THE 2006/7 AGRICULTURAL INPUT SUPPLY PROGRAMME, MALAWI

Transcription

1 THE 2006/7 AGRICULTURAL INPUT SUPPLY PROGRAMME, MALAWI Andrew Dorward School of Oriental & African Studies, University of London ODI November

2 Background Outline Programme development & implementation Programme impacts Work in progress, preliminary conclusions Disclaimer The results presented in this presentation are preliminary results in an ongoing evaluation of the agricultural input subsidy programme of the Malawi Government. They have been developed in joint work involving SOAS, Wadonda Consult, Michigan State University, and the Overseas Development Institute, and funded by DFID, USAID, and the Future Agricultures Consortium. Findings are subject to revision. The views expressed are those of the author and should not be attributed to the Malawi Government, DFID, USAID, FAC, SOAS, MSU, Wadonda Consult, or ODI. 2

3 Background: Key Issues Most farming households are poor and own food production lasts up to September November, and so they are net consumers Highly volatile maize prices Force poor consumers to grow maize even with very low yields Inhibit investment in maize production The rural economy is trapped in low productivity maize cultivation History of subsidised fertilisers to the 80 s & 90s universal and targeted inputs from late 90 s maize and fertiliser politics contested and changing solutions & policies 3

4 Background: Maize yields & rainfall Hybrid yield MMP! Local yield / / / / / / / / / / / / / / / / /07 MK/kg (1990)

5 Background: Maize yields & real prices Peak price Min price Hybrid yield / / / / / / / / / / / / / / / / /07 MK/kg (1990) tonnes/ha

6 Background: National fertiliser sales, National Fertiliser sales 350, , , , , ,000 Total Compound Amm. Sulph. CAN Urea 50, / / / / / / / / / / / /06 Years '000 tonnes

7 Background: National fertiliser imports breakdown, Importation ADMARC.SFFRM Private sector Total / / / / / / / / /6 2006/7 '0 0 0 to n n e s

8 Background: National fertiliser sales breakdown, Sales ADMARC/SFFRM Private sector ** Total '000 tonnes 1997/ / / / / / / / /6 2006/7 8

9 Background: National fertiliser purchases breakdown, Purchases Subsidised* Unsubsidised Total Predicted / / / / / / / / /6 2006/7 '000 tonnes

10 Background: 2005/6 subsidy Poor harvests & withdrawal of universal starter pack & food crises in early 2000 s (different) fertliser subsidies advocated by both main parties in 2004 election 10

11 Background: 2005/6 subsidy 2004/5 uncertainty about subsidy late targeted input programme, low production & food crisis 2005/6 government funded subsidy Mixed donor views, no direct donor support (general budget support) 147,000MT target, maize fertilisers coupons (NPK & urea) redeemable for 950MK; tobacco fertilisers coupons ( D compound & CAN) redeemable for MK million base coupons, 1.1 million supplementary coupons printed; 0.58 million issued; 2.6 million total redeemed: fertiliser stock constraint Coupon targeting criteria highly variable; 2, 1 or 0 coupons per household 70,000 tonnes out of 130,000 imported by private sector Late distribution 11

12 Background: 2005/6 subsidy Impact 131,000 tonnes fertiliser sold, all through ADMARC/SFFRM (stock not coupon constraints) MK7.2 billion ($51mill) cost (MK5.1 billion ($36 mill) budget) US$ Large drop in commercial sales, due to subsidy & price rise? Contraction in private sector distribution network Good rains, record maize production, 2.6 million tonnes Low maize prices and higher wages benefit poor rural consumers rev 12

13 Conventional subsidies Conventional policy objectives Promote technical change & productivity, & economic & technically efficient use of inputs Support farm incomes Pan territorial Provide delivery systems Modalities General, quota or channel price reduction Problems Cost control Exits Targeting and diversion Inefficient over-use due to low price Regressive (benefit larger farmers) Crowding out of private sector 13

14 Rethinking subsidies New objectives? Private input market development (crowding in) Replenishing soil fertility Social protection to targeted recipients with market externalities Supply chain development thresholds (kick-starting markets) Lower staple food prices and raise wages Structural livelihood and economy changes New modalities? Smart subsidies (vouchers) for cost control & private sector market development Longer time frame Complementary policies Output price policies Roads & communications infrastructure investment Agricultural services use of inputs, diversification Private sector development & Non-farm diversification Social protection policies Political context 14

