Ruth Hill

Financial inclusion for agricultural investments: Experimental evidence on male and female farm managers in the Sahel

Targeting of beneficiaries in chemical fertilizer subsidy programs: State of knowledge and evidence gaps

Low and middle income countries have been facing mounting pressure from lenders and donors to eliminate or reform fertilizer subsidy programs, which can have distortionary market effects and negative environmental externalities. However, there is little systematic work understanding who these programs currently benefit both in theory and in practice, and hence who may be affected by policy reform. In this paper, we identify low and middle countries with active fertilizer subsidy programs, and characterize the targeting regime of each program based on both explicit and implicit criteria determining eligibility. Then in a selection of case studies, we explore which individuals are receiving subsidy benefits in practice. We find that while many fertilizer subsidy programs are meant to be universal, there are are additional implicit targeting criteria and/or informal targeting induced by supply shortfalls in many countries. Further, we find evidence that regardless of targeting regime, fertilizer subsidies are generally progressive, though this seems to be driven by the fact that the poor are often concentrated in the agricultural sector.

Realistic options for repurposing fertilizer subsidy spending

Worldwide, government spending on subsidies in agriculture, fishing, and fossil fuels amounts to a staggering $1.25 trillion annually. Subsidies play a significant role in every country’s fiscal policies, regardless of income level or spending patterns. Spending on energy and agricultural subsidies consistently accounts for 2%-3% of GDP on average across income levels and make the production and transportation of food cheaper. Spending on these subsidies is coming under increasing scrutiny as governments struggle to mobilize additional revenue to meet important development targets amid rising debt distress, dwindling aid resources, and citizen protests against unpopular tax increases. One solution proposed by a growing consensus of voices is to repurpose expensive subsidies towards expenditures that generate higher development benefits. While these subsidies aim to address low agricultural productivity, high food prices, and other critical challenges, their continuing predominance in food system investments raises important questions: Is this an effective way to spend public funds on such a large scale? If not, can some of the money currently going to subsidies be used to finance other needed investments (that may in turn make subsidies themselves more effective) and if yes, what type of investments can they fund? This note explores these questions, focusing specifically on fertilizer subsidies, a major source of government support for farmers, especially in low-income countries, where they comprise a quarter of all subsidy spending (as well as one-tenth of such spending on in high income countries).