News / Africa

Fertilizer Subsidy Costs Could Outweigh Benefits

An Indian farmer sprays fertilizer at a paddy field on the outskirts of Ahmadabad, India, July 1, 2013.
An Indian farmer sprays fertilizer at a paddy field on the outskirts of Ahmadabad, India, July 1, 2013.
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Government programs to help farmers use more fertilizer have spread across the African continent over the last decade or so. Advocates say the subsidies are helping lift farmers out of hunger and poverty, but others say politicians are also getting a big boost.

Every year, the government of Malawi distributes coupons for subsidized fertilizer and maize seed. The program helped produce a bigger harvest for low-income farmers like Margaret Macheso in the southern district of Mulanje.

“This has assisted me a lot because I have been harvesting enough maize for the past three years that I don’t face any food shortage situation as was in the past,” Macheso said.

That’s a big deal for one of the poorest countries in the world, and one that had severe food shortages as recently as 2005.

After that crisis, Malawi decided to ramp up its seed-and-fertilizer subsidy program.

Studies show it helped. Farmers receiving fertilizer have seen modest gains in maize production.

Big chunk of the budget

So other countries in sub-Saharan Africa have followed, in a big way. In the early 2000s, there were hardly any programs to subsidize agricultural inputs like seed and fertilizer, says international development professor Thom Jayne at Michigan State University.

“Over the course of the past 10 years, subsidy programs have now scaled up to about $2 billion per year," he said, "and preliminary estimates are that these programs take up roughly 30 percent of agricultural budgets across the continent.”

But at a recent talk in Washington, Jayne said the problem with spending such a large chunk of the agriculture budget on subsidies is that it leaves less money for everything else. He says investments in irrigation, electrification, transportation, farmer education and so forth are also badly needed, but they’re competing for the same limited pot of money.  

“To the extent that the subsidy programs are eating up that budget," Jayne said, "I think that spells trouble.”

Trouble because those other investments could be better at reducing poverty and improving food security than input subsidies.

Better return for the money

Other experts point to South Asia as an example. Food production there increased tremendously in the 1970s, due in part to input subsidies.

But farmer education and rural infrastructure improved at the same time, and now those investments are more valuable, according to the World Bank's Simeon Ehui, an expert on South Asian agricultural development.

“Even if at the beginning, support in fertilizers was quite rewarding," Ehui said, "over the years it has reversed, and support for roads, education, irrigation and so on are providing more return.”

India still subsidizes fertilizer, even though farmers now overuse it, and the chemicals are polluting the water, Ehui says, adding that  politicians, not farmers, need the subsidies to win votes.

Benefit over cost

The same is true in Africa, according to Michigan State's Jayne. Handing out coupons for subsidized fertilizer may not be the best way to end hunger and poverty but, "it’s one that’s visible. It’s one where African leaders can point to it and say, ‘We’re doing tangible things here,’” Jayne said.

Economists note that farm subsidies have proven notoriously hard to cut from Africa to India to the United States. But Malawi’s Ministry of Agriculture spokeswoman says at this point, the benefits of the program for her country are more important than the substantial costs.

“We know that it is draining resources," said Sara Tione. "But we cannot talk of exit strategies until Malawians are self-sufficient and food secure.”

And on that score, experts say, Malawi, and much of sub-Saharan Africa, have a ways to go.

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