The Magic Bullet for Success With Millionaire Marketing Machine
Market-Smart Subsidies: Not a magic bullet
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Transcript of Market-Smart Subsidies: Not a magic bullet
Derek Byerlee24th July, 2009
“”While I had a fairly open mind about fertilizer subsidies when I began this greview, I am now considerably more skeptical about them….. it is my view that ysubsidies should be used very cautiously and very selectively” Dana Dalrymple, Evaluating Fertilizer Subsidies in
Developing Countries, USAID, 1975.
1. A strong case for market smart subsidies2 But not easy to implement2. But not easy to implement3. Even when well implemented, they are
t i b ll tnot a magic bullet
300 Fertilizer use (kg per 4.00 Cereal Yield (t/ha)
250
( g pirrigated equiv ha)
3.00
3.50
( )
150
200
SS Africa
Asia2.00
2.50
Asia
Lat Am
100
L America
MENA
1.00
1.50 SS Africa
MENA
0
5061 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06
-
0.50
61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06
196
196
196
197
197
197
197
198
198
198
199
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200
200
200
196
196
196
197
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198
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199
199
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200
200
Adoption of improved varieties much greater than fertilizer
Agree on critical importance of improved seed Agree on critical importance of improved seed and soil fertility in sub-Saharan Africa. Fertilizer use extremely low in Africa Fertilizer use extremely low in Africa. Prices double other regions
There is a good theoretical case to subsidize There is a good theoretical case to subsidize inputs in the early stages Market failures--many specific to fertilizer Market failures--many specific to fertilizerEconomies of scale, learning, risk and credit
constraints Countries should own their food security policies
Traditional “blanket” subsidies have not worked Traditional blanket subsidies have not worked in AfricaInefficiencies of parastatalsInefficiencies of parastatalsRent capture by large farmersFiscally unsustainableFiscally unsustainable
“Market smart subsidies” could work?Help build markets vouchers for private dealersHelp build markets—vouchers for private dealersWell targeted to not displace commercial salesExit strategyExit strategy
Often still state directedNot well targeted—larger farmers male etcNot well targeted larger farmers, male etcDisplace commercial sales
E i h f b d tExpensive as a share of budgetCrowd out investments in core public goods
Political capture
Subsidy
(2 bag/hh)
Some subsidy
( 1 bag/hh)
None
(2 bag/hh) ( 1 bag/hh)Value of assets (K/hh) 15,850 8,755 6,500Land holding (ha) 1.22 0.91 0.81a d o d g ( a) 0 9 0 8Female head hh (%) 18 26 30
Measures to strengthen private sector equally importantKenya success story of reducing transactions costs
and no. input dealers from 8 km to 3 km Not by fertilizer alone. Need for balanced
approaches—Kenya organic matter Need for manage price volatility Funding for long-run investmentsIrrigation, R&D
STEADY RISE IN FERTILIZER USE
DECLINING MARGINS FOR FERTILIZER DISTRIBUTIONFERTILIZER USE FERTILIZER DISTRIBUTION
500000 600
300000
400000
etric
tons
400
500
met
ric to
n D
AP
100000
200000
000
me
200
300
Nom
inal
USD
per
0
90 92 94 96 98 00 02 04 06
Commercial importsTotal ConsumptionDonor Imports
1001990 1992 1994 1996 1998 2000 2002 2004 2006
c.i.f. Mombasa wholesale markets, Nakuru
N
Source: Marenya and Barrett, 2008a
PRICE OF UREA ($US/T) SHORTAGE OF PHOSPHATE?PRICE OF UREA ($US/T) SHORTAGE OF PHOSPHATE?
10
12
350
400
450
6
8
200
250
300
350
Gas
($/G
J)
Ure
a ($
/t)
Urea
0
2
4
0
50
100
150
G Nat gas
Source: Cline (2007)
Doubling of oil prices increases
00
Peak extraction by 2034
12
Doubling of oil prices increases grain prices by about 20%
Peak extraction by 2034
Can provide rapid gains (if it rains)Monitor learn adjust for long runMonitor, learn, adjust for long run
sustainabilityT t b tt i l th i t tTarget better, involve the private sector
Imbed as part of a wider agricultural d l t t tdevelopment strategy