Agricultural Subsidies & Input voucher Program FANRPAN Partners Meeting 24 th June 2009 Pretoria

1. Agricultural Subsidies & Input voucher Program FANRPAN Partners Meeting 24th June 2009 Pretoria policy@fanrpan.org www.fanrpan.org

2. Background • Agriculture plays a vital role in economic development and is central to rural development and alleviation of poverty amongst the rural people • Agricultural sector provides • Raw material to industrial sector • Creates employment • Major input in human development and economic growth

3. Slow growth • By the turn of century Fertilizer use in Africa was only 8 kg/ha, compared with 96 kg/ha in East and Southeast Asia and 101 kg/ha in South Asia • Today, Africa accounts for less than 1% of global fertilizer consumption. • The failure to promote fertilizer was attributed to: • high and unsustainable fiscal and administrative costs, governments' weak capacity to implement programs, and governments' inability to take account of the diversity of production systems and farmers' needs. (World Bank report)

4. Other Reasons for low growth rate • Poor infrastructure and related high transport costs (for both inputs and surplus production), • Inadequate institutional support (credit and extension), • Political instability, • Diverse agroecological complexities, • Low fertilizer use, and the limited availability of suitable high-yielding varieties have all contributed to low agricultural productivity growth in Africa

5. Continued • The decline in performance lead to government, donor agencies and NGOs to initiate a number of interventions to support smallholder farmer • The purpose • To increase agriculture productivity • Ensure food security

6. Interventions • Emergency relief programs • Subsidies on agricultural inputs • Use of cash • Seed voucher • Food for work

7. Policy change • Donors, led by the World Bank, argued for the abolition of state-led interventions including subsidies • As a result, many government input supply agencies were dissolved or privatized. Under these circumstances, fertilizer costs rose sharply and constrained adoption of fertilizer use by small-scale farmers • This policy failure caused a serious reassessment among governments, creating the setting for a return to subsidies as a potential intervention for promoting food security and agricultural growth

8. The Malawi Input Voucher • Emerging from the worst harvest in a decade (2003-2004) creating 43% deficit • In May 2005, the Malawi Vulnerability Assessment Committee concluded that over 4.2 million people required food aid. • The food situation was deteriorating rapidly, and a major humanitarian relief operation began. • By November 2005, as the maize prices in local markets continued to rise, the estimate went up to 5 million Malawians—38% of the population—in need of food aid

9. Continued • In response to recurring food deficits, the Government decided to invest in subsidizing agricultural inputs • This policy attracted objections from some major donors who were concerned about the potential cost and the absence of a clear exit strategy • At the Africa Summit of the World Economic Forum in Cape Town, South Africa, referring to the situation in Malawi in 2005 and his commitment to act and provide input subsidies, President Bingu wa Mutharika said: “Enough is enough. I am not going to go on my knees to beg for food. Let us grow the food ourselves.

10. Determination • Government of Malawi implemented one of the most ambitious and successful assaults on hunger in the history of the African continent. • Through a national input subsidy program, coinciding with better rainfall conditions, maize production doubled in 2006 and almost tripled in 2008/09 • Malawi's recent experience may provide important lessons for achieving food security through smallholders in Africa

11. Results • Seventy-six percent of farmers opted for the higher-yielding hybrids over the less expensive OPVs , challenging perceptions among some donors and nongovernmental organizations that hybrid varieties were inappropriate for small-scale farmers • The 2006–2007 harvest was estimated at 3.44 million t, an all-time national record for Malawi, generating a surplus of about 1.34 million t of maize grain above national requirements • The incremental effect of the fertilizer subsidy on maize production was estimated at 670,000 t for 2006–2007, valued at US$117 million in additional crop production, assuming a maize producer price of US$175/t.

12. Continued • The total program cost in 2006–2007 was US$72 million , approximately US$62 million of which was directed to maize fertilizer and seed costs. • By late 2007, Malawi had exported over 300,000 t of maize to Zimbabwe, not only generating income for its smallholder farmers, but contributing to regional food security • The 2005–2006 crop- the average price dropped by 61%. And dropped further in the 2006–2007 benefitting the maize consumer • These results suggest that the maize consumers in Malawi have benefited from the successive strong harvests and the related price declines

13. Continued • An associated decline in the price of maize conveys important benefits to low-income urban and rural households that are net food consumers. • This outcome is fully consistent with experience in Asia and suggests an important potential impact of seed and fertilizer subsidies on food security for the poorest households that are net consumers even after good harvests

14. Studies • Enhancing Food Security in Southern Africa: Lessons from Malawi’s Input Subsidy Programme (2008) • Input Voucher study In Swaziland (2008) • Input voucher study in Zambia (2008) • Input Voucher study in Mozambique (2008) • Input Voucher study in Lesotho (2008)

15. Objectives of the studies • To document experiences and assess the feasibility of using input vouchers to support smallholders to improve agricultural productivity • To establish, through consultative process the interest of stakeholders in Input voucher • To understand the input supply program in Malawi with respect to cost and benefits • To develop detailed plans and achieve commitment from stakeholder • To demonstrate the potential impact of integrating relief and commercial seed and fertilizer distributionchannel

16. Mozambique • Increased purchasing power for farmers that are aware of the benefits of the agricultural inputs (seed Voucher fairs) • Has allowed farmers to buy agricultural inputs of their choice • Revealed farmers’ preferences and allowed suppliers to respond to farmers’ demand (improving trade) • Assisted the emerging local input dealers to invest on their businesses.

