How do fertilizer subsidy programs affect total fertilizer use in sub‐Saharan Africa? Crowding out, diversion, and benefit/cost assessments

Abstract

A major determinant of input subsidy programs’ effects on the achievement of national policy goals is the extent to which they raise total fertilizer use. This study synthesizes recent literature on how the new generation of targeted input subsidy programs has affected national fertilizer use after accounting for crowding effects, and derives benefit–cost (BC) estimates of the fertilizer subsidy programs for Kenya, Malawi, and Zambia after accounting for crowding out and diversion. We highlight two major findings. First, accounting for the illicit diversion of program fertilizer can profoundly influence estimates of how fertilizer subsidy programs affect total fertilizer use and program impacts. Given recent evidence that 33% or more of total program fertilizer may be diverted before being received by intended beneficiary farmers, the failure to account for program diversion is shown to overestimate the contribution of the subsidy programs to national fertilizer use by 67.3% in the case of Malawi, by 61.6% for Zambia, and by 138.0% for Kenya. The second major finding is that the incremental value of maize output produced from these subsidy programs is considerably less than their costs in most years, except under unusually high maize price assumptions. Conventional BC analyses that do not account for crowding out and diversion may seriously overestimate the benefits of input subsidy programs. Greater attention to program design and implementation details to reduce problems of crowding out and diversion can substantially raise the returns to such programs.

Input subsidy programs in sub‐Saharan Africa: a synthesis of recent evidence

“…By contrast, Liverpool-Tasie (2012) found evidence of crowding-in of commercial fertilizer demand in a pilot subsidy scheme in one district of Nigeria, the success of which appears to be related to the fact that fertilizer vouchers were mainly targeted to areas where private commercial markets were relatively weak and to households that were relatively poor. Jayne et al (2013) show how earlier estimates of crowding out may have been seriously underestimated by not taking account of diversion of program fertilizer by authorities. Comparisons of subsidy fertilizer obtained by farmers through nationally representative farm survey data in Malawi and Zambia against official government figures indicate that as much as 30-40% of the fertilizer imported for distribution under government subsidy programs appears to have been diverted and resold to intermediaries before reaching intended beneficiaries (even more in Nigeria in recent years).…”

“…Crowding out estimates of this magnitude have not been used in prior estimates of benefit-cost ratios (e.g., Dorward and Chirwa, 2011). Jayne et al (2013) conclude that the incorporation of these findings turns the benefit-cost ratios of ISPs decidedly below 1 in Malawi and Zambia and on average below 1 in Kenya. 15…”

Agricultural Input Subsidies in Sub-Saharan Africa

“…An increase of input use by non-recipient farmers which was probably due to the informational spillover effect was observed in Tanzania (URT 2014). The right benefit-cost ratio (BCR) was keenly debated in the case of Malawi (Jayne et al , 2015Dorward and Chirwa 2015). Jayne et al (2015) suggest that the ratio is negative and that investment in traditional public goods such as agricultural R&D and extension, or road, rural electrification or other productivity-enhancing investment should be priorities rather than continuous investment in unproductive subsidy programmes (Fan, Gulati and Thorat 2007).…”

Influence of composting and thermal processing on the survival of microbial pathogens and nutritional status of Nigeria sewage sludge

“…Nigeria like other countries of the world faces challenges with respect to food security. It is documented that governments in sub-Saharan Africa spend as much as 1 billion US dollars each year in fertilizer subsidy (Jayne et al 2013). Therefore, locally made alternatives and/or supplement to inorganic fertilizers would prove efficient in a bid to secure Nigeria's food insecurity and agricultural sustainability (Ogunwole and Ogunleye 2005).…”