India, Africa: Agricultural policies in search of efficiency
India, Africa: For those interested in agriculture, what justifies such a rapprochement? First, the size of the populations, which are almost identical (1.3 billion inhabitants in 2017). Second, agricultural fundamentals of the same order of magnitude, with a similar – and very low – level of labor productivity, measured by the value of production per worker (table). This is partly the result of the predominance of small farms: on the Indian subcontinent, as on the African continent, approximately 80% of farms are less than 2 hectares.
Another similarity: in India and Africa, the share of the labor force working in agriculture is significantly higher than in other regions, which reflects the slow pace of transformation in these economies. One important consequence is the risk of a widening income gap between cities and the countryside if current development trajectories continue. India is affected, as is Africa.[1]Yet public spending on agriculture and food support is nearly four times higher in India, as a percentage of the value of agricultural production, than in the dozen sub-Saharan African countries for which comparable data are available. In both cases, there is clearly a problem with the effectiveness of agricultural policies, as the OECD points out.[2] and FAO[3].
This problem is perfectly illustrated by the issue of input subsidies.
What is it? In many African countries, farmers pay for fertilizers, but sometimes also for seeds and agricultural equipment, at prices below market prices, thanks to government subsidies. Input subsidies are even more widespread in India, where they also cover irrigation water, electricity, credit, insurance, etc. They represent some 6-8 billion of the value of agricultural production, compared to 1-2 billion in sub-Saharan Africa.
Input subsidies are the subject of much criticism[4]They are criticized for their high budgetary cost, their relative ineffectiveness in terms of increasing agricultural production or reducing poverty, their diversion due to fraud or corruption, their defective targeting which leaves out many small producers, or their negative impact on the environment due, for example, to the overconsumption of fertilizers and irrigation water.
In this context, various experts have proposed several avenues for reform, aimed at improving the system of distributing input subsidies, replacing it with direct aid to farmers or reducing the amount of subsidies in favor of investment expenditure (research, extension, infrastructure, etc.), which is supposed to be more effective for development.
Improve the distribution of subsidies
To reduce the gap observed between the quantities of fertilizers benefiting from subsidies and the tonnage of fertilizers actually consumed, due to illegal practices or administrative malfunctions, the Indian government launched the "DBT" (Direct Benefit Transfer) program in 2017.[5]The DBT's goal is to track fertilizer sales at the retail level, through digital recording using specially designed machines. Subsidies are then paid to fertilizer manufacturers based on the quantities sold. But for several reasons—delays in delivering the machines to the 500,000 certified retailers, recording errors, etc.—the program has not yet produced the expected results, and it is not clear whether it will generate substantial savings.
Replace subsidies with direct aid to farmers
Indian researchers advocate paying fertilizer subsidies directly to farmers[6]. For reasons of efficiency, but also to give farmers greater decision-making power over the use of aid. This new method would also allow public authorities to precisely target the beneficiaries of subsidies, giving priority to small producers and currently neglected categories, including women. Simulations indicate that this option would lead to an increase in fertilizer prices and a reduction in agricultural production, but the loss of income for farmers would be compensated by the direct payment.
Reduce subsidies in favor of investments
Another debate concerns the distribution of agricultural support expenditures between subsidies and investments. Most experts believe that input subsidies encourage farmers to increase production, but do not trigger a deep and lasting dynamic of development, unlike investments in research, agricultural extension, or infrastructure. Unfortunately, in India, as in sub-Saharan Africa, investment expenditures are relatively sacrificed in favor of subsidies. The latter have an immediate impact and can also be easily manipulated by politicians. For example, in India, public investment in agriculture, expressed as a percentage of agricultural value added, declined from 3.9% in 1980/81 to 2.2% in 2014/15; at the same time, input subsidies increased from 2.8% to approximately 8% of agricultural value added. However, according to the results of a model published in a recent work, the number of people lifted out of poverty or the growth of agricultural value added in India are 5 to 10 times greater when a given amount of public funding is dedicated to agricultural research, road construction or education, rather than to subsidizing the consumption of fertilizers, electricity or water for irrigation.[7].
The problem of the effectiveness of agricultural policies is far from being limited to that of input subsidies. And it cannot be posed independently of the other criteria applicable to any state intervention – which farms benefit from this aid, which territories receive the most, what is their impact on the environment, etc. Moreover, the total amount of agricultural support expenditure remains a major question, as evidenced by the inability of most African states to respect the Malabo Declaration commitment to dedicate at least 10% of their budget to this sector. Nevertheless, the questions raised by input subsidies are legitimate and must fuel the debate.
One thing is certain: whatever the distribution of support expenditures, they will only have a truly positive effect on agriculture if they are implemented within a conducive macroeconomic, regulatory and institutional framework. It would be unrealistic to expect increased investment spending to provide a new impetus to agricultural development if, due to market failures or other reasons, farmers are subject to continued downward price pressure, as is the case in India and Africa.[8].
[1] Bruno Dorin (2017), India and Africa in the Global Agricultural System (1961-2050). Towards a New Sociotechnical Regime?, Economic and Political Weekly, Vol. LII (25-26): 5-13, June 2017.
[2] OECD/ICRIER (2018), Agricultural Policies in India, OECD Food and Agricultural Reviews, OECD Publishing, Paris.
[3] Pernechele, V., Balié, J. & Ghins, L. (2018), Agricultural policy incentives in sub-Saharan Africa in the last decade (2005-2016) – Monitoring and Analyzing Food and Agricultural Policies (MAFAP) synthesis study, FAO Agricultural Development Economics Technical Study 3, FAO. The countries studied are Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, Mali, Mozambique, Uganda and Tanzania.
[4] Jayne, TS, Mason, NM, Burke, WJ & Ariga, J. (2018), Review: Taking stock of Africa's second-generation agricultural input subsidy programs, Food Policy 75 (2018) 1-14.
[5] Singh, V. & Ward, PS (2018), Challenges in implementing India's Aadhaar-enabled fertilizer management system, CSISA Research Note 11.
[6] Bathla, S. & Kumar, A., Agrarian cries: Direct transfer more efficient, effective than input subsidies, The Financial Express, February 12, 2019.
[7] Gulati, A., Ferroni, M. & Zhou, Y. (2018), Supporting Indian Farms the Smart Way, Academic Foundation, New Delhi.
[8] Ghins, L., Aparisi, A.-M. & Balié, J. (2017), Myths and realities about input subsidies in sub-Saharan Africa, Dev Policy Rev., 2017; 35: O214-O233.
