Fertilizer subsidies in Sub-Saharan Africa

During this period, multilateral lending agencies and financial institutions such as the International Monetary Fund and the World Bank placed "conditionalities" upon the disbursement of development aid. Countries were required to agree to make a series of "structural adjustments" to their economies, in order to gain financial assistance or engage in refinancing.[8] The common package of policies prescriptions included currency devaluation, privatization or divestiture of state-owned industries ("parastatals")in the health and agricultural sectors, trade liberalization (lowering or elimination of tariffs on imports), cuts in social spending (agriculture, health, education sectors) and strict deficit reductions. Structural Adjustment Programs also led to the phasing out of most fertilizer subsidy programs.[9] Some of the African countries following these guidelines included Benin, Ghana, Madagascar, Senegal, Togo, Tanzania, Zambia, Cameroon, Malawi, and Nigeria.[4]

Results of liberalization and subsidy phase-out were mixed. In a five-year study comparing before and after cases, fertilizer use in Cameroon, Senegal, Tanzania, Nigeria and Ghana declined 25-40 percent, while it increased 14-500 percent in Benin, Togo, Mali, and Madagascar. Subsidies may have been only one factor affecting the price and use of fertilizer.[4]

Input vouchers, or certificates allowing farmers to buy agricultural inputs (like fertilizer) at a reduced price, can more precisely target support than pre-structural adjustment universal subsidies. They may also complement the development of private markets, rather than de-incentivizing or undercutting them. The voucher programs are implemented as follows: a farmer receives a voucher that reduces the cost of fertilizer purchased from a private firm or distributor. The private firm can then redeem the voucher for cash plus a commission fee at a designated government facility. Thus the voucher represents a transfer of funds from the government to the farmer.[12]

In contrast to blanket subsidies, input vouchers are compatible with private-sector distribution, and must utilize market structures to function. They foster private sector development by guaranteeing a client base and profit margin for the firm, which allows it to expand and develop an economy of scale. Proponents see them as a way to encourage greater adoption of fertilizer use without the blatant market distortions of earlier schemes. Importantly, an "exit strategy" is more feasible with the voucher program than with universal subsidies. As the private distribution network develops, the voucher can gradually be reduced in value, and be phased out entirely once private markets are functioning.[13]

Input voucher programs rely heavily on complementary policies and practices in order to function effectively. For instance, some existing distribution networks (shops, or retailers) must be in place already in order to ensure wide penetration of the input. Some access to microcredit may be necessary to help defray even the initial subsidized costs. Furthermore, subsidized fertilizer programs are most effective when they encourage non-users (farmers who otherwise would not use fertilizer) to participate, thereby creating new sources of production.[13]

Careful program design is needed to precisely target needy farmers, guard against "leakage" (in which wealthier farmers take advantage of the subsidy program) and maintain a degree of excludability. Wealthier farmers may be in a better position to take advantage of the subsidies, thereby thwarting the original aim of the program. Additionally, the budget allotments for fertilizer subsidies may also incur opportunity costs by diverting public resources away from agricultural extension services, infrastructure building, or research and development.[5]