Towards a Strategy for Improving Agricultural Inputs Markets in Africa

FSII Policy Synthesis No. 43

firms. Supported by direct and indirect
subsidies, such activities frequently
succeeded in boosting input use and
marketed output, until budgetary deficits
made them unsustainable. Subsequent
structural reforms led to the removal of
fertilizer subsides and the withdrawal of
government from input distribution.

6. The fertilizer subsector in many countries
has fallen into a low-demand, low-volume,
high-input cost trap characterized by
stagnant or declining use of improved
seed/fertilizer technologies. Many had
hoped that the private sector would take
over the input marketing functions
previously assured by government, yet
high costs and risks (including policy
uncertainty) have limited the scope of
commercially viable private sector
involvement. A few countries (e.g.,
Ethiopia) have made progress in
stimulating farmers’ use of improved
inputs, but the sustainability of such efforts
remains a concern.

MAJOR CHALLENGES:

1. While input and output marketing should
be assured largely by the private sector,
some government involvement is needed
to facilitate efficient and transparent
markets (See Figure 1 for an illustration of
factors helping to transform fertilizer
potential into consumption). The
appropriate extent and type of government
involvement is not obvious, however.
Although economic theory provides some
general guidelines, there is growing
evidence that the role of government will
vary from country to country and by stage
in the agricultural transformation process,
depending on factors such as capacity of
the private sector to invest in input
markets (which have high capital
requirements and low profit margins) and
farmers’ effective demand for purchased
inputs (dependent on availability of
profitable technology, and farmers’
knowledge of that technology and financial
capacity to invest in it).

2. Sustainable improvements in agricultural
productivity will require not only
developing more input-responsive
production technologies but also reducing
the real costs and the risks associated with
input and output marketing. Country-level
research is needed to identify investments
and institutions—both  public and

private—that can reduce costs and risks,
and provide incentives for adoption of
improved production, processing, and
marketing technology throughout the food
system.

3. The choice of investments and policies to
reduce the cost and risk of improved
inputs should be based in part on a cost-
benefit analysis that takes into account
both private and social benefits including
national and global environmental impacts.

4. Costs: Among the questions that need to
be answered are how to:

► achieve economies of scale to decrease
unit costs

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