IFPRI Policy Seminar "Input Subsidy Programs in Developing Countries
What Works, What Doesn’t, and Why?" presentation by Simeon Ehui, The World Bank. Presented on 18 April 2013.
2. Introduced --- primarily by donors --- in the early
1970s to speed adoption of new technology and
innovations
Original goal was to incentivize small farmers to
adopt improved practices
Minimum packages including seeds, fertilizers,
and other inputs worked as long as donor’s
money was available
3. Significant input subsidies -- seeds, fertilizers, and water -- behind the spread of
Green Revolution technology in South Asia
India, for instance, shifted from food aid dependency to food exporting, despite high
population growth
The argument that subsidies do not promote production or increase productivity
is not credible, at least in the short run.
Bardhan and Mookerheeji’s rigorous impact study inWest Bengal shows seed/fertilizer
mini-kits raised the value added per acre, generated employment, and promoted
growth.
Seed Water Fertilizer
More
Crops
4. In many cases the rate of adoption among farmers was smaller
than expected
Energy subsidies went to irrigated farmers while dry land farmers
who needed more rural infrastructure investment – roads,
markets, science and technology received less.
Fertilizer subsidies often led to a distortion in the application of
fertilizers
In India, farmers applied only subsidized fertilizers, sometimes
excessively, which created a major ground water pollution problem.
Behaviors didn’t change: few farmers were willing to adopt inputs
without subsidies
6. The burden on public expenditure
Governments spending more on short-term
agricultural activities than on long-term investment
programs
Poor targeting and corruption favor allow elite
farmers and operators to take the lion's share of
these subsidies
Long-term impacts on the environment and
productivity
9. In India, larger farmers get most of the
subsidy, better-off states get most of the
subsidy.
Not so much by corruption, but by design
Fertilizer, water, and power subsidies are usually
proportional to the amount of land cultivated
A farmer with 5 ha automatically gets more than the
farmer with 0.5 ha
Most fertilizer subsidies went to the fertilizer
industry
10. In India, overusing urea (more subsidized than P
and K) is providing decreasing marginal returns
in terms of productivity gains
In parts of Punjab and Haryana chemicals have
leached into the soil and started polluting the
groundwater affecting water quality
creating health and other problems
11. Electricity subsides have a huge
impact on agriculture
Currently agriculture uses 30%
of electricity supply at virtually
no cost
But they are highly effective and
efficient – 88% of electricity
subsidies reach the farmers, but
It promotes rice production in
already over-exploited areas of the
NW
Extraction exceeds recharge
A 10% reduction in electricity
subsidy will reduce groundwater
extraction by 6.4%!
12. Misuse of free or nearly free resources is human
nature.
It is common to see farmers in head-end reaches of
surface irrigation systems overusing water while tail-
enders get nothing.
Power subsidies contribute to falling water tables in large
parts of India.
Subsidizing credit brings the short-term fiscal cost, but the
long-term impact on borrower behavior is more worrying.
13. “Do as we say, not as we do” policy dialogue gets no traction
Subsidies are essentially the “third rail” of policy in our countries
Many of our clients have resigned themselves to the cost if it gets them
the political support
In India,2012-13 food subsidies alone amount Rs 117,547 crores
(US$21.7 billion) which is 23% of the budgeted fiscal deficit
This is a BIG DEAL for the Ministry of Finance and the Government –
especially when it is not taming food inflation or promoting growth!
Still, the subsidies remain.
14. Quantify all of the detrimental impacts
Analyze the environmental consequences of falling
water tables, waterlogging, water contamination, etc.
Are productivity gains being held up by
indiscriminately subsidizing inputs?
Agricultural scientists sometimes look at input-output at a
farm level
Economists should take note, team up with scientists, and
figure out what this means at the macro level of
district, state and country.