The welfare impact of the removal of input subsidies for crop production in Lesotho

Ratii, Motselisi Ledecia (2016-03)

Thesis (MSc)--Stellenbosch University, 2016.

Thesis

ENGLISH ABSTRACT: The dwindling agricultural production and extreme poverty in Lesotho and most of sub-Saharan Africa has let governments to resort to fertiliser subsidies as a strategy to combat poverty and attain household food security. However, the efficiency analysis of input subsidies in these countries showed that the costs of the programs outweigh the benefits. For this reason, fertiliser subsidies are discouraged. In Lesotho fertiliser subsidy seem to not be a good tool to ensure food security as a country is prone to natural disasters like droughts and floods. Agricultural production remained low despite the presence of fertiliser subsidy program. This had let one to question the extent to which fertiliser subsidy improves agricultural production. Household food security is achieved when there is availability of food in households. Also household food availability enhances welfare. The objective of this study was therefore to determine the impact of removing fertiliser subsidy on production, prices, income and consumption as well as fertiliser demand. The objective was achieved through the use of the multi-market model developed by Lundberg and Rich (2002) for Africa. Products used in the model are differentiated into internationally tradable products (maize, wheat, cash crops, non-foods and fertiliser) and internationally non-tradable products (sorghum, other foods and livestock). Households were classified into urban poor and urban rich, rural poor and rural rich. The results indicate that the withdrawal of fertiliser subsidy reduces crop production while production of livestock increases. Non-food production is not affected. Subsequently, income in urban households increases and income of rural households decreases. This is because livestock (broiler) production is an urban activity while crop production is mostly rural based. Prices of internationally tradable products are not affected while prices for products not traded internationally increased. As a result, consumption of tradable products increased and consumption of non-tradable products decreased. Fertiliser consumption declines by more than half. Conclusion based on these results are that the fertiliser subsidy contributes to about 15% of maize production, 8% of wheat and 7% of sorghum and cash crops (beans) production as well as a modest 3% contribution to production of other food (leafy green vegetables). Though the opportunity cost of the fertiliser subsidy is not measured in this study, the M10.11m which is the cost of the fertiliser subsidy program could be used to fund programs that generate non-agricultural income for poor households. This will enable them to afford imported food hence, their welfare will be improved.

AFRIKAANSE OPSOMMING: het daartoe gelei dat regerings hulle wend na kunsmissubsidies as ‘n strategie om armoede teen te werk en om voedselsekuriteit op huishoudingvlak te bewerk. Desnieteenstaande het die doeltreffendheidsanalise van inset subsidies in hierdie lande gewys dat die koste van die progamme meer is as die voordele. Vir hierdie rede word kunsmissubsidies ontmoedig. In Lesotho blyk dit dat kunsmissubsidies nie ‘n goeie instrument is om voedselsekuriteit te verseker nie aangesien die land geneig is tot natuurlike rampe soos droogtes en vloede. Landbouproduksie het laag gebly tenspyte van die kunsmissubsidie program. Dit het daartoe gelei dat die mate waartoe die kunsmissubsidie program landbouproduksie verbeter, bevraagteken word. Voedselsekuriteit op huishoudingvlak word bereik wanneer voedsel vir huishoudings beskikbaar is. Voedsel beskikbaarheid vir huishoudings verbeter ook welvaart. Die doelwit van die studie was dus om te bepaal wat die impak is van die verwydering van die kunsmissubsidie op produksie, pryse, inkomste en verbruik, sowel as die vraag na kunsmis. Die doelwit is behaal deur die gebruik van die multi-mark model ontwikkel deur Lundberg en Rich (2002) for Afrika. Produkte gebruik in die model word onderskei as internasionaal verhandelbare produkte (mielies, koring, kontantgewasse, nie-voedsel en kunsmis) asook internasionaal nie-verhandelbare produkte (sorghum, ander voedsel en lewendehawe). Huishoudings was geklassifiseer as stedelik arm en stedelik ryk, landelike arm en landelik ryk. Die resultate dui daarop dat die onttrekking van die kunsmissubsidie gewasproduksie verminder, terwyl produksie van lewendehawe toeneem. Nie-voedsel produksie word nie geaffekteer nie. Voorts, inkomste van stedelike huishoudings neem toe en inkomste van landelike huishoudings neem af. Dit is omdat lewendehawe (braaikuiken) produksie meestal in stedelike gebiede plaasvind terwyl gewasproduksie meestal in landelike gebiede plaasvind. Pryse van internasionale verhandelbare produkte word nie geaffekteer nie, terwyl pryse van produkte nie internasionaal verhandelbaar is nie, toeneem. Gevolglik, neem verbruik van verhandelbare produkte toe en neem verbruik van nie-verhandelbare produkte af. Kunsmisverbruik neem met meer as die helfte af. Gevolgtrekkings gebaseer op die resultate is dat die kunsmissubsidie bydra tot omtrent 15% van mielieproduksie, 8% van koring en 7% van sorghum en kontantgewas (bone) produksie, sowel as ‘n beskeie 3% bydrae tot die produksie van ander voedsel (groen blaargroentes). Alhoewel die geleentheidskoste van die kunsmissubsidie nie in hierdie studie gemeet word nie, kan die M10.11m wat die koste van die kunsmissubsidie program is, gebruik word om programme te befonds wat nie-landbou inkomste vir arm huishoudings genereer. Dit sal hulle instaat stel om ingevoerde kos te bekostig, dus sal dit welvaart verbeter.

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