FERTILIZER SUBSIDY PROGRAMME IN GHANA: LESSONS FOR POLICY

BY

DR. JOE TAABAZUING

GIMPA/IFPRI E-mail: joetaaba@yahoo.com Tel: + 233 20 81 20 612

OUTLINE
Triggers of the fertilizer subsidy programme Design & implementation of the programme Key outcomes Sustainability Policy options

Triggers of fertilizer subsidy

Ghana among countries with the lowest rate of fertilizer use in Sub-Saharan Africa (8 kg per hectare), leading to low productivity and deepening poverty of farmers Dramatic increases in food and fertilizer prices in 2007 (77% increase in maize price & 35% increase in prices of NPK between May 2007 and May 2008)

Triggers contd.
Political pressures, as government pushed to fulfill its campaign promise of modernizing agriculture as a means of improving living conditions of citizens In response to the above challenges and pressures, the government of Ghana, in July 2008, instituted a country-wide subsidy on commonly used fertilizers (NPK, Urea and sulphate of ammonia)

Design & Implementation of the Programme

The key problem driving the fertilizer subsidy is the high cost of fertilizer in the open market resulting in low fertilizer demand and utilization, leading to low yield & low income to farmers Therefore, the underlying assumptions in the design of the programme is captured in the impact pathway on the next slide.

Impact pathway of Fertilizer Subsidy

Increased Fertilizer usage by farmers

Fertilizer Subsidy

Increased privatesector fertilizer markets

Increased crop yields and output

Increased income to farmers

Increased farm investment and modernization of agriculture

Greater poverty reduction Increased food and nutrition security

OTHER FACTORS

KEY:
Impact pathway

Influence of other factors

Feedback effect

Design & Implementation of the Programme Contd.

Initially, farmers received the subsidy in the form of fertilizer- and region-specific coupons, distributed by agricultural extension agents. This however presented various challenges like farmers trading with the coupons and the high transaction cost. Consequently, the strategy was changed to the waybill and receipt system in 2009

Design & Implementation of the Programme Contd.

Under this system, retail prices of fertilizer in the domestic market are set up-front, through negotiation between the importers and the Government of Ghana (GoG) The negotiated price includes a flat rate for transporting 50Kg bag, irrespective of distance & a margin for distributors & retailers The private sector mainly used for the importation & distribution of the fertilizer

Design & Implementation of the Programme Contd.

The quantity of fertilizer sold to farmers in each district is computed by MOFA staff at the district & regional levels before passing the waybills and receipts to the National Fertilizer Co-ordinator to compute the subsidy payments to the various fertilizer distributors The programme is grounded in governmentprivate sector partnership

Key Fndings from Evaluation of Programme

Increased application of fertilizers from about 8kg/ha to about 13.4kg/ha due to the subsidy program Those farmers who applied fertilizer obtained higher yields and positive net income than those who did not use any Increased volume of trade and number of private-sector actors in the market, even though skewed in favour of urban areas.

Key findings Contd.

The overall future economic return of the program is positive, with an estimated benefit-cost ratio of 1.7 The waybill system is considered cumbersome by many of the distributors and retailers due to signing of many papers which is not clear to all actors. Delays in negotiations between government and fertilizer importers as well as delayed payment of subsidy, resulting in delayed importation & making the subsidized fertilizer unavailable to farmers during some critical periods of demand Weak quality control, limiting benefits.

Financial Implications & Sustainability

In 2008 and 2009, the subsidy cost the government an amount of GH 20.6 and 34.4 million, respectively representing about 16.3% & 21% of the share of MOFA annual budget respectively. In 2011, GH 69.8 million was spent on fertilizer subsidy which is about 31% share of the MOFA budget MOFA budget has typically grown at about 5.5% per year in real terms, while the fertilizer program costs could easily grow at rates between 30 & 50% per year, highlighting sustainability concerns.

Policy Options
To forestall delays in the fertilizer importation and distribution, it is recommended that government starts the negotiations with the importers early so that the fertilizers are in stock in the regions and districts prior to the planting season. To minimize the potential risks of putting a large burden on MOFAs budget, policy makers may wish to consider a maximum threshold upon which no further funds would be made available under the program and, correspondingly, laying out a clear exist strategy over time.

Policy Options contd.

To minimize the risk rapid growth in output depressing output prices significantly, it is desirable to pursue policies that promote greater access to export markets in the region To improve widespread distribution of fertilizers, particularly in remote areas, a differential or spatial transport subsidy could be considered, alongside other incentives like credit facilities to identified fertilizer retailers in rural areas to expand their trade Strengthen quality control & standards as well as promote stronger links with Research and Devt.

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