Market Friendly Alternatives to
            Fertilizer Input Subsidies

                                   By
            ...
Outline of the Presentation

    Why do we need alternatives to
     subsidies?
    Why should alternatives be market-
 ...
Need for Fertilizers


         Closed Agro-Ecological System
                 Agro-

         Open Agro-Ecological Syst...
Farmers in Sub Saharan Africa

  Export/Estate Crop Growers
  Large Scale Commercial
      g
   Farmers
 SSmall scale v...
Fertilizer Subsidy System
          Price                 S



                           A
           P1                 ...
Limitations of Subsidy


    It distorts the functioning of the market
    It prevents th d
               t the develop...
Limitations of Subsidy


    Because of these limitations
     of subsidy, we need
     alternative approaches to
     re...
Limitations of Subsidy
    In spite of the current crisis, markets
     are still the most efficient and
     effective m...
Market-
       Market-Friendly Alternatives to
             Subsidies
             S b idi (MFAS)
    Reduce supply price...
The SSCR Approach
          Price                   S1



                             A
           P1

                  ...
The SSCR Approach


    Strengthen the Five Pillars of Market
     Development

    Promote multi-country markets
      ...
P
                   Policy
                        y




www.ifdc.org
               H
               Human Capi
        ...
Cotton Formula in West Africa
               C
               Country
                   t      Formula
                  ...
II. Purchasing Power Support


    Market development is “necessary but
     not sufficient” for improving food
     secu...
Subsidy vs. Safety Nets


    Subsidy is for a product
    PPS (for inputs) is for the people
    Empowering people to ...
Purchasing Power Support
    Support should not be a “free lunch”;
                              free lunch ;
     farmer...
Schematic Diagram of
           the Targeted Voucher System
                                         Coordinating
        ...
III. Social Investment in Acidic Soils

    In some parts of Sub-Saharan Africa, soils
                       Sub-
     a...
IV. Infrastructure Improvement


    Short-
     Short-term improvements

    Long-
     Long-term improvements

    Th...
www.ifdc.org
Freight Charges, 2009
               Distance           Charges in US$


               Johannesburg-
               Johan...
Benefits of MAFS
    It enhances the performance of the
     market.
    It promotes the development of
     competitive...
The Way Forward

                Proposed Action                Timeframe
   Strengthen the development of input
   market...
THANK YOU VERY MUCH
            FOR YOUR ATTENTION




www.ifdc.org
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Market friendly alternatives to fertilizer input subsidies

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B. L. Bumb, Program Leader, Policy, Trade, and Markets Program, IFDC
24th July 2009, International Food Policy Research Institute

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Market friendly alternatives to fertilizer input subsidies

