The global food situation up to 2000
Food security has become a major concern in the past twenty years. However, during this period, food production has increased considerably in the world. On average, food prices have steadily declined over the past twenty years which shows that many poor households have also benefited from the increased food production. This indicates that technological progress has surpassed the increased effective demand (Brown and Goldin, 1992).
Current calorie production is sufficient to feed the world population. However, although more people are fed today than ever before, hunger and malnutrition are also increasing in absolute terms in many countries of the world. In particular, protein consumption declined in Sub-Saharan Africa from 53.9 g caput-1 in 1961-63 to 53.3 g caput-1 in 1988-90 (FAO, 1992a). The causes for these phenomena are manifold (Dreze and Sen, 1990). Apparently, increased production does not guarantee that all people receive a satisfactory and balanced diet. It is very unlikely that, either today or in future, problems in distributing food entitlements can be solved entirely by increased food production (Mellor, 1990; Parikh, 1990).
Fears are rising that in the next century mankind will be caught in a Malthusian trap of population growth outstripping production and resources, which, for many years, was thought to be only a theoretical construct (Brown and Young, 1990). The opinion that the increasing South-North migration is an early symptom of the Malthusian trap is gaining popularity in the developed world.
Despite income growth and income elasticities of demand, future food demand is to a large extent (60-75%) determined by population growth (Brown and Goldin, 1992). World population is estimated to increase by 900 Million people (+17%) in the last decade of this century, and by another 2200 Million people in the first 25 years of the next century (World Bank, 1992). Population growth is highest in those parts of the world which contain ecologically fragile agro-ecosystems like the arid, semi-arid and mountainous tropics, which largely form the so-called underdeveloped world.
However, Brown and Goldin (1992), reviewing different global studies, conclude that future food security is not at risk, since, even in the absence of agricultural policies aimed at food self-sufficiency, food deficits can be balanced through increased international trade. The eradication of hunger and malnutrition, though, requires food production to grow faster than the population. In this respect, Brown and Goldin (1992) assume that technological change will continue. In the past, high growth rates of production were realised with a combination of increased cultivated acreage, increased intensity of cultivation and increased productivity (Baanante et al. 1989). In the future, extension of cropped land will be limited in many countries. Therefore, growth of production will have to rely on land-saving technological progress. Where extraordinarily high growth rates have been achieved through the application of 'simple' technologies, notably in the high-potential areas of South East Asia, further innovations certainly have to become more sophisticated and complex management systems (Von Uexküll, 1991).
There is a growing concern that the world is coming close to its 'limits of growth' as earth's natural resources are limited. Phosphorus is one of the essential inputs for agricultural production and its growth. This chapter will outline P management and its problems in different regions of the world and relate this to the food situation in the regions. Many technical developments aiming at a more efficient P management are already available, and the second part of this chapter will identify constraints for the adoption of these innovations at the micro- or farm-household level and at the macro- or policy level. Finally, some possible solutions will be discussed briefly.
Current trends in food security and P management: a regional perspective
In general, farmers make use of different P sources, namely mineral P fertilizers, soil P and organic P sources (organic matter, animal manure). From an economic point of view the different sources should be used efficiently to arrive at sustainable land use systems. Here, sustainability will be defined by three aspects: meeting the growing food demand, economic viability, and maintenance or enhancement of environmental quality. Environmental quality comprises two important issues, the maintenance of soil fertility and the avoidance of environmental pollution. In the following section, these aspects will be discussed in relation to P management.
Several divergent P management systems can be distinguished across various regions of the world. Food security is most vulnerable in the areas with low external inputs (category B.3.1; Table 1) and the urban areas of the developing countries (A.2; Table 1). Inputs for various regions are shown in Figure 1, although the map is greatly simplified, since P-management systems do not match national boundaries.
