Market for Eastern and Southern Africa (COMESA) African Agricultural Markets Programme. Retrieved 15 April 2011.
  13. ^ a b Minde, Isaac. "Promoting Fertilizer Use in Africa: Current Issues and Empirical Evidence from Malawi, Zambia and Kenyaies.pdf" (PDF). Working Paper Number 13. ReSAKSS. Retrieved 3 April 2011.
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