Fertiliser Subsidies and Smallholder Commercial Fertiliser Purchases: Crowding Out,Leakage and Policy Implications for Zambia

Fertiliser intended for government subsidy programmes is sometimes diverted and sold to farmers at or near market prices. Failure to account for such ‘leakage’ can upwardly bias econometric estimates of the effect of government fertiliser subsidy programmes on total fertiliser use. This paper extends the framework used in earlier studies on the crowding in/crowding out effects of subsidised fertiliser on commercial fertiliser purchases to account for leakage, and then applies it to the case of Zambia. Results suggest that each additional kg of subsidised fertiliser injected into the system increases total fertiliser use by 0.54 kg. Without controlling for leakage, the estimate would have been 0.87, an overestimate of 61%.     

What does Malawi's Fertiliser Programme do to Private Sector Fertiliser Sales? A Quasi‐Experimental Field Study

Malawi implemented reforms to its Farm Input Subsidy Program (FISP) during the 2015/16 agricultural season that allowed certain large‐scale, private sector fertiliser dealers to sell subsidised fertiliser at their network of retail stores in select districts on a pilot basis. At the same time, small‐scale independent fertiliser dealers were excluded from participating in the pilot. We use a unique panel dataset of large‐scale corporate fertiliser dealers and small‐scale independent fertiliser dealers collected before and after the policy change to estimate the impacts of the FISP on those who participated in the pilot and those who did not, using a difference‐in‐differences estimator. Results indicate that large‐scale dealers who sold the FISP fertiliser under the pilot programme in 2015/16 did not have their commercial sales either crowded‐in or crowded‐out by the FISP pilot. Instead, the average volume of fertiliser sold at each of their retail stores increased by 59% due to an increase in subsidised fertiliser sales. Conversely, small‐scale independent fertiliser dealers who were not allowed participate in the pilot had their commercial sales crowded‐out by the programme. They experienced a 60% decline in the volume of commercial fertiliser sales on average at each store. This implies that the FISP reforms have mainly benefited large‐scale fertiliser dealers who sell 90% of the fertiliser in Malawi, but caused some harm to the many small‐scale independent fertiliser dealers who sell about 10% of the private sector's fertiliser in Malawi, but often operate their businesses in more remote areas.     

The Effects of Kenya's ‘Smarter’ Input Subsidy Programme on Smallholder Behaviour and Incomes: Do Different Quasi‐experimental Approaches Lead to the Same Conclusions?

Kenya joined the ranks of sub‐Saharan African (SSA) countries implementing targeted input subsidy programmes (ISPs) for inorganic fertiliser and improved seed in 2007 with the establishment of the National Accelerated Agricultural Inputs Access Programme (NAAIAP). Although several features of NAAIAP were ‘smarter’ than other ISPs in the region, some aspects were less ‘smart’. However, the efficacy of the programme, and the relationship between its design and effectiveness, have been little studied. This article uses nationwide survey data to estimate the effects of NAAIAP participation on Kenyan smallholders’ cropping patterns, incomes, and poverty status. Unlike most previous studies of ISPs, a range of panel data‐ and propensity score‐based methods are used to estimate the effects of NAAIAP. The article then compares these estimated effects across estimators and to the effects of other ISPs in SSA, and discusses the likely links between differences in programme designs and impacts. The results are robust to the choice of estimator and suggest that, despite substantial crowding out of commercial fertiliser demand, NAAIAP had sizeable impacts on maize production and poverty severity. NAAIAP's success in targeting resource‐poor farmers and implementation through vouchers redeemable at private agro‐dealer shops likely contributed to its more favorable impacts than those of ISPs in Malawi and Zambia.     

Modeling the Effects of Input Market Reforms on Fertiliser Demand and Maize Production: A Case Study from Kenya

Kenya is one of the few countries in Sub‐Saharan Africa to experience an impressive rise in fertiliser use following a series of input market reforms in the early 1990s. Two major consequences of these reforms were declining fertiliser marketing margins and distances between farmers and fertiliser dealers. We quantify the effects of these changes on commercial fertiliser use and maize production in Kenya by estimating fertiliser demand and maize supply response functions using nationwide household survey data. Our results indicate that between 1997 and 2010, the estimated 27% reduction in real fertiliser prices that can be attributed to falling marketing margins associated with market reforms led to a 36% increase in nitrogen use on maize fields and a 9% increase in maize production resulting from both yield and acreage effects. On the other hand, decreasing distances to fertiliser retailers from the perspective of a given household did not appear to raise fertiliser use or maize supply, although a comparison across households using average distances over the panel indicate that those closer to retailers do apply more fertiliser on their maize fields.     

