Alhassane Camara - Global Fertilizer Price Increase, Agricultural Market Participation, and Income Distribution

  • Presenting author: Alhassane Camara (United Nations Development Programme)

  • Authors: Alhassane Camara, Luc Savard

  • Session: C01D - Micro-Macro Linkage - Wednesday 9:00-10:30 - Erika-Weinzierl Hall

The COVID-19 pandemic and associated containment measures disrupted the global supply chain, causing a surge in fertilizer prices. By December 2021, the fertilizer price index had risen 3.35 times higher than December 2019. The war in Ukraine further escalated prices, reaching 4.04 times higher by April 2022. Although recent data indicates a decline, as of August 2023, the fertilizer price index remains 2.17 times higher than pre-pandemic levels.

This surge in world fertilizer prices poses challenges for food security and poverty in developing countries, especially in sub-Saharan Africa, where agriculture plays a significant role and relies heavily on imported fertilizers. Studies on fertilizer price changes fall into two categories: those analyzing policy-induced changes and those assessing exogenous shocks. The former includes partial equilibrium and general equilibrium analyses, while the latter, though limited, explores the impact of external shocks on global fertilizer prices.

This study falls into the second category, employing a CGE-microsimulation approach, which has been underrepresented in the literature. Unlike previous research, it considers the potential impact of fertilizer price changes on smallholder market participation, a crucial aspect for market-oriented agriculture. The study challenges the assumption that farmers’ transitions between market participation regimes remain fixed after a fertilizer price shock. Recognizing the critical role of fertilizer access and transaction costs for smallholders, the paper explores how rising fertilizer prices may affect market participation through changes in fertilizer use.

The study’s threefold contribution lies in its flexibility to consider market regime switching following a positive shock, its incorporation of a comprehensive agricultural household model accounting for various heterogeneities, and its focus on Malawi, an agriculture-based economy. The latter context is crucial, given Malawi’s significant agricultural sector and the implementation of an agricultural input subsidy program since 2005. The macro-micro approach offers a nuanced analysis of the implications of rising world fertilizer prices on market participation, poverty, and inequality.

The findings reveal that, in response to global fertilizer price shocks, farmers shift to low-productivity market regimes, adversely affecting the agri-food system. This leads to higher domestic market prices, lower GDP, and indirect impacts on non-agrifood sectors. Consequently, poverty and inequality increase, with varying effects across household groups. The study provides valuable insights for policymakers and researchers working towards sustainable agricultural development in the face of global economic shocks.