IMF Notes

Agricultural Producer Subsidies: Navigating Challenges and Policy Considerations

Author/Editor:

David Amaglobeli ; Todd Benson ; Tewodaj Mogues

Publication Date:

August 26, 2024

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

The objectives underlying agricultural output subsidies can have conflicting implications for the design of subsidy programs. As they tend to affect meaningful swaths of the electorate, subsidies can also be an attractive political instrument. By artificially lowering production costs or assuring higher output prices, direct support measures can result in resource misallocation in instances where they fail to address market failures, such as imperfect information about the returns to fertilizers. Subsidies can also contribute to fertilizer overuse, harming the environment and the agricultural sector in the long term. Furthermore, agricultural production subsidies are often fiscally costly and unfavorable compared to alternative uses of public funds—both within the agricultural sector and outside it—to achieve the same ends. Various design and implementation challenges amplify the shortcomings of producer subsidy programs.

Series:

IMF Notes No 2024/002

Subject:

Agricultural commodities Agricultural policy Agricultural sector Agroindustries Commodities Economic sectors Expenditure Food security Government subsidies Poverty Price incentives Prices

Frequency:

occasional