Off‐farm Employment and Input Intensification among Smallholder Maize Farmers in Kenya

We derive input demand functions for fertiliser and hybrid seed, testing for the combined and separate effects of income from non‐farm sources and agricultural wage labour among smallholder maize farmers in Kenya. More income from off‐farm sources, and specifically non‐farm sources, competes with maize intensification, particularly in more productive areas where use rates are higher. In less productive areas, where households rely more on off‐farm income and input use in maize is extremely low, agricultural wage labour reduces the likelihood that fertiliser is applied, but when used, has a positive effect on quantities purchased of both seed and fertiliser.     

The impact of conservation tillage on maize yield and input demand: the case of smallholder farmers in north‐west Ethiopia

This study analyses the economics of conservation tillage (CT) with respect to its effect on maize yield and chemical fertiliser, herbicide, and female and male labour demand. We estimate production and input demand functions using seemingly unrelated regressions on plot‐level cross‐sectional farm household data collected in the north‐west of Ethiopia. A two‐step control function is applied to address potential endogeneity bias due to the inclusion of the CT adoption decision as an explanatory variable. Our results show that CT increases maize yield and chemical fertiliser demand. Additionally, the results show that the adoption of CT reduces female and male labour required for crop production. However, this is achieved through the increased use of herbicides, which might have an undesirable health and environmental effects.     

Evaluating the effects of farm programmes: results from propensity score matching

The paper applies a semi-parametric propensity score matchingapproach to evaluate the effects of agri-environment (AE) programmeson input use and farm output of individual farms in Germany.The analysis reveals a positive and significant treatment effectof AE programmes on the area under cultivation, in particulargrassland, resulting in a decrease of cattle livestock densities.Furthermore, participation significantly reduced the purchaseof farm chemicals (fertiliser, pesticide). We also find differencesin the treatment effect among individual farms (heterogeneoustreatment effects). Farms that can generate the largest benefitfrom the programme are most likely to participate.     

Input subsidies and crop diversity on family farms in Burkina Faso

Since their independence, many countries in sub-Saharan Africa have used input subsidies to increase agricultural productivity and improve food security. We analyse the effects of both a fertiliser and a seed subsidy on farming households' land allocation among crops and crop diversity in Burkina Faso. Although previous studies investigated either the impact of a fertiliser or a seed subsidy on targeted crops, few examined the effects of both subsidies combined. Applying a correlated random-effects model with a control function approach to nationally representative, 2-year panel data collected from farming households, we find that those with access to the fertiliser subsidy allocate more land to the crops it targets (rice, maize and cotton) than non-targeted crops. Focusing on a minor crop with key agronomic and nutritional attributes, we conclude that land allocation to cowpea as the primary crop and intercrop declined with the fertiliser subsidy. The fertiliser subsidy also negatively affects crop diversity. However, we find that the cowpea seed subsidy offsets the bias of fertiliser subsidy toward fertiliser-targeted crops and enhances diversity.     

The Cost Effects of Government‐Subsidised Credit: Evidence from Farmers’ Credit Unions in Taiwan

We investigate government‐subsidised credit effects on participating financial institutions’ performance in terms of cost efficiency. Using farmers’ credit unions in Taiwan as an example, we find that credit unions’ cost inefficiency is positively correlated with the extent of involvement in subsidy programmes. The results are robust to the control of local competition and labour quality. In addition to the stochastic frontier models from which we obtain the main results, we also propose a new distribution‐free estimation method based on quantile regressions. Results of this study point out that, when evaluating the social costs of the credit programmes, it is important to take into account the efficiency loss generated among financial intermediaries by credit subsidy programmes.     

Estimating shadow price for symbiotic nitrogen and technical efficiency for legume‐based conservation agriculture in Malawi

Determining the value of legumes as soil fertility amendments can be challenging, yet this information is required to guide public policy and to incentivise prescribed land‐management practices such as conservation agriculture. We use a directional input distance function (DIDF) to estimate shadow prices for symbiotic nitrogen and the technical efficiency for mixed maize‐legume production systems in Malawi. The shadow prices reflect the trade‐off between fertiliser nitrogen and symbiotic nitrogen required to achieve a given quantity of output. Our results reveal considerable technical inefficiency in the production system. The estimated shadow prices vary across farms and are, on average, higher than the reference price for commercial nitrogen. The results suggest that it would be beneficial to redesign the current price‐support programs that subsidise chemical fertilisers and indirectly crowd‐out organic soil amendments such as legumes.     

