Universal fertiliser subsidy expensive for Malawi

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An analysis by the
International Food Policy Research Institute (Ifpri) on the universal
fertiliser subsidy (UFS) has revealed that untargeted programme would put
pressure on the budget and its benefits disproportionally distributed to
beneficiaries.

The analysis assumes that the demand for fertiliser is relatively responsive to its price.

Fisp expenditure still represents over a quarter of Malawi’s agricultural budget

In his published op-ed
Ifpri leader of the Malawi Country Strategy Support Programme Bob Baulch
observed that UFS would be expensive budgetary proposition, involve significant
opportunity costs in terms of foregone agricultural investments, and have
benefits that would flow disproportionately to better-off farmers.

By looking at the volume
of commercial fertiliser purchased in recent years—along with the additional
commercial fertiliser that would be purchased if there were no Farm Input
Subsidy Programme (Fisp)— among other assumptions, Baulch said excluding
administration costs and leakages, a 50 percent subsidy would cost between K
32.1 billion and K 39.5 billion for the 2019/20 Financial Year.

This compares to a cost
of K 26.8 billion for fertiliser costs alone under Fisp in the 2017/18
Financial Year and a total allocation cost, including seeds and administration
cost, of K38.5 billion.

With UFS at 75 percent
which is close to the level of fertiliser subsidy paid by Fisp this year, this
comes to K48.1 to K81.3 billion per year, exceeding the total annual
agricultural development budget.

“And if the UFS resulted
in fertiliser prices in Malawi that were significantly lower than in
neighboring countries, the cost could be even higher than this due to
unofficial fertiliser exports. Despite the decline in the number of Fisp
beneficiaries in recent years [from 1.5 million households before 2016/18 to
900 000, and then back to 1 million this year], expenditure on the Fisp still
represents over a quarter of Malawi’s agricultural budget.

“Once recurrent
expenditures plus maize purchases are accounted for, very little remains for
other agricultural investments. So, an important additional question that needs
to be asked is which types of agricultural investments will provide the biggest
kick for your kwacha [or, in the case of donors, ‘bang for your buck’?”
wondered Baulch.

He observes that a move
to a UFS would, therefore, be likely to concentrate fertiliser use among the
richer, but also more productive, farmers who can afford to purchase
fertiliser. 

Over the past 15 years,
Fisp, a programme that was designed to ease access to farm inputs, has
dominated the agriculture and food security discourse in Malawi.

Since the dawn of
multiparty democracy in 1994, access to food has been the central feature of
almost all the political contestations and as a matter of fact, all governments
elected in the multiparty era after 1994 have been elected based on their
promise to guarantee food security to the electorate.

Critics of the Fisp
programme have pushed for an exit strategy and noted that the country is
entangled in various cycle with billions of kwacha invested in Fisp and, at the
end of the day, taxpayers fishing out more to feed millions of hungry mouth
after the poor harvest.

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