Inherent P content of many tropical soils is very low, although some significant spatial redistribution of P takes place. In northern Ghana, for instance, like in many other West African countries animals are ranged in the bush and kraaled during the night around the compound houses. Household wastes and human feces are also deposited on the compound fields. Therefore P contents differ considerably with land use types. In the Sahelian and Sudanian zone, nutrient transfers through animals are organised through informal contracts between Fulani herdsmen and farmers (Pieri, 1991). Nevertheless, overall P balances are estimated to be negative because of the low application rates of artificial fertilizers (Breman, 1990a; van der Pol, 1992; Penning de Vries and Dijetye, 1982; Stoorvogel and Smaling, 1990), although the methodologies of such studies can be questioned (Hailu and Runge-Metzger, 1993). If these negative trends are not reversed, agricultural productivity of the areas will decline further. There is, however, widespread evidence that productivity and sustainability can be raised through increased availability of P (Brakhan et al., 1985; Baanante, 1986; Breman, 1990b; Christianson and Vlek, 1991) which in many cases is the most limiting nutrient for agricultural production (Penning de Vries and Dijeteye, 1982). It has to be noted that in the past, government policies have largely discriminated against the agricultural sector and therefore against fertilizer availability in these regions.
Table 1. Problems of regional phosphorus management systems
| A. | URBAN AREAS: | ||||||||
|
A.1. |
Highly industrialised -High P-throughput from domestic and industrial sources -Eutrophication |
||||||||
| A.2. |
Less industrialised -Limited recycling (Calcutta, Shanghai) -Eutrophication |
||||||||
| B. | RURAL AREAS: | ||||||||
| B.1. |
Commercialised, export-oriented, no/low degree of protection -Substantial P-exports, nutrient imbalances |
||||||||
| B.2. | Commercialised, market-oriented, high degree of agricultural protection | ||||||||
|
B.2.1 Intensive animal production -Excessive P-inflows and P-losses (leaching, erosion, runoff) -Eutrophication |
|||||||||
|
B.2.2 Crop production (Europe) -P-accumulation in the past (P-losses through erosion) -Eutrophication |
|||||||||
| B.3. | Discriminated agric. sector | ||||||||
|
B.3.1 Low external input agriculture (poor semi-subsistence farms: Latin America, Sub-Saharan Africa, Asia) -Soil-P deficiencies, negligible replenishment |
|||||||||
| -Substantial P-losses through erosion | |||||||||
|
B.3.2 'Green Revolution' regions (South and South East Asia) -Increasing P-use -Nutrient imbalances |
|||||||||
In contrast to these areas, in the 'Green Revolution' regions (B.3.2, Table 1) P consumption still grows at considerable rates, with P exports more or less counterbalanced by inputs. From the rice paddies in Indonesia it is even reported that there was a built up of soil-P within the past 15 years due to sedimentation, fertilisation and efficient nutrient cycling. China and parts of other East Asian countries are an exceptional example for the successful cycling of organic P over several thousands of years. Population pressure was the main driving force for the adoption of such labour intensive fertilisation techniques (Zhao-Liang and Zhen-Bang, 1990). However, relative nutrient ratios often do not meet plant nutrient requirements (Stangel and Von Uexküll, 1990). Despite these efforts, malnutrition is most widespread in Asian countries in absolute terms.
Figure 1. Use of mineral phosphate fertilizer (5 year average) 1985-89.
The export-oriented commercialised farming systems (B.1) produce food surpluses. Whether these regions can maintain their role in global food security depends on whether exported soil nutrients are really replenished which is more likely the case for New Zealand and Australia than for the Latin American countries (Ludwick and Keng, 1991).
The regions under B.2 presently do not face any problems with regard to food security. For instance, in the EC, food self-sufficiency is a declared goal of the common agricultural policy (CAP) which has resulted in large food surpluses. Currently, a decision has been taken towards a more open-market oriented trade policy in order to reduce market distortions which have become a matter of concern at GATT. A second goal of the CAP reform is to reduce negative environmental impacts of agriculture. Negative off-site impacts are not evenly distributed across the region. The most seriously affected areas are those with highly intensive land-independent animal production (B.2.1). In these areas, P applications exceed rates necessary for optimum plant production and P accumulates in the soils. For instance, in the Netherlands P inflows exceed harvest exports by 40 kg ha-1 (Becker, H., 1992 unpublished; Sibbesen and Runge-Metzger, Ch. 4).
