Rethinking Agricultural Input Subsidy Programmes in Developing Countries.

Abstract

Recent years have seen a resurgent interest in large scale input subsidies, and particularly fertilizer subsidies, in agricultural development and food security policies in Africa. Very high global grain prices in the first part of 2008 appeared to make such subsidies even more attractive, but this was complicated by even more dramatic rises in fertilizer prices. Global grain and fertiliser prices have subsequently fallen back, but high grain prices persist in many domestic markets, and future prices are very uncertain.

This paper considers the roles of input subsidy programmes in poor rural economies in Africa in these difficult times. It begins with a brief review of historical changes in experience with and views of input subsidies, and of the factors behind resurgent interest in input subsidy programmes, particularly with a new generation of so called ‘smart subsidies’. It then describes how particular features of smart subsidies demand a rethinking of some aspects of economic analysis of the benefits of subsidies implemented in different ways and contexts. This provides the foundation for a conceptual framework for considering the key issues affecting the performance of subsidy programmes in discussion of recent experience of specific input subsidy programmes.

The final part of the paper considers how current grain and fertiliser prices, and uncertainty regarding future prices, impacts on subsidy programmes, and asks what roles input subsidy programmes may have under different price regimes in different contexts in the future, and what critical factors will determine their performance.

Keywords: Input subsidies, Africa

JEL Classification: O10, O13