Summary
The objectives underlying agricultural output subsidies can have conflicting implications for the design of subsidy programs. As they tend to affect meaningful swaths of the electorate, subsidies can also be an attractive political instrument. By artificially lowering production costs or assuring higher output prices, direct support measures can result in resource misallocation in instances where they fail to address market failures, such as imperfect information about the returns to fertilizers. Subsidies can also contribute to fertilizer overuse, harming the environment and the agricultural sector in the long term. Furthermore, agricultural production subsidies are often fiscally costly and unfavorable compared to alternative uses of public funds—both within the agricultural sector and outside it—to achieve the same ends. Various design and implementation challenges amplify the shortcomings of producer subsidy programs.
Subject: Agricultural policy, Agricultural sector, Agroindustries, Economic sectors, Expenditure, Government subsidies, Price incentives, Prices
Keywords: Agricultural policy, Agricultural sector, Agricultural subsidies, Agroindustries, direct farmer support, Global, Government subsidies, IMF note 2024/002, implementation challenge, input subsidy program, output price subsidy, payments to agricultural producers, Price incentives, producer subsidy, Sub-Saharan Africa