Trade Policy and Access to Intermediate Inputs: Quantifying the Welfare Costs of a Fertilizer Shortage

This paper leverages Sri Lanka's 2021 chemical fertilizer import ban to quantify the costs of restricted fertilizer access for agriculture, trade, and welfare. Leveraging trade and production data, satellite-based yield estimates, and event studies, we document sharp declines in fertilizer imports, agricultural output, and exports. A quantitative spatial model of trade and agriculture estimates the ban's average welfare cost at 7.3%, with farmers, estate workers, and fertilizer-intensive regions bearing disproportionate losses. Model-implied partial-equilibrium elasticities line up with the experimental evidence, but once we account for general-equilibrium price and wage adjustments, the elasticities are much smaller—implying that using partial equilibrium estimates to assess large, economy-wide fertilizer shocks (like those seen during recent conflicts) would substantially overstate their effects. Domestic and trade policy interact: by curtailing fertilizer use, the import ban effectively contracted the country's fertilizer subsidy program and its implicit transfers from mobile workers to farmers, thereby mitigating the former's welfare losses.