Optimal fertilizer subsidies stay flat, even after prices double

A new study looked at fertilizer subsidies in Rwanda. It found that the best amount of subsidy for farmers does not change, even when fertilizer prices double. This means governments can keep their fertilizer subsidy programs stable instead of increasing payments during price shocks.

Most people assume that when a key farming input like fertilizer gets much more expensive, governments should offer more money to farmers. This paper shows that, at least in Rwanda, the best policy is to keep the subsidy rate the same. This suggests that simply increasing subsidies might not be the most effective way to help farmers deal with volatile prices.