Haïti Priorise: Agriculture Tariffs and Subsidies, Josling
Description of Problem
Stagnant domestic yields have made Haitian rice expensive relative to imported rice. Low yields are generally attributed to problems of farm structure and farm management. Farmers face many difficulties in accessing fertilizer as a result of price and supply constraints and there is a general lack of appropriate information on proper fertilizer usage. Rice farmers suffer from poor infrastructure and inadequate credit facilities. Natural catastrophes have an enormous impact on rural life.
Solutions
- Raising the tariff on rice imports
- Subsidizing fertilizer
- Introducing crop insurance
Summary Table of the BCR
| Interventions | Benefits | Costs | BCR |
|---|---|---|---|
| Rice tariff | 11.8 billion gourdes ($170.5 million) | 14 billion gourdes ($202.5 million) | 0.8 |
| Crop insurance | ($175 million) | ($90.3 million) | 1.9 |
| Fertilizer subsidy | 61 billion gourdes ($883.9 million) | 16.3 billion gourdes ($235.9 million) | 3.7 |
Raising the tariff on rice imports
A 20 percent tariff imposed on imported rice for a period of ten years. This is still lower than the 35% in place before the 1995 trade liberalization took place. The tariff would be reduced in year seven, and phased out by year ten.
Haiti has a relatively liberal trade regime, with rice import tariffs the lowest in the Caribbean region. Liberalization has led to the reduced price of food, which is of benefit to the urban population. A low tariff has allowed US rice (known locally as “Miami rice”) to be imported in considerable quantities and to overtake domestic production. What may be good for urban consumers is a challenge for farmers and the rural economy.
The level of the rice tariff has been a source of contention since that time, with many groups arguing for reinstatement.
Although trade liberalization is often blamed for having a major impact on rice cultivation, data on rice output does not show any particular change in trend in the mid 1990s.
Benefits and Costs
In the first year, a tariff would make farmers 1.7 billion gourdes ($25 million) better off. It would provide 11.7 billion ($170 million) of extra income over ten years. The government would collect 7.8 billion ($114 million) in revenue in year one, and 57.8 billion gourdes ($835 million) over a decade.
Imports would still increase, and in ten years the expected harvest of Haitian rice would be 93,400 tons, compared to 84,900 tons without tariffs. One reason for this is that there are many other challenges to increasing Haitian rice production, which the tariff wouldn’t solve.
Importers of ‘Miami rice’ would pass on the cost increase to the consumers. In total, Haitian shoppers would have to pay 9.9 billion ($143 million) more for rice in the first year, and 72 billion gourdes ($1.04 billion) over ten years. This impact could be reduced if the government used its new revenue to make rice cheaper for consumers. This would cut the overall cost increase to consumers to around 13.9 billion ($202 million) but also entirely eliminate the revenue generated for the state.
With and without the state recycling the tariff back to the consumers, the policy would cost more to the Haitian economy than it would achieve. While it would benefit farmers, it would cost the consumers more, meaning every gourde spent would achieve less than one gourde in benefits.
A rice tariff could possibly become moderately cost-effective if it were to encourage farmers to improve their farming practices and become more productive. The rice yield would need to increase by 20% for the benefits to begin to exceed the costs.
Subsidy on fertilizer used for rice production
A subsidy of 50% of the market price of urea for five years, thereafter declining by 10% increments to zero in year 10.
Fertilizer subsidy policies have often been introduced in Haiti in the past with inconsistent impacts. The subsidies were introduced first in the 1980s and at the end of the 1990s the policy attracted support under a 10-year agreement by the Japanese Government.
There are various factors that contribute to low yields of any crop but, given adequate water availability and reasonable control of pests and weeds, nitrogen availability is a crucial one, particularly for the depleted, eroded soils of a country such as Haiti. Getting fertilizer to the farmers and encouraging its efficient use could give a major boost to the sector.
Benefits and Costs
The proposed subsidy would cost 1.8 billion gourdes ($27.4 million) in the first year, and the extra fertilizer would cost 608 million gourdes ($8.8 million).
It is estimated that fertilizer sales would rise from 750 to 1,132 tons in the first year, while the cost to farmers would fall from 2.4 billion gourdes ($36 million) to 1.2 billion gourdes ($18.6 million).
Farm income would increase by 53 percent, as the rice harvest increases from 147,000 tons to 225,000 tons. The extra rice produced would be worth 7.8 billion gourdes ($112.6 million), and the reduction of the cost of fertilizer would be worth 1.2 billion gourdes ($18.6 million). Over a decade, the costs will run to about 16.3 billion gourdes ($236 million), with about two-thirds for subsidies and one-third for buying extra fertilizer. The benefit will amount to 61 billion gourdes ($884 million) over the decade, with about 10% from lower fertilizer costs and 90% from increased rice production.
An Expert Commentary notes that Haiti has not had positive experiences with fertilizer subsidies since 2000. Even subsidies of up to 50% did not help the development of fertilizer use in Haiti. Audits showed cronyism in distribution of subsidized fertilizer leading to its misappropriation. Because the subsidized fertilizer was bought and distributed by the state, often at short notice, other sellers imported less than they could have used out of fear of being stuck with unsubsidized, unsellable fertilizer.
This tells us that any policy needs to be carefully designed. Subsidies must be distributed in a way that prevents future cronyism and misappropriation, while allowing farmers access to more fertilizer. This could be achieved with subsidies taking the form of vouchers, giving control to farmers. This setup has been demonstrated in several projects with the Ministry of Agriculture, Natural Resources and Rural Development (MARNDR).
Crop insurance for rice farmers
A simple insurance that compensates farmers for the difference between the yield observed in their region and that agreed as the average for that region. The yield difference is then multiplied by the price to provide a cash payment for the farmer, so providing a steadier, guaranteed income even when harvests are poor.
Benefits and costs
The costs include startup costs, recurring costs, payments to farmers in poor years, and the premiums paid by farmers themselves (around 1,400 gourdes or $20 per hectare).
Total start-up costs for the scheme are 13.8 million ($200,000), with additional costs of 6.9 million gourdes ($100,000) and 3.4 million gourdes ($50,000) in the next two years, and a recurring cost of 3.4 million gourdes ($50,000). Insurance premiums would cost 9.4 million ($137,000) in year one, rising slowly after that.
Payouts would be in the region of 1.2 billion gourdes ($17.5 million), when compensation is due. In total, the costs would run to 6.2 billion gourdes ($90 million) over a decade.
Somewhere between 9 and 17 percent more rice would be produced in good years.
It would increase yields, meaning an average higher annual income of more than 692 million ($10 million).
In total, including the insurance payouts, the benefits over a decade would run to 12.1 billion gourdes ($175 million).