Effect of fertilizer subsidies on farm financial profitability in Burkina Faso

Using data from a permanent agricultural survey (2020), this study analyses the effect of fertilizer subsidies on Several indicators of financial profitability of farm households in Burkina Faso. To resolve the problems of bias and endogeneity, score matching was combined with Heckman’s two-stage model and simultaneous equation models. The results showed that the subsidy did not have a significant effect on the profitability indicators because of the low rate. However, factors such as the age of the head of household, agricultural equipment, agricultural extension and fixed costs have a positive influence on profitability indicators, whereas access to agricultural credit, household size and variable costs have significant and negative effects on these indicators. In light of these results, the subsidy program can be continued by increasing the subsidy rate to reduce the variable costs of farms. The work raises defined empirical arguments regarding the effectiveness of fertilizer subsidy schemes for Burkina Faso, examining the impact of fertilizer subsidies upon farm-level financial profitability. The work tackles the central questions of selection bias as well as endogeneity, which are common hindrances for studies that aim to investigate the impact of policies upon public institutions, using methods that integrate the use of propensity score matching with the approach of the two-stage model as proposed by Heckman, as well as simultaneous equation models. The conclusions have the central implication that the existing level of subsidies remains negligible for a positive impact upon farm profitability, which carries significant policy implications, underlining the major importance of scaling up the level of subsidy intensity along with the existence of support services for the enhancement of the effectiveness of related policies for the support of the agricultural sector, particularly for the achievement of sustainable farm incomes for developing countries.