Economist backs subsidy, proposes reforms
University of Malawi (Unima) associate economics professor Winford Masanjala has backed the continuation of fertiliser subsidies, but has proposed reforms that include grouping smallholder farmers into various categories based on needs and economic status.
He expressed his views in his presentation under the Ben Kaluwa Seminar Series titled ‘Can Malawi sunset the fertiliser subsidy programme? An analysis of policy options’ at Unima campus in Zomba.
In a presentation monitored on Zoom, Masanjala said while the subsidy programme has failed to yield intended results and is not fiscally sustainable, exiting from it could further worsen poverty and food insecurity in the country.
He also observed that the current category of targeted farmers may not bring about the necessary agricultural transformation envisaged in the Malawi 2063.
Said Masanjala: “The current subsidy programme has not delivered value for money in terms of productivity and food security.
“A major withdrawal of the subsidy could precipitate a food security as well as economic crisis. Government can consider small benefit packages of two 25 kilogramme [kg] fertiliser bags as opposed to two 50 kg.”
He observed that the high costs of the subsidy programme poses serious questions about its fiscal and macro-economic sustainability and that over reliance on imported fertiliser puts pressure on the country’s ability to raise the foreign exchange reserves.
To reform the programme, Masanjala said beneficiaries can be grouped into three categories of vulnerable smallholder households, potentially productive smallholder farmers and market ready smallholder farmers, but find it difficult to access fertiliser.
He said food insecure household costs have increased from K81 million in the 2007/08 season to K11.2 billion in the 2020/21 season despite having an average maize surplus of 1.15 million metric tonnes (MT).
The development comes after President Lazarus Chakwera last year called for redesigning Programme (AIP) to make it more targeted and efficient this fiscal year.
The President is on record as having said the redesigning of the programme was inevitable because after three years of implementation it has become evident that the challenges are enormous.
Said Chakwera: “The new design is necessary because despite the impact the programme has had on ensuring food security for millions, the Malawi Vulnerability Assessment Committee [Mvac] 2022 annual assessment estimated that over 3.8 million people in over 845 000 households may still not meet their food requirement during the 2022/23 consumption period.”
The objective of AIP, which had a budget of K109 billion in the 2022/23 National Budget, was to protect the most vulnerable Malawians from food insecurity.
Since the 2005/06 fiscal year, the government has implemented Farm Inputs Subsidy Programme (Fisp) which in 2020 was rebranded and expanded as AIP, for smallholders farmers to raise productivity and achieve national maize harvest to meet the needs of the population.
After winning the June 23 2020 Fresh Presidential Election, the Tonse Alliance administration increased the number of AIP beneficiaries from 900 000 to 3.7 million, further fulfilling its campaign promise of reducing the cost of redeeming a bag of subsidy fertiliser to K4 495.
The development led to a bloated AIP allocation of K160 billion in the 2020/21 Tonse government’s maiden budget, which was four times more than that of the DPP’s Fisp
Last year, the Donor Committee on Agriculture and Food Security in Malawi also urged government to rethink the allocations to the subsidy programme which it said was consuming over half of the funding to the sector.
