Fertilizer Import Bans, Agricultural Exports, and Welfare: Evidence from Sri Lanka
In May 2021, the government of Sri Lanka imposed an abrupt and unexpected ban on the imports of all chemical fertilizers. This paper uses this unprecedented natural experiment to quantify the costs of a lack of fertilizer access for agricultural production and trade in the context of a developing economy where agriculture is centrally important. The analysis combines novel high-frequency firm-level trade data, detailed agricultural ground production data, crop yield estimates from state-of-the-art remote sensing techniques, and dynamic event study designs. The findings show that the fertilizer ban led to dramatic declines in agricultural production, fertilizer imports, and exports of fertilizer-dependent crops. Using a quantitative trade model, the paper finds that the ban's welfare effects were equivalent to a 4.4 percent income reduction on average, with losses disproportionately concentrated on farmers and estate workers (whose income is tied to agriculture) relative to mobile workers and on regions specialized in the cultivation of relatively fertilizer-intensive crops. The findings quantify the equilibrium value of fertilizer in agriculture, an important estimate for any fertilizer-related policy (such as fertilizer subsidies) and for the public debate on the costs and benefits of environmental regulation more generally.
