Fixing Nitrogen: Agricultural Productivity, Environmental Fragility, and the Role of Subsidies

Esha Dilip Zaveri

No 11050, Policy Research Working Paper Series from The World Bank

Abstract: Nitrogen fertilizer is essential for boosting agricultural yields and food production. However, agricultural subsidies often drive the inefficient application of fertilizer, leading to significant costs for farms, the environment, and economies. Scientific evidence indicates that nitrogen pollution has exceeded safe planetary boundaries, making it one of the world’s largest externalities. Yet, the global economic costs and consequences of subsidized nitrogen fertilizer use remain poorly understood. This paper combines data on subsidies, satellite-derived measures of crop productivity, nitrogen usage, water quality, and spatial and administrative data sets to provide globally comprehensive empirical estimates of the long-term costs of fertilizer use and the role of subsidies. The results show that in regions with large input subsidies, nitrogen overapplication diminishes crop productivity returns and increases nitrogen runoff into waterways, with lasting implications for human health and labor productivity. More than half of global agricultural production occurs in areas with high subsidized nitrogen use, where the marginal benefit of additional fertilizer is negative. This indicates significant potential to reduce fertilizer use without adversely affecting crop yields. Globally, up to 17 percent of nitrogen pollution in water is linked to inefficient input subsidies, contributing to hypoxic zones and harmful algal blooms. Conversely, decoupled subsidies not tied to production reduce these harmful spillovers. These findings underscore the enduring consequences of nitrogen fertilizer, how well intentioned but poorly designed subsidies can aggravate nitrogen waste, and the potential of policies to pave the path to reform.

Date: 2025-01-28
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