Agricultural Policies for Poverty Reduction
With more than two-thirds of the world’s poor living in rural areas, higher rural incomes are a pre-requisite for sustained poverty reduction and reduced hunger. This volume sets out a strategy for raising rural incomes which emphasises the creation of diversified rural economies with opportunities within and outside agriculture. Agricultural policies need to be integrated within an overall mix of policies and institutional reforms that facilitate, rather than impede, structural change. By investing in public goods, such as infrastructure and agricultural research, and by building effective social safety nets, governments can limit the role of less efficient policies such as price controls and input subsidies.
The Use of Input Subsidies in Low-Income Countries
Input subsidies provide an operationally simple and politically attractive way of addressing multiple objectives. Economic objectives include stimulating production, offsetting high transport costs and input supply costs, making inputs affordable to farmers without credit, and allowing farmers to learn about the benefits of new inputs. In addition, they serve the social objective of transferring income to poor farmers. Input subsidies are an indirect, and relatively inefficient, way of addressing these objectives; they distort the allocation of resources, are prone to capture by vested interests, and often become fiscally costly. Innovative design features can mitigate some of these problems, but if input subsidies are deemed to have a short- to medium-term role it is important that their use does not crowd out spending on essential public goods, or compromise a long term approach of eliminating market failures – as opposed to offsetting them – and getting private markets working without subsidies.