Raising agricultural productivity in Africa - Options for action, and the role of subsidies
SUMMARY AND MAIN MESSAGES
• African agriculture was often neglected by most governments and donors in the 1980s and 1990s. Now, however, there is renewed commitment to agriculture centred on the Comprehensive Africa Agricultural Development Programme (CAADP), the Maputo declaration of 2003 and donor promises of increased funding for agriculture.
• What, then, needs to be done to boost production and productivity? On some matters there is broad agreement: there needs to be favourable environment for investment and governments need to invest more in public goods such as rural roads, agricultural research and extension services, and rural schooling, clean water and health care.
• But often in rural Africa there are market failures in that farmers cannot get access to credit, insurance and inputs. These can be severe and leave small farmers in a poverty trap from which they struggle to escape, even when the technology to allow them to produce more exists. These market failures may be overcome
by institutional innovation, but in some cases stronger state intervention may be needed —including the use of input subsidies. But even the availability of credit may have limited benefit to millions of the poorest farmers. Incremental production from improved inputs will not necessarily result in surpluses but is needed to
reduce family hunger.
• Subsidies can help overcome poor farmers’ inability to obtain credit or take risks, to allow farmers to learn about inputs, and to develop input supply to levels where scale economies are captured. They can also be justified on grounds of equity, to overcome soil degradation and improve soil quality in the case of fertiliser, and to stimulate production to reduce the cost of food. Moreover they can be effective, as seen in the
early phases of the green revolution in Asia and in contemporary Malawi.
• On the other hand subsidies can be costly, with costs rising over time, difficult to remove, badly targeted so that richer farmers get much of the benefit, and can undermine the development of commercial channels. India now spends more on subsidies to fertiliser, irrigation water and rural electricity than it does on education. Moreover, there are alternatives to subsidies, as Kenya’s experience of liberalised fertiliser distribution shows.
• How then should African countries support their farmers through subsidies? Much depends upon local circumstances – whether rural financial and input markets are robust or not functioning at all, for example poverty levels among farming households, and productivity levels for staple goods. Decision-makers need
to be clear, however, on the objectives pursued in using subsidies and consider alternative and complementary ways to achieving them. They also need to be aware of the potential pitfalls.
• Where subsidies are used, they need to be ‘smart’: targeted to those who need them, limited in time, and designed to enhance commercial distribution rather than supplant it. Complementary investments in transport and input dealer training can reinforce these programmes and make it easier to reduce or
remove subsidies in the future.