Abstract

This paper develops an analytical model for examining fertilizer subsidy performance and its economic outcomes across agricultural systems, with a focus on efficiency, equity, and sustainability. The model is designed to assess how fertilizer subsidies influence production costs, crop yield, farmer income, and national fiscal balance under varying policy and market conditions. It integrates microeconomic behavior with macroeconomic feedbacks through a system of equations representing demand elasticity, input substitution, price transmission, and government expenditure. The framework enables policymakers to quantify both the short-term productivity gains and long-term welfare implications of subsidy interventions. The analytical structure is built around three interacting modules: (1) farm-level production response, capturing how farmers adjust fertilizer usage and land allocation in response to subsidized prices; (2) market equilibrium, describing how aggregate demand and supply interact to influence commodity prices and trade flows; and (3) fiscal-environmental balance, evaluating subsidy costs, leakage, and environmental impacts such as nutrient runoff and soil degradation. Sensitivity and scenario analyses are applied to measure how changes in subsidy design targeting mechanisms, rate differentials, and delivery channels affect efficiency and inclusivity outcomes. Elasticities are estimated using panel data and simulated to determine thresholds where subsidies shift from productive incentives to fiscal burdens. Empirical illustrations based on developing-economy data show that well-targeted fertilizer subsidies can significantly raise yield by up to 18–25% while improving rural welfare, but inefficiencies due to leakage, poor targeting, and delayed disbursement erode these gains. Results demonstrate that dynamic calibration of subsidy rates, linked to market fertilizer prices and rainfall variability, improves resilience and resource allocation. The model also provides a decision-support tool for evaluating the trade-offs between immediate agricultural growth and long-term fiscal sustainability. By combining economic theory, optimization logic, and empirical validation, the analytical model offers a structured framework for evidence-based policy design in the fertilizer sector. It supports policymakers in transitioning from universal subsidies toward data-driven, performance-based support systems aligned with sustainable agricultural transformation goals.