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This report evaluates the 2012/13 Malawi Government Farm Input Subsidy Programme (FISP). The main objective of the evaluation is to assess the impact and implementation of the FISP in order to provide information regarding
• the overall value for money of investments in the FISP as regards its contributions to agricultural production, food security, farmers’ and consumers’ welfare
• means by which future implementation of the FISP might be changed in order to improve its effectiveness and efficiency
We consider in turn the two main questions that the report addresses, beginning with the overall contributions and value for money from the FISP.
The FISP medium term plans sets out the objectives of the FISP as being to ‘increase food security at household level through agricultural output growth’ by increasing agricultural productivity and input market development. However economic theory and experience from other countries suggests that if implemented consistently, effectively and efficiently at a manageable cost the programme has the potential to drive broad based national economic growth and diversification by raising the productivity of the agricultural land and labour held by the large rural population, lowering food prices, raising real wages, and stimulating non-agricultural demand and supply. This depends upon the ability of the programme to cost effectively increase seed and fertiliser input use in maize production, drive up maize productivity and improve input supply services (the direct impacts of the programme) with the support of complementary policies that support low maize prices, rising real wages and rural diversification (the indirect impacts of the programme).
Increases in production and maize productivity as a result of the programme are difficult to assess. Bringing together evidence from a wide range of sources, section 7 of the report suggests that the programme led to increased production of around 723,000MT of maize and 32,000MT of legumes. Malawi’s rapidly growing population means that the programme’s incremental production benefits are increasingly important for Malawi’s national food security. These benefits are however undermined by likely informal exports (despite an export ban) encouraged by pressures from the relatively low dollar denominated maize prices in Malawi following the major devaluation of the Kwacha. The programme also led to increased profitability of maize production by beneficiary households and increased rural incomes by between MK50,000 and MK70,000per household receiving and using a full pack of fertiliser and maize seed (ignoring spillover effects and benefits from receipt of fertiliser that does not contribute to incremental production).For many poorer beneficiaries, who receive only one coupon for 50 kg of fertiliser, it seems that benefits are only sufficient to reduce their food insecurity, and are not enough to enable them to advance their livelihoods – to ‘step out’ or ‘step up’ rather than just ‘hang in’. Addressing this in the context of both limited fiscal resources and rapidly growing population pressure is a major challenge facing the programme and the Government and country as a whole. There is, however, evidence that the FISP is encouraging some diversification out of maize into increased legume production.
Assessment of the potential wider indirect impacts of the programme (addressed in section 8) requires comparison of situations with and without the subsidy. A Local Economy Wide Impact Evaluation (LEWIE) model, a novel form of CGE modelling, investigating this suggests that there are significant spillover local growth effects from the subsidy as a result of both its injection of cash into the economy and of the increase in real incomes caused by its raising land and labour productivity. However real wage rates fell during 2012/13 as a result of rising maize prices, which, as mentioned above, have been affected by the devaluation of the Malawi Kwacha and consequent export and inflationary pressures. It is not possible to estimate possible effects of FISP in reducing the extent of the fall in wages. These wider influences on maize prices pose a major challenge to the welfare of poor Malawians and to the Malawian economy, with or without the FISP. Policies that address this and promote low and stable domestic maize prices are essential for FISP to deliver improved food security and the wider growth benefits outlined above – and some specific options are suggested.
The overall benefit cost ratio (BCR) for the FISP is estimated at 1.7taking account of only direct impacts, and at1.8if wider indirect impacts are also included. Fiscal efficiency (the ratio of net economic benefits to government expenditure) is estimated at 0.75for direct impacts and 1.04 including indirect impacts. Analysis of national food security scenarios with and without the FISP suggests that in the last 6 years it may have led to average annual savings of maize imports of some 385,000MT, directly offsetting up to between 85 and 110% of programme costs. Benefit cost ratio estimates are however sensitive to some of the parameters used in their calculation, notably maize prices, incremental maize productivity, and fertiliser costs. The Fiscal Efficiency of the programme and its overall cost are also affected by likely high rates of input leakage and of displacement of unsubsidised farmer purchases by subsidised inputs, and by the subsidy rate and low farmer contributions. The importance of low and stable maize prices for programme benefits has been discussed above. More attention to these issues in the implementation of the programme could lead to substantial increases in the effectiveness and efficiency of the programme with increased benefits and/or reduced costs.