17. Swaziland • Improved food security at household level • Increased participation of private sector leading to increased sales volume • Increased the operational base on input dealers and created employment

18. Lesotho • Ensured proper selection and registration of both beneficiaries and suppliers at the fairs. • Voucher verification before payment has minimized fraud

19. Zambia • Helped to open up new markets for private sector in remote areas • Increased volume of business • However it has been noted that if vouchers were used operation of the overall input market would be improved

20. Malawi • Malawi has broken from what has become a norm in the Southern Africa region, commitments that are not followed through. • Met and exceeded the CAADP target 14% of national budget • Met and exceeded agricultural growth target per annum of 6% to 11.9% • Increased national productivity from 800kg/ha to 2250kg/ha

21. Continued • 2ndly, Malawi has proved that despite the many challenges facing smallholder African agriculture, • it is possible to increase smallholder crop productivity through existing technologies. • success in maize production shows that the situation facing the rural poor is not beyond the capability of governments to address. • National food self-sufficiency can be attained through the smallholder sector

22. Improving Agricultural Productivity and Nutrition of Poor Rural Political resolve can contribute to food security 1995-99 2000-05 2006-07 2007-09 Agriculture Share in Budget: 8.9% 6.13% 12.10% 14% The policy shift needed a financial commitment that has seen increase in agriculture budget to 14% of the national budget and 60% of it allocated to ISP. Malawi Maize production surpluses over the last six years: 2003/04 04/05 05/06 06/07 07/08 08/09 Surpls(MT) (.2million) (.8million) .5million 1.3million .5million 1.2million In recognition of the above achievement • Inaugural FANRPAN Annual Food Security Policy Leadership Award presented to His Excellency Dr.BinguwaMutharika President of Malawi, 2008 • FANRPAN Documented the Malawi Input Voucher Programme – “The Malawi Success Story”

23. Overall Outcome • Use of vouchers have potential to integrate commercial and non-commercial input distribution systems • Evidence on the increased and timely access to inputs • Evidence on Increased agricultural productivity • Increased purchasing power for farmers • Input voucher program is a market-smart form of subsidy • Increased sales volume for example in Malawi hybrid maize seed rose from 4,000mt to 6,700mt in 2006/07 • Increased fertilizer application from 17% in 2005 to 30% of the rural household in 2006

24. Overall outcome • Increased smallholder maize yield from less than 1.0mt/ha in 2005/06 to 2.25mt /ha in 2008/09 • Increased maize surplus from 0.5million mt to 1.2 million mt in 2008/09 • Between 2005 and 2006 the number of people below the poverty line in Malawi declined from 50% to 45%

25. Significant of Malawi Experience • Malawi experience demonstrates several points that are significant for the Southern Africa region. • That the right investments done in the right way under the right circumstances can produce the desired results; • Southern Africa is not doomed to remain in food deficit; • Policy makers can make a difference; • Hunger and dependence on food aid can be reduced; and • Support mechanisms for smallholder farmers can be integrated with market development • to address the dual goals of increasing agricultural productivity and developing agro-input markets.

26. Challenges • Accurate targeting of beneficiaries • Lack of monitoring of voucher beneficiaries to evaluate impact • Compromise on inputs quality • Late decisions leading to late delivery • Uncertainty with its continuity • Logistical • Political interference

27. Need to continue • Policy development is dynamic, exciting and challenging but also full of uncertainties. • Policy continues to be influenced by external and internal factors and also government agenda of the time and in most cases there is no holism

28. A Study of the Impact of ISP Fertilizer and Hybrid Seed On Livelihood in Malawi/Zambia

29. Back ground • The Malawi government call • Evidence to support research in informing policy makers and other players in the agricultural inputs trade • The need, was to build credible evidence on the • impact of the ISP fertilizer and hybrid seed on people’s livelihood • This is critical if the ISP is to influence future food security policy decisions. 

30. Response • FANRPAN has commissioned a comprehensive study • to establish the impact of the ISP fertilizer and hybrid seed on people’s livelihood in Malawi. • to capture evidence and draw lessons to inform policy direction • to contribute towards achieving improved food security at national level • to inform policy development and direction • Identify farmers and track them for three consecutive years in order to tell a complete story

31. The results • Impact of ISP on HH food Security • 65% having adequate food for the whole year • 35% need to buy during lean period • 60% had three meals per day • 34% had two meals per day and 3% had 1 meal • 75% of the HH had been food secure for the 7 days of the study • Increase in rural household income

32. Farmer case studies

33. Zambia • Only 24.1% of smallholder farmers have access to fertilizer (15.4% commercial and 8.7% FSP) • 795,000ha fertilized and 1,131,000ha not fertilized • Average yield fertilizer users 2.4mt/ha and non users 1.3mt/ha • Fertilizer users have higher asset value • Increased income for those with surplus maize

34. Common issues • Need to investment more in research and extension • Need to develop distribution channels (agro dealer network) • Promotion of new technologies • Investment in grain storage to reduce Post harvest loses

35. FANRPAN ACTION RESEARCH • To inform food security policy development and direction aimed to achieve improved management of ISP • Pilot and document the process of integrating the FANRPAN HVI and Input Vouchers in three countries (Lesotho, Malawi and Swaziland) • Draw lessons to inform welfare support intervention practices and policies, and improve stakeholder knowledge on developing market-based instruments

36. Thank you