Fertilizer Subsidies and Smallholder Commercial Fertilizer Purchases: Crowding Out, Leakage, and Policy Implications for Zambia

Targeted fertilizer subsidies are growing in popularity in Sub-Saharan Africa and are a pillar of the Government of the Republic of Zambia’s (GRZ’s) agricultural sector strategy. For example, over the 2004 to 2011 fiscal years, the budget allocation to the Fertilizer Support Programme (FSP) and its successor, the Farmer Input Support Programme (FISP), averaged 40% of the total allocation to the ministries responsible for agriculture, livestock, and fisheries, and 64% of the total budget for agricultural sector poverty reduction programs. However, if subsidized fertilizer is allocated to households that would have otherwise purchased it at commercial prices, then the increase in total fertilizer use as a result of the subsidy program will be negligible. In other words, the change in total fertilizer use depends in part on the extent to which subsidized fertilizer crowds out or displaces commercial fertilizer purchases.