Department of Agricultural, Food, and Resource Economics Food Security Group

Melinda Smale, Véronique Thériault, 2018. A Cross-Country Summary of Fertilizer Subsidy Programs in Sub-Saharan Africa. Feed the Future Innovation Lab for Food Security Policy Research Paper 169. East Lansing: Michigan State University.

Abstract

Both supply and demand constraints have long hindered the emergence of viable fertilizer markets in Sub-Saharan Africa. By the early 2000s, the urgency of arresting soil nutrient mining combined with rising fertilizer and food prices once again stimulated interest in ways to raise fertilizer use, which led to the re-introduction of input subsidy programs under a new “smart” guise. In this comparative summary of the literature, we first review the pros and cons of these input subsidies in a developing agricultural context. Then, we draw on a number of in-depth, informative reviews, comparing among Sub-Saharan countries, and also consulting additional case studies. The purpose of this paper is to situate our understanding of the fertilizer subsidy program in Mali within a broader policy context and to draw lessons on what might be done to improve it.

One of the most frequent justifications for input subsidies in Sub-Saharan Africa is that they can address missing or imperfect financial and insurance markets, easing risk for small-scale farmers. Pros include the notion that promoting affordable fertilizer use might “kick-start” the adoption of new technologies by farmers, allowing them to learn and demonstrating benefits. A long list of cons is reported, such as high fiscal cost and administration burdens, leakages into the commercial market and neighboring countries where price ratios have not changed, and displacement of commercial purchases by farmers who would otherwise pay the full price. Less commonly cited criticisms include misdiagnosed market failures—for example, the treatment with a fertilizer subsidy of a transport cost problem that would be better addressed by investment in infrastructure.

The design and implementation of the input subsidy programs directly influence the demand and supply for fertilizer as well as the macroeconomy. Across countries in Sub-Saharan Africa, designs are complex and have changed over time with experience. Objectives are often “vague” and “variable”, with goals that are may not be “economic” in the strictest sense. “Universal” subsidies are in fact regressive, favoring those with more assets and more social standing. By restricting the subsidy to a particular crop or set of crops, a program is targeting an area, farming system, and group of households. Mechanisms for selecting beneficiaries vary widely by country program and year of program according to learning, evaluation findings, and the objectives of the programs. Presence of a monitoring and evaluation system, and recognition of an exit strategy are key features of “smart” subsidy design—but these have been largely absent.

All studies reviewed show positive effects on yield and production by the farm household. Crop planted has not always been investigated, but studies show mixed results. Incremental increases in crop production can, but do not necessarily lead to outcomes, such as higher farm incomes and greater food security. In most cases, with the exception of remote rural areas or those with poorer farmers, crowding-out is more likely to have occurred than crowding-in. There is relatively less information on the impact of fertilizer subsidies on intrahousehold equity, land use, labor use, market participation, and nutrition. Recent e-voucher programs have not yet received much attention.

With no exit strategy in place, the fertilizer subsidy program is likely to stay in the short to mediumterm in Mali. There are key steps that should be followed in order to maximize the positive impacts and minimize the negative impacts of such a program. First, clear and non-contradictory program objectives (economic vs noneconomic) should be stated. Second, various design and implementation approaches should be tested. Third, the targeting outcomes and program design and implementation should be aligned with each other and with the program objectives. Fourth, a strong monitoring and evaluation system should be installed. Finally, there is a strong need for more empirical evidence to better understand the intended and unintended impacts of the program, including the new e-voucher scheme.