Getting policies right for investment in African Agriculture

Compelling discussion, commentary, stories on agriculture within thriving ecosystems.

This blog is part of the Agriculture and Ecosystems Blog’s month-long series on Restoring Landscapes.

Understanding the Problem

Food security is one of the most urgent issues on Africa’s development agenda. Some 226 million are chronically undernourished, about 250 million suffer from micronutrient deficiency, and 3.5 million children die from under-nutrition annually in the continent. Despite its vast agricultural potential, Africa has remained a net importer of agricultural products in the last three decades. The region’s food production increases annually at about 2%, less than the population growth rate of 3%.

A woman applies fertilizer on a maize crop in Kenya. Photo: B. Das/CIMMYT A woman applies fertilizer on a maize crop in Kenya. Photo: B. Das/CIMMYT

Where can investments in African agriculture have the potential to help the most?

One of the major issues in realizing Africa’s food production potential is the lack of organic materials to adequately enrich the soils, making mineral fertilizers most crucial to replenish soil fertility. More than 40 percent of Africa’s 220 million ha of farmland are losing at least 30 kg per ha of nutrients yearly, leading to annual losses of more than $4 billion.

Africa is the only region in the world in which per capita food production has decreased over the past 30 years. Between 1970 and 2010, while per capita global food production grew by 17%, that of Africa fell 10%, as population growth outstripped agricultural output. Restoring degraded lands in Africa by replenishing nutrients, reducing soil erosion, and increasing water retention capacity will be critical in meeting escalating food demands.

Investing in agriculture is one of the most effective ways to reduce poverty; growth in the agriculture sector is 2.5 times more effective in reducing poverty than growth in other sectors. Investment in African agriculture in the past two decades has been critically low and governments in the region have not provided the kind of support the sector needs to make food production keep pace with the increasing population.

To meet the targets set in the 2006 Abuja Declaration on Fertilizer for an African Green Revolution, and accelerate food production, the use of fertilizer in Sub Saharan Africa must increase five-fold from its current average rate of 10 kg per ha. It is vital that government policies and investments address the demand and supply sides of input use.

The demand side interventions include strengthening soil-crop research and extension, improving farmers’ ability to purchase inputs, providing farmers with risk management tools, improved quality and dissemination of market information, and protecting farmers against low and volatile output prices. Supply side interventions entail reducing input sourcing costs, reducing product distribution costs, strengthening business finance and risk management, and improving supply chain coordination mechanisms.

Market failures in rural areas often are the result of asymmetric information, high transaction costs and imperfectly specified property rights. Addressing these constraints requires innovative institutional arrangements and partnerships that improve effective market linkages and offer more stable and better prices to producers.

Governments can help catalyze the formation of stronger producer organizations such as cooperatives to better manage risks and achieve economies of scale in accessing markets, in addition to addressing secure property rights to encourage investment in agriculture.

The special case of fertilizer subsidies

Price support is most often channeled through subsidies for inputs such as fertilizers and seeds. In the 1970s and 1980s, most state-owned African enterprises sold fertilizer at subsidized prices. In response to the high fiscal cost, ineffective implementation, and pressure from international financial institutions, most of the countries liberalized their fertilizer markets as part of the structural adjustment programs of the 1980s and 1990s.

Currently, there has been a renewed interest in fertilizer subsidies for countering nutrient depletion, restoring degraded agricultural land and boosting agricultural production in Africa. Yet fertilizer subsidies remain controversial.

Many development economists and international development organizations (opponents) point to the high cost, limited effectiveness, and significant opportunity costs of fertilizer subsidies. Proponents on the other hand believe that fertilizer subsidies are the only way to startup African agriculture, reverse nutrient depletion, and deliver food security and income benefits to the rural poor. A central question therefore is under what conditions do fertilizer subsidies make sense?

Studies indicate that an economic case for fertilizer subsidy is probably justified to encourage innovation and learning, compensate for missing market, stimulate input market development, offset domestic policy distortion and create a level playing field in world markets.

A social case is merited when fertilizer subsidies are used to help poor households overcome considerable hardships. Such subsidies are usually in the form of emergency assistance for the temporarily poor or as regular income support for the chronic poor.

An environmental case is warranted when fertilizers are used to offset environmental externalities such as countering nutrient mining and preventing deforestation or agricultural extensification.

The major drawbacks of a fertilizer subsidy include the fact that it may encourage inefficient fertilizer use and crowd out private distributors.  It is substantially difficult to target needy farmers with subsidies and oftentimes such schemes are subject to rent seeking.  Additionally, subsidies is difficult to implement consistently and can be expensive.

Market-smart subsidy

Intensive use of fertilizers can also contribute to the degradation of the ecosystem services on which agriculture depends.  An alternative to the traditional subsidy, where government (or donor) payments are used to reduce the price paid by farmers for fertilizers is the market-smart subsidy.

