AgriculturalInputSubsidyProgramsinAfrica:

AReviewofRecentEvidence

T.S.Jayne,NicoleMason,WilliamBurke,JoshuaAriga

1

Guestlecture,PrincetonUniversity,TimSearchingerSustainableFoodSystemsCourseNovember13,2017

Objectives:

1. Toreviewrecentevidenceontheimpactsofinputsubsidyprograms(ISPs)inAfrica

2. ToidentifygovernmentactionsthatwillincreasethebenefitsofISPs

• Directly-- throughISPprogramdesign

• Indirectly– throughactionsthatenablefarmerstousefertilizermoreefficiently

2

ExpendituresofInputSubsidyPrograms

Country AnnualProgramCost(USDmillion)

%ofAg Budget

Malawi 152to 275 47to71%

Tanzania 92to135 39 to46%

Zambia 180 to239 33to59%

Senegal 36to42 26to31%

Ghana 112 to166 29to54%

Nigeria 167to800 (?) 26to78%

Kenya 61to89 9to26%

3

PartI:SummaryofEvidence

4

Summaryofevidence:

Conclusion#1:

• Clearshort-termcontributiontofoodproduction

Summaryofevidence:

Conclusion#2:• Highlyvariableachievementoftargetingcriteria

7

Attributes of Households Acquiring FSP Subsidized Fertiliser - Zambia

0

2000

4000

6000

8000

10000

12000

1st Q(Low)

2nd Q 3rd Q 4th Q 5th Q(High)

Quintitles of HH Per Capita Land Use (Cultivated + Fallow)

Valu

e of

HH

Ass

ets

(ZM

K)

0

5000

10000

15000

20000

25000

30000

Volu

me

of F

ertli

ser A

quire

d

Value HHAssets

FertQuantityAcquired

8

DiversionoffertilizerfromFISP,ZambiaFarmerclaims FSP/FISPdistribution

Plantingyear --------------------MetricTons--------------------2002 31,722 48,0002003 33,372 60,0002004 16,792 50,0002005 23,595 50,0002006 58,404 84,0002007 43,596 50,0002008 55,114 80,0002009 69,103 106,0002010 116,116 179,000

2002- 10 447,814 707,000

Source:Mason,2011

33%

63%

Summaryofevidence:

Conclusion#3: Subsidyfertilizerpartiallycrowdsoutcommercialsales:

• Forevery1000kgoffertilizerdistributedthroughISPs,nationalfertilizeruseroseonlybetween400to700kg(Zambia,Malawi,Kenya)

• Intwocases,NigeriaandareasofZambiawhereprivatefirmsdidnotoperate,evidenceof“crowdingin”

Summaryofevidence:

Conclusion#4:

• Positiveeffectsonhh incomesinyearthatsubsidyisreceived

• Nosignificantincreaseinhh incomeinyearaftersubsidyends

Summaryofevidence:

Conclusion#5:

• Littleeffectonfoodpricelevels

• Malawi

• Zambia

• Nigeria

RankingofAlternativeInvestments:Meta-StudyEvidencefromAsiaandAfrica

The Economist IFPRI study

Policies

Infrastructure investment

Agricultural R&D

Agricultural extension services

Credit subsidies

Fertilizer subsidies

Irrigation

Rankingwithrespecttoagriculturalgrowth:EvidencefromAsia

The Economist IFPRI

Policies 1

Infrastructure investment 3 1

Agricultural R&D 2 2

Agricultural extension services 5

Credit subsidies 7 3

Fertilizer subsidies 6 4

Irrigation 4 5

Rankingwithrespecttopovertyreduction:EvidencefromAsia

The Economist IFPRI

Policies 1

Infrastructure investment 2 1

Agricultural R&D 3 2

Agricultural extension services 4 3

Credit subsidies 7 4

Fertilizer subsidies 5 6

Irrigation 5 5

Summaryofevidence:

1. Significantshort-termeffectonfoodproduction

2. Highlyvariableachievementoftargetingcriteria

3. Crowdingout-- aproblem

4. Small/transitoryeffectsonhhincomes

5. Littleeffectonfoodprices

PartII:Whattodo?

16

ProposalsforraisingthebenefitsofISPs

17

Zambia’sflexiblee-voucherISP• Governmentpilotprogramin13of108districtsin2015/16;expandingto39districtsin2016/17

• Usespre-paidVisacard;agro-dealersmusthavepointofsalemachines

• E-vouchervalue(Ksh):

18

Farmercontribution 40Governmentcontribution 170TOTAL 210

• Eligibleinputs:Variousfertilizers,seeds(anycrop),cropprotectantsandsprayers,lime,livestockfeed/drugs/dipchemicals,fishfingerlings

