Affordable inputs subsidy in Malawi; its inception, failures and future

Input subsidies are one of the strategies for addressing poverty, inequalities, vulnerabilities, and food insecurity in both developed and developing countries including in the Sub Saharan region.

In Malawi, subsidy programs have been implemented since the 1960s to increase access to external farm inputs and their adoption by the resource poor smallholder farmers, with the desire of stimulating production, increasing farmers’ incomes, and spurring economic growth.

The objectives of input subsidy programs in Malawi have revolved around achieving national food security by supporting smallholder farmers’ access to inputs for improving productivity of rain-fed crops.

Commenting on the program, former minister of Agriculture, Honourable Dr George Chaponda highlighted that the initiative from the start had been a good idea, but that over time it has been poorly managed hence failing to yield fruits.

“More than 88 percent of Malawians reside in the rural areas and are subsistence farmers. Most of them depend on maize for their staple food. Banda’s government had ensured that the poor farmers could buy subsidized fertilizer and seeds so that there were increased crop outputs which were directly linked to food security and community development. This government introduced universal agricultural subsidies and price controls from 1964 to 1994.

The two institutions that were dominant in serving Malawians throughout the country to purchase and sell their agricultural products were the Agricultural Development and Marketing Corporation (ADMARC) and Smallholder Agriculture Credit Administration (SACA). ADMARC used to sell agricultural products to farmers and acted as a buyer of last resort and guaranteed minimum prices for maize. This arrangement was to the best interest of poor Malawian farmers.” Dr Chaponda.

During the Banda regime, government established farmers’ clubs throughout the country where credit on agricultural inputs was facilitated and not less than 30% of smallholder farmers were able to access. ADMARC markets as they were locally known, were conveniently located closer to farmers including those in the remote rural areas. This was to minimize high transportation costs for the subsistence farmers.

When Dr Banda stepped down in 1994 after conceding to electoral defeat, the Bakili Muluzi-led government adopted a Poverty Alleviation Program in August 1996 whose central focus among other things was smallholder agricultural production.

This initiative faced huge challenges later due to the implementation of the Structural Adjustment Program (SAP), as  the role of ADMARC was scaled back, and fertilizer subsidies were phased out under the terms of three loan agreements with multilateral institutions.

In 1996, the government of Malawi gave in to the pressure from international development aid agencies and abolished agricultural subsidies, especially fertiliser and maize.

Immediately, the costs of agricultural inputs went up and during the same time the smallholder credit mechanisms had collapsed.

The former minister of Agriculture observed that, “the collapse of the Smallholder Agricultural Credit Association and the removal of agricultural subsidies under SAPs favoured by development aid agencies pushed the wellbeing of most Malawians into peril. During that period, agricultural productivity stagnated. There arose an urgent need to revamp the program as Dr Banda had initiated.”

President wa Mutharika in 2004 wanted to roll-out universal subsidies for the poor just like Kamuzu Banda, but development aid agencies were hostile to this plan. The inability to provide universal agricultural subsidies which is one of key factors to developmental interventions, led Malawi to experience hunger and starvation due to the poor harvest of 2004/2005.

This left five million people in need of food aid and this prompted a re-evaluation by development aid agencies. Due to this re-evaluation, DFID and the UNDP decided to support the government of Malawi with an Agricultural Input Subsidy Program (AISP), in 2005.

The AISP was later renamed the Farm Input Subsidy Program (FISP), this FISP was implemented in 2005/06 financial year and it produced bumper harvests that led Malawi to have food security and increased GDP.

“From what late Bingu was able to achieve with the same AIP that had been phased out by Muluzi, it is evident that the success of the program is as a result of political willingness. The prevailing leadership must take it to heart to see to it that the program is well managed and not abused.

For a country that depends on agriculture for its livelihood such a program is key to government policy and a huge determinant weather that government gets back into power or not.” George Chaponda.

In 2020, the Malawian government introduced the Affordable Inputs Program — a 160 billion Malawian kwacha ($199.2 million) program that allows Malawian subsistence farmers to purchase farm inputs at a subsidized cost with the government paying over 70% of the cost.

The program aims to reduce poverty and ensure food security at household and national levels by increasing access to improved farm inputs. Though the program’s goals were similar to those of its predecessor — the Farm Input Subsidy Program which ran from 2005 to 2019 — the 2020 AIP budget was more than four times higher than the last FISP budget.

But since its inception, the program has faced several hiccups such as low supply at selling points, accusations of corruption, and a lack of support from suppliers. Agriculture policy experts have questioned the program’s effectiveness and recommended subsidizing large scale farming and widening AIP’s focus as more effective ways of improving food security.

AIP accounts for over 45% of Malawi’s agriculture budget. Despite the large investment in AIP’s maize, production only increased by 300,000 metric tons between 2020 and 2021.

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