Spillover effects of targeted subsidies: An assessment of fertilizer and improved seed use in Nigeria

Though there is increasing evidence of the availability and potential of new agricultural technologies in Africa south of the Sahara, effective demand for them is still low. A recent refocus on increasing farmers’ use of modern technologies such as improved seed and chemical fertilizer has led to a resurgence of input subsidies for these products in many developing countries. One popular mechanism currently in use is input vouchers. Targeted input vouchers are intended to simultaneously improve the targeting of subsidies and develop demand in private markets. While there is growing evidence of the impact of targeted subsidies on private input demand, as far as we are aware no empirical studies have examined the spillover effects of targeted subsidies for just one input on the use of other complementary inputs with which there is low substitutability. Consequently, this study begins to fill this gap by exploring the effect of increasing access to subsidized fertilizer on farmers’ use of improved seed in Nigeria. Using a control function approach within a limited dependent variable framework, we explore the effect of receiving subsidized fertilizer on a farmer’s likelihood of using improved seed. The study finds evidence that increased access to subsidized fertilizer increased the likelihood of farmers using improved seed in Kano, Nigeria. This indicates that farmers are re-optimizing their use of other inputs in response to increasing availability of one input. This complicates the ability to isolate the returns to any one input when evaluating programs targeted at just one input. Our results were robust to various model specifications and indicate that there is a clear link between farmers’ use of improved seed and fertilizer in Kano, which could be leveraged in the development of input subsidy programs across Africa south of the Sahara.

IFPRI Discussion Paper 01260

by Lenis Saweda Liverpool-Tasie and Sheu Salau