IntendedbenefitsofZambia’se-vouchervs.itstraditionalISP1. Givefarmersmorechoice;encourageagricultural

diversification

2. Crowd-intheprivatesector(traditionalISPexcludedagrodealers)

3. Cost-savings:shiftsomeofthecostsofthesubsidyprogramtotheprivatesector

4. Timelyavailabilityofinputstofarmers(gov’tdistributionsystemhadbeenplaguedbylatedelivery)

5. Moretransparency(gov’tdistributionopaque,massivediversionandotherrent-seekingbehavior)

19

LessonslearnedfromZambia’s2015/16e-voucherpilot• Arigorousimpactevaluationisstillpendingbutpreliminaryfindingssuggestthatthee-voucher:

1. Crowdedinprivatesectorparticipationininputdistribution(e.g.,morecompetitionamongagro-dealers;someevendeliveredinputstovillagesfrommarkettownsà betteraccesstoinputsforfarmers)

2. Mayhaveencouragedagrodealerstostockawidervarietyofinputs(i.e.,beyondmaizeseedandfertilizer),potentiallyleadingtogreateragric.diversification

20

21

DiversionoffertilizerfromFISP,ZambiaFarmerclaims FSP/FISPdistribution

Plantingyear --------------------MetricTons--------------------2002 31,722 48,0002003 33,372 60,0002004 16,792 50,0002005 23,595 50,0002006 58,404 84,0002007 43,596 50,0002008 55,114 80,0002009 69,103 106,0002010 116,116 179,000

2002- 10 447,814 707,000

Source:Mason,2011

33%

63%

OthergovernmentactionstoraisebenefitsofISPs

22

I.Publicinvestmentstoraisecropresponsetofertilizer

23

= Po * ΔQPfΔF

Demandandprofitabilityofusingfertilizer

Farm-gatefertiliserprice

Farm-gatecommodityprice

CropresponserateVCR

Reviewofmaize-fertilizerresponseratesonfarmer-managedfields

Study country Agronomic responserate(kgs maizeperkgN)

Morrisetal(2007) W/E/S Africa 10-14

Sheahanetal(2013) Kenya 14-21

MarenyaandBarrett(2009) Kenya 17.6

Liverpool-Tasie(2015) Nigeria 8.0

Burke(2012) Zambia 9.6

Snappetal(2013) Malawi 7.1to11.0

HoldenandLunduka (2011) Malawi 11.3

Mintenetal(2013) Ethiopia 11.7

PanandChristiaensen (2012) Tanzania 11.8

Matheretal(2015) Tanzania 5.7to 7.8

25

• Soilandlanddegradationahugeconcern

ØMajorconclusionofMontpellierPanelreport

ØExtentofalreadydamagedland:Ø65%ofarablelandØ30%ofgrazinglandØ20%offorests

ØBurdendisproportionatelycarriedbysmallholders

26

FactorsdepressingNUEofinorganicfertilizeruse:

1. Lowsoilorganicmatter• significantdeclineinSOMoverpast20yearsinmanycountries(MpeketulaandSnapp)

27

28

Source:Marenya&Barrett2009

Plotcarboncontent(%)

Estimatedmarginalvalueproductofnitrogenfertilizerconditionalonplotsoilcarboncontent

Ksh/kgN

FactorsdepressingNUEofinorganicfertilizeruse:

1. Lowsoilorganicmatter• significantdeclineinSOM overpast20yearsinMalawi(Mpeketula andSnapp)

2. Acidification

29

30

FromLarsonandOldham,MississippiStateUniversityExtensionService,2008.

Source:Burke,2012

FactorsdepressingNUEofinorganicfertilizeruse:

1. Lowsoilorganicmatter• significantdeclineinSOM overpast20yearsinMalawi(Mpeketula andSnapp)

2. Acidification

3. Latedelivery

31

32PhotocourtesyofDingiBanda,LusakaProvince,Zambia

Elementsofaholisticstrategy:

1. R&D(nationalagresearchsystems)2. Extensionprograms/soiltesting3. Programstohelpfarmersrestoresoilquality

4. Physicalinfrastructure5. Reducingcostsininputsupplychains6. Moreappropriatefertilizeruserecommendations 33

Conclusions

34

Conclusions1. ISPsareapowerfultooltoquicklyraisefood

production….

2. Butiftheyaccountfortoolargeashareofagriculturalspending,theycancrowdoutotherpublicinvestmentsrequiredforsustainabledevelopment

3. SpendingalargeshareoftheagbudgetonISPsmaynotbethemosteffectiveway topromotethewelfareofitcitizens,butitisahighlydemonstrableway todoso. 35

Conclusions4. ISPswouldbemoreeffectiveifadequate

resourceswereallocatedtocomplementarypublicinvestments

5. Morebalancedpublicexpenditurepatternscouldmoreeffectivelypromotenationalpolicyobjectives

6. ThereareconcretestepsforimprovingISPeffectiveness– relatedto

• governanceandpoliticalcommitmenttotargeteffectivelyandreducediversion

• Moreholisticapproachtosustainableintensification

36

Indaba Agricultural Policy Research Institute 37Thank you

Acknowledgements• NicoleMason,BillBurke,LilianKirimi,AyalaWineman,DavidMather,MeganSheahan,JohnOlwande,JakeRicker-Gilbert,AucklandKuteya,AntonyChapoto,ChinyamaLukama,andVincentMalata

38