In predominantly crop producing areas (B.2.2) this ecological problem is not as serious, although in Germany, soil P contents have been raised until the early 80's through the extensive application of phosphate fertilizers (Kaarstad, 1989), and on average, soil P levels are still increasing in the EC countries (Sibbesen, 1989).
Whether the EC countries will maintain the current intensity of agricultural production is questionable. This is also the case for the formerly centrally planned economies in eastern Europe and the Far East where agriculture was subsidised to a large extent (Brooks, 1990). In these countries, P fertilisation was increasing over the past decades so that soil P levels were slightly raised (Ryszkowski et al., 1989; Kaarstad, 1989). The economies in eastern Europe are now disintegrating, and the supplies of raw materials to the P industry have become irregular. Agricultural P consumption in Russia has fallen from 4.6.106 Mg in 1988 to 1.5.106 Mg in 1992 despite estimates by agricultural scientists that 7-8.106 Mg of P are necessary to maintain soil productivity (Agra-Europe, 1992). Consequently, total food production (in particular livestock production) is expected to decline in the medium run when soil P reserves are exploited. At present, these countries are an unpredictable factor in international food markets, although it is believed that they have a comparative advantage in agricultural production (Köster, 1992).
Apart from crop exports, large P losses occur with soil erosion. Erosion losses are particularly severe in the tropical highlands, e.g. in South East Asia and the Andes of Latin America (B3.1)(Milliman and Meade, 1983), but even moderate annual P losses from erosion can carry large total economic costs. For Zimbabwe, Stocking (1986) estimates an annual P loss of 8 kg ha-1 which amounts to an economic loss of 690 million US-$ per annum. In the export-oriented regions, substantial losses are reported from New Zealand (Ward et al., 1990).
Urban areas (A) discharge considerable amounts of P both from human and industrial sources into rivers and seas causing negative off-site effects. These aspects are already a priority on the research agenda in the densely populated developed countries (Welte and Szabolocs, 1988; de Oude, 1989; Van Starkenburg and Rijs, 1989). Since the degree of urbanisation will further increase from 43% in 1990 to 60 % in 2025 (Hauser, 1991) more and more P will be channelled through the food chain into the sewage systems of the world. It is estimated that currently 33.106 Mg y-1 of P are discharged into the oceans (Howarth et al. Ch. 19), while in 1990 15.7.106 Mg y-1 were applied as mineral fertilizer (FAO, 1992b). In this respect, one can hardly talk about a 'phosphorus cycle'. Sewage has been rediscovered as a potential valuable source of P in Europe. However, this sewage is in many cases highly polluted (Baran, 1988; Van Starkenburg and Rijs, 1989). In China, for instance in Shanghai, the use of urban waste as fertilizer has a long tradition. However, transport capacities are limited so that land application exceeds environmentally acceptable levels near the city, leading to pollution problems similar to those in the intensive animal production regions of Europe.
In general, global P management results in pronounced imbalances in certain parts of the world. On one hand, phosphorus is a constraining factor for increased agricultural production in those regions (B.3.1) which are simultaneously most seriously affected by chronic or temporary food shortages. On the other hand, demand for mineral phosphorus fertilizers is still highest in those countries where the stock of soil P has already been raised substantially and where the P-throughput is the highest. Here, huge food surpluses are produced which cause significant distortions in the world agricultural market.
Constraints to efficient management
of
phosphorus resources
Given current management practices it is doubtful whether P resources are managed efficiently and whether these practices will be sustainable in the long run. Based on an estimate of the P demand increasing continuously by 3.6 % y-1 Tweeten (1989) estimates that known deposits will only last for another 61 years. Recent estimates are more conservative assuming that P-fertilizer demand will grow at 2.1 % y-1 (World Bank/FAO/UNIDO/Industry Fertilizer Working Group, 1992), suggesting that mineral phosphate requirements will be covered for the next 88 years. Other estimates, though, indicate that reserves, albeit of lower quality than those explore today, may be far greater (Cathcart, 1980). A comparison of Cathcart's (1980) estimates of reserves with the estimates of P requirement presented by Hedley et al. (Ch. 5, tab. 4) even suggests that P supply may only be exhausted by continuing losses from cultivated lands after all requirements are satisfied. However, the costs of mining and phosphate extraction will steadily increase with declining quality of the phosphate deposit (Fantel et al., 1985).
