Fertilizer Subsidies in Ghana
Subsidies to promote fertilizer use have become a popular policy in Africa south of the Sahara, aimed at increasing the region’s lagging agricultural production. However, new research from Ghana, published in Food Security, suggest that fertilizer subsidies alone may not be enough to encourage greater fertilizer application and increase farm productivity.
According to the study, while maize accounts for 20 percent of calorie intake and 13 percent of total cultivated land in Africa south of the Sahara, maize yields in the region remain the lowest in the world – only 0.5 to 2.5 tons per hectare (compared to the global average of 6-7 tons per hectare). These low yields can be attributed mostly to soil nutrient depletion and the widespread use of low-yielding maize varieties. To address this first cause, efforts by policymakers and development practitioners have focused on increasing fertilizer use through price subsidy programs. These programs aim to lower the cost of fertilizers for poor farmers, thus encouraging more farmers to adopt modern fertilizers and hopefully increasing both crop yields and farm incomes.
Since 2008, the Government of Ghana (GoG) has used its fertilizer subsidy program to lower the cost of fertilizer for smallholders, with the ultimate aim of increasing fertilizer use on staple crops and increasing overall yields. The program has grown steadily since then, with annual costs tripling $60 million in 2012, according to Ghana’s Ministry of Food and Agriculture. Despite this spending, however, fertilizer consumption in Ghana remains well below the average for the region.
To investigate why fertilizer take-up in Ghana remains low, this latest study utilizes cross-sectional data from 645 maize plots in Ghana to provide empirical evidence on how maize yields respond to fertilizer application, the profitability of fertilizer use for farmers, and how Ghana’s fertilizer subsidy program impacts the economics of fertilizer use.
The study finds that maize yields responded positively to increased fertilizer application. Applying 1 kg of nitrogen fertilizer led to a yield increase of 22-26 kg/ha in both the northern and the southern regions of the country. In addition, the authors found that growing maize with fertilizer is profitable for Ghana’s farmers, at both market prices and subsidized prices. This finding again held true across different locations, different farming practices, and different seed types (traditional vs modern seed varieties and certified vs non-certified seeds).
Despite these positive impacts of fertilizer use, however, the nitrogen application rate in the study areas only averaged 44 kg/ha, much lower than both levels recommended by the government and national research institute (90 kg/ha) and levels computed to be economically optimal (225 kg/ha).
The authors identify several other factors that appear to constitute major bottlenecks to increasing fertilizer use and farm productivity. These factors include accessibility to modern seed varieties, cost of certified seed varieties, degree of agricultural mechanization, access to hired labor, access to extension services, and a household’s degree of commercialization and market access. When these factors are favorable, the study finds that farmers are more likely to adopt both fertilizer and modern seed varieties, both of which can improve agricultural productivity.
In terms of policy implications, the author suggest that more than fertilizer subsidies may be needed given that many factors other than price limit fertilizer adoption. The authors recommend that policymakers in Ghana, and in the region as a whole, take a more integrated, holistic approach to policies to encourage fertilizer application and drive agricultural productivity growth. Such an approach should increase access to complementary inputs like modern seed varieties and agricultural mechanization, as well as increasing the reach and quality of agricultural extension services.
By: Sara Gustafson, IFPRI