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Reclaiming Policy Space? Malawi’s 2005/2006 Fertilizer Subsidy Programme
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  1. WDR Politics and Policy Processes Workshop IDS – Jan 07 www.future-agricultures.org Reclaiming Policy Space? Malawi’s 2005/2006 Fertilizer Subsidy Programme Blessings Chinsinga Department of Political and Administrative Studies Chancellor College P.O. Box 280 Zomba, Malawi Tel: (265) 8 577 842 Fax: (265) 1 525 900/524 046 Email: kchinsinga@yahoo.co.uk/bchinsinga@chanco.unima.mw January 2007

  2. Structure of the Presentation • Main message • Origins and context for the programme • Components and magnitude of the subsidy • Implementation arrangements of the programme • Perceptions and positions of various stakeholders • Emerging issues • Summing up

  3. Main Messages Domestic political economy context matters in any policy process. Unique circumstances of each country have to be taken into account in policy formulation. A case study of a nationwide political consensus for fertiliser subsidy; fragile government (which donors saw as an improvement on its predecessor) trying to devise and deliver a policy in the face of very fluid domestic politics and donor scepticism.

  4. Origins and ContextPolitical and Economic Context • Recurrent hunger crises since the 1990s: • Regular occurrence of droughts and adverse climatic conditions. • Roller-coaster in 1990s and early 2000s of removal of subsidies on key farm inputs coupled with massive currency devaluations; and donor acquiescence in short term subsidies • A Starter Pack (later called targeted input programme) which had delivered near universal access to small packages of free fertiliser and seeds, but which had ended in 2004 with DFID declining further support • Strong national consensus for fertiliser subsidy, reflected in political campaigns in the lead up to the 2004 general elections: • Universal fertilizer subsidy for maize producers from MK 3000 to MK 1500 per 50kg bag (UDF and coalition partners). • Universal fertilizer subsidy for both maize and tobacco farmers from MK 3000 to MK 950 per 50kg bag (MCP and Mgwirizano coalition) • The differences between the subsidy proposals of the political parties a consequence of variation in regional support (e.g. between Center and South)

  5. Origins and ContextPolitical and Economic Context Cont’d • Suspension of donor aid since 2001 notably the PRGF by IMF due to gross fiscal indiscipline and rampant official corruption and patronage • Malawi implementing the MPRSP as a precondition for qualification for debt relief with restoration of fiscal prudence and discipline as one of the triggers for reaching the completion point. • Post election, the new President ditches UDF and forms new party-DPP-without support in Parliament.

  6. Origins and ContextPolitical and Economic Context Cont’d • Government fails to honour the pledge to reduce fertilizer for the 2004/2005 growing season. • Serious hunger crisis hits the country during the same period affecting more than 4 million Malawians. • As noted earlier, DFID discontinues support to the Targeted Input Programme (TIP). • Need for interventions to the agricultural sector becomes very pressing in the context of a devastating hunger crisis.

  7. Origins and ContextAdoption of the Fertilizer Subsidy Programme • In April 2005, Parliamentary Committee on Agriculture and Natural Resources (PCANR) undertakes a critical review of food security situation, possible interventions and status of agriculture in general. • Recommends several strategies but prioritizing universal subsidy for maize and tobacco. • Subsidy on maize addresses the production side of food security • Subsidy on tobacco addresses the market side of food security • May 2005 PCANR holds consultative meeting with the President where interventions are discussed emphasizing on universal subsidy for maize and tobacco (MK700-MK 900 per 50kg of fertilizer for both maize and tobacco).

  8. Origins and ContextAdoption of the Fertilizer Subsidy Programme Cont’d • June 2005, the President announces the introduction of fertilizer subsidy targeted at resource constrained but productive maize farmers in the 2005/2006 budget speech justified on the basis of lessons learnt from TIP. Universal fertilizer subsidy would be unaffordable. • Proposed fertilizer subsidy targeted at maize was estimated to cost between MK 2-3 billion. • Presidential speech ignites intense debate in Parliament. Opposition block clamours for universal subsidy for maize and tobacco setting it as a condition for passing the 2005/2006 budget. • Government succumbs to the demands for universal fertilizer subsidy including tobacco which pushes the subsidy budget to MK 4.7 billion.

