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

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. 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
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3. Need for Fertilizers
 Closed Agro-Ecological System
Agro-
 Open Agro-Ecological System-
Agro- System-
Nutrient Removal
 Food Security Challenge
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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
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5. Fertilizer Subsidy System
Price S
A
P1 Subsidy = P1–P2
B C
P2
D
O Q0 Q1 Q2 Q
Quantity
y
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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
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7. Limitations of Subsidy
 Because of these limitations
of subsidy, we need
alternative approaches to
reduce fertilizer price and
help smallholder farmers.
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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-
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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
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10. The SSCR Approach
Price S1
A
P1
S2
B C
P2
D
O Q0 Q1 Q2 Q
Quantity
y
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11. The SSCR Approach
 Strengthen the Five Pillars of Market
Development
 Promote multi-country markets
multi-
 Rationalize fertilizer products and
recommendations
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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. 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-
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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.
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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”
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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
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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
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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.
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19. IV. Infrastructure Improvement
 Short-
Short-term improvements
 Long-
Long-term improvements
 The Enormity of Africa
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20. www.ifdc.org

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
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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
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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
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24. THANK YOU VERY MUCH
FOR YOUR ATTENTION
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