No abstract

Input subsidy programs have once again become a major plank of agricultural development strategies in Africa. Ten African governments spend roughly US$1 billion annually on input subsidy programs (ISPs), amounting to 28.6% of their public expenditures on agriculture. This article reviews the microlevel evidence on ISPs undertaken since the mid 2000s. We examine the characteristics of subsidy beneficiaries, crop response rates to fertilizer application and their influence on the performance of subsidy programs, the impacts of subsidy programs on national fertilizer use and the development of commercial input distribution systems, and finally the impact of ISPs on food price levels and poverty rates. The weight of the evidence indicates that the costs of the programs generally outweigh their benefits. Findings from other developing areas with a higher proportion of crop area under irrigation and with lower fertilizer prices-factors that should provide higher returns to fertilizer subsidies than in Africa-indicate that at least a partial reallocation of expenditures from fertilizer subsidies to R&D and infrastructure would provide higher returns to agricultural growth and poverty reduction. However, because ISPs enable governments to demonstrate tangible support to constituents, they are likely to remain on the African landscape for the foreseeable future. Hence, the study identifies ways in which benefits can be enhanced through changes in implementation modalities and complementary investments within a holistic agricultural intensification strategy. Among the most important of these are efforts to reduce the crowding out of commercial fertilizer distribution systems and programs to improve soil fertility to enable farmers to use fertilizer more efficiently. The challenges associated with achieving these gains are likely to be formidable. JEL classifications: O2, O13, Q12, Q18

It is widely recognized that an "African green revolution" will require greater use of inorganic fertilizers. Often-made comparisons note that fertilizer use rates in Africa are just 10-20% of those in Asia, Europe and the Americas. Most attempts to explain relatively low-adoption of fertilizer assume yield responses to inorganic fertilization warrant higher application rates and hypothesize that observed use rates are limited by market-based factors. Another explanation may be that application rates are low because African yields are less responsive to inorganic fertilizer than yields in other regions, and less responsive than analysts perceive. Examining the case of Zambia, we evaluate whether yield response to fertilizers could explain adoption and application rates. A model of yield response is constructed and a combination of estimators is employed to mitigate potential biases related to correlation between fertilizer use and unobserved heterogeneity as well as stochastic shocks. Results indicate higher fertilization rates would be marginally profitable or unprofitable in many cases given commercial fertilizer and maize prices. Phosphoric fertilizer is particularly unprofitable on acidic soils, which are common in Zambia and other areas of sub-Saharan Africa. We propose feasible recommendations for diversifying the current government strategy to enhance crop productivity.JEL classifications: C51, C81, O12, Q12, Q18

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.