  9. Components and Magnitude of the Subsidy • Budget for the subsidy stood at MK 4.7 billion (about US$35 million). • Fertilizers involved: • 50, 000 metric tonnes of Urea. • 50, 000 metric tonnes of NPK (23: 21: 0+4S) • 22, 000 metric tonnes of D Compound • 15,000 metric tonnes of CAN • Urea and NPK fertilizers sold at MK 950 per 50kg bag and D compound and CAN at MK 1400 per 50kg bag. • Maize farmers entitled to one bag of 23: 21: 0+4S and Urea while tobacco farmers 2 bags of D Compound and one bag of CAN • One pack of hybrid or OPV maize seed at half of the price. • Government succumbs to the demands for universal fertilizer subsidy including tobacco which pushes the subsidy budget to MK 4.7 billion.

  10. Implementation of the Programme • Access to subsidized fertilizer was on the basis of coupons so as to limit the quantity per household. • Procurement and distribution of the fertilizer: • A great bulk procured through SFFRFM and private sector firms through a competitive tendering process. • Private sector firms not involved in distribution. Fertilizer was wholly distributed by ADMARC and SFFRFM. ADMARC has a countrywide network of markets across the country. • Government was and is skeptical about the capacity of the private sector given the national importance of the programme. • Food security-maize-is at the centre of politics in Malawi. The PCANR describes Malawi’s politics as “maize politics”.

  11. Implementation of the Programme cont’d • Subsidy programme closely linked with Public Works Programmes (PWPs) to the tune of MK 1 billion to boost the purchasing power of the beneficiaries. • Farmers were allowed to work on the PWPs up to 4 weeks at MK MK 200/day (about US$1.5/day). • Coupons for subsidized fertilizer flowed from MoA to DCs/DADOs to ADCs (TAs) to VDCs to Beneficiaries.

  12. Perceptions of Stakeholders on Subsidy • Key stakeholders include the following: • Government/opposition parties • Donors • NGOs • Private sector (Fertilizer firms and agro input dealers)

  13. Perceptions of StakeholdersGovernment/opposition parties • Generally agree on the need for subsidy but disagree on the scope and magnitude (Targeted versus universal). There are regional differences (north, centre and south). • “A nation that cannot feed itself cannot claim to be a sovereign state. We, in Malawi, must therefore be able to feed ourselves.” • Need to look at the uniqueness of Malawi. It is better to subsidize production than consumption. Difficult and costly to import food in times of crisis. Food imports for the 2005/2006 hunger crisis stood at MK 13 billion compared to MK 4.7 billion for fertilizer subsidy. • Fertilizer subsidy represents a more cost effective approach to achieving food security than the alternative interventions. • Food security is equated predominantly with own production.

  14. Perceptions of StakeholdersInitial Donor Reactions • Donors were generally opposed for the following reasons: • Programme not fiscally sustainable exerting unnecessary burden on the budget (Universal subsidy would cost MK 12-MK15 billion more than 10% of the total budget) • Not best use of funds since subsidies involve providing support including even those who can afford (Subsidies are very difficult to target to the extent that Malawi might be subsidizing the entire southern Africa). • Provision of subsidy contradicts government’s own policy on private sector development. • Surplus maize without corresponding interventions dealing with marketing and storage issues would create disincentives in the production of maize. • Donors had a very negative view of politics and government capacity (in 2004) • No donor supported the 2005/2006 subsidy programme.

  15. Perceptions of StakeholdersDonors • Three categories of donors • Totally opposed to subsidy • Sceptical but willing to engage with subsidy (searching for the holy grail “smart subsidy”?) • Supportive of subsidies

  16. Perceptions of StakeholdersDonors against subsidies • Include IMF, USAID and of course private sector firms dealing in fertilizer and seed if excluded from supply. • Impossible to develop the private sector with subsidies (Excessive market distortions). • Implementation of fertilizer subsidy risks wiping out the entire private sector. Smallholder demand for fertilizer is estimated at 200,000 metric tonnes per annum against 150,000 metric tonnes provided through the subsidy programme. Could be more because excess coupons have always been printed over and above initial consignments. • Difficult to establish a vibrant private sector with a subsidy programme targeted or universal.

  17. Perceptions of StakeholdersDonors “skeptical but willing engage with” subsidies (smart subsidies?) • Include World Bank, DFID and EU. • Advocate for well targeted subsidy with market friendly mechanisms, well defined in terms of duration and financial commitments to ensure predictability. • Unpredictability in terms of duration and financial commitments would create excessive market distortions. • Clear case for subsidy if there is market failure but should be properly targeted (Economically active and productive beneficiaries). • Need for well spelt out exit strategies since subsidies are only a short term intervention and unsustainable in the wrong run.

