Moving in the right direction? The role of price subsidies in fertilizer use and maize productivity in Ghana

Despite major maize programs in the last two decades and costly investments in a price subsidy program in Ghana, maize productivity remains very low. Utilizing cross-sectional data on 645 maize plots in Ghana, this paper provides empirical evidence on the responsiveness of maize yield to fertilizer application, profitability of fertilizer use, and how the economics of fertilizer use have changed with the subsidy program. There was a statistically significant maize yield response to increased fertilizer application (i.e. 1-kg of nitrogen leads to a yield increase of 22–26 kg per hectare), higher than those estimated in other countries in Africa. Value-cost ratio shows that maize production with fertilizer is profitable both at market and subsidized prices in different locations and with different farming practices, even after incorporating risk into the estimation and analysis. However, despite subsidized prices and profitable fertilizer use, the actual application rate (at 44 kg/ha of nitrogen on average) is much lower than research institute’s and government recommendation and far off the computed economically “optimal” levels (at 225 kg/ha of nitrogen; where the fertilizer price intersects the value of marginal physical product derived from the yield response model). Results suggest that fertilizer prices do not seem to be the binding constraint in greater fertilizer application and productivity increases in maize; other factors appear to be major bottlenecks to greater fertilizer application and productivity increases including accessibility to modern varieties, mechanization, and hired labor. This result shows the limits to fertilizer subsidy as the focus strategy and suggests a more integrated and holistic approach to encourage greater fertilizer application, productivity and income among maize farmers in Ghana.