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Abstract

Farmers in Korea are often thought to be assisted by current fertilizer policy, since the government sells fertilizer to them at roughly 20 per cent below cost. However, this farm price is about 20 to 30 per cent above the international price. That is, fertilizer manufacturers are enjoying a nominal rate of protec­tion of more than 50 per cent. The fertilizer "subsidy" is really a mechanism by which taxpayers help farmers bear the direct cost of that protection. It involves large government outlays though, which the government would like to phase out. One option is to remove the "subsidy" which would force farmers to carry the full direct cost of that protection. Another option is to lower the rate of protection to fertilizer manufacturers. This paper provides estimates of the price changes required to eliminate government outlays under these alternative circumstances. It also quantifies the effects of such changes on fertilizer production and us<" and discusses the appropriateness of each op­tion in terms of efficiency of resource allocation, food security and farm in­comes.

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