Fertilizer industry subsidies in China: who are the beneficiaries?

Abstract

Purpose – Since 2004, subsidies increased by 670 percent in the Chinese fertilizer industry to reduce the farmer's burden. The purpose of this paper is to assess whether subsidies benefit the target groups, the fertilizer subsidy distribution pattern and benefit allocation pattern among fertilizer producers and other sectors were investigated. Design/methodology/approach – The Muth model is extended to evaluate the impacts of a subsidy on multi-stage markets. Findings – It is found that the total benefits from the policy are about RMB 7.7 billion yuans. The fertilizer suppliers gain about RMB 51 billion yuans from the favorable policy with mean subsidy incidence 0.8 and capturing about 70 percent of total surplus. Social implications – The results suggest that transferring parts of subsidies to the non-fertilizer sectors could be considered an efficient way to redistribute welfare indifferent sectors. Originality/value – This study first use the equilibrium displacement model to quantity the distribution of fertilizer subsidy in a vertical market in China.