Incentives for Fertiliser-dependent Farmers |
After Russia invaded Ukraine, global fertiliser prices tripled, generating the largest increase since the 1970s oil crisis. Policymakers reacted quickly. The African Development Bank called for “urgent countercyclical policy such as subsidies” to offset rising food and energy costs, while former head of the UN World Food Programme, David Beasley, more apocalyptically warned of “hell on earth” without action. Across Africa, governments expanded existing subsidy programmes (Burundi, Rwanda, Zambia), introduced new ones (Tanzania), or revived old ones (Kenya). Fertiliser subsidies were suddenly back at the centre of policy debates. The current Gulf/Iran crisis looks even worse in comparison, and this time Pakistan needs to watch out. How does the spike in fertiliser prices impact farmers?
As an example, when the Ukraine war shock hit Rwanda, where agriculture accounts for 65% of employment, the impact was severe. Like many other countries in Africa, Rwanda imports all of its inorganic fertiliser, and the government plays an important role in the market through subsidies. In response to the 2022 shock, these countries immediately increased their per-unit subsidy from 30 to 45% for most fertilisers, causing the programme’s cost to increase from 4 to 19% of the Agricultural Ministry’s budget (from 5 billion Rwandan francs in 2020 to 13 billion francs in 2022). Taking the global shock and government response in tandem, Rwandan farmers paid 70% more per kilogram of fertiliser in 2022 than they did one season earlier. As a result, research........