Improved P management practices have been suggested for quite some time. However, in those regions of the world where increased mineral P use is the key to raising food production, industrial fertilizers or rock phosphates are hardly used. In other regions where P is already detrimental to the environment, high levels of P inflow still persist. The following sections discuss possible explanations for this situation. In general, constraints to improved P management can be found at the farm-household or micro-level as well as at the national or macro-level.
Micro-level constraints
Lack of profitability
The assessment of the profitability of P fertilisation is generally based on results of agronomic trials. Fertilizer trials are predominantly carried out under optimum or near-to-optimum management conditions (soil preparation, sowing time, weeding) which do not reflect on-farm conditions in particular when farmers rely on manual labour like in most of Sub-Saharan Africa. For instance, sowing dates are normally distributed over several weeks so that conditions for germination and emergence in many cases are sub-optimal. Therefore, plant establishment and responses to fertilizer are lower on average than those of trial results. On-farm trials in Niger show that spatial variation of responses to fertilizer is high. In many cases fertilizer application is not profitable (McIntire, 1986; Matlon, 1983). This is the reason why average slopes of actual fertilizer response curves derived from a cross-section of on-farm data usually are less steep and optimum fertilizer rates are lower than of those derived from on-station trials in most developing countries (Figure 2a). Scientific Information on fertilizer responses under sub-optimal management conditions is very scarce. In future, this limitation may partially be overcome with the increasing use of plant growth simulation models.
Sometimes the methodology to assess the profitability of fertilizers is inadequate. It is still very common to base fertilizer recommendations on the rule of thumb that the value-cost-ratio (VCR) has to be >2 which sometimes leads to erroneous and irrelevant recommendations. Considerable methodological confusion on the use of the VCR for decision making still prevails in the literature. Basically, the VCR > 2 is only a useful decision rule under the condition that simultaneously the marginal physical product is still greater than or equal to the fertilizer-product price ratio. Depending on the actual shape of the response function and the relative prices of crops and fertilizers, VCR > 2 are often obtained for fertilizer rates beyond the optimum rate. For instance, VCR's at the optimum rate of N application were >5 for maize in northern Ghana (Figure 2b). While the optimum fertilizer rate was below 40 kg N ha-1 (q2, q3), the VCR was =2 at a rate of 70 kg N ha-1 (q1).
Figure 2. The impact of fertilizer on the yield of maize, (a) the marginal physical product (MPP) for a typical research station and an on-farm trial; and (b) the value-cost-ratio (VCR), Northern Ghana (NAES, 1982/83; Runge-Metzger, 1991).
Whether the marginal physical product is greater than or equal to the fertilizer-product price ratio can only be determined on the basis of a production function analysis. Such an analysis was impossible in the case of the majority of FAO fertilizer trials carried out under the FFHC programme due to its specific experimental design. Therefore most of the VCR's in the respective FAO reports which are calculated from these trials cannot be used for decision making because they may lead to erroneous fertilizer application rates. Even in recent literature it is frequently not indicated whether the presented VCR's are calculated at the economic optimum fertilizer rate (e.g. van Driel, 1990; Lele et al., 1989).
In addition to fertilizer applications, the inoculation of the soil with VA-mycorrhiza promises to improve P-uptake by plants. Although this could be successfully used for tree crops like coffee in Latin America (Sieverding, 1991), it seems not to be profitable for annual crops. Furthermore, without a replenishment of P removed mycorrhiza may accelerate the mining of soil-P.
Innovative soil conservation measures (like terracing, introduction of hedgerows etc.) for the reduction of P-losses are inappropriate under certain circumstances. For instance, in Laos where land is still abundant and weeds are a major constraint for increased production, farmers prefer to continue the practice of shifting cultivation instead of constructing terraces which only pay off when the land is used permanently (Fujisaka, 1991).
