Assessing Socio-Economic Impacts of Agricultural Subsidies: A Case Study from Bhutan

Abstract

As an agrarian nation, Bhutan's agricultural policies prioritize agricultural subsidies to boost agricultural production, rural incomes, improve food security, and reduce income poverty, especially among the rural poor. However, the effectiveness and efficiency of such policy interventions remains unknown. Based on semi-structured interviews with heads of households from six blocks representing two districts, expert consultation with agricultural policymakers and extension agents, we attempted to evaluate the socio-economic impacts of agricultural subsidy programs including co-payments. The study found that while over 90% of the households received at least one form of subsidy, except for agricultural machineries and piglets, the non-poor population has greater access to the subsidies compared to the poor. For instance, only 35% of the poor received seed and sapling subsidies compared to 52% seeds and 39% sapling subsidies received by the non-poor population. Furthermore, none of the poor received Jersey cow or biogas subsidies due to their inability to co-pay. Additionally, the agriculture machinery subsidy was found to be counterproductive to the lower income groups (<US$153.85) and beneficial to the higher income groups. However, 14.5% of the households who received a poultry subsidy experienced 3 times more income (at a mean income change of 634.31 US$) compared to those who did not, indicating that this subsidy has larger potential to improve income for the poor. To efficiently achieve the objectives of increasing rural income and reducing poverty, we recommend agricultural subsidy programs and projects be provided as a package to poor small holders, where inputs are given based on existing capacity, availability of technical support, and market accessibility.