Effects of subsidy policies on smallholder coconut sector: a preliminary exposition

Abstract

The coconut smallholder development programme involve substantial public sector development expenditure through the provision of subsidies, grants and other facilities. The subsidies and grants are intended as a support in terms of production incentive towards increased production and income for coconut smallholders. In addition, as a government policy, it is also aimed to provide protection to the smallholder production. In this paper, a benefit-cost analysis using the net present value criteria and accounting prices is applied to determine the average cost and revenue profiles for coconut smallholders. This is intended to measure the effects of subsidies and grants on output and income. In addition, nominal protection coefficient (NPC) and effective protection coefficient (EPC) is also applied to measure the incentive effects of such government policy; whereas the producer subsidy equivalent (PSE) is applied to determine the effect on producers as a result of changes in income. It is found that the production and income for coconut smallholders have increased as a result of government intervention and support through replanting and rehabilitation subsidies and grants. This implies that subsidies and grants, to a certain extent, have provided incentive benefit in the cultivation of coconut among smallholders. However, the NPC of 0.99 and EPC of 1.1 imply that protection towards coconut smallholders has not been that effective. In the case of PSE, the proportional subsidy of 3.3 percent of the value of output implied that government policies, to a certain extent, helped to subsidize the smallholder's income. This percentage is considered still small. In general, it can be said that the provision of subsidies and grants have increased the smallholder’s production efficiency and income though, to a certain extent, the latter may have also been influenced by market forces i.e. prices.