In Europe, the integration of P from organic sources into plant nutrition management, although desirable from an ecological point of view, is financially not attractive to farmers as costs of storage and timely distribution are high.
Lack of complementary technologies
Another constraint to fertilizer use, particularly in the sorghum and millet growing areas of Sub-Saharan Africa but also in the rain fed farming systems of South-East Asia, is that few crop varieties exist which are highly responsive to fertilizer (Matlon and Adesina, 1991). Often, the effects of the new fertilizer technologies can only be fully realised when they are combined with other agricultural innovations such as new varieties, improved water management, etc. Technological packages are therefore often more profitable than single technologies (Baker, 1975). For instance, the application of artificial fertilizer alone is not sufficient to overcome the low soil productivity in Niger (Vlek, 1990). Other determinants of soil fertility like soil organic matter, biological activity etc. must also be improved to maintain and improve soil productivity. However, socio-economic research shows that complete packages are less likely to be adopted due to the lack of adequate management skills, capital and others, as discussed below.
Land tenure
Theoretically, land tenure arrangements can impede the improvement of P cycling, for instance when traditional land tenure prohibits tree planting (use of VA-mycorrhiza) or discourages long-term investments into soils (e.g. terracing, meliorative P fertilisation) (Sperling and Steiner, 1992; Southgate et al., 1990; von Uexküll and Mutert, Ch. 9). A recent World Bank review of past experiences, though, does not support the hypothesis that in Sub-Saharan Africa land tenure poses a major problem to agricultural development (Migot-Adholla et al., 1991).
Capital constraints and poverty
In regions where farm households are hardly integrated into the markets, cash is a major constraint. Opportunity costs of cash can be extremely high so that mineral fertilizer is often applied at rates far below the recommended ones (Runge-Metzger, 1991; Gladwin, 1992). Hence, it may be misleading to base fertilizer recommen-dations on value-cost ratios of 2. Value-cost-ratios of greater than 2 are obtained with low rates of fertilizer input at the lower end of the response curve (Figure 2).
Many rural households do not have access to credit, in particular when they have no formal education and find it difficult to approach the formal banking system for loans. In many countries a large number of farmers are tenants (Egypt, Pakistan, India) so that they cannot offer land as a collateral to the banks. Apart from this, many credit schemes are at risk because of low repayment rates (Baanante and Thompson, 1990). Often farmers believe that government loans are gifts, in particular when they are given prior to elections.
The fertilizer quantities demanded by small-scale farmers are often smaller than the normal bag weights (Lele et al. 1989). Therefore, fertilizer is sometimes retailed in smaller units (tins, bowls) on local markets, which usually results in a higher fertilizer price and a lack of guarantees for product quality.
Poverty associated with low investments in soil conservation is regarded as one of the major reasons for the widespread phenomenon of soil mining. Under such circumstances, myopic behaviour is rational from the individual point of view, but unfortunately results in the socially undesired consequence that natural resources will be exploited (Larson and Bromley, 1990; Cropper, 1988; Perrings, 1989).
Risk aversion and fertilizer response perception
The efficacy of fertilizers depends to a large extent on soil water availability. Because it is not known in advance whether rainfall will be sufficient and/or well distributed, fertilizer application is a decision with uncertain consequences. For instance, in the Philippines optimum nitrogen rates for wet season irrigated rice range from 73 kg ha-1 to 129 kg ha-1 depending on actual climatic conditions (Huijsmans, 1986). When farmers are risk-averse they will apply fertilizer at lower than expected average optimum rates. However, under many circumstances the combined effect of the riskiness of fertilizer application and farmers risk attitudes on optimum fertilizer application rates has been overstated. In the Philippines, even under rain fed conditions risk aversion reduced fertilizer application only by 7-9% (Smith et al., 1989).
Fertilizer use may also be lowered due to farmers' perceptions of the yield response which deviate substantially from the results of field trials. Huijsmans (1986) found that the perceived average response functions are located below the empirical response functions obtained under trial conditions. However, the slopes of the different curves were similar so that the optimum fertilizer rates derived from the two functions were also similar.
