Office of Evaluation and Studies    
  International Fund for Agricultural Development

Incentives and Subsidies

Incentives have been used in a number of situations to try and encourage project participants to undertake various activities which may initially be unattractive for them. This has applied particularly to soil and water conservation activities, which generally do not produce easily identifiable short term gains or require a level of inputs (both in terms of labour or capital) which are beyond the capacities of the participants. The experience in eastern Africa has been that incentives have at best only been partially successful in achieving adoption, and at worse have resulted in very negative reactions from the participants. The use of "incentives" in design has also been to mask circumstances where the reality is that a particular activity is actually being subsidised. The question remains as to how valid incentives are in bringing modifications to farming systems, and whether subsidies, which are not usually sustainable, are an acceptable method in the short term to initiate project activities.

In Lesotho (SRS-013-LE), payments for conservation activities were a part of the project design. These were shown to concentrate farmers' attention on the cash potential from the activity, rather than benefits to be derived in the farming system: when subsidies were discontinued, then so were the conservation practices. By contrast, when the local and un-subsidised Machobane system of conservation farming was introduced, which offered real incentives in terms of increased income from the first year of implementation, adoption was widespread and sustainable. In Botswana (076-BT), subsidised packages were offered to beneficiaries and were widely accepted, but this did not result in the sustainable adoption of the technology associated with the packages. In this case profitability was not adequate to outway the perceived risks in the farming environment, given the alternative attractions of off-farm employment.

n Uganda (080-UG and 159-UG) agricultural production systems had been destroyed by years of civil unrest; the two projects were mostly concerned with providing emergency inputs necessary for farmers to rapidly rebuild the production base. In 080-UG the supplies were highly subsidised and the distribution system bypassed the existing private sector traders, who could therefore nether compete with or contribute to project activities. In the follow-up programme this problem was recognised and the traders were given a role in the distribution of the inputs; this approach was successful in helping to restore the marketing system for agricultural inputs.

- Incentives need to be distinguished from subsidies. Incentives are intended to motivate an individual to act in a certain way or adopt a certain practice. Incentives are measured in terms of the direct benefits which can be derived, usually from increased production or productivity; if the benefits are sustainable, then so will be the activity. Subsidies, on the other hand, are payments in cash or kind which reduce the cost of undertaking an activity. If farmers do not consider an activity acceptable without subsidies, then it will probably be discontinued when the subsidies are withdrawn (i.e. at the end of the programme).

- Incentives need to be adequately demonstrated and quantified in order to be attractive to participants.

- Subsidies have an important role to play in the short term and/or in emergency circumstances until the benefits from the intervention materialise, and where they can be clearly identified in assisting to reinstate production or services. A clear distinction should be maintained between subsidised activities and incentives where both are to be included in a project.

References:

1. Botswana - Arable Lands Development Project, 076-BT% R076BTBE, Interim Evaluation, 1992.

2. Lesotho - Soil and Water Conservation and Agroforestry Programme, SRS-013-LE S013LECE, Focused Evaluation, 1997.

3. Uganda - Agriculture Reconstruction Programme, 080-UG, Mid-term Evaluation, 1984.

4. Uganda - Agricultural Development Project, 159-UG R159UGCE, Completion Evaluation, 1995.

 


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