How have fertiliser subsidies changed Malawi?

Posted on August 28, 2013 by - Growth and Social Protection

sweet potato farmer, MalawiFour new Future Agricultures working papers and five accompanying policy briefs look in detail at the impacts of the Farm Input Subsidy Programme (FISP) in Malawi, which aims to support farmers and boost the economy by subsidising seeds and fertilizers.

The new publications look at the role of the private sector; the impacts of FISP on household welfare; issues of targeting at certain groups; and what observations can be made from modelling the impacts of FISP on different livelihood groups. Also considered are the themes of ‘graduation’, where households no longer depend on subsidies, and how to achieve equal opportunities for women and men.

These papers are part of a long-running project to inform the Malawi Government and other stakeholders about implementation and impacts of the FISP. An extended list of publications from this project is available at the CeDEP website.

The working papers are:

The policy briefs are:

More information about each of them is below.

Working Papers

The Role of the Private Sector in the Farm Input Subsidy Programme in Malawi (pdf)

Future Agricultures Working Paper 64
Ephraim Chirwa and Andrew Dorward
June 2013

The involvement of the private sector in the Farm Input Subsidy Programme (FISP) has changed over the lifetime of the programme with increasing participation in fertilizer procurement, inclusion and exclusion in fertiliser retail sales, increased participation in seed sales and increased participation in the transportation of fertilisers to various outlets in Malawi. This paper documents changes in private sector involvement in various aspects of the programme since 2005/06 and identifies benefits and challenges of participation of the private sector in the implementation of the programme.

The paper reviews the experience of private sector participation using data from the Logistics Unit and household and community surveys conducted in the 2006/07, 2008/09 and 2010/11 agricultural seasons. The analysis shows that commercial sales of fertilisers, although lower than the pre-subsidy levels, have been increasing suggesting that the programme has in the medium term stimulated demand for fertilisers in Malawi. This has occurred at a time when the private sector has increasingly participated in the procurement of subsidy fertiliser but has been excluded from retailing of subsidy fertilisers. The seed component of the subsidy programme, which has always involved the private sector, has attracted additional seed growers and expanded the number of varieties for maize seeds and legumes.

Repeated Access and Impacts of the Farm Input Subsidy Programme in Malawi: Any Prospects of Graduation? (pdf)

Future Agricultures Working Paper 65
Ephraim Chirwa, Mirriam Matita, Peter Mvula and Andrew Dorward
June 2013

This paper analyses the impacts of the Farm Input Subsidy Programme (FISP) using a balanced four-year panel of 461 households from 2004/5, 2006/7, 2008/9 and 2010/11 agricultural seasons. We find evidence of economy wide and input market effects of the subsidy programme. The economy-wide effects of the subsidy programme are strong particularly due to lower maize prices and increased ganyu wage rates. The economy-wide effects of the subsidy which arise from higher ganyu wage rates, reduced time spent on ganyu, availability of maize at local level and lower prices of maize have enabled poor households to access maize when they run out of their own production.

With respect to input market effects, with 2010/11 conditions and quantities of subsidised fertiliser, a 1 percent increase in subsidised fertilisers reduces commercial demand by 0.15 – 0.21 percent. However, using various welfare indicators, we find mixed results on the direct beneficiary household effects of the subsidy programme from panel data analysis and there is no overwhelming evidence on the relationship between repeated access and impacts of the subsidy. The direct beneficiary impacts on food consumption, self-assessed poverty and overall welfare are weak and mixed while there is some statistically significant evidence of positive impacts on primary school enrolment, under-5 illness and shocks. Nonetheless, the impact analysis highlights the challenges of targeting and sharing of subsidy among households, which may have implications on the direct beneficiary impacts and prospects to sustainably graduate from the programme.

Targeting in the Farm Input Subsidy Programme in Malawi: Issues and Options (pdf)

Future Agricultures Working Paper 66
Andrew Dorward and Ephraim Chirwa
June 2013

This paper examines targeting issues that emerge from FISP evaluations undertaken since 2006/07, and puts forward various options for improving targeting. Targeting objectives depend upon programme objectives. In the FISP targeting occurs at area and beneficiary levels – the former targeting subsidies to different zones or districts, the latter targeting beneficiaries within already targeted areas.

Targeting is important because it affects achievement of programme objectives through its impacts on displacement (the extent to which purchases of subsidised inputs replace purchases of unsubsidised inputs that farmers would have bought anyway without the subsidy), productivity of input use, the direct benefits to beneficiaries, and wider economic, social and environmental benefits. Achievement of these benefits is generally supported by pro-poor targeting (with lower displacement and stronger growth linkages) but the effects of pro-poor targeting on the productivity of input use are not known and are an important (but difficult) field of further research. Relations of targeting with area and beneficiary graduation and with environmental benefits are complex, and also require further research.

Impacts of the Farm Input Subsidy Programme in Malawi: Informal Rural Economy Modelling (pdf)

Future Agricultures Working Paper 67
Andrew Dorward and Ephraim Chirwa
June 2013

This paper presents a partial equilibrium model of the impacts of the Malawi Farm Input Subsidy Programme on smallholder livelihoods in two major and contrasting livelihood zones over the period 2005/6 to 2010/11. Despite inherent difficulties in modelling the multi-scale and complex relationships that are involved, model findings show direct impacts on subsidy recipients (increasing maize production and real incomes), differences between poorer and less poor households (with poorer households normally gaining more proportionally but not necessarily absolutely from the same subsidy package), and differences between central and southern region maize growing areas with different rates of poverty incidence and land pressure (with greater absolute and proportional gains in poorer southern region areas). The results also show the impacts of the programme on wages and maize prices.