Market-smart subsidies are time-bound interventions implemented as part of a comprehensive, long-term fertilizer promotion strategy that promote market development and encourage private investment. They may be applied at various points in the market chain to resolve critical constraints.

Examples include demonstration packs, vouchers, matching grants, and loan guarantees. Each of these has its own merits and demerits. For instance, while demonstration packs are good for extension, they may require substantial government logistic capacity. It is also difficult to target needy farmers using this technique, and it may quickly become perceived as an entitlement, with the implication that it may be hard to phase out eventually. Vouchers on the other hand allow targeting of needy farmers, but may be expensive to design and implement. It is subject to leakage as coupons may be transferable to farmers outside of intervention areas.

While traditional fertilizer subsidies are costly, inefficient, and usually unsustainable, market-smart fertilizer subsidies may be justifiable for pursuing some clearly defined objectives. Subsidies must be part of a broader productivity enhancement strategy. A more effective intervention is fertilizer market development which involves improving the policy environment, strengthening and expanding the network of private agro-input dealers, providing training and credit, and providing information about fertilizer use through advisory services and demonstration programs.

The Role of Smart Policies and Investment

Food security enhancement and long-term economic development cannot be achieved without smart policies. Key policies issues include raising the level of investment in agriculture, mainstreaming integrated soil fertility management (strategically combined use of improved seeds, mineral fertilizers and organic materials) into the broader development agenda, creating enabling environments for private sector participation, placing a strong emphasis on value chain development, and developing novel agricultural extension and knowledge management systems.

African governments and donors need to channel their public funds towards the provision of essential public goods with high economic and social returns. Investment in public goods such as productivity-enhancing agricultural research, rural roads, sustainable natural resources management  and education have consistently higher payoffs for society than spending on untargeted fertilizer subsidies which may be subject to inefficient fertilizer use and rent seeking by rural elites.

Comments

Dr. Braimoh has said it very well. Subsidies well targeted and managed are essential in African Agriculture. Their removal as advocated by some economists fails to recognised the fact that the so called developed world has continued to provide various subsidies to their farmers while at the same time are in the forefront of refusing to have African Governments use the same method to ensure farmers are productive.

Thanks very much for your comments. I agree with the fact that fertilizers for replenishing soil nutrients is a part of the solution, World Bank continues to partner with governments to invest in demand and supply sides of input use, including improved access to markets for food produce. For further information, please see http://siteresources.worldbank.org/INTARD/Resources/Building_Competitive... , http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentM... and
http://documents.worldbank.org/curated/en/docsearch?query=75663

Yes, thank you Dr. Braimoh. Your well reasoned call for smart subsidies for African agriculture is convincing. But I wonder, how can policy and smart subsidies be designed to bring together food production, sustainability, and climate resilience goals? There is no guarantee, for example, that increasing productivity on some land actually saves surrounding areas from exploitation. There is no guarantee that fertilizer alone will stabilize production nor restore degraded soils and land. Can policy go beyond simple solutions, 'more fertilizer for more food', and address the complexity that exists in the African agricultural landscape, and create the future that people want?

Dear Dr Bossio, thanks for your comments. It expands the discussion to the need for integrated landscape approaches for meeting multiple objectives: food, water and energy security, climate adaptation and mitigation, biodiversity conservation and sustainable land management. These are all interconnected problems that demand integrated landscape based solutions. An integrated landscape approach considers people as central elements of the landscape and employs a spatial method to the management of land, water and vegetation within a particular geographical area. It combines measures to support sustainable intensification on the most fertile land with landscape restoration and soil and water conservation on degraded lands. It also aims to restore a balance of environmental, social, and economic benefits from the use of land, water, forests and trees within a broader pattern of land and water use. Lastly, a landscape approach is not a one-off intervention; it monitors impact, broader changes, and take into account lessons learned.

Implementing a landscape approach requires radical changes in the way we manage natural resources. In many cases policies are still set by different government agencies with little regard for impacts on other sectors. There is an urgent need to break this segregation and explore solutions within the context of entire physical and institutional landscapes. There is a need for multi-agency platform for planning and attracting investment for sustainable landscapes. Second, valuation of ecosystem services is useful for integrated landscape management. E fforts by the World Bank and other partners through the Wealth Accounting and Valuation of Ecosystem Services(WAVES Program http://www.wavespartnership.org/waves/) provides strong evidence that considering the values of services such as carbon sequestration, air and water purification, and nutrient cycling can lead to better land-use decisions. Third, c ountries must increasingly look to private capital for natural resources management. But private investment in turn requires the governments to create enabling conditions through investing in public goods: productivity enhancing research and technologies, and rural infrastructure, as well as improved tenure systems, land use plans and user rights.

Dr. Braimoh,
well thought through issues, in deed, increasing rural roads connectivity and enhancing smart marketing strategies for agricultural producers by African government would contribute towards food security in Africa. In some areas access to markets is the biggest challenge faced by farmers, leading to continued losses. In addition to smart fertilizer subsidies, African governments therefore should invest more towards increasing market for food produce. without which food produced will go into waste and not contribute to national food security.

