Rethinking Input Subsidies
After being largely eliminated by structural adjustment programs in the 1980s and 1990s, large-scale input subsidy programs are regaining popularity throughout the developing world, particularly in Africa south of the Sahara. It's estimated that African countries spend, on average, 30 percent of their agriculture budgets on these programs, which aim to increase small farmers' investments in new technologies and increase agricultural production. Despite these programs' widespread use, however, debate abounds about how efficient input subsidy programs actually are. Does such strong government funding of these programs pull much-needed money away from other critical development programs? Could input subsidies be restructured to be more inclusive and efficient?
On April 18, experts from IFPRI, the World Bank, and Michigan State University gathered to discuss just these questions, examining recent empirical evidence on the impact of input subsidy programs on agricultural productivity, economic growth, and poverty in Africa. This policy seminar followed a two-day workshop that presented country-level evidence from Ethiopia, Kenya, Malawi, Nigeria, Uganda, and Zambia.
Politically, input subsidy programs make sense. Thom Jayne, MSU Professor of Agricultural Economics, says, "Spending a large share of the agriculture budget on ISPs may not be the most effective way to promote the welfare of its citizens, but it is a highly demonstrable way to do so." But high government spending on these programs is not necessarily supported by evidence. And allocating 30 percent of a country's agriculture budget to input subsidies means that other important programs, such as research and development and rural infrastructure improvements, may be underfunded.
With African governments showing such strong political support, it is clear that input subsidy programs will not be going away any time soon. So, seminar participants argued, it is vital for governments to take a more balanced approach. One way to do so would be to encourage governments to invest a more equal share in complementary sectors, such as rural infrastructure and agricultural extension services. These other services can help increase farmers' adoption of new technologies, thus increasing productivity and reducing poverty.
Researchers Shahidur Rashid and Thom Jayne, with experts from development organizations in Africa, will publish their research findings on input subsidy programs in a special edition of Agricultural Economics dated for release this fall.
Read more regarding last week's seminar and IFPRI's input subsidy work.