Estimating the impact of fertilizer support policies: A CGE approach

Fertilizers represent a key input into crop production. Volatile energy prices and limits to mining resources have resulted in increased fertilizer costs for farmers, and several emerging economies have identified fertilizers as an important angle to improve agricultural production and incomes. However support fertilizer use and production comes at a cost to both welfare of a country due to subsidizing sectors and to the environment. This article analyses support measures for fertilizers and shows how these policies may impact three key areas of concern namely welfare, environment and food security. The analysis is done with a computable general equilibrium model, MAGNET. Extending some earlier OECD analysis, for this paper MAGNET is extended to explicitly account for the three macronutrients: nitrogen (N), phosphorus (P2O5) and potassium (K2O). Simulations show that fertilizer support policies reduce crop production costs and hence increase yields, production and incomes for crop farmers in subsidising countries. However fertilizer support policies also increase CO2 emissions worldwide and thus contribute to climate change. While fertilizer support policies promote food security, they do not necessarily increase welfare in the subsidizing countries.