15 2006/7 evaluation DFID funded (DFID Malawi, Future Agricultures) & USAID Imperial College / SOAS, Wadonda Consult, Michigan State, ODI Information sources: Implementers: Min of Ag HQ, Donors, Logistics Unit, Key informants 3 districts Input supplier study: HQs, Branches / agrodealers (3 districts) Recipients / non-recipients: Focus group discussions & case histories (3 districts), national household survey (NSO) Household and rural economy modelling March preliminary report on implementation December final report Note: Extremely complex issues, multiple & diverse stakeholders, data difficulties, many uncertainties Presentation in December in Lilongwe 15

16 3. Effects on Input Supply System Private sector, ADMARC/ SFFRM Profits, cash flow, confidence, volumes, prices, investment, innovations, other services 1. Input subsidy implementation Scale, cost, modalities, timing, targeting 4. Effects on Macro economy Fiscal balance Foreign exchange balance Health, education, infrastructure spending Other macroeconomic management Political & policy processes Global & regional prices Maize price policies 2a Effects on recipients (different hholds & hhold members) Farm & non-farm activities & productivity Labour hire in/out Crop purchases / sales Income Food security Welfare 2. Effects on Rural Households Local & national, market & nonmarket relations: (maize, labour, cash, land, etc prices & flows) Other Social Protection Measures 2b Effects on nonrecipients (different hholds & hhold members) Farm & non-farm activities & productivity Labour hire in/out Crop purchases / sales Income Food security Welfare Previous season(s) events & outcomes Weather Disease (HIV/AIDS, malaria, etc) Other rural economic activities 16

17 Elements of system Coupon allocation & distribution Input procurement & distribution & sales Coupon redemption/ Input purchase.input use.impacts Inputs: Maize fertilisers : 23:20:0 NPK Urea Tobacco fertilisers : Compound D CAN Maize seeds: Hybrid OPV 17

18 Development of the programme Constant change from April to October Fertiliser procurement tenders Roles, terms & private sector players in in fertiliser distribution pushed by. Donor funding for seed with fixed value vouchers; logistics unit;printing of coupons; communications; transport; financing facility for unsold government fertiliser stocks Development of new systems, opportunities & relationships but. uncertainty & delay for all stakeholders 18

19 Coupon allocation 3 million fertiliser coupons (50kg fertiliser bags) 2.6 million NPK and urea coupons base allocation; 0.4 million D compound & CAN Four types of fertiliser redeemable for MK950 2 million seed coupons: No farmer payment, each coupon worth MK400 (2kg hybrid, 3kg and 4kgOPV) Security printed coupons, serial numbers, triplicate Base allocation proportional to maize & tobacco hectarage between regions & between EPAs; adjustments between districts; finalized end September million supplementary coupons issued in December in response to demand and more rev 19

20 Coupon allocations per ha & per hhold Maize fertilisers Base Supp. Total Tobacco ferts Maize Seed North Centre South National North Centre South National rev per hhold

21 rev /7 Maize fertiliser coupon allocations to hectarage by district 21 Mzimba Rumphi Ntchisi Dowa Mchinji Kasungu Salima Nkhotakota Lilongwe Dedza Ntcheu Balaka Mangochi Machinga Zomba Chiradzulu Mwanza/Neno Thyolo Phalombe Mulanje Blantyre Chikwawa Nsanje Chitipa Karonga Nkhatabay District Supp. Base

22 rev /7 Maize fertiliser coupon allocations to grower hholds by district 22 Rumphi Ntchisi Dowa Mchinji Kasungu Salima Nkhotakota Lilongwe Dedza Ntcheu Balaka Mangochi Machinga Zomba Chiradzulu Mwanza/Neno Thyolo Phalombe Mulanje Blantyre Chikwawa Nsanje Chitipa Karonga Nkhatabay Mzimba District Supp. Base Urea + NPK voucher allocations per maize hh

23 Coupon distribution Distributed through districts, ADC s/ EPAS Variable involvement of TAs (chiefs/ village heads) People unaware of numbers of coupons per village, often disappointed & suspicious of misappropriation, but difficult to determine its extent Coupons & funding to districts in Oct/(Nov) Coupon distribution often late due to late arrival in districts and lack of funds for distribution Coupon targeting criteria & systems highly variable 56% households received coupons (64% in northern region, 58% in Centre, 53% in South, livelihood/ district variations) 2, 1 or 0 coupons per household (24%, 26%, 44%) 23

24 Coupon distribution per household Fertiliser >2 North 36% 15% 42% 7% Centre 42% 28% 23% 6% South 47% 28% 21% 4% Non-poor 43% 26% 24% 7% Poor 44% 26% 25% 4% All 44% 26% 24% 6% 24

25 Fertiliser sales Parastatal channels: Imports to central depots, deliveries to markets, sales Delayed imports (late tenders, mixed performance, tender changes) Delayed market openings Delayed sales Private channels Delayed agreements Delayed sales 25

