1.
Subsidies and Overuse of
Nitrogen Fertilizer in Egypt
Sikandra Kurdi
Associate Research Fellow, IFPRI-Cairo
Mai Mahmoud
Senior Research Assistant, IFPRI-Cairo
Cairo | August, 2019
This research is funded by USAID
as part of “Evaluating Impact and Building Capacity” project implemented by IFPRI.

2.
Context of Fertilizer Subsidy in Egypt
 Fertilizer factories are required to supply agricultural cooperatives with
nitrogen fertilizer at subsidized price fertilizer factories
o50 kg of Urea in 2018
oSubsidized price 165 EGP
oMarket price 250 EGP
 Farmers access to subsidized fertilizer at the cooperative:
o Allowance determined by the land area and the type of crop
o Usually the amount of fertilizer available at the cooperative is less than
required so not all farmers receive the full allowance
 Subsidized fertilizer can also be found sold illegally at the market price

3.
Motivation
 Mixed evidence globally on whether fertilizer subsidies are a
good way to increase agricultural production
 Contexts where fertilizer subsidies are promoted (mostly Africa
South of the Sahara) have low yields and low rates of fertilizer
usage
 In Egypt, by contrast, yields and fertilizer usage are already
high

4.
Data
 Household survey data collected in 2018 in Upper Egypt (Beni Suef,
Menia, Souhag, Qena, Luxor)
oSampled farmers participating in USAID Food-Security and
Agribusiness Support Project (FAS) and similar neighboring farmers
who also cultivated the vegetables and herbs promoted by the FAS
project
o2,246 farm households cultivating 3,678 fields
oRecall data on cultivation practices and production for winter season
2017/ 2018
 We converted fertilizer usage reported in various units into nutrient
(Nitrogen, Phosphate, and Potassium) kg per feddan

5.
0
50
100
150
200
250
OLD LAND
N fertilizer subsidy quota (kg/ fed)
N fertilizer requirement (kg/ fed)
N fertilizer applied (kg/ fed)
0
50
100
150
200
250
Wheat Onions Fennel Marjoram Clover
NEW LAND
N fertilizer subsidy quota (kg/ fed)
N fertilizer requirement (kg/ fed)
N fertilizer applied (kg/ fed)
Nitrogen Fertilizer Use

6.
0
10
20
30
40
50
60
70
80
OLD LAND
P2O5 fertilizer requirement (kg/ fed)
P2O5 fertilizer applied (kg/ fed)
Phosphate Fertilizer Use
0
10
20
30
40
50
60
70
80
Wheat Onions Fennel Marjoram Clover
NEW LAND
P2O5 fertilizer requirement (kg/ fed)
P2O5 fertilizer applied (kg/ fed)

7.
0
20
40
60
80
100
120
140
160
OLD LAND
K fertilizer requirement (kg/ fed) K fertilizer applied (kg/ fed)
Potassium Fertilizer Use
0
20
40
60
80
100
120
140
160
Wheat Onions Fennel Marjoram Clover
NEW LAND
K fertilizer requirement (kg/ fed) K fertilizer applied (kg/ fed)

8.
Research Questions
1. Does the fertilizer subsidy increase fertilizer usage?
2. Does this increased fertilizer usage translate into
higher yields?
3. If there are higher yields, is the cost of the subsidy
worth the benefit?

9.
Does the fertilizer subsidy increase fertilizer usage?
Owning land simplifies the process of
accessing subsidized fertilizer so we
compare owned vs. non-owned land
We show that after controlling for crop and
new land vs. old land:
 Farmers use 10.6 kg/feddan more
Nitrogen fertilizer on fields that they own
 In contrast, farmers use significantly less
Phosphate fertilizer on fields that they
own, showing that this is not just a
general increase in investment associated
with ownership and suggesting that
subsidy distorts usage
(1) (2) (3)
Nitrogen
(kg/ feddan)
Subsidized
Nitrogen
(kg/ feddan)
Phosphate
(kg/ feddan)
Field owned 10.6* 14.6*** -5.7**
(5.30) (5.05) (2.72)
Field size -34.8*** -6.0** -0.2
(6.27) (2.50) (1.77)
Field size^2 1.8*** 0.2 -0.1
(0.35) (0.15) (0.14)
Land*Crop FE Yes Yes Yes
Farmer FE Yes Yes Yes
r2_w 0.367 0.154 0.262
N 2767 2768 2766
ymean 132.6 36.2 25.1

10.
Does this translate into higher yields for wheat farmers?
We use the share of subsidized fertilizer
as an “instrument” to isolate increases in
fertilizer use that are not associated with
any other factors affecting yields and to
focus on impact of increased fertilizer use
for those farmers that are induced to use
more by the subsidy
(Econometric methodology of
“Instrumental Variables”)
Using this method gives an estimate of
the impact of additional fertilizer being
very close to zero
(not significant and small confidence
interval)
(1)
Wheat yield (kg/
feddan
Nitrogen (kg/ feddan) -0.9
(0.94)
New Lands (desert) -271.0**
(117.26)
Field size 25.6
(84.61)
Field size^2 0.4
(5.09)
Total consumption 1.0**
(0.41)
Consumption^2 -0.0**
(0.00)
Some preparatory education
or more
-93.3
(71.78)
r2 0.010
N 399
ymean 1828.9

11.
Cost/ Benefit Analysis of Additional kg/feddan of N Fertilizer
95% Confidence interval
Maximum Maximum
Yield increase (kg per feddan) -2.73 kg 0.94 kg
Social benefits of wheat increase
(EGP per feddan using world price
of 3.8 EGP/ kg)
-10.40 EGP 3.57 EGP
Private benefits of wheat increase
(EGP per feddan using
procurement price of 4.5 EGP/kg)
-12.38 EGP 4.23 EGP
Social cost of N (world price per
kg)
10.87 EGP
Private cost of N (subsidized price
per kg)
7.17 EGP
• Even using our
maximum estimate of
increased production,
value of wheat is less
than the value of
fertilizer used
• This is true both when
using real values of
wheat and fertilizer and
when using distorted
prices faced by the
farmer

12.
Summary of findings
1. Does the fertilizer subsidy increase fertilizer usage?
Yes, it increases N fertilizer usage (while decreasing P
fertilizer usage)
2. Does this increased fertilizer usage translate into higher
yields? No, the estimated yield increase is very close to
zero if not negative
3. If there are higher yields is the cost of the subsidy worth
the benefit? No, the estimated yield increase is too
close to zero for the cost of the fertilizer used to justify
the cost of marginal application of additional fertilizer

13.
Policy implications
 Focusing on wheat, the estimated marginal social benefits of fertilizer
application are lower than the costs, implying that the government should
consider reforming the fertilizer subsidy system, or at least reconsider
the system’s strong focus on wheat farmers.
 There is also suggestive evidence that farmers themselves are making
suboptimal choices about fertilizer application, likely related to incomplete
knowledge about the fertilizer products they are applying. This points to
the importance of revitalizing the extension system and better
regulation of fertilizer labeling.

14.
Next steps
 Findings presented here are still in the early stage, please contact the
authors before citing
 Questions for discussion:
oThe summary statistics show N overuse compared to MALR
recommendations, are there factors which would make these
recommendations too low?
oIs the finding of the lack of impact of marginal fertilizer application on
yields surprising or expected?
oWe experimented with controlling for a variety of other factors
influencing yield: irrigation frequency, farmer education, household
wealth, livestock ownership, with no effect on our results. Other factors
to consider?
 Thank you!