IMF recommends subsidy redesign 

T

he International Monetary Fund (IMF) has proposed a redesign of the Affordable Inputs Programme (AIP) to ensure that only those in need benefit from the initiative and in turn reduce high economic costs.

In a paper titled ‘Climate Change and Chronic Food Insecurity in Sub-Saharan Africa, the global lender observes that the subsidy has not lived up to the expectation of reducing food insecurity and poverty.

The Ministry of Agriculture says it will not comment on all AIP matters, but economists and agriculture experts support the proposal to redesign AIP to make it more efficient and less costly.

Reads the IMF paper in part: “Instead of achieving these objectives, the subsidy has weighed on government budgets, raised balance of payments pressures through import reliance, distorted market prices, resulted in input overuse, for example, fertiliser and water, contributing to soil erosion and deforestation.

“The subsidy has supported hoarding of inputs and outputs and reduced crop diversification through subsidised seed packs encouraging monoculture.”

The IMF proposes better targeting, including to smallholder farmers and female-led households and gradually passing through international prices of inputs to consumers while protecting the most vulnerable households, among others.

It says where socio-political pressures around the current crises are elevated, the effectiveness of subsidies must be enhanced through redesign that ensures those most in need benefit from the subsidies.

The IMF further proposes careful timing of input delivery, reduced leakage through systems such as electronic vouchers, envisaging that over a long time, the redesign will also support eventual exit from agricultural subsidy programme.

Commenting on the IMF  proposal, Catholic University of Malawi head of economics Hopkins Kawaye urged government to enter into partnerships with companies that have mega farms to be buying maize from them and sell it at subsidised prices.

He said government spends a lot on subsidising inputs, yet many farmers who access such inputs require food assistance due to low yields.

“It is like subsidising twice and that is so much of a loss,” said Kawaye.

Lilongwe University of Agriculture and Natural Resources agriculture economist Horace Phiri said while the current format is not entirely wrong, the challenge is how government expands the AIP and how beneficiaries are targeted.

He said: “When it comes to targeting, when the Ministry of Agriculture decides to target fewer households, you see the politics kicking in and expanding the numbers. That means we are going for households that should not have been in the programme.”

In separate interview, Farmers Union of Malawi president Frighton Njolomole said plans to reduce the number of beneficiaries this year is a sign that government is slowly going towards an exit strategy for the programme.

He said: “We didn’t expect that government will provide the subsidy this year with high prices on the market, so we are grateful that farmers will buy at K15 000.

“But for those that may not afford that amount, I think the cash transfer approach could work.”

The draft guidelines on 2022/23 AIP show that the budget has doubled from K109 billion to K213 billion despite the Ministry of Agriculture removing one million beneficiaries and doubling farmers contribution.

The yet-to-be released guidelines show that the Ministry of Agriculture has pegged a 50 kilogramme (kg) bag of fertiliser at K55 000, up from K25 000 last season.

This means that government will pay K40 000 with the farmer contributing K15 000 per bag. In the previous programme, farmers were redeeming a bag of fertiliser at K7 500.

Several stakeholders have over the years criticised agriculture subsidies, saying they are a drain on taxpayers’ money.

The Mwapata Institute earlier proposed that in the short-term, government should consider a streamlined, smarter subsidy programme for productive beneficiaries who only lack economic access to commercial inputs.

The World Bank also faulted the AIP, saying the huge monetary costs “make it impossible” for government to sustain the scheme amid limited resources.