Thanks very much for your comments. I agree with the fact that fertilizers for replenishing soil nutrients is a part of the solution, World Bank continues to partner with governments to invest in demand and supply sides of input use, including improved access to markets for food produce. For further information, please see http://siteresources.worldbank.org/INTARD/Resources/Building_Competitive... , http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentM... and
http://documents.worldbank.org/curated/en/docsearch?query=75663

Dear Ademola,
could you comment on the issue that came up during the discussion here in Berlin at the Global Soil Week, namely the fact that currently in many sub-Saharan African countries fertilizer consumption is heavily biased towards Nitrogen (way beyond what plant require)? I was wondering whether World Bank efforts to stimulate the use of fertilizer by smallholder farmers in Africa, such as by introducing market-smart subsidies, take this issue into account.
As you know, mineral N fertilizer acts as a "quick fix" with the highest benefit-cost ratio. By applying mineral N fertilizer only, however, there is a high risk that soil fertility is lost even more rapidly than without any mineral fertilizer application. Do we make sure that farmers are made aware of this risk? And do market-smart fertilizer subsidies take this into account, e.g. by subsidizing mineral N fertilizer less (or not at all?) than phosphate or potassium fertilizers?
Another related aspect is the knowledge of the soil fertility constraints. It will be difficult for a farmer to decide which fertilizer to buy (subsidized or not), if she/he does not know what the soil/crop needs. Would be nice to hear from you, how The World Bank is tackling this issue.

Dear Rolf, thanks for your comments. The World Bank has considerable experience in integrated soil fertility management. Our ISFM interventions involves Choice of varieties that are nutrient and water efficient, Use of organic materials – crop residues and manure to increase fertilizer use efficiency, Factoring in other nutrient sources – atmospheric deposition, BNF, and irrigation before arriving at inorganic fertilizer application rates, and M atching fertilizer application with crop uptake requirements at different growth stages in time, space, type and quantity. As an example, in an effort to revolutionize fertilizer use, we are currently partnering with Ethiopia and other development agencies in a National Fertilizer Blending Program ( http://www.ata.gov.et/transforming-the-use-of-fertilizer-in-ethiopia-lau... ) Since fertilizer was introduced to Ethiopia, fertilizer use has been limited to diammonium phosphate (DAP) and Urea. However, recent research and soil tests reveal that Ethiopian soils are deficient in other nutrients that are not provided by DAP and Urea. The fertilizer blending project is addressing these deficiencies to improve food security in the country.

European, North America, and Australian agriculture has been built based on decades of subsidized investments, especially in phosphorus and lime to build up the basic fertility of soils. For example E.J. Russell in his classic book “The World of the Soil” points out that in the later 1950s in the UK annual farm subsidies were £73 million and price guarantee payments were £191 million. He advised “the subsidies must be sufficient to keep the weaker farmers in business” and that “these subsidies are likely to be a permanent feature of our agriculture”. And they have been. How do we expect African agriculture to succeed without similar levels of investment, especially given the low base status of many soils and widespread phosphorus deficiency? There is however opportunity to learn the lessons of the past by avoiding excessive fertilizer applications and deploying sustainable land management practices that maintain tight nutrient cycling and prevent nutrients entering the environment.

Thanks Ademola for that interesting piece. I particularly like your emphasis on "smart subsidies" and not just subsidies. I should say that past experiences have made discussions on subsidies (of any kind) a very sticky one and such instructive pieces will help our engagement with the public considerably. Beyond the points you make, I believe we need to begin discussing the credibility requirements of institutions on whose back smart subsidies are built. It should not take much to realize that the effectiveness of any smart subsidy program depends entirely on the credibility of the institutions that rolls it out; the weaker the credibility, the more smarter the subsidy ought to be (right from the design stages) in order to avoid a speedy addition to the number of failed strategies in the global south.

I do not question the need for chemical fertilizer in Africa, but wonder if you should subsidize the fertilizer or the market. If you subsidize fertilizer through any of the means mentioned above aimed at promoting a specific crop, then the fertilizer will quickly get diverted to more profitable crops. This can be particularly true if the government has a ceiling price on the staple foods of the country in an effort to assure affordable food for urban areas. This quickly result in major food inscurity. However, what would happen if you took the fertilizer subsidy losses on the marketing side, paying a primum price for the grain then subsidizing the sale of it. Could this be done at the same cost as subsidizing fertilizer? It should be possible and not really make an economic difference. Then the open market price of fertilizer will be utilized for staple crop and enhance food security.
An interesting example might be Afghanistan which has fixed ceiling price on wheat, that is a winter crop produced parellel to poppy. Farmers actually grow wheat, but mostly for the straw for summer fodder with the grain a by-product. Now if the government offer a primum price for the wheat as grain would that make a dent in the poppy production??

I am interesting in having the article in a pdf can you send me a copy please?

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