26 Subsidy Sales ( 000MT) NPK Urea CAN D Comp Total Seed ADMARC/SFFRM sales (from stock records) NR CR SR Total Retail sales NR CR SR Total Total sales NR CR SR Total

27 Inputs Sales Cumbersome & slow redemptions Inclusion of private sector improved input access, especially seeds due to participation of agro-dealers But. Most rural areas not served by private traders Long queues, limited stocks and slow replenishment, particularly at ADMARC markets Some mismatches between stock allocations, coupons, and demand Lack of commercial fertilizers at ADMARC and SFFRFM outlets Cumbersome & slow payments process for private suppliers 27

28 Irregularities Varied across districts Press (media) reports tended to pick isolated bad stories some confirmed Sale of coupons Most were suspicions / rumours, prompted by opaque systems, lack of info, inadequate coupons (? fewer than received in 2005/06?) Purchase of coupons by 5% of hh, 38% from traders, (600MK) Fake coupons not widely reported Allocation of coupons at village level not transparent in most districts (lack of clarity on eligibility) Tips to buy fertilisers the most common irregularity Most common in centre & south (monitored in north ) At both parastatal and private sector retail markets MK50 MK500, exacerbated by long queues (FGD) Median 0, mean +100 (Urea) +160 (23:20) (survey) Exchange of coupons for other items/inputs reported 28

29 Beneficiary Access Lack of clarity on targeting criteria led to variations in inclusion and exclusion errors Wide variations in targeting criteria Different allocation philosophies & systems More wealthy households more likely to get coupons & to get more High transport and transaction costs Some households were too far from input markets and travelled as much as 30 km, Long queues (FGD) Mean & median travel/waiting time: 13 & 9 hours Mean & median travel/waiting costs: MK247 & 150 Mean & median distance: 7 and 5 km Some households had difficulties in obtaining cash Poor information (e.g. on 1 st & 2 nd round) (FGD) Limited safety net opportunities cf. 2005/06 (FGD) 3% financed from PWP, 4% loans, 4% gifts, 22% ganyu, 50% savings 29

30 Fertiliser acquisition by land holding size 2002/03 crop season % buy unsubsidized fert. % buy subsidized fert. 2003/04 crop season % buy unsubsidized fert. % buy subsidized fert. 2006/07 crop season % buy unsubsidized fert. % buy subsidized fert. Landholding size tercile (ha) < All

31 Programme Costs Total identified cost to government: US$64 million US$13 million over the budget (which was already 47% of MoA budget) sale of nearly 25,000 tonnes of fertiliser above budget, caused by issuing of supplementary coupons. Total donor costs estimated at US$9.5 million Cf MoA budget US$120mn Cf national budget US$1.1bn Limited operational support to implementing government agencies Operational budgets for ADMARC and SFFRFM not fully funded e.g. ADMARC only got 33% Unable to recruit required staff in markets, long queues and kick backs Delayed and inadequate funding to districts to support sensitization and coupon distribution (had to use funds from normal operating budget) 31

32 Private / public delivery costs Major part of parastatal costs is supply to SFFRFM depots (average cost US$455/tonne) Total cost per ton sold is around $490 for both parastatal and private sector sales Difficult to compare ADMARC/SFFRFM and private sector cost and relate it to efficiency: ADMARC/SFFRM overhead costs difficult to establish Private sector minimum price not known ADMARC/SFFRFM served more remote areas. but ADMARC/SFFRFM had higher % of sales in South than North 32

33 Evaluation Was the 2006/7 subsidy worthwhile? What can be done to improve the benefit cost ratio? 33

34 Programme Impacts Record national fertiliser sales: 296,000MT Incremental fertiliser use? ,000 MT? 40% to 50% of subsidy displaces commercial sales? Increased hybrid area: +20% on 2005/6? With good rains, record crop estimate. Reduced search for casual (ganyu) employment Higher wages More farm production Lower prices for consumers but Low returns & disincentives for surplus maize growers Commercial input imports/sales better Fertilizer sector confidence improved but still very cautious Seed sector more enthusiastic about hybrid Independent retailers (agrodealers) still big problems Government confidence in private sector improving Welfare & development benefits? 34

35 Was the 2006/7 subsidy worthwhile? Simple cost benefit: value of incremental maize production greater than costs 1. Incremental maize production & its valuation? 1. Fertiliser impacts (diversion, displacement, allocation, yields) 2. Seed impacts 3. cash transfer impacts 2. Incremental tobacco production? 3. Crop switching? 4. Other household level opportunity costs? 5. Total programme costs? 6. Add social protection/ welfare benefits? 7. Add developmental benefits? 8. Administration / overhead costs? 9. Subtract fiscal opportunity costs? Other economic & social benefits? 35

