Agriculture subsidies promote inefficiencies, says World Bank
Barely weeks after University of Malawi economist Winford Masanjala called for reforms of the Affordable Inputs Programme (AIP), the World Bank has faulted agricultural subsidies for allegedly promoting inefficiency in the management of budget resources.
In its report titled ‘Detox development: Repurposing environmentally harmful subsidies’, the bank said the agricultural subsidies in Malawi are poorly targeted and end up allocating more resources to the rich than the poor.
The report further observes that subsidies promote technical inefficiency at the farm level.
Reads the report in part: “Subsidies generally lead to increases in both the value of agricultural production as well as yields.
“However, subsidies also significantly decrease the technical efficiency of farming practices and total factor productivity due to their distortive nature, causing farmers either to use inputs in combinations that are suboptimal or to expand cropping onto marginal lands.”
The report comes a few weeks after Masanjala observed that the current setup of the subsidy programme “has not delivered value for money in terms of productivity and food security”.
He urged government to categorise the farmers into three groups, namely vulnerable smallholder households, potentially productive smallholder farmers and market-ready smallholder farmers who have limited access to fertiliser.
Reacting to the report, Lilongwe University of Agriculture and Natural Resources agricultural economist Horace Phiri urged the government to diversify its expenditure away from the AIP, which takes up a huge chunk of the national budget.
“We need to allocate more resources to other areas such as promoting resilience. The government should also improve how it targets the people,” he said.
The Malawi Government through the Ministry of Finance and Economic Affairs agreed to phase out AIP. In the Memorandum of Fiscal and Economic Policies signed with the International Monetary Fund last year, the government agreed to phase out the programme in five years “by reducing the number of beneficiaries by 20 percent every fiscal year”.
