The government can set the farmer contribution to fertilizer subsidized through the Affordable Input Programme (AIP) so that farmer demand for the commodity matches available supplies under the program. For any given budget dedicated to subsidizing fertilizer, this approach will maximize food security gains through two distinct channels. First, it will maximize the total amount of subsidized fertilizer that can be distributed under the allocated budget. Second, it will maximize the additional food generated through the subsidies by ensuring each subsidized bag of fertilizer has the largest possible yield response. This policy note discusses the first advantage. A companion policy note (Banda et al., 2022) discusses the second advantage.
By adopting this pricing mechanism, the government can achieve the phase-out of the AIP, to which it has recently committed (Sabola, 2022), efficiently through a gradual reduction in allocated budget and a commensurate increase in farmer contribution.
Authors: Chimwemwe Banda, Joachim De Weerdt, Jan Duchoslav and Aubrey Jolex
Read and download the policy note here (PDF 198 KB).