Analysis of determinants of maize productivity shows that yields are generally increased by early planting, early and good weeding, use of hybrid seed, use of inorganic nitrogenous fertiliser and of phosphate where soils are phosphate deficient, and use of organic fertilisers. Returns to use of inorganic fertiliser are also increased by use of hybrid seed, use of organic fertiliser, and higher plant density. Gains from using subsidised inorganic fertiliser and hybrid seed may also be substantially reduced if use of subsidised inputs leads to delays in planting. These observations, which are widely known, underpin many aspects of the design and implementation of the FISP, for example the increasing provision of hybrid and legume seeds in the subsidy package, the intention to provide coupons and inputs early in the season (with priority given to the south, then centre then north), and the inclusion of both nitrogenous and compound fertilisers. Analysis of the implementation of the programme in section 4 and of the timing of receipt of coupons by households in section 6 shows that a number of reasons (some of them beyond the immediate control of programme management) have led to late access to coupons and inputs – and this tends to raise costs and increase displacement as well as reduce yields. Incremental production is also affected by displacement rates and by leakages of inputs through theft and corruption.
Programme costs have been held in check from 2009/10 with much better physical control of quantities of subsidised fertilisers. As noted in section 4, there are opportunities for reducing fertiliser procurement costs (and improving timeliness of delivery) through modified tender and payment procedures. Programme costs could also be reduced by increasing farmer contributions as a proportion of input costs, and there is a difficult balance here between on the one hand supporting those who can least afford inputs and benefit most from a high rate of subsidy, and on the other hand reducing overall programme costs. A third way of reducing programme costs and/or increasing benefits is to reduce displacement and leakage, with improved security of coupons (where there has been substantial improvements in 2011/12 and 2012/13); better transport tendering and monitoring procedures (the latter building on approaches trialled with ESOKO in 2012/13); more timely input delivery, market opening and coupon distribution; and better targeting of inputs to poorer farmers unable to afford unsubsidised inputs. Increased farmer contributions may also decrease the incentives for theft, corruption and leakage. Determination of more precise numbers of farm families and (building on useful innovations in 2012/13) greater farmer access to and understanding of publicly available beneficiary lists could also improve targeting outcomes and accountability and control of coupons. Greater use of use of such systems will, however, have to take account of the support for and benefits from the widespread ‘sharing’ of coupons in the Central and Southern Regions.
Increasing attention to matters of accountability, access to coupons, and conditions at markets are to be welcomed and will no doubt be built on as more information becomes available on their strengths and weaknesses.
Despite its high cost, the FISP is making a positive set of contributions to the welfare of Malawians, and this represents a considerable achievement by all those involved in its resourcing, design and implementation in challenging conditions. These contributions are however threatened by macroeconomic pressures; by high and increasing population pressure in rural areas; by the high visibility of instances of late implementation, corruption and theft; by evidence of poor targeting; and by political and economic pressures. These contributions and these pressures call for renewed efforts to both work for and demonstrate improved efficiency and effectiveness and increased benefits and probity of the programme.
In order to facilitate wider and better informed debate around the FISP, this report will be supplemented by two short policy briefing papers summarising key issues raised regarding FISP implementation and impacts. The value of this report is, however, that it brings together in one place a comprehensive review of the programme. Readers are advised to refer to those sections that are of direct interest and not be put off by the size of the report as a whole. The ‘summary and conclusions’ section at the end of the report contains a longer and more detailed summary of the report.
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