Subsidies as an Instrument in Agriculture Finance: A Review

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This paper presents a literature review of issues related to recent subsidies and investments in the financial sector that have been designed to address the immediate effects of the crises and to develop the financial institutions necessary to modernize agriculture. The literature consulted reflects a combination of academic sources and reports from the agencies and organizations involved in supplying financial services in developing countries. Against this background, this paper presents a review of subsidies as an instrument of agricultural development finance. This review is one of the major recent initiatives of the CABFIN partnership. This review also clearly defines the different types of subsidies currently used in agricultural development and proposes “smart”—that is, appropriate—use of subsidies to support viable agricultural development.

The emphasis here is largely on agricultural credit, with less attention given to other financial services. This paper focuses on credit primarily for small farmers rather than for large farmers and agribusinesses, which normally have better access to commercial credit sources. It does not delve into the rapidly expanding literature on agricultural value chain finance, which offers a viable alternative for reducing risk and costs in some types of agricultural finance while increasing access to funding for some smallholders who may otherwise not be reached unless there are subsidies or directives for financing them.

The paper is intended for decision makers in developing countries as well as staff in international agencies, financial institutions, nongovernmental organizations (NGOs), and other organizations who make decisions about programs and policies affecting financial services, especially credit, for poor farm and nonfarm households in rural areas. It is expected to serve as an input into the preparation of an official policy statement of the CABFIN donor consortium on the role and status of subsidies in agricultural finance worldwide.

Document Information

Document Type Paper
Auteur Meyer, R.
Year of Publication 2011
Éditeur The World Bank
Nombre de pages 72 pp.
Région / Pays Globale /
Langue principale Anglais (en)
Mots-clés
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