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Going against the grain: Malawi's fertiliser subsidy

Good weather and government subsidies on seed and fertiliser helped produce a million tonne maize surplus in Malawi in 2007 (©FAO/Eddie Gerald)
Good weather and government subsidies on seed and fertiliser helped produce a million tonne maize surplus in Malawi in 2007
©FAO/Eddie Gerald

In 2006, Malawi's maize harvest was the highest on record. A year later, the new record was smashed by a harvest that was nearly a third bigger again. Two years of good weather, combined with a government programme of subsidies on fertiliser and improved maize seed, created a one million tonne maize surplus. Much of this was exported to Zimbabwe, boosting Malawian national pride as well as its coffers. And this from a country ranked as fifth poorest in the world, long plagued by a narrow economic base and scarce natural resources.

Under the Agricultural Inputs Subsidy Programme (AISP), introduced in 2004, over half of Malawi's smallholder farmers receive coupons which enable them to buy 100kg of fertiliser for around US$14, a quarter of the normal market price. Another coupon entitles them to 450 kwacha worth of maize seed, which equates to 3kg of standard seed or 2kg of hybrid seed. The coupons are targeted at the 'productive poor': those with the land and human resources to make best use of them. After the 2007 season it was estimated that the area planted to hybrid seeds was 20 per cent larger than in the previous year, and an external appraisal reckoned that one-fifth of the national harvest could be directly credited to the subsidised seed and fertiliser.

Teething troubles

Selecting who should receive the coupons has been one of several challenges that the AISP has faced. In the first few years of the scheme, the task of allocating the coupons was given to traditional local authorities, such as village headmen. This, however, led to complaints of corruption, and in 2007 a more transparent system, managed by government staff, was introduced. Despite this, there remain challenges with targeting the coupons. Research has shown that female-headed households are less likely to receive the subsidies than male-headed. Fraudulent printing of coupons is also becoming more frequent and sophisticated.

A welcome sight in Malawi - a mature maize crop ready for harvesting. (©FAO/F.Botts)
A welcome sight in Malawi - a mature maize crop ready for harvesting.
©FAO/F.Botts

Involvement of the private sector is another area where the scheme has needed refinement. Initially, the task of sourcing and supplying the fertiliser and seed was given to the state-run agricultural marketing company. This severely undercut the business of Malawi's private input suppliers; one chain, Farmers' World was forced to close 30 of its 100 shops as its profits fell by 60 per cent. Donors, who had originally wanted no involvement with the subsidy scheme, offered financial support in the second year of implementation, in return for the government allowing private input suppliers to receive coupons and reclaim their value later. This measure succeeded in restoring competitiveness in the market and saved many suppliers that were verging on bankruptcy.

Going it alone

With rising fertiliser costs, linked to the price of oil, the question remains for how long the government can afford to continue with the programme, and whether donors will offer support to keep it running. Subsidies are generally considered problematic, hindering long-term development by distorting markets and discouraging farmers from diversifying. But some analysts argue that Malawi has no viable alternatives in achieving short term food security. As a land-locked country, Malawi is under pressure to grow its own food, since imports are both costly and complicated. Diversifying its smallholder agriculture, however, is problematic. Maize is the main staple for 90 per cent of the population, and most smallholders farm on tiny plots of land, making diversification difficult.

Growing maize locally, even with subsidised seed and fertiliser, is much more cost-effective than food aid. (©FAO/Pius Ekpei)
Growing maize locally, even with subsidised seed and fertiliser, is much more cost-effective than food aid.
©FAO/Pius Ekpei

Given good weather, however, the AISP has proved that it can be a cost-effective way for Malawi to feed itself. The value of grain credited to the scheme in the 2007 season is estimated to be between US$100 -160 million, at a cost of US$74 million. At a local level, there are hopes that the AISP could be breaking Malawi's vicious circle of low investment and low productivity in agriculture. According to Ephraim Chirwa, an associate professor at the University of Malawi, who has studied the impacts of the scheme, people's confidence and perception of their welfare have improved, compared to four years ago. Maize prices have lowered and employment, in the form of agricultural piece-work, has increased. There are hopes that the money earned from maize sales could also help to fund diversification in the non-farm rural economy.

Tricky times could be ahead, however, if, or when, Malawi faces successive years of poor weather. Politically, it may be impossible for the government to curtail the programme, given the place of fertiliser availability as the country's number one political issue. But while Malawi has pressed ahead with the policy, proud to be financing it largely from domestic resources, it could be a major millstone around the neck of the treasury should it not produce the grain that Malawi depends on.

Date published: July 2008

 

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