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Sikandra Kurdi (IFPRI Egypt) • 2019 IFPRI Egypt Seminar "Fertilizer policy in Egypt and options for improvements"

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As part of the seminar held by the International Food Policy Research Institute (IFPRI) under the title of " Fertilizer policy in Egypt and options for improvements".

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Sikandra Kurdi (IFPRI Egypt) • 2019 IFPRI Egypt Seminar "Fertilizer policy in Egypt and options for improvements"

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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!

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