Specifically with P fertilisation it is likely that farmers underestimate the total yield response because many P fertilizers, in particular rock phosphate, have a low solubility providing residual effects during succeeding cropping seasons. When carry-over effects are included into the economic assessment of P fertilizers the additional benefits are substantial (Lanzer and Paris, 1981; Jomini et al., 1991).
Lack of awareness and understanding of nutrient cycles
The optimum application of P fertilizers requires some technical knowledge about timing, amount and method of application, as well as optimum nutrient ratios. Due to its low solubility, in particular rock phosphate fertilizers, have to be incorporated into the soil before planting. Poor farmers prefer to apply fertilizer to individual plant hills after emergence to make sure that the fertilizer is not wasted if plant establishment is poor.
Often farmers are not aware of the degree of soil erosion and the associated nutrient losses because particularly sheet erosion is a slow, almost invisible process. For this reason farmers tend to attribute declining soil fertility to changing weather conditions when the real causes of declining crop yields are soil erosion and nutrient depletion (Hailu and Runge-Metzger, 1993; Fujisaka, 1991).
Labour constraints
Labour constraints are also often mentioned as limiting the adoption of improved P-management practices (Fujisaka, 1991). For instance, fertilizer application is reported to stimulate weed growth acerbating the labour peak which occurs during the time of weeding. In other areas, organic P-sources like animal dung and plant residues are not collected systematically and composted because the opportunity cost of labour is too high. Only when population densities are very high in relation to the actual carrying capacity, farmers had to adopt labour demanding innovations as seen in Japan, China, Java, Ukara Island (Tanzania), south-east Nigeria or northern Ghana.
Specific soil conservation measures also burden farm households with additional heavy labour. As a result, closed systems of nutrient cycling (e.g. Nyabisindu) are rarely adopted by farmers even in very densely populated countries like Rwanda (Sperling and Steiner, 1991).
Macro-level constraints
Infrastructure
The lack of adequate infrastructure in many sparsely populated areas generally results in high transaction costs and thus in low product prices and high input prices which affect fertilizer demand negatively (Makken, 1991; Upton, 1992). In many African countries, fertilizer has to be carried by head. In northern Nigeria, the mean walking distance to the next fertilizer store is reported to be 19.5 km (Baanante and Thompson, 1990). Therefore, improvements of infrastructure will have a positive impact on fertilizer consumption (Desai and Ghandi, 1990). For India, Binswanger (1989) shows that improvements in infrastructure (rural road density, paved roads) lead to a significant increase in fertilizer demand.
State intervention
Product price support
In general, price distortions with regard to input and product prices most likely lead to inefficient management of P. Protection of the agricultural sector via product price support is highest in the EC, U.S., Japan and South Korea. Several effects of such policies on the global allocation of P can be expected. High output prices cause optimum application rates of fertilizer to be shifted to higher levels so that demand for P products is increased which in turn will raise input prices.
Protected markets induce increased agricultural production where such policies are pursued. For instance, current intra-sectoral price distortions in the EC favour specialisation of the production of meat and milk, thereby uncoupling animal production from the usual fodder sources. Instead, large amounts of animal feeds such as soybeans and cassava are imported into the EC. This means that a large transfer of P into these countries is induced despite the EC’s role as a major exporter of food (Beaton et al., Ch. 2).
Price ceilings and taxation
Contrary to the trend in the EC, developing countries have reduced agricultural product prices in order to favour urban consumers and to generate government revenues (export taxes), both with the aim to accelerate the development of the industrial sector. North African countries like Morocco, Tunisia and Egypt have followed these policies. In general, such policies discourage the use of fertilizer and other investments into the maintenance of soil productivity (like soil conservation measures). During the 80's these policies had to be revised as part of structural adjustment programmes in many countries, e.g. Ghana and Egypt. It must be remembered that detrimental impacts on the agricultural sector from other indirect policy measures, in particular overvalued currencies, are usually far more important (Jaeger and Humphreys, 1988).
