Too much of a good thing? Evidence that fertilizer subsidies lead to overapplication in Egypt

The government of Egypt subsidizes nitrogen fertilizer directly by distributing quotas of subsidized fertilizers to farmers and indirectly by subsidizing natural gas used by local fertilizer factories. This subsidy has implications for farmers' fertilizer demand and productivity. Agricultural surveys collected from smallholder farmers in Upper Egypt show that nitrogen fertilizer application rates are substantially in excess of crop-specific agronomic recommendations. Farmers with easier access to the subsidy tend to use more subsidized nitrogen fertilizer and less phosphate fertilizer. Easier access to the subsidy increases use of total nitrogen fertilizer per unit of land, mainly because of the increase in subsidized nitrogen fertilizer. The fertilizer subsidy program in Egypt is associated with significant overapplication of nitrogen fertilizer. This overapplication is expected to adversely affect soil, water, and environmental health. The findings of this study have important policy implications for Egypt and other African countries known for input subsidy programs. Eliminating fertilizer subsidies is suggested as a good place to start for sector-level reforms in Egypt. Fertilizer subsidies in Africa have been a source of long-standing debates among policymakers and researchers. Input subsidy programs represent the most important agricultural development strategies in many African countries, with substantial implications on national budgets and agricultural investments. The economic case for fertilizer subsidies in developing countries rests on perceived market failures that lead to farmers using inefficiently low levels of fertilizer. Empirical evaluations of the impact of fertilizer subsidies on fertilizer application and associated inputs remain inconclusive, and the impacts may differ by context. Some studies show that fertilizer subsidy programs have increased fertilizer use intensity and productivity, while others show that fertilizer subsidies crowd-out commercial fertilizer use and hamper the development of the commercial fertilizer sector. The fertilizer subsidy program in Egypt is part of a broader debate on the effectiveness of input subsidy programs in promoting agricultural development in Africa.