IS CREDIT AND INPUT DISTRIBUTION THE ANSWER TO INCREASED CROP PRODUCTION AND INCOMES?

IS CREDIT AND INPUT DISTRIBUTION THE ANSWER TO INCREASED CROP PRODUCTION AND INCOMES? ECONOMICS ASSOCIATION OF ZAMBIA OPEN DISCUSSION FORUM Michael Muleba 8TH APRIL 2010

PREAMBLE As we discuss this topic, let us take recognizance to the fact that: • Under FISP, only maize is supported • Maize is supported within the context of it being a stable food for most Zambians – therefore has a social face • Other credit systems (mainly out-grower schemes) are commodity specific, therefore has a business orientation • In both cases (FISP and out-grower systems) only a few farmers against the population are targeted • Commercial credit (from banks) is beyond smallholder farmers

Background to FISP/FSP • The FISP, a government initiative introduced in 2002 (about 8 years ago), was meant to support small scale farmers who do not have the capacity to purchase inputs for crop production. • This government subsidy was aimed at increasing the country’s food production capacity while maintaining food security at both national and household levels.

Focus of my discussion While my friends may look at other sectors of credit, I will try to concentrate on FISP, formerly FSP • As we all know about this “government subsidy” programme, I will focus more on its performance and how far it may have tried to increase crop production and incomes. • In looking at its performance, I will try to bring out constraints faced in the implementation of the programme which may have compromised its positive contribution to crop production and incomes • By and large my focus will be on smallholder farmers’ engagement.

Operational efficiency & transparency • Government has provided a FISP operational guidelines and circulated widely • Government provides the budget for input support which is also disseminated widely • Government, through DACs, pre-select the groups (mostly cooperatives) to participate in the programme • ISSUES: not all pre-selected groups and farmers receive inputs despite providing their financial contributions (through designated bank accounts)

Practical case • 2002/3 season government K60 billion subsidy for fertilizer for small scale farmers and a further K100 billion to facilitate the supply of 80,000 tonnes of fertilizer. Times of Zambia, 2nd March 2002. • In2008/9 season government released K430 billion to FISP • In 2010 budget, government provided K435 billion to FISP

Delivery mechanism • Inputs (enough for half a ha) is provided to 500,000 smallholder farmers (as at 2009/10 farming season) • As from 2009, smallholders and civil servants are free to receive inputs under the programme • The guideline also provides for involvement of traditional leaders (conflict with cooperatives) • Government set-up delivery depot throughout the country and commodities transported by private transporters • ISSUES: small pack only sufficient for HH food security; civil servant (MACO staff) are controllers as well as beneficiaries, resulting in manipulation of the system; long supply chain resulting in confusions and late delivery of inputs

Practical case VEEP orders Omnia to start distributing fertilizer – Times of Zambia (6th December 2002) “Vice President Enoch Kavindele directed Omnia to start distributing fertilizer from Mwenzo near Nakonde to the various cooperatives in Isoka and Nakonde , failure to which Government will terminate the contract” At the height of campaigns for the October 2008 presidential elections, President Rupiah Banda, then MMD candidate and acting Republican President directed that everyone, including civil servants, military and police officers must access inputs under the FISP

Practical case 2 Fertilizer locked-up – Times of Zambia, 12 Dec 2000 “More than six thousand bags of fertilizer is locked-up in a depot in Kabompo and farmers have expressed concern over the delayed release because of the conditions on how loans will be given. Mr Lucas Chikoti, Chairman of Kabompo Farmers Association (KAFA) wondered why more than 6000 bags of fertilizer were still kept in the shed when there was an outcry in the district over lack of fertilizer”.

Unprofessional ethics • One crop (maize) is supported, resulting in monoculture • Mainly D compound, Urea and seed from particular fertilizer and seed companies are distributed throughout Zambia • Extension officers- carriers of technical information - are involved in delivering wrong materials to farmers • ISSUES: environmental damage; low productivity – production only enough for HH food security, limited income from low production; wrong materials delivered at wrong time and region, rendering extension system irrelevant

Practical case North-West farmers reject fertilizer – Times of Zambia (8th Sept 2002) • “several subsistence farmers in North-western Province have rejected the use of fertilizer and have instead appealed to Government to help them secure farming implements and livestock to increase their fields. The farmers say the introduction of fertilizer to their naturally fertile land would spoil the soils which they do not want to happen.”

