Fertiliser subsidies: Killing the goose that lays the golden eggs?

Tanzania’s agriculture sector has recently enjoyed a renaissance. Maize production hit 12 million tonnes in 2023/24, rice surged to 3.2 million tonnes, and food self-sufficiency reached 128 percent. Yet beneath this progress lies a ticking time bomb: the mismanagement of the fertiliser subsidy programme that is undermining both farmers and the very agencies meant to support them.

Agriculture employs 65 percent of Tanzanians and accounts for 26.5 percent of the country’s GDP. But yields remain stagnant at 1.9 tonnes/hectare for maize, dwarfed by Egypt (9 t/ha) or Zambia (4.2 t/ha).

At the heart of this gap is fertiliser deprivation: while average fertiliser use in Tanzania is just 24 kg/ha, this is less than half the CAADP target (50 kg/ha) and Kenya (around 50kg/ha) or even the global average (133kg/ha). The subsidy programme launched in August 2022 was aimed at bridging this divide.

Fertiliser subsidy programmes are not uncommon in this region. The Tanzanian programme centralises supply, regulating costs and subsidising all sales. The model is straightforward: a network of 31 authorised suppliers distributes fertiliser to over 4,200 regional agents, who then sell directly to farmers. The government pays suppliers the difference between the market price and the subsidised cost.

A critical vulnerability in this system is Tanzania’s heavy reliance on imports. Despite a five-fold increase in local fertiliser production since 2021, local output still accounts for less than 15 percent of national demand. This means the business is costly and risky for suppliers.

Herein lies the fatal flaw. Nineteen companies which supplied 901,334 tonnes of subsidised fertiliser up to June 2024 are collectively owed a staggering Sh204 billion. Despite the government allocating Sh287 billion (2022-2024), payments arrive in fragments, forcing suppliers to borrow for new stock. This creates an endless cycle of financial struggle for businesses.

The government is killing the goose that lays the golden eggs. While celebrating output gains—purportedly fuelled by subsidised fertiliser—it starves the suppliers and agents enabling that productivity. The system bleeds the value chain dry: regional agents (many with a significant part of their capital locked in fertiliser sales) suffocate under delayed reimbursements. When the goose is consumed, the nation will be left in a far worse position.

This predicament compels us to ask critical questions. Why does allocated money fail to reach suppliers? If the government cannot pay on schedule, why persist with a blanket subsidy programme? And why not adopt a hybrid approach: phasing down blanket subsidies for strategic investments?

TFRA – the regulator – cites strict verification protocols to guard against fraud. Yet the CAG’s report faulted TFRA’s failure to adopt digital tracking—thus enabling ghost deliveries. So, is the inefficiency deliberate or systemic? Either way, it demands urgent scrutiny.

Subsidies can work: a short-term programme in Mozambique increased productivity by 75 percent and incomes by 15 percent. But subsidies often come with serious issues related to the cost of logistics, who benefits from the scheme, and the opportunity cost. Ultimately, coming at a significant cost to the nation, we must ask whether this is the optimal allocation of taxpayer money.

Studies by IFPRI and analyses by The Economist consistently rank infrastructure, R&D, irrigation, and market access above fertiliser subsidies in terms of ROI. Between 2022 and 2025, Tanzania has budgeted Sh490 billion on fertiliser subsidies.

Every Sh100 billion spent on subsidies could fund 800km of farm roads or 40,000ha of irrigation—interventions with 5–7 times higher impact on reducing poverty. This is partly because up to 40 percent of fertiliser costs is attributed to in-country logistics, and sometimes a third of supplies may not even reach the intended farmers due to leakages.

As Tanzania enters the third season of this intensified subsidy programme, there is a conspicuous absence of clear reviews directly linking the subsidies to the reported increases in agricultural production. While the government implies a causal link, numerous factors can contribute to increased production, including favourable weather, improved seed varieties, and better farming practices.

The adage “the road to hell is paved with good intentions” often rings true in agriculture. This sector frequently suffers from well-meaning but ultimately disruptive interventions. People say that if you wish to stifle the performance of any crop, establish a board to govern it. The truth is that farmers thrive when the government stays out of their way. Government overreach frequently leads to unintended negative consequences.

It is time for the government to prioritise settling its outstanding debts to suppliers and to re-evaluate the current subsidy programme’s structure. The billions currently tied up in subsidies could be far more effectively deployed in other areas with higher impact on productivity and lower potential for abuse.

We recommend a shift from universal to targeted, time-bound subsidies and redirection of funds toward high-impact enablers: irrigation (only 863,366 of Tanzania’s 44 million arable hectares irrigated), R&D (to amplify input efficiency), and infrastructure (roads, storage, energy) to slash logistics costs. By empowering suppliers in a competitive market and investing in these essentials, Tanzania can convert the current temporary gains into resilient agricultural growth.

Only then will the precious goose continue to lay the golden eggs.