Effect of changes in population density and crop productivity on farm households in Malawi

This study examines the ex‐ante farm‐household effects of changes in family size, yield potential, and yield gaps using a farm‐household simulation model that reflects the economic and biophysical conditions of central Malawi. Disparities between growth in human population and crop yields present challenges for farm‐household crop production and income in sub‐Saharan Africa. We focus on the effect of growth in yield potential and a more efficient use of livestock manure as approaches to improving crop production and incomes in the face of looming population pressures. Our results suggest that, even without considering climate change, expected changes in population density and crop prices in 2050 mean that per person crop production and income may fall by 21% compared to 2013 values if yield potential and yield gaps remain constant. However, per person crop production and income could increase in 2050 by 8% compared to 2013 values if (1) growth rates of yield potential rise for maize by 1.13% each year and for legumes rise by at least 0.4% each year, and (2) farmers use livestock manure more efficiently. Our foresight approach to considering crop production at the farm‐household scale supplements macro‐scale analyses of the production dimension of food security.     

Agricultural input subsidies,extension services,and farm labour productivity nexus: Evidence from maize farmers in Tanzania

This paper examines the effect of agricultural input subsidies (AIS) and agricultural extension services (AES) on farm labour productivity in plots planted with maize in Tanzania, using panel data from the National Panel Survey in Tanzania. To control for the endogeneity of the two programmes, a control function and instrumental variable approach is used to estimate the effects of AIS and AES on farm labour productivity. The results show that AIS and AES are significant in raising labour productivity in maize-planted plots. Similarly, AIS and AES are also effective in increasing land productivity in these plots. Moreover, each programme has comparable effects on land productivity and farm labour productivity. These findings imply that public investments in AIS and AES are effective in raising farm productivity.     

Smallholder Demand for Maize Hybrids in Zambia: How Far do Seed Subsidies Reach?

We add to an emerging body of literature on input subsidies in Africa south of the Sahara. Our analysis focuses on demand for seed, characterising smallholders with a high predicted demand for hybrid seed who were not reached by the subsidy programme. We use cross‐sectional data from the 2010 agricultural season and an instrumented control function approach to test the hypothesis that the subsidy on hybrid maize seed in Zambia is selectively biased. Consistent with other literature, we find that the subsidy is a recursive determinant of seed demand, but in 2010, its recipients had more land, more assets, and lower poverty rates. Findings illustrate the social costs of the programme as currently designed and highlight the need to build alternative supply channels if poorer maize growers are to grow hybrid seed.     

Adoption of Drought Tolerant Maize Varieties under Rainfall Stress in Malawi

We examine adoption of drought tolerant (DT) maize varieties using a four‐round panel dataset from six districts in Malawi. There is an increase in adoption of DT maize from 3% in 2006 to 43% in 2015 in our data. We focus on the effect of past drought exposure on adoption and the likelihood of DT maize being distributed under the Farm Input Subsidy Programme (FISP). Results show that past exposure to drought increases the probability of DT maize seed being distributed through FISP. Farmers who accessed maize seed subsidy coupons and were previously exposed to late season dry spells are more likely to use the seed subsidy coupon to redeem DT maize seed. The likelihood of adoption and adoption intensity (area under DT maize) are positively influenced by previous early season dry spells and access to seed subsidy. Previous late season droughts also positively affect adoption intensity. On the other hand, area share under DT maize is positively correlated with early season dry spells and past exposure to late season dry spells but negatively related to seed subsidy. FISP in Malawi appears to have stimulated adoption of DT maize directly through subsidy and indirectly through generating farmers’ experiences of the performance of DT varieties under drought conditions.     

Gendered impacts of fertilizer subsidy removal programs in Malawi and Cameroon

Gladwin's^** main contention is that women provide most of the agricultural labor in sub-Saharan Africa and because much of this labor is oriented to food production for home consumption, the effects of structural adjustment programs on them and the children they work to feed are likely to be different than on men who produce crops for commercial and export production. Her specific hypothesis for Malawi is that the removal of the fertilizer subsidy affects women farmers more than men farmers because it reduces fertilizer use on local maize. As part of the structural adjustment program, a major purpose of removing the fertilizer subsidy is to reallocate resources from food production for domestic consumption to cash crop production for export. In Gladwin's analysis, men farmers produce hybrid maize and tobacco for export and women produce the subsistence food crop, local maize. Gladwin's main contention is probably correct. For the Malawi case, the presentation does not support the hypothesis because two of the major underlying assumptions are inappropriate and the evidence provided is inconclusive. This comment proceeds by discussing the two assumptions and corresponding evidence. The purpose of this comment is not to contradict the hypothesis, but to clarify the Malawi situation and to suggest that a different analytical approach is needed in that context.     