Cont. Social ethics • Most inputs go to male farmers at the expense of female and youth farmers • Other crops important for food diversity and beneficial to women are not considered ISSUES: limited diversity of food leading to limited HH food security and income; absence of food diversity compromising national food sovereignty

Is FISP contributing to increased crop production? • The production levels of maize by smallholders has been stagnant if not reduced because of : • 1) late delivery of inputs (delivered in December and February) • 2) smaller packs per farmer (4 fertiliser bags, at current management, is sufficient to produce 20-25 bags of maize per half ha) against 100 bags per ha produced by commercial farmers • 3) Poor delivery arrangements (urea delivered before D compound, wrong fertilizer and seed to wrong areas) • 4) inconsistent and uncoordinated extension messages to input delivery system (extension messages state the opposite in practice)

Practical cases • Eight fertilizer trucks marronned at Chirundu (Times of Zambia 23/01/02) • Fertilizer shortage hits Mkushi (Times of Zambia 14/02/02) – the district received 8,000 bags of fertilizer, leaving a shortfall of 7,000 bags • Fertilizer distribution worries Farmers’ Union (Times of Zambia, 14/09/01)

Is FISP contributing to increased income? If we look at income as the net value after expenditure, there is limited income coming from this support – no wonder no farmers are graduating. Reasons: • 1) cost of inputs is very high due to long supply chain and transaction costs associated to it • 2) Cost of mobilizing the inputs to the farm is increasing by the day • 3) current production is only sufficient for HH consumption – Smallholders sell “surplus” out of desperation for cash to meet immediate needs • 4) pricing of maize take into account government social responsibility more seriously compared to economic considerations

Is the input distribution system worthwhile • It has not assisted many people (500,000), some same farmers for over a decade • The intention by government is good – after all is the only system providing support directly to farmers – but implementation is poor • The system has loopholes for manipulation almost at all levels • System is mono directional (one crop for decades), is that all Zambia can afford?

Practical case • When allocating K435 billion for the FISP in the 2010 national budget, Finance Minister Hon Dr. SitumbekoMusokotwane expressed concern that the programme has had a limited impact on increasing agricultural productivity and that the government would review the FISP in order to improve its efficiency and effectiveness regarding distribution at district and constituency level”, Business Post, March 30, 2010.

Way forward • Expand Input Voucher System piloted by CFU an FAO: it will reduce transaction costs, improve rural entrepreneurship and support all-year round production • Separate the FISP from MACO budget. About 70% of the MACO budget goes to fertilizer subsidies, maize marketing and stock holding programmes. Are we dealing with the Ministry of Maize or agriculture!!!! • As FISP management has been decentralized to districts, open the scheme to other commodities of farmers choice • Open-up other efficient channels of credit through the commercial sector and PPP. • Pay particular attention to Zambia’s agro-ecological behaviours for the sake of our environment

Practical appeal Create policy on fertilizer – Times of Zambia, 12 Aug 2002 MP Bob Sichinga has implored Government to put up a clear-cut policy on the distribution of fertilizer to peasant farmers, adding that late distribution of the inputs has greatly contributed to the low yields.

Practical case Streamline fertilizer distribution –Times of Zambia, 28th Feb 2002 “A SADC regional Consultative forum on fertilizer procurement and distribution has said the regional grouping should ensure that the trade protocol is implemented to remove bottlenecks on intra-regional fertilizer trade. The Consultative forum, meeting in Zimbabwe noted that the delay in implementing the SADC trade protocol had contributed to the current problems in fertilizer trade resulting in the decline in access to fertilizer by farmers. It was resolved that a regional Fertilizer Traders Association and Farmers’ Associations be created to articulate concerns of traders and farmers both at national and regional level.”

Conclusion Let me reiterate the recommendation of the FSRP Policy Survey Report funded by SIDA and USAID that: • “Improvement of infrastructure such as roads, electricity, extension services and education were important for the country’s agriculture to be more efficient” • “Market access was a key determinant in small scale farmers’ income diversification and growth” • “Scarce agricultural resources should be directed at improving infrastructure rather than consumed in expensive subsidy schemes if Zambia’s agriculture is to become efficient thereby contributing to poverty reduction”.

Thank you for considering us !!! Michael Muleba Executive Director, Farmer Organization Support Programme (FOSUP)

IS CREDIT AND INPUT DISTRIBUTION THE ANSWER TO INCREASED CROP PRODUCTION AND INCOMES?