However, a significant finding of model simulations is that beneficial indirect effects may be greater than direct impacts in maize growing areas with high rates of poverty incidence and high land pressure. These indirect effects arise through increases in the ratio of wages to maize prices, and benefit poorer households (who sell ganyu labour and buy maize) while potentially harming in the short term the incomes of less poor buyers of ganyu labour and sellers of maize (these households should however gain in the medium and long run from increased livelihood opportunities with wider economic growth). This finding has important implications for programme design, implementation and evaluation. Much more emphasis should be placed on ensuring that the programme and other policies are managed to maximise these indirect benefits, and on assessing these benefits in programme evaluation. There are particular implications for the design and management of area and household targeting and graduation.

Policy Briefs

Fertiliser Use on Women’s Plots: An Intra-Household View of the Malawi Farm Input Subsidy Programme (pdf)

FAC Policy Brief 57
by Ephraim W. Chirwa, Peter M. Mvula, Andrew Dorward and Mirriam Matita

The Government of Malawi has, since the 2005/06 agricultural season, been implementing a Farm Input Subsidy Programme (FISP) targeting resource-poor smallholder farmers. The input subsidy is targeted at households and implicitly assumes that a household is a unitary decision-making unit and subsidised inputs will be used equitably on plots controlled by various members of the household.

This research demonstrates that in a socio-cultural environment in which men tend to dominate intra-household decision-making processes over allocation of income and resources, these issues are important in understanding the effectiveness of input subsidies and how they can create more equal opportunities for female and male members of the household. This research investigated gender differences in the application of fertilisers in general and subsidised fertilisers in particular, on plots controlled by male and female household members.

Private Sector Participation in the Farm Input Subsidy Programme in Malawi (pdf)

FAC Policy Brief 58
by Ephraim W. Chirwa and Andrew R. Dorward
July 2013

The Farm Input Subsidy Programme (FISP) in Malawi has been implemented since the 2005/06 season with the objective of improving household and national food production and incomes. It targets more than 1.5 million farm families who receive subsidised fertilisers, improved maize seeds and/or legume seeds. The implementation of the FISP has involved the interaction of the Government of Malawi, the private sector, development partners, civil society organisations (CSOs), non-governmental organisations (NGOs), traditional leaders and smallholder farmers, all playing different roles in the implementation and success of the programme. The private sector has played a critical role, but its involvement in the programme has changed over time. This has included the procurement of fertilisers, the transportation of fertilisers to various markets, the retail sale of fertilisers, and the production and sale of improved seeds.

Benefits from the inclusion of the private sector in the implementation of a nation-wide agricultural input subsidy programme include efficiency, reduced bureaucracy, strategic development of the private market system, cost savings on the part of the Government, shared investment finance and costs, and reduction in displacement of commercial sales of inputs.

Thinking about ‘Graduation’ from the Farm Input Subsidy Programme in Malawi (pdf)

FAC Policy Brief 59
by Ephraim W. Chirwa, Andrew R. Dorward and Mirriam Matita
July 2013

Considering the high incidence of poverty and food insecurity among Malawi’s rural population, agricultural input subsidies can be seen in part as a social protection instrument, improving accessibility and availability of food for vulnerable groups. However, questions about the sustainability of the Farm Input Subsidy Programme (FISP) have been raised since its introduction in 2005/06. Some have argued that with limited public resources and other competing needs of development, subsidisation of farm inputs for a food staple may not be the best use of scarce resources, justifying calls for an exit strategy. Others, however, describe the subsidy as a good thing insofar as it addresses chronic food insecurity in Malawi and contributes to inclusive economic growth and poverty reduction.

Factors Influencing Access to Agricultural Input Subsidy Coupons in Malawi (pdf)

FAC Policy Brief 60
by Ephraim W. Chirwa, Mirriam Matita and Andrew Dorward
July 2013

One direct way in which agricultural input subsidies can provide social protection to the poor is by targeting the poor with very high subsidies to ensure that they are able to access inputs. Although the Malawi Agricultural Input Subsidy Programme (MAISP) generally targets resource-poor households, the targeting guidelines also accord special consideration to vulnerable groups such as child-headed, femaleheaded or orphan-headed households and households affected by HIV and AIDS. This Policy Brief considers how the Malawi Agricultural Input Subsidy Programme has contributed to providing social protection to these poor and vulnerable households.

Targeting in the Farm Input Subsidy Programme in Malawi, 2006/07 – 2011/12 (pdf)

FAC Policy Brief 61
by Andrew Dorward and Ephraim Chirwa
July 2013

Targeting, the process of directing subsidised inputs to particular areas and to households within those areas, plays a critical role in Malawi’s Farm Input Subsidy Programme (FISP). It involves the implementation of particular targeting systems which are intended to deliver particular targeting outcomes and patterns of subsidised input access across areas and households. These affect how inputs are used, and hence programme impacts. Targeting is controversial and political, as it determines whether or not, how and how much particular people and groups benefit from the programme. Targeting is also difficult – and the large scale of the programme across the country adds to the challenges and costs in implementing and supervising targeting.

This policy brief sets out targeting issues that emerge from FISP evaluations and suggests criteria and options for improving targeting processes, outcomes and impacts.

Image: Sweet potato by ILRI on Flickr