Social Inclusion Programmes: Experiences and Lessons from the
Malawi Farm Input Subsidies Programme
Ephraim W. Chirwa
Wadonda Consult Limited and University of Malawi
Social Inclusion Programmes:
Experiences and Lessons from the
Malawi Farm Input Subsidies
Programme
Ephraim W. Chirwa
Expert Meeting on Social Inclusion Programmes and their
Impact on Sustainable and Inclusive Development and
Growth, Geneva, Palais des Nations, 27 – 28 November 2014
Outline
Roles of Input Subsidies
Impacts of Input Subsidies on Growth and
Development
Reflecting on FISP
Strategic Issues from the Malawi Experience
Objective – growth and development oriented
Targeting
Sustainable Graduation
3
Roles of Farm Input Subsidies
Social Protection
Transfer to vulnerable groups
Lower food prices and/or higher wages for recipients &
non-recipients
Input Profitability
Improving profitability of input use
Addressing affordability constraints – lack of financial
services
Household and national food security
Health, nutrition and education outcomes
4
Impacts of Subsidies: LMAP Trap in Malawi
PRIVATE UNSTABLE
SECTOR, POLICIES
NON-FARM
ROADS
MAIZE PRICE &
TRADE POLICY Low credit
CREDIT,
RESEARCH,
EXTENSION,
CASH & OIL
CROPS
SLOW PRIVATE
SECTOR
DEVELOPMENT
UNSTABLE
WEATHER
Unstable maize prices
Consumer ‘lock in’ to
low productivity maize
Low producer
investment
Low maize & agric
productivity
INPUT
SUBSIDY
SOCIAL
PROTECTION
POOR
ROADS
Low & vulnerable real
incomes
Low demand for nonagric goods &
services
5
The Malawi Farm Input Subsidies
Programme started in 2005/06 season
Targeted programme using input vouchers
Targets resource poor smallholder farmers and
reaches more than 50% of rural farm households
Subsidizes improved maize and legume seeds, and
fertilizers for maize production
Subsidy on fertilizers started at 70% of market price
in 2005/06 to 97% in 2013/14
The volume of subsidized fertilizers has on average
been 140,000MT of basal and urea fertilizers
6
Impacts of Subsidies: Case of FISP
 Maybe, it depends on objective outcomes
Contested impacts from empirical studies?
Productivity?
Food security, maybe yes given changes in population
Economy-wide (indirect) effects?
 Population Growth
But the issue of population has not been put in context –
Malawi has more people to feed today than in 2005/06
Yet the level of subsidized inputs have remained the
same at about 160,000 MT
Between 2001/2 and 2013/14 seasons, consumption
requirements have increased by 45% (24% since FISP)
But there has been some maintenance of food security in
most of the years with FISP (without requiring major
imports)
7
Agricultural & Economic Growth Impacts?
a) Agriculture GDP Growth Rates
b) GDP Growth Rates
60.0
20.0
50.0
40.0
1970-1979
1980-1989
1990-1999
2000-2009
15.0
2010-2014
10.0
30.0
Percent
Percent
20.0
10.0
0.0
-10.0
0
1
2
3
4
5
6
7
8
5.0
0.0
0
9
2
3
4
5
6
7
8
9
-5.0
-20.0
-10.0
-30.0
-40.0
1
Year of Decade
-15.0
1970-1979
1980-1989
1990-1999
2000-2009
2010-2014
Year of Decade
 Poverty fell marginally from 52.4% (2005) to 50.7% (2011)
 Rural poverty increased from 55.6% to 56.6%
 Ultra-poverty increased from 22.3% to 24.5%
8
Maize Production Impacts?
4000
Domestic surplus (deficit) before subsidy (MT)
Domestic surplus (deficit) with subsidy (MT)
Domestic surplus (deficit) without subsidy (MT)
Total consumption (MT)
Production with subsidy (MT)
Production without subsidy
'000MT
3500
3000
2500
2000
1500
1000
2013/14
2012/13
2011/12
2010/11
2009/10
2008/9
2007/8
2006/7
2005/6
2004/5
2003/4
-500
2002/3
0
2001/2
500
-1000
-1500
9
160
Current MK/kg
140
100
80
60
20
0
2000Aug
2001Apr
2001Dec
2002Aug
2003Apr
2003Dec
2004Aug
2005Apr
2005Dec
2006Aug
2007Apr
2007Dec
2008Aug
2009Apr
2009Dec
2010Aug
2011Apr
2011Dec
2012Aug
2013Apr
2000Aug
2001Apr
2001Dec
2002Aug
2003Apr
2003Dec
2004Aug
2005Apr
2005Dec
2006Aug
2007Apr
2007Dec
2008Aug
2009Apr
2009Dec
2010Aug
2011Apr
2011Dec
2012Aug
2013Apr
Impacts on Maize Prices
0.6
Current US$/kg
0.5
120
0.4
0.3
0.2
40
0.1
0
10
Programme costs … too much?
