The New Generation of African Fertilizer Subsidies: Panacea or Pandora’s Box?

Fertilizer subsidies have gained popularity as a policy tool in Africa, driven by the need to improve productivity and food security. The 2007/08 food price crisis heightened the sense of urgency, and donor budget support has made it easier for governments to implement subsidy programs. Malawi led the way in 2005, significantly expanding its subsidy during a major food crisis. The program's impact has been debated, but positive press encouraged others to follow, particularly during the 2007/08 commodity price spikes. The new generation of subsidy programs in Malawi, Zambia, Mali, and Senegal has multiple objectives, including financial, economic, social, political, and environmental dimensions. However, these objectives can be contradictory or conflicting. For example, boosting aggregate production may not necessarily align with the goal of alleviating poverty. Notably absent from stated objectives is the improvement of farmer knowledge of fertilizers to encourage adoption and efficient use. Malawi's fertilizer subsidy program has been studied extensively. Use of subsidized fertilizer was traced for different types of households between 2003/04 and 2008/09. Results show that households with more land and assets received more subsidized fertilizer, while female-headed households received less. The objective of increasing aggregate maize production contributed to this result in 2006/07 when zones with more maize production were targeted. Access by women and smaller farmers was improved between 2006/07 and 2008/09. Subsidized fertilizer had positive and significant effects during the subsidy year on recipients' maize production, tobacco production, and net value of rainy season crop production. Subsidized fertilizer also had positive and significant effects on maize production in subsequent years, probably due to soil nutrient build-up or improvement in management practices. However, subsidized fertilizer did not increase livestock or durable asset values, nor was there evidence of spill-over effects over time to non-farm sources of income. Zambia's fertilizer subsidy program had limited distributional impacts. Only 11% of all crop-growing small farmers received subsidized fertilizer, and only 5% of the subsidized fertilizer went to the poorest third of households. In contrast, 76% of fertilizer went to the richest third of households, who have 9 times more assets and 2.5 times more area cultivated. Mali and Senegal's fertilizer subsidy programs faced challenges, including the failure to monitor and evaluate program impacts and the absence of nationally representative panel data. Subsector studies confirmed that the cost of subsidized fertilizer was still relatively high, making it difficult for farmers to access. Delayed delivery was a major problem reducing fertilizer use efficiency in both countries, and corruption in allocating subsidized fertilizer was a common complaint in Senegal. National impacts of the fertilizer subsidy programs varied. Malawi improved food security following the 2005/06 subsidy expansion, meeting a key objective. However, costs were high, rising from 61% to 74% of the Ministry of Agriculture budget and from 8.4% to 16.2% of the national budget between 2006/07 and 2008/09. Crowding out also reduced the net increase in fertilizer use and increased costs per ton distributed. In contrast, Zambia's fertilizer subsidy program had surprisingly limited crowding out, with an additional 100 kilograms of subsidized fertilizer increasing total fertilizer use by 92 kilograms on average across the country. The extent of crowding out in Senegal and Mali is difficult to assess. Irregularities in the tendering process that favored firms with close political ties to government were common, particularly in the initial years of each program. Furthermore, all participating firms complain of late payments by the government, which increase financing costs and delay subsequent orders. Finally, the programs have failed to meet some key objectives, including lower rice prices in Mali and Senegal. Evidence from Kenya's pre-subsidy experience shows significant increases in fertilizer use without subsidies. From 1990 to 2006, fertilizer consumption roughly doubled, with sales concentrated in high productivity zones where 95% of farms apply it to maize. This experience suggests that fertilizer subsidies may not be necessary to achieve increases in fertilizer use.