Malawi’s farm input subsidy benefits the poor but doesn’t come cheap

Malawi’s farm input subsidy benefits the poor and can be part of a viable national development strategy.

Minister of Agriculture, Chiyembekeza (left) launching the FISP program

Minister of Agriculture, Chiyembekeza (left) launching the FISP program

Agriculture is Malawi’s main economic sector. It generates one-third of GDP, half of total export earnings and two-thirds of employment.

The farm input subsidy programme is a prime example of a large-scale development programme. It is designed to provide about half of the country’s farmers with two 50kg bags of fertiliser. Beneficiaries pay a small redemption fee, equating to a subsidy of two-thirds or more. Farmers are also provided with free improved seeds, principally for maize.

Implementing the programme has prompted large cuts to other agricultural programmes, such as irrigation, research and extension, as well as to other sectors, including roads, industry and the environment. Its budget accounts for 3-6% of Malawi’s GDP and represents around 9-18% of government spending.

Given the scale of the programme, there is, correctly, strong interest in its effectiveness and a number of evaluations have been conducted. In a recent paper, we present a comprehensive evaluation of the programme and its macroeconomic effects.

The benefits

While the statistical fog that characterises Malawi precludes definitive conclusions, the available evidence indicates that the programme has resulted in:

  • higher maize production despite reduced area;
  • greater allocations of land to other crops;
  • lower food prices;
  • higher wages; and
  • lower poverty rates, particularly in rural areas.

These positive outcomes are consistent with the best reading of available data, a broad array of non-monetary measures of welfare, and the views of Malawians with respect to their living standards.

The mechanisms

The programme increases land productivity and releases agricultural land to crops that are of higher value than traditional maize. We estimate that the programme has resulted in a roughly 15% gain in maize production. This is despite a slightly more than 15% reduction in the total area allocated to maize.

The release of land for other crops constitutes the major spillover from the programme. These and other spillover effects have been largely unaccounted for in existing evaluations. We find that the benefit-cost ratio increases by 60% when spillovers are accounted for.

While accounting for spillovers such as land reallocation raises the benefit-cost ratio for the programme across an array of scenarios, arguments exist that the programme’s costs still outweigh the benefits. In particular, the efficiency of fertiliser in increasing yields achieved by recipients represents a critical parameter.

If yields increase little, as more pessimistic studies suggest, benefits of the programme are small and do not exceed the costs of the subsidies resulting in benefit-cost ratios below one. For estimates of yield response at the more optimistic end of the spectrum, benefits of the programme become substantial.

Across a broad array of fertiliser response estimates, the programme remains pro-poor. In addition, the improved seeds distributed under the programme are more drought-tolerant than local varieties. By expanding the use of these seeds, the programme generates “double-dividends” in the form of higher yields and a more drought-resilient maize sector.

The outlook

Positive outcomes are not guaranteed. Critics correctly emphasise the potential for operational problems, such as late delivery of fertiliser or outright theft and other forms of fraud, to reduce the benefits.

Nevertheless, our analysis offers a cautiously positive assessment. Our results indicate that the programme has a relatively high potential in a country with limited alternatives. It can form a part of a viable development strategy.

Looking forward beyond improving straight operations, there are opportunities to lock in durable development gains by considering how fertiliser subsidies could be packaged with companion efforts in areas such as:

  • soil fertility management practices;
  • private input market development;
  • investments in rural roads; and
  • export opportunities.

Exit strategies over the longer run also merit consideration.

Authored by:

  • Channing Arndt: Senior Research Fellow at United Nations University
  • James Thurlow: Senior Research Fellow at International Food Policy Research Institute
  • Karl Pauw: Research Fellow at International Food Policy Research Institute

*This Article was first published in The Conversation

Follow and Subscribe Nyasa TV :

Please share this Article if you like Email This Post Email This Post

More From the World

Sort by:   newest | oldest | most voted
Zidura Ntengo Undigwere
Guest
Zidura Ntengo Undigwere
A good write-up; but I would really like to read the whole article. Where can I find it? So far, so good as far as the analysis is concerned. Agriculture is a hot item in pretty well every country. And subsidies, even in non-food production ventures are not uncommon in industrialized countries. So, it is hypocritical and disingenuous when the same countries criticize Malawi, even to the point of threatening to make FISP discontinuation as a condition of aid, just a few years ago. But Bingu stood firm; and rightly so. FISP has very good social (and economic) benefits. No… Read more »
BISM
Guest

This article is presenting benefits of Sasakawa as those of FISP! This is false!

...
Guest

theory

nachisale
Guest
FISP is a success as it has improved yields at household level and nationally every year. Without it, there would be national hunger and high rates of malnutrition as was the case in 2000, 2000, 20004. Procuring maize during hunger is very expensive. In fact, hunger drives inflation up and drains forex. It is just proper that our government invests in FISP than waiting to resolve hunger. Some people, in Malawi and in the West oppose FISP out of ignorance and ideological bigotry. But, if rich countries run bloated welfare budgets and provide strong safety-nets, it is just rational that… Read more »
johnM
Guest
I disagree with this article. FISP is a waste of resources and the high production rate cannot be attributed to FISP. Rather if can be attributed to the good rainfall and the good agriculture practices that were put in place long before FISP. In fact the agriculture practices can be traced to the Nyasaland Government of Alexander Colby. The truth is that FISP has been a failure. The yields per hectare do not correlate with amount spent and the yields per hectare have only marginally improved. Before FISP, Malawi’s yield per hectare was about less than 1 tonne per hectare.… Read more »
wpDiscuz

More From Nyasatimes