  1. 1. Market Friendly Alternatives to Fertilizer Input Subsidies By B. L Bumb B L. Bumb, Program Leader Policy, Trade, and Markets Program, IFDC Presentation for IFPRI Panel Discussion on Smart I S t Input Subsidies and S t i bl A i lt l t S b idi d Sustainable Agricultural Development IFPRI Headquarters, Washington DC July 24 2009 24, www.ifdc.org
  2. 2. Outline of the Presentation  Why do we need alternatives to subsidies?  Why should alternatives be market- market- friendly? y  What are market-friendly market- alternatives to subsidies?  The Way Forward www.ifdc.org
  3. 3. Need for Fertilizers  Closed Agro-Ecological System Agro-  Open Agro-Ecological System- Agro- System- Nutrient Removal  Food Security Challenge www.ifdc.org
  4. 4. Farmers in Sub Saharan Africa  Export/Estate Crop Growers  Large Scale Commercial g Farmers SSmall scale viable farmers ll l i bl f  Subsistence farmers www.ifdc.org
  5. 5. Fertilizer Subsidy System Price S A P1 Subsidy = P1–P2 B C P2 D O Q0 Q1 Q2 Q Quantity y www.ifdc.org
  6. 6. Limitations of Subsidy  It distorts the functioning of the market  It prevents th d t the development of l t f competitive markets  It creates fiscal burdens  It promotes rent-seeking and political p rent- g p interference www.ifdc.org
  7. 7. Limitations of Subsidy  Because of these limitations of subsidy, we need alternative approaches to reduce fertilizer price and help smallholder farmers. www.ifdc.org
  8. 8. Limitations of Subsidy  In spite of the current crisis, markets are still the most efficient and effective means to produce and p distribute goods and services, provided they are properly monitored and regulated. d l t d  Therefore alternative approaches should be market-friendly market- www.ifdc.org
  9. 9. Market- Market-Friendly Alternatives to Subsidies S b idi (MFAS)  Reduce supply price by shifting the supply curve to the right (SSCR Approach)  Provide purchasing power support (PPS) to resource poor farmers through vouchers  Make M k social i i l investment i acidic soils t t in idi il  Improve infrastructures www.ifdc.org
  10. 10. The SSCR Approach Price S1 A P1 S2 B C P2 D O Q0 Q1 Q2 Q Quantity y www.ifdc.org
  11. 11. The SSCR Approach  Strengthen the Five Pillars of Market Development  Promote multi-country markets multi-  Rationalize fertilizer products and recommendations www.ifdc.org
  12. 12. P Policy y www.ifdc.org H Human Capi n ital Market D Fin nance e l Market Inform on matio The Five Pillars of M k t Development t Regu ulatio on
  13. 13. Cotton Formula in West Africa C Country t Formula F l N-P2O5-K2O-S-B P2O5-K2O- Mali M li 14-22-12-7-1 14-22-12- Burkina Faso 14-23-14-6-1 14-23-14- Niger 14-24-14- 14-24-14-5-1 Benin 14-23-14-5-1 14-23-14- www.ifdc.org
  14. 14. II. Purchasing Power Support  Market development is “necessary but not sufficient” for improving food security in the rural areas.  Market development efforts should be supplemented by PPS to include poor people in the market place. place. www.ifdc.org
  15. 15. Subsidy vs. Safety Nets  Subsidy is for a product  PPS (for inputs) is for the people  Empowering people to participate in the market place through input vouchers kills two birds with one stone— stone—alleviate hunger and poverty and develop input markets  Therefore “Support the people, not the product” www.ifdc.org
  16. 16. Purchasing Power Support  Support should not be a “free lunch”; free lunch ; farmers should pay either in kind or labor.  Support should not be “free for all”; it should be targeted to the poor farmers. g p  Suppo t s ou d Support should be administered t oug a ad ste ed through voucher program and include an exit plan www.ifdc.org
  17. 17. Schematic Diagram of the Targeted Voucher System Coordinating g Voucher Entity Recommendations for Banks selection of farmers Voucher Reimbursement MOA/NGO Community Input Extension Organization Dealer Department Voucher Best Management Practices Best Management Practices P i Voucher Farmer Fertilizer Supplies www.ifdc.org
  18. 18. III. Social Investment in Acidic Soils  In some parts of Sub-Saharan Africa, soils Sub- are acidic or highly acidic (low pH), such as Northern Zambia  Unless pH level is improved through liming, PR, and other sources, investment in mineral fertilizers may not yield significant return. f tili t i ld i ifi t t  Since investment in liming and other soil amendments may not y e d s o t-term a e d e ts ay ot yield short te short- benefits to the farmer, social investment may be justified. www.ifdc.org
  19. 19. IV. Infrastructure Improvement  Short- Short-term improvements  Long- Long-term improvements  The Enormity of Africa www.ifdc.org
  20. 20. www.ifdc.org
  21. 21. Freight Charges, 2009 Distance Charges in US$ Johannesburg- Johannesburg- 120 Lusaka Lusaka-Kasama Lusaka- 105 Johannesburg- Johannesburg- 225 Kasama Dar es Salaam to 70 Kasama www.ifdc.org
  22. 22. Benefits of MAFS  It enhances the performance of the market.  It promotes the development of competitive markets  It empowers the poor people to participate in the market place.  It resolves conflict between poverty alleviation and private sector development p www.ifdc.org
  23. 23. The Way Forward Proposed Action Timeframe Strengthen the development of input markets (The SCCR approach) Medium Term Empower the people to participate in the Short and market process (PPS) Medium Term Make social investment in acidic soils Medium and Long Term Medium and M di d Improve infrastructure Long Term Short and Promote public private partnership Medium Term www.ifdc.org
  24. 24. THANK YOU VERY MUCH FOR YOUR ATTENTION www.ifdc.org
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