Agricultural Input Subsidies and Productivity

Inter-American Development Bank - Cesar Augusto Lopez, Lina Salazar, Carmine Paolo De Salvo

Type: Research Paper
Knowledge level: Advanced

Farm Table says:

Research showed no link between input subsidies and productivity.

Agricultural Input Subsidies and Productivity: The Case of Paraguayan Farmers

What is the problem?

The authors state that while many countries implement agricultural input subsidies, there has been little emphasis on evaluating the effectiveness of such schemes. This research aims to shed light by exploring the impact of input subsidies on agricultural productivity.

What did the research involve?

  • Estimates impact on receiving an agricultural input donation on value of production per hectare as a measure of the effect on agricultural productivity.
  • Utilised a household survey collected in 2012
  • Categories include seeds, fungicides/insecticides, fertilisers and other agricultural inputs
  • Propensity Score Matching (PSM) technique

What were the key findings?

  • 143 producers reported receiving inputs from at least one of the four categories of agricultural inputs
  • No statistical difference between the average expenditures of beneficiaries in terms of agricultural machinery and equipment per hectare, agricultural inputs(i.e. seeds, seedlings, plant parts, fungicides and fertilizers), other agricultural resources per hectare, as well as paid labor per hectare, relative to the control group.
  • agricultural input donations had a significant impact on the total value of agricultural production for the 2011-2012 agricultural cycle (measured in USD); however, this increase did not translate to statistically significant impacts on the value of production per hectare (an indicator of productivity) and gross margin per hectare for program beneficiaries.

Final comment

The results provide evidence that agricultural input donations do not have an impact on agricultural productivity or input utilization.

There is an educational section on Agricultural Input Subsidies

Key points:

  • The World Trade Organization (WTO) defines a subsidy as a financial contribution by a government or any public body that confers a benefit to an entity in its territory (Hoda and Ahuja, 2005).
  • Within the agricultural sector, input subsidies have been one of the most common forms of subsidies used as policy instruments in both developed and developing countries, particularly in the 1960s and 1970s (Wiggins and Brooks, 2010; Dorward and Chirwa, 2014)
  • Input subsidies have been implemented with the aim to overcome market failures, increase agricultural productivity, achieve social equity or for political patronage.
  • A subsidy reduces the input price paid by the producer; the subsidy is merely a negative tax. As the price of the input decreases, the quantity demanded for the subsidized input will generally increase. The subsidy therefore, creates a wedge between the price paid by the producer and the price received by input providers.
  • Taking into consideration market failures and externalities, some of the concerns regarding subsidized inputs are their potential to distort the relative prices of other factors of production (such as land and labor), leakages, inhibition of the development of private supply networks, high administrative costs, and political manipulation (OECD, 2010)
2017 - Paraguay - Inter-American Development Bank - Cesar Augusto Lopez, Lina Salazar, Carmine Paolo De Salvo
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