From the 1960s to the 1980s, traditional fertilizer subsidy programs implemented by African governments were characterized by government importation and distribution of fertilizer. While some programs were beneficial, many were not as effective as planned.
Subsidized fertilizer was sold by state-owned companies but often delivered too late in the planting season to be used effectively. The programs were untargeted and did not reach smallholder farmers who most needed the support. The programs were also often ineffective and costly. Governments now recognize the need to develop market-friendly subsidies that promote pro-poor growth without hindering the growth of private sector markets.
IFDC’s approach is to implement “smart subsidies” – voucher programs that help smallholder farmers obtain agro-inputs such as fertilizers and improved seeds while simultaneously building business for rural agro-dealers and improving supply chains. Fertilizer vouchers were first used by IFDC in 2002 to provide support to 200,000 targeted farmers in Afghanistan.
Today, an estimated 1.5 million smallholder farmers have received access to agro-inputs as a result of IFDC-designed voucher and subsidy programs. These programs are geared toward developing competitive markets for inputs, building the professionalism of agro-dealers and providing farmers much-needed inputs on a timely basis.
Vouchers act as coupons to transfer purchasing power to targeted smallholder farmers either by reducing the price of the input below market cost or by providing liquidity as production credit, with repayment expected at some later date.
Farmers redeem the value of the vouchers for inputs through agro-dealers. The dealers then receive payment for redeemed vouchers from the program sponsors together with a predetermined market margin to cover operating expenses and profit.
Successful voucher programs are designed specifically for a country’s particular circumstances and implemented either as sustainable market development or emergency marketing. The advantage of such programs is that they address the immediate need by assisting targeted farmers and the long-term need by strengthening the private sector.
IFDC uses security measures such as watermarks, expiration dates and serial numbers to protect against fraud and program abuse. Other key characteristics include delivery of fertilizers via the private sector, specific targeting of farmers who most need assistance and a clear exit strategy.
IFDC voucher programs also provide benefits that direct subsidies cannot – training and technical assistance to both farmers and agro-dealers. Agro-dealers are trained to introduce new technologies and teach their farmer customers how to correctly use inputs. This sets farmers on the road to increased productivity – the route out of the poverty trap.
IFDC voucher programs have been implemented in Afghanistan, Albania, Ghana, Kyrgyzstan, Malawi, Mozambique, Nigeria, Rwanda, South Sudan and Tajikistan.