Kenyan Subsidized Fertilizer Explained

Earlier this month, both the Standard  and NTV reported that farmers in Kenya were having difficulty buying subsidized fertilizer.

In Kenya, fertilizer is available to small farmers from the government at subsidized prices. For example, 50kg of Diammonium Phosphate (DAP) is available at Sh2,500 ( around $25US ) subsidized. If purchased from private traders, it would cost between Sh3,500 ( $35US) and Sh3,700 ($37US). However, these subsidies are only available if the fertilizer is purchased from the National Cereals and Produce Board(NCPB) a Kenyan government run company. The fertilizer was only available at certain NCPB locations forcing farmers to travel significant distances and stand in long lines. Kenya’s government only allows small farmers to purchase subsidized fertilizer and the lines were likely exacerbated by the need to produce paperwork.

The traditional arguments for fertilizer subsidies in Africa are that fertilizer use there lags behind other regions such as Latin America and South Asia. The reasons cited are lack of knowledge of fertilizer use, farmer’s lack of capital to buy fertilizer, and farmer’s unwillingness to take risks. Furthermore fertilizer has positive externalities such as reduced soil erosion from increased plant growth.*

In most of Africa, fertilizer subsidies began in the 1960s and 1970s. These programs were typically implemented through government owned corporations that were given a monopoly on fertilizer and sold it at below market prices. Aid agencies and Western governments were often critical of the practice and in the 1980’s they began pressuring African governments. They maintained that fertilizer subsidy programs were inefficient and discouraged private sector businesses. The real problem facing African countries, they argued, was inefficient resource allocation. During this period many African countries got rid of their fertilizer subsidies due to Western pressure.*

However, more recent thinking on food subsidies has changed. Malawi, after following international recommendations to eliminate fertilizer subsidies, faced widespread food shortages in 2005 after a disastrous harvest. Determined not to repeat this, its government began instituting fertilizer subsidies and has enjoyed record harvests.*  Pointing to Malawi’s success, some Western economists such as Jeffrey Sachs now advocate fertilizer subsidies in Africa. In a notable difference from the Kenyan approach, the Malawi government issues farmers coupons that can be used to purchase fertilizer from private merchants at the subsidized prices rather than selling the fertilizer directly. However, Malawi’s policy is expensive — running as high as 16% of GDP in 2008.

Even these Western countries that have pushed Africa to embrace laissez-faire economics and eliminate fertilizer subsidies, extensively subsidize their own agriculture. So, African government that subsidize fertilizer are following the policies that the West practices rather than what it preaches.

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