Do fertilizer and seed subsidies strengthen farmers' market participation? Evidence from Tanzania's subsidy program

• Published date: 01 February 2024
• Author: Takefumi Fujimoto,Aya Suzuki
• Date: 01 February 2024
• DOI: http://doi.org/10.1111/rode.13061

REGULAR ARTICLE

Do fertilizer and seed subsidies strengthen

farmers' market participation? Evidence from

Tanzania's subsidy program

Takefumi Fujimoto|Aya Suzuki

Department of International Studies, Graduate School of Frontier Sciences, The University of Tokyo, Kashiwa-shi,

Chiba, Japan

Correspondence

Takefumi Fujimoto, Department of

International Studies, Graduate School of

Frontier Sciences, The University of

Tokyo, Kashiwanoha 5-1-5, Kashiwa-shi,

Chiba, Japan.

Email: 2876681407@edu.k.u-tokyo.ac.jp

Funding information

Japan Society for the Promotion of

Science, Grant/Award Number:

JP22J11332

Abstract

This study examines whether the Tanzanian subsidy

for inorganic fertilizers and improved seeds encourages

farmers to participate in the input and grain markets.

Using six waves from 2008–2009 to 2020–2021 of the

National Panel Survey, we investigated whether the

subsidy affected farmers' purchases and expenditures

for all conceivable inputs, including nonsubsidized

inputs (organic fertilizers, traditional seeds, pesticides/

herbicides, labor, and capital). Subsequently, we

estimated the subsidy's impact on the probability of

farmers selling crops and their sales revenue. In the

input markets, we found that improved seeds, rather

than inorganic fertilizers, played a major role in

farmers' market activities. Beneficiaries who received

subsidized seeds were more likely to purchase pesti-

cides/herbicides, hire more labor, and borrow oxen and

tractors to make their farmland suitable for the growth

of improved seeds. In crop markets, we found that

receiving both subsidized fertilizers and seeds increased

the probability of farmers selling maize or paddy nearly

threefold relative to the receipt of only subsidized fertil-

izer. Moreover, legume sales revenue also increased

Received: 26 July 2022Revised: 20 August 2023Accepted: 27 September 2023

DOI: 10.1111/rode.13061

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distrib ution and

reproduction in any medium, provided the original work is properly cited.

© 2023 The Authors. Review of Development Economics published by John Wiley & Sons Ltd.

Rev Dev Econ. 2024;28:339–359. wileyonlinelibrary.com/journal/rode 339

among seed beneficiaries through intercropping with

maize and paddy.

KEYWORDS

input subsidy, market participation, modern agriculture,

Tanzania, technology adoption

JEL CLASSIFICATION

O13, Q12, Q18

1|INTRODUCTION

Since the mid-2000s, several countries in sub-Saharan Africa (SSA) have reintroduced fertilizer sub-

sidies. International donors shifted aid policy from conditionality to general budget support around

the year 2000 and increasingly recognized the importance of agriculture for economic development

(Jayne & Rashid, 2013). Owing to the significant support of international donors, input subsidies

revived with the concept of “market-smart”subsidies in multiple SSA countries (Jayne et al., 2018).

Market-smart subsidies aim to support farmers with the potential profitability of fertilizer

use under a clear exit strategy and stimulate new demand for fertilizers in private markets

(Morris et al., 2007). An expected idea in SSA input subsidies is a positive growth cycle through

input and output markets. Once farmers purchase fertilizer at subsidized prices for a given

period, they produce high yields and gain profits for subsequent input purchases after the subsi-

dies end (Jayne et al., 2018). Obtaining agricultural inputs and income from market transac-

tions is necessary to continue the intensive form of modern agriculture.

The main purpose of this study is to examine whether the Tanzanian subsidy, known as the

National Agricultural Input Voucher Scheme (NAIVS), encourages farmers to participate in the

input and output markets. Under the NAIVS, farmers receive vouchers to purchase inorganic

fertilizers and improved seeds at half the price at a local retail shop. This study aimed to answer

the following two questions:

1.Did the subsidy promote the beneficiaries' purchases of nonsubsidized inputs?

2.Did the subsidy activate the beneficiaries' sales in crop markets?

Question 1 explored the agronomic synergies among modern agricultural inputs. For

example, inorganic fertilizers have generated higher yields in combination with fertilizer-

responsive modern seed varieties during the Asian Green Revolution (Otsuka & Kijima, 2010).

The use of inorganic fertilizers promotes the growth of weeds around planted crops, which

requires the combined use of herbicides (Sheahan & Barrett, 2017). Modern agriculture is char-

acterized by the complementarity of modern inputs.

Previous studies on SSA subsidies mainly clarified the combined use of inorganic fertilizer

with organic fertilizer and labor (Holden & Lunduka, 2012; Khonje, Nyondo, Chilora,

et al., 2022; Kim et al., 2021; Koppmair et al., 2017; Ricker-Gilbert, 2014). Organic manure

improves the soil structure and helps plants absorb nutrients supplied by inorganic fertilizer.

Fertilization also requires additional labor.

However, these nonsubsidized inputs can be self-supplied by farmers and are different from

modern inputs obtained through markets (e.g., pesticides/herbicides and machinery). Although

340 FUJIMOTO and SUZUKI