Input Subsidies to Agriculture: Case of Subsidies to Fertiliser Industry across Countries

Abstract

The fertiliser industry in developing countries is facing challenge and uncertain future due to their commitments to the WTO. This is part of the reason that the developing countries are pushing for reducing of subsidies given by the developed countries to their agriculture which is much bigger making the subsidies to agriculture becoming a contentious issue in the WTO negotiations. Some of the subsidies are accepted in the WTO context whereas the others are not. In India the farm sector subsidies are given in the form of irrigation, electricity, fertilisers etc. By far the fertiliser and food subsidies are the most significant amounting to about US$9.3 billion in 2004 (less than 0.5 percent of GDP). Thus, while from the WTO point of view, it is not necessary to reduce fertiliser subsidy in India. However, because of the WTO commitments, quantitative restrictions in this sector had to be removed by the end of March 2001 in India. Cheaper imports have been threatening the domestic industry specially the units that do not use gas as feedstock. In the short run domestic companies may enjoy the protection of differential subsidy in some form or the other. But in the long run they will have to compete on a stand-alone basis. This paper examines the experience and impact of fertiliser subsidy across various countries and shows that it is a common tool to promote farm production. But the evidence shows that the fertiliser subsidy tends to benefit the rich farmers more than the poor farmers. The study examines the different approaches used by the policymakers to reach the targeted farmers. In this context the paper records the evidence from some countries where the fertiliser industry has come forward and complemented the policymakers' efforts to meet this objective and in the process ensured their better future.