Affordability Linked with Subsidy: Impact of Fertilizers Subsidy on Household Welfare in Pakistan

Abstract

Historically, the government of Pakistan has been providing subsidy on fertilizers, and the most recent subsidy program started during 2015–2016. The current study aims to estimate the impact of the fertilizers subsidy program on fertilizers application and its impact on the crops yield and household income levels using a comprehensive cross-sectional dataset collected from 850 farmers from all four major provinces of Pakistan. The fertilizer subsidy program enabled 80% of the farmers to apply recommended doses of fertilizers, and also incentivized the farmers to bring more area under cultivation. The empirical analysis has been carried out by employing the propensity score matching approach (PSM), and results indicated that fertilizer subsidy has a positive impact on crops yield and household income levels. As a result of subsidy, the wheat yields are higher in the range of 65–71 kg per hectare while the rice yields are higher in the range of 34–43 kg per hectare. The household income levels are higher in the range of 5671 to 6549 rupees. The fertilizer subsidy on a sustainable basis can encourage the resource-poor farmers to apply recommended doses of fertilizers and thus increase crop production, thereby contributing to the improvement in their livelihood.