  18. Perceptions of StakeholdersDonors supportive of subsidies • Include most UN Agencies and Scandinavian donors. (Millennium Village project a major influence) • Agriculture cannot survive without subsidies. Subsidies would not distort the market because the private sector is almost non-existent. • Without some kind of pan territorial subsidy some areas would not be served at all because of high costs in remote areas. • Uptake of fertilizer is too low to achieve food security. Fertilizer uptake among smallholder farmers is estimated at about 34kg per hectare against the recommended maximum of 150kg depending on input-output price ratios.

  19. Perceptions of StakeholdersNGOs/Civil Society • Include most local NGOs/CSOs, Action Aid, Oxfam, Care International, Plan International etc • Need for subsidies underlie gross failure of neoliberal market reforms. • Emphasis should not be on economic cost-benefit analysis but on social cost-benefit analysis. It does not make sense where the majority of the people are very poor. • Advocate for universal subsidy implemented in a phased manner to ensure affordability. • Need for the subsidy programme to be properly institutionalized to ensure predictability and facilitate planning among farmers.

  20. Perceptions of StakeholdersEvolution of Donors’ Views: Toward Consensus? • Government’s determination to implement the programme without support from donors has greatly changed the position of various donors. • “We have come to the realization that government will not change its position. The programme will be implemented for sure the next three years. Moreover, government has been scaling up resources from MK 4.7 to MK 7.2 billion this year. We have no choice but explore how we can strategically support the programme”. • “There is total government ownership and commitment. We better support it otherwise we shall become redundant”. • “Government has made a choice, it is firmly standing by it, we have to make the programme work!”.

  21. Perceptions of StakeholdersEvolution of Donors’ Views: Toward Consensus? Cont’d • Several donors have supported the 2006/2007 subsidy programme but on condition that government meets certain conditions which include: • Involvement of the private sector in both procurement and distribution of subsidized fertilizer on equal terms with ADMARC and SFFRFM. • Promotion of choice among beneficiaries in terms of the range of fertilizers involved, outlets where fertilizer and seeds are procured. • Subsidy should extend beyond maize and tobacco in order to promote crop diversification which has been the government’s own policy for some time. • Government must address issues of marketing and storage in times of excess surplus. • A group of donors working closely with the government have commissioned a study to assess efficiency and effectiveness of the programme.

  22. Emerging Issues • Access to subsidized fertilizer (Coupons versus farmers clubs). • Capacity of private sector to deliver (Poor infrastructure and weak capitalization). • Role of traditional leaders and politicians in the distribution of coupons (Political patronage??). • Usage of the inputs and availability of extension services. • Logistical problems in terms of planning and distribution of inputs. • Equity: do the poorest get coupons? If they do, can they match with cash or simply sell the coupons?

  23. Summing UP • Domestic political economy context matters in any policy process. Unique circumstances of each country have to be taken into account in policy formulation. • Policy designers need awareness of history (implicit social contract between smallholders and state, with ADMARC as instrument) • E.g. in 2006 ADMARC had a major role in buying the unexpectedly large maize surplus • Need to fully grasp the whole array of stakeholders and their interests, competing views and demands in policy issues. Understanding how various interests play out is critical for analysing potential trade offs in the policy process. • Government leadership and determination is creating an environment of give and take between various stakeholders in the policy sector especially among donors. Donors pledging to support the programme as long as government meets certain negotiated conditions.

  24. Summing Up Cont’d • The Malawi case demonstrates potential for supporting not necessarily the best policy options but second best policy options that appear to work given the peculiarities of countries concerned (One size fits all dogmatic policies are not feasible). • Pragmatism among donors seems the way to go. A consortium of donors are evaluating the 2006/2007 subsidy for purposes of assessing its technical efficiency and effectiveness (How can it be made to work better? Strategic support to the programme?). • What happens when democracy collides with donor policies? There appears there is a genuine political mandate for the fertilizer differences between the government and opposition politicians notwithstanding.

  25. WDR Politics and Policy Processes Workshop IDS – Jan 07 www.future-agricultures.org THE END Thank You Zikomo Yebo Sikomo Kwedyinji