36 Estimating incremental maize production National crop estimates: 2003/4: 1.7 mill tonnes - TIP 2004/5: 1.2 mill tonnes late TIP, mixed rains 2005/6: 2.6 mill tonnes subsidy & good rains 2006/7: 3.2 mill tonnes subsidy & good rains Regression estimates of 2006/7 seed & fertiliser impacts from 0.4 to 1.0 mill tonnes! Agronomic estimates: 0.5mill grain:n, without seed impacts or cash transfer effects depends on timing of fertiliser use, displacement Overall estimate??0.55 million tonnes? 36

37 37 Direct Benefit : Cost sensitivity analysis 216% 238% I 121% 133% H 95% 105% G 170% 187% F 95% 105% E 75% 82% D 93% 102% C 52% 57% B 41% 45% A +10% $mill $/MT 000 MT B A B A Value Price Prod'n Benefit:Cost Costs Maize Maize Maize Incremental

38 Critical determinants of B:C ratio Grain benefits from incremental N Timing of fertiliser delivery & use Hybrid seed Scope of programme (maize, cash crops) Incremental N per MT subsidised Diversion administration systems Displacement targeting Farmer expectations Costs Fertiliser prices Administration costs Other benefits 38

39 Further economic & social benefits Complex impacts household & market short, medium, long term vary with household characteristics, access to coupons use of coupons area (socio-agro-economic) supply chain crowding in our out Wider development objectives affect design/ implementation Increase land & labour productivity, maintain soil fertility Increased grain availability, lower maize prices, raise wages & real incomes, stimulate non-farm demand Domestic supply & demand stimuli to diversify out of maize to other crops & non-farm goods & services Major implications for beneficiary targeting, maize price stabilisation, policy stability & transitions, complementary programmes 39

40 Subsidy impacts hhold & market, now & later, RURAL HOUSEHOLDS Farm/ non farm investment Poorer households Resale Y1 Increased real incomes Y2 Increased real incomes Input Subsidy Incremental use Displacement use Y1 Increased production Y2 Increased production Less- poor households Y1 Increased wages Y2 Reduced maize prices Y2 Increased wages RURAL ECONOMY Input service demand & investment Farm/ non farm demand & investment 40

41 Subsidy impacts vary by hhold & area, pro-poor KAS zone BOR zone Base year 1 year 2 year 2 Base year 1 year 2 year 2 no subsidy subsidy subsidy no subsidy subsidy subsidy Wage change (% base) +3% +3% +5% +3% +6% +9% Maize price (% base) 0% -7% -8% 0% -9% -8% Total seed subsidy (MT) 1, , Total fert subsidy (MT N) 12, ,971 6, ,602 Total seed (MT) 2,599 3,306 3,683 3, ,402 1,563 1,623 Total fert. (MT N) 17,503 24,856 20,032 24,002 5,770 10,188 7,066 10,068 Displacement Seed 52% N/A 29% 18% N/A -12% Fert 43% N/A 50% 33% N/A 35% Reselling of fertilizer Real net income change Poor hh All hh 16% N/A 5% 24% N/A 7% 7% 8% 14% 6% 6% 10% 4% 1% 4% 4% 2% 5% 41

42 PRIVATE SECTOR, NON-FARM ROADS UNSTABLE POLICIES UNSTABLE WEATHER SLOW PRIVATE SECTOR DEVELOPMENT POOR ROADS MAIZE PRICE & TRADE POLICY CREDIT, RESEARCH, EXTENSION, CASH & OIL CROPS INPUT SUBSIDY SOCIAL PROTECTION Low producer investment Unstable maize prices Low maize & agric productivity Low & vulnerable real incomes Consumer lock in to low productivity maize Low demand for non-agric goods & services 42

43 What can be done to improve the benefit cost ratio? Objectives Targeting -?hhold,?area,?crop Reduce displacement Scale Cost Scope Systems Coupons? Type fixed value? Allocation comprehensive? Distribution Redemption Smart cards? ID cards? Roles & relationships of government & private sector? Remote areas? Exits / transitions Timing Communication Consistency Transparency Trust System adaptation/ transition Policy coordination maize trade & prices, social protection, etc Budgetary & political controls Quality & probity audits 43

44 THE 2006/7 AGRICULTURAL INPUT SUPPLY PROGRAMME, MALAWI School of Oriental & African Studies/ Imperial College London Michigan State University funded by Wadonda Consult Overseas Development Institute DFID USAID Future Agricultures (DFID) ODI November