70%
250
60%
200
50%
150
40%
30%
100
20%
50
10%
0
0%
2005/6
2007/8
2009/10
Other costs (US$ million)
Fertiliser costs (net) (US$ million)
Cost, % MoAFS adjusted budget
Cost, % GDP
2011/12
2013/14
Seed costs (US$ million)
Programme budget (US$ million)
Budget, % national budget
11
Benefit Cost Ratios
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
with Growth Multiplier
BASE
0.20
0.00
2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13
12
Framework for Subsidies? Key Principles
If well-designed and implemented, production
subsidies can promote inclusive growth and
development
Clear anchor objective – one key objective that can
achieve multiple outcomes
Proxy means tests targeting – multiple indicators, not
easily manipulated
Strong coordination with social protection – data
gathering and unified targeting criteria
Graduation and sustainable subsidization – incentives
and penalties!
Time bound, cohort targeting and pre-announced
subsidy levels
Strong monitoring and evaluation – evidence into
practice
13
Strategic Changes
Growth-Oriented Programme objective
Anchor objective to focus on achievement of
productivity!
“To increase land and labour productivity in smallholder
food production”
Other objectives maybe achieved consequentially without
explicitly expressing them
Food security is implicit in increased maize productivity
Increases productivity also deals with improved incomes
and hence poverty reduction
Improved productivity ensure sustainable outcomes
Productivity can lead to farm and non-farm
diversification
14
Strategic Changes ………
 Targeting
Targeted households should be resource poor productive
smallholder farmers (poor but not ultra-poor)
Resource poor unproductive farmers (ultra-poor) should be
targeted for social cash transfers
If transfers under SCT are lower than under FISP – cost savings
Other considerations
Ensure minimal displacement effects
Objective and multidimensional criteria (proxy means tests)
Ensure providing platform for stepping-up or stepping-out
Strong coordination with social protection programmes to
avoid multiple dipping
Targeting challenges & costs
National identification system, not biometrics only for FISP
15
Differentiating Types of Support?
Rural Population
Category
Percept of Rural Type of Support
Population
Ultra-poor & labour
constrained
4.2
Social Cash Transfer
Ultra-poor & non-labour
constrained
17.3
Farm Subsidy + Public
Works to support coupon
redemption
Moderate-poor & labour
constrained
19.5
Social Cash Transfer
Moderate-poor & nonlabour constrained
40.0
Farm Subsidy
Non-poor & labour
constrained
6.0
None
Non-poor & non-labour
constrained
13.0
None
16
Targeting Problems?
MDP1+Labour Constraint (LC)/Non-labour constraint (NLC)
70.0
59.4
60.0
55.9
53.1
52.1
50.0
Percent
41.9
40.0
40.0
39.0
30.0
19.5
17.3
20.0
13.0
10.0
6.0
4.2
0.0
Ultra-poor & Ultra-poor &
LC
NLC
Moderate
poor & LC
% Welfare Group
Moderate Non-poor & Non-poor &
poor & NLC
LC
NLC
% FISP
17
Targeting SCTP & FISP with price variation
Supporting 76.7% of Rural Households (20.3% SCTP & 56.3% FISP)
70.0
250,000
60.0
200,000
150,000
40.0
30.0
100,000
Metric Tons
MK Billion
50.0
20.0
50,000
10.0
0.0
500
1,520
3,040
4,560
6,080
7,600
9,120
FISP Farmer Contribution MK/bag
SCT
FISP
Total
Quantity Subsidized (MT)
18
Strategic Changes ………
 Sustainable Graduation
Design must embrace the concept of sustainable graduation
Fixed subsidy and flexible farmer voucher redemption price or
increasing farmer contributions
Repeated cohort target and progressive reduction in subsidy
Pre-announced future subsidy levels – 5-year targeting cycle
Subsequent cohorts may entail less people needing subsidies
Other considerations
Requires complementary interventions – soil conservation &
fertility, diversification, credit access, extension services,
maize markets, farmer organisations
Strong internal monitoring and evaluation to determine
achievement of objective and graduation conditions
19
FISP Graduation Model?
Monitoring and Evaluation
Commercialisation & off farm diversification farm credit, high value markets, business
training
120
1
0.9
Farmer organisations, farm credit,
farm diversification,
commercialisation
0.8
Farmer Contribution (%)
0.7
80
Extension services, soil fertility management,
National level advocacy on the strategic intent of the programme
0.6
60
0.5
0.4
40
0.3
Productivity (% of target)
100
0.2
20
0.1
0
0
Year 1
Year 2
Year 3
Farmer Contribution
Year 4
Year 5
Year 6
Year 7
Productivity Achievement
20
Other Strategic Issues
Political commitment to sustainable approaches
to subsidization
Private sector involvement
Fertiliser formulations
Budget & tender timing & processes
21
Conclusions
 Agricultural input subsidies can be successful
 Address critical farm, livelihood & wider economy constraints to
input use on staple crops
 Good physical yield responses to subsidised inputs (soils,
seeds, rainfall)
 Efficient implementation
 Coherent vision
 Political commitment (a paradox?)
 Agricultural input subsidies can also be costly failures
 Political attractiveness requires strong attention to their
effectiveness & efficiency
 Attention should be paid to efficient targeting,
complementary investments and sustainable graduation
22
Social Inclusion Programmes:
Experiences and Lessons from the
Malawi Farm Input Subsidies
Programme
Ephraim W. Chirwa
Expert Meeting on Social Inclusion Programmes and their
Impact on Sustainable and Inclusive Development and
Growth, Geneva, Palais des Nations, 27 – 28 November 2014