The Effect of Mandatory Agro‐Environmental Policy on Farm Fertiliser and Pesticide Expenditure

EU farmers are subject to mandatory cross‐compliance measures, requiring them to meet environmental conditions to be eligible for public support. These obligations reinforce incentives for farmers to change their behaviour towards the environment. We apply quasi‐experimental methods to measure the causal relationship between cross‐compliance and some specific farm environmental performance. We find that cross‐compliance reduced farm fertiliser and pesticide expenditure. This result also holds for farmers who participated in other voluntary agro‐environmental schemes. However, the results do not support our expectations that farmers who relied on larger shares of public payments had a stronger motivation to improve their environmental performance.     

The Malawi agricultural input subsidy programme: 2005/06 to 2008/09

Malawi's implementation of a large-scale agricultural input subsidy programme has attracted significant international interest. This paper reviews the programme from 2005/06 to 2008/09. Nationwide disbursement of heavily subsidized fertilizers and seed to large numbers of beneficiaries represents a significant logistical achievement and substantially increased national maize production and productivity, contributing to increased food availability, higher real wages, wider economic growth and poverty reduction. However, the latter years of the programme have been accompanied by high international fertilizer prices and costs and high maize prices, the latter undermining the programme's food security, poverty reduction and growth benefits for many poor Malawian farmers relying on purchased maize for substantial amounts of their staple food requirements. Estimated economic returns to the programme have been satisfactory, given other programme benefits not captured in cost—benefit analysis. With substantial reductions in both prices and subsidized volumes of fertilizers in subsequent years, there is considerable scope for building on achievements to raise programme effectiveness, efficiency and benefits. Any application of Malawi's subsidy experience to other countries should take into account the special characteristics of the Malawian maize economy and measures needed to raise programmes' effectiveness and efficiency and their contribution to sustainable development policies.     

Wage and employment effects of Malawi's fertilizer subsidy program

This article uses three waves of nationally representative household‐level panel data from Malawi to estimate how a large‐scale fertilizer subsidy program impacts the agricultural labor market, known as ganyu in that country. I find that when looking across the entire population of smallholders, receiving an additional 100 kg of subsidized fertilizer causes the average household to supply about three fewer days of ganyu. The fertilizer subsidy program also has a small positive effect on the probability that a household demands agricultural labor, with the results approaching statistical significance. In addition, a 10 kg increase in the average amount of subsidized fertilizer acquired per household in a community boosts the median agricultural wage rate by 1.4% in that community. The increase in wage rates translates to a US $1.40 per year increase in average household income in the years after Malawi's subsidy program was scaled up, and a US $1.86 per year increase in average household income for those who sold their labor before the subsidy program was scaled up. This finding suggests that households who sell their labor off farm may experience some small spillover benefit from the program in the form of higher agricultural wage rates.     

Productivity impact of drought tolerant maize varieties under rainfall stress in Malawi: A continuous treatment approach

Drought tolerant (DT) maize varieties have received massive support in sub‐Saharan Africa because of their potential to protect smallholder farmers against drought‐related maize yield losses. Using four waves of household farm panel data from six districts in Malawi, we examine the impact heterogeneity of this technology on maize productivity using a continuous treatment approach. We find strong evidence of positive correlation between maize yield and adoption of DT maize varieties. On average, an increase by one hectare in the area allocated to DT varieties increases maize yield by 547 Kg/ha representing a 44% increase from the average maize yield of 1,254 Kg/ha for our sample. Our findings give evidence that DT maize technology has potential to protect smallholder farmers against drought‐related production losses. Policies that promote increased allocation of maize area to DT maize hold potential to enhance food security. Smallholder farmers especially in drought‐prone areas should be encouraged to allocate at least one‐third of the maize plot to DT varieties while breeders continue with the efforts of breeding a DT variety that is not only drought tolerant but also adapted to all weather conditions. More importantly, the government should ensure provision of timely ex ante weather information to guide farmers on decision‐making with respect to maize varietal choices.