The best rationale for Malawi-style input subsidies is that small-scale farmers have profitable investment opportunities that they fail to exploit. This logic is hard for economists to swallow. Economists really only ever tell one joke, but it fits here:
An economist and his friend are walking down the street when the friend sees a ten dollar bill on the sidewalk.
“Look,” he says, “it’s a ten dollar bill”.
“Nonsense,” says the economist. “If that was a ten dollar bill, someone would have picked it up by now.”
By this logic, if fertilizer were profitable, farmers would be using it already. Unless you can point to a clear market failure or some widespread failure of economic rationality, subsidies are just money down the drain.
Justin goes on to discuss a few empirical studies which come down both for and against subsidising agricultural inputs, noting that we need more robust evaluations before we can be confident one way or the other.