Instruments to target agricultural subsidies to desired beneficiaries

The economic characteristics of subsidized inputs affect how
the benefits of the subsidy on the input are distributed between
farmers and input suppliers. However, how the benefits are
distributed across the population of farmers in a country depends
largely on the targeting of the subsidy program. Balancing efficiency
in the provision of the subsidy with equity in the distribution of
the benefits farmers as a whole receive from the subsidy is generally
difficult. Trying to achieve both may often end up in achieving
neither efficiency nor equity. It is therefore advisable to focus primarily
on one of these two principal goals.1 If efficiency is the policy
objective, then a fertilizer subsidy, for example, should be targeted
to those with the highest marginal productivity in their use
of fertilizer – generally larger‐scale, better‐capitalized farmers. In
contrast, if equity is the goal, then the subsidy should be targeted
to poorer farmers who are unable to access fertilizer at full market
prices due to resource constraints.

Takeshima, Hiroyuki
Lee, Hak Lim
Published date: 
International Food Policy Research Institute (IFPRI)
Series number: 
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