Page 35 - CMA Journal (Jan-Feb 2026)

Focus Section

2. Are These Subsidies Useful? gains from Input Subsidy Programs (ISPs) only accrue in
the short term and the effects are smaller than expected
A Review of Literature
due to the crowding out of commercial fertilizer and low
Government interventions in Pakistan have often agronomic efficiency. Likewise, (Nadeeshani Silva &
implicitly taxed the agricultural sector. (Gotsch & Brown, Kirschke, 2014) found that in Sri Lanka, fertilizer demand
1980) highlight that between 1960 and 1976, domestic was inelastic to price changes. They find that while
prices for wheat and cotton were persistently held below subsidies helped achieve rice self-sufficiency, the
world market levels to favor industrialization, effectively benefits were outweighed by the significantly high fiscal
taxing farmers despite the input subsidies. This costs of such subsidies. Moreover, these subsidies also
complexity continued on; (Chaudhry & Sahibzada, 1995) caused environmental issues. On the other hand, (Dwi
observe that while explicit budgetary subsidies Utami Nur Hasanah & Fauziyah, 2025) showed that
decreased over time, the government ramped up implicit Indonesian government policies on input subsidies and
subsidies (such as those on water and credit). output tariffs helped maintain the comparative and
Nevertheless, the perceived benefits failed to materialize competitive efficiency of local corn farming.
due to corruption and under reporting. They found that Subsidies are frequently analyzed through the lens of
removing input subsidies without compensating for political economy and social equity. In Malawi, (Dionne &
output prices reduced profitability and disproportionately Horowitz, 2016) found that subsidy programs significantly
hurt small farmers, whose fertilizer use dropped increased support for the incumbent party, noting that
significantly during such price hikes in the 1980s. broad distribution was sufficient to alter political
Literature on Pakistan’s agricultural sector highlights the preferences without strict ethnic targeting. Likewise,
fiscal implications of input subsidies and their (Banful, 2011) provides evidence of political manipulation
ambiguous effectiveness. (Ali et al., 2016) argue that in Ghana, where vouchers were disproportionately
public policies regarding fertilizer remain controversial; targeted to opposition districts to sway voters rather
they find that removing gas subsidies and investing the than being allocated based on poverty. Similarly,
savings into agricultural R&D yields the highest social (Takeshima & Liverpool Tasie, 2015) suggest political
benefit compared to maintaining the status quo. Their patronage in Nigeria, where subsidies showed weak
findings are endorsed by Abedullah (2021), who finds effects on food prices and distribution patterns favored
limited effectiveness of fertilizer subsidies in providing state governors' home districts. Moreover, (Adeolu et al.,
relief from food inflation, with an average family saving 2017) studied the impact of such programs on social
only Rs 74 per month against a national cost of equity and found that while fertilizer subsidies in Malawi
approximately Rs 200 billion annually. were relatively more pro poor than food aid, neither was
perfectly targeted to the poorest households.
Furthermore, Hussain et al. (2018) highlighted the
distortions created by tax regimes favoring low grade Furthermore, gender dimensions are highlighted by
fertilizers. Their findings suggest that revenue measures (Smale & Thériault, 2022) in Mali, where subsidies for
like a uniform tax rate of 2%, instead of cash subsidies, staple cereals negatively impacted the production of
could reduce production costs for major crops like wheat cowpea which is often grown by women, suggesting a
and cotton while significantly lowering the burden on the displacement of women's revenue sources.
national exchequer. With respect to the overall benefits of 3. Problems and Misuse
such subsidies, some studies find evidence of welfare The current system, however, is not without problems.
benefits although the overall evidence is mixed. For Some of the issues are detailed below:
example, Ali et al. (2019) report that the 2015–2016
program was successful in motivating around 61% of the a) Blanket Nature of Subsidy: Since the subsidy
farmers to increase fertilizer dosage, leading to higher design largely ignores its primary purpose, i.e.,
yields and increased household income. Nevertheless, targeting subsistence farmers exclusively. Although
(Danish et al., 2017) observe that the crop yields in Pakistan some of the fertilizer reaches small farmers, much of
remained relatively inelastic to subsidy increases it is taken by high-net-worth farmers and
compared to India, suggesting that the funds allocated to middlemen.
such subsidies could be diverted to address structural b) Market Inefficiencies: The subsidy’s design
constraints like water availability and seed quality. depends on access to natural gas. In Pakistan, the
domestic supply of natural gas has been shrinking
International literature also supports the mixed results as
observed by researchers in Pakistan. On a global scale, over the years. Due to this, the government is often
Robinson (2008) argues that substantial agricultural unable to deliver on its promise to all industry
subsidies in China and India shield their farmers from players, creating market distortions as influential
high costs, driving up global demand and prices, which players secure supply and undercut the market by
disadvantages farmers in free market economies like the offering lower prices. Moreover, manufacturers
US. A comprehensive review by (Jayne et al., 2018) across improve their profitability while passing only part of
seven African countries indicates that the productivity the benefit to small farmers.

ICMA’s Chartered Management Accountant, Jan-Feb 2026 33