Agricultural input subsidies: changing theory and practice

Abstract

Abstract Agricultural input subsidies were a major feature of agricultural development policies in rural economies from the 1960s to 1980s. The theoretical case for agricultural subsidies is based on their promotion of agricultural productivity by making investment in new technologies more attractive to smallholder farmers. If market failures mean that farmers’ private input costs are higher than true social or economic costs then a subsidy can generate a positive overall net economic return. However, there have been concerns related to inefficiency, leakages, and diversion of subsidized inputs. Despite these concerns there is resurgent interest in input subsidies in Africa, with new ‘smart’ input subsidies, particularly for staples, being viewed as one means of achieving food security and pro-poor growth as well as replenishing soil fertility. This chapter develops the theoretical underpinnings of ‘smart’ agricultural input subsidies, their pros and cons, and their roles in agricultural development in low income countries.