by Maggie McMillan, guest blogger
According to the NYT, the experts (aka the World Bank) have been pressing African governments to get rid of fertilizer subsidies. This, the article claims, has been a big mistake. The experience of Malawi proves it: farmers in Malawi experienced record harvests as a result of subsidized fertilizer use, and this could be replicated elsewhere to fight hunger across Africa.
It is wonderful that the New York Times’ Celia Dugger is doing so much detailed reporting about African farmers -- and that the Times’ editors are putting her stories on the front pages. I am told that she will be reporting from Africa all of next year, which promises a lot more to come.
Low fertilizer use is indeed one of the Africa’s most vexing challenges. But subsidizing is only a band-aid, masking its high cost and low productivity without sustaining growth. Such band-aids can be useful, but they can also be a distraction, drawing attention away from the interventions needed for large-scale improvements.
Much can be learned from looking across African countries. In a recent study, economists at Michigan State University found that between 1980 and 2000 fertilizer use increased in a number of African countries, and was stagnant or declined in others. Overall use is low, but variability in fertilizer use is driven by local factors more than blanket World Bank policy.
Will Masters explains fertilizer use in terms of both prices and productivity. His survey paper points to Africa’s relatively high cost of transport to farms, high cost of capital over the growing season, plus low and variable physical productivity due to poorly-adapted seed varieties in the context of low and variable rainfall.
Dr. Masters and his colleagues at Purdue University did one of the first studies of Malawi’s fertilizer subsidy program, when it was first introduced. They predicted the high payoff reported in the NYT article, but found that it had little to do with the fertilizer subsidy as such. Most of the effect comes from the improved seed that accompanied the fertilizer, and from overcoming Malawian farmers’ credit constraints.
Without underlying change, warns Dr. Dick Sserunkuuma, an economist at Makerere University in Kampala, farmers do not benefit enough from the fertilizer to make the subsidy an effective development strategy. The article makes it sound like farmers in Malawi can achieve international levels of competitiveness simply by applying fertilizer. This is simply not true. Adding fertilizer without improved seed may increase yields, but at a high cost.
The World Bank has given out lots of loans to African governments for fertilizer and it has good reason to be cautious. For example, in an effort to stave off famine and reduce Ethiopia’s dependence on food aid, in 1995 the World Bank gave two loans to the government of Ethiopia totaling $164 million to support fertilizer use. Fertilizer use increased quite a bit, and with good rains in 2000/2001 there was a record harvest and maize prices plummeted. I was there that year and the sad joke was that farmers had come all the way to Addis to beg on the streets for money to repay their fertilizer loans. Inputs can be productive without being profitable. In Ethiopia the government tried to force farmers to repay their loans, causing enormous hardship.
Fertilizer use would be more productive if infrastructure was better, and transport costs were lower. Improvements in infrastructure are very expensive, however, and there is already a high level of investment so marginal returns are low. The highest marginal returns are almost certainly to increased investment in crop genetic improvement, which raises the payoff to everything else.
More fertilizer use is clearly an important part of poverty-alleviation success stories around the world, driven by the spread of improved seed and favorable market conditions. Subsidized fertilizer can raise output only temporarily. So there is certainly scope for increased fertilizer use in Africa, but it is not the magic bullet that the NYT headline would have us believe.