Stories tagged: subsidies

The Role of Subsidies in Raising Agricultural Growth in Africa

Screen shot 2011-01-25 at 15.12.28In October 2010, the Africa Progress Panel Secretariat launched a policy brief ‘Raising agricultural productivity in Africa: Options for action, and the role of subsidies’. The report takes specific country circumstances to offer the key issues and lessons that African governments can take to deal with their individual country situation.

The main messages of the report are as follows:

  • African agriculture was often neglected by most governments and donors in the 1980s and 1990s. In 2010, there is renewed commitment to agriculture with the Comprehensive Africa Agricultural Development Programme (CAADP) and the Maputo declaration of 2003.
  • To boost productivity, there needs to be favourable environment for investment and governments need to invest more in public goods such as rural roads, agricultural research and extension services, and rural schooling, clean water and health care.
  • Often in rural Africa farmers cannot get access to credit, insurance and inputs. These can be severe and leave smallholder farmers in a poverty trap from which they struggle to escape, even when the technology to allow them to produce more exists. These market failures may be overcome 
by institutional innovation, but in some cases stronger state intervention may be needed —including the use of input subsidies.
  • Subsidies can help overcome poor farmers’ inability to obtain credit or take risks, to allow farmers to learn about inputs, and to develop input supply to levels where scale economies are captured. They can also be justified on grounds of equity, to overcome soil degradation and improve soil quality in the case of fertiliser, and to stimulate production to reduce the cost of food.
  • On the other hand subsidies can be costly, with costs rising over time, difficult to remove, badly targeted so that richer farmers get much of the benefit, and can undermine the development of commercial channels. Moreover, there are alternatives to subsidies, as Kenya’s experience of liberalised fertiliser distribution shows.
  • Much depends upon local circumstances – whether rural financial and input markets are robust or not functioning at all, for example poverty levels among farming households, and productivity levels for staple goods. Decision-makers need
 to be clear on the objectives pursued in using subsidies and consider alternative and complementary ways to achieving them. They also need to be aware of the potential pitfalls.
  • Where subsidies are used, they need to be ‘smart’: targeted to those who need them, limited in time, and designed to enhance commercial distribution rather than supplant it. Complementary investments in transport and input dealer training can reinforce these programmes and make it easier to reduce or
 remove subsidies in the future.

This report is a collaboration between Africa Progress Panel and Future Agriculture Consortium. The main authors are Steve Wiggins and Henri Leturque from Overseas Development Institute.