It is generally expected that the liberalisation of agricultural policies in the industrialised countries will in the short run lead to increased world market prices and lower price variability for many products, particularly cash crops. Predicting effects on price of changing policies in developing countries is difficult because equilibrium models are contradictory (Lingard and Hubbard, 1991; Brown and Goldin, 1992; Paarlberg, 1992; Burniaux et al., 1991). Higher and more stable prices will provide an incentive to third world farmers to intensify production. However, the short term response on aggregate production will be rather small since new technologies are not readily available or require considerable investments in many countries (Binswanger, 1989). Higher world market prices could be an incentive to invest into the maintenance of soil fertility. However, even from a theoretical point of view the magnitude and direction of these effects is not clear (Repetto, 1987; Barrett, 1991; Lutz, 1992). In the EC countries, liberalisation will certainly lower the intensity of agricultural production, but to what extent is unknown. Therefore, additional environmental policy measures (input quota, input taxes) are simultaneously introduced.
Fertilizer subsidies
In many developing countries, the impacts of maximum price policies were partially offset by direct (fertilizer) and indirect (fuel) subsidies for agricultural inputs. As in the case of price policies, many countries are about to reduce fertilizer subsidies also as part of structural adjustment programmes (de Haen et al., 1992). In order to evaluate the economic impacts of fertilizer subsidies one has to distinguish two cases: Subsidisation with and without fertilizer rationing.
In the first case the government is able to finance the total amount of fertilizer which is demanded at the subsidised price. For instance, in Ghana the fertilizer-product price ratio for maize was reduced in 1979 (from punsub. to psub., Figure 3). This price change induces a considerable increase of the fertilizer demand (from Q2 to Q3, Figure 3). Consequently, the government has to finance a subsidy which is the product of the total demand of fertilizer and the price difference. Such a subsidy can place a heavy burden on the government budget. In 1986, fertilizer subsidies amounted to US-$ 359 Mio. in Indonesia, US-$ 1,600 Mio. in India, US-$ 50 Mio. in Bangladesh and US-$ 525 Mio in Pakistan (Stangel and von Uexküll, 1990). In any case, a subsidy will distort the relative prices between different P-sources in favour of industrial fertilizers. Thus, a subsidy on mineral fertilizer will discourage the efficient use of organic P-sources (animal manure, sewage etc.). The costs of this misallocation and the required adjustment process have not been estimated yet. This, for instance, depends on extent to which such materials would fill the need for fertilizer, and whether farmers have the skills to effectively collect and apply organic P.
The second case applies when governments are not able to finance the subsidy all of the fertilizer demanded at the lowered price. In such cases the amount of fertilizer has to be rationed, as happened in most of Sub-Saharan Africa. In 1979, the Ghanaian government reduced its fiscal burden substantially by imposing a fertilizer quota (Q1, Figure 3). However, for this amount of fertilizer the equilibrium price ratio pbm is above the subsidised price ratio psub. This indicates that if Q1 is allocated efficiently, the marginal physical product is above the subsidised price ratio psub. In practice, the fertilizer vendors could raise the fertilizer price until a fertilizer-product price ratio equals pbm where supply and demand would meet. This means that vendors could realise additional profits (black market premium). Only if the government controls fertilizer transactions effectively, black markets will not evolve. However, experience has shown that in such a distorted situation even government officials take part in black market transactions, and that the black market premium is distributed between all groups involved (government officials, police etc.). Particularly the small-scale farmers are the losers in this bargaining process because the fertilizer quantities which they demand are small, so that their power to bribe is low. To the society as a whole welfare losses arise not only due to the inefficient use of P. The magnitude of the total losses depends on the price actually paid by the farmers, the allocation of fertilizers and the incremental transaction costs due to 'directly unproductive profit-seeking' activities (Bhagwati, 1982).
Figure 3. The impact of the fertilizer
product price ratio on the demand for P-fertilizer. Circles and
diamonds show the actual price ratios for maize production the
actual supply of P in Ghana for the years 1978-1989. The example
for 1979 is plotted. Sources: FAO Fertilizer Yearbooks (var.
years), Bationo et al. 1986, Hailu (1990).
When subsidies are lifted one of two possible effects can be expected. In the first case, fertilizer consumption will decrease due to the price rise (1992 price ratio; Figure 3). Accordingly a decline of food production can be expected. The magnitude of this decline depends on
