Evaluating the impact of the Malawi Farm Input Subsidy

U NIVERS ITY OF M ALAW I School of Oriental & African Studies Evaluating the impact of the Malawi Farm Input Subsidy Ch ancellor Co llege Andrew Dorward & Ephraim Chirwa Centre for Development, Environment and Policy, School of Oriental and African Studies, University of London Department of Economics, Chancellor College, University of Malawi 1

Objectives Programme & evaluation: activities, findings & issues Programme lessons Evaulation difficulties in identifying and disentangling the impacts of the programme: theoretical, methodological and empirical Suggest ways forward Learn, get ideas! LIDC, January 2011 2

Outline Programme background Programme objectives Evaluation challenges Programme impacts? Evaluation activities Programme achievements Programme impacts Subsidy lessons Assessing impacts: challenges & ways forward LIDC, January 2011 3

The Malawi Story Up to 2005: Intermittent removal and reinstatement of different maize seed & fertiliser subsidies, and food shortages/ famine Subsidies became highly politicised 2005/6 A very poor, donor dependent economy, but introduced a very large scale (50% hh) maize & tobacco fertiliser (100kg/hh) & maize seed subsidy programme, with mixed support / opposition from donors, no direct donor funding but using budget support Programme extremely popular, large maize surplus reported Internationally politicised issue: an example of national success against donor advice? an unsustainable & ineffective/ inefficient use of scarce resources? 2006/7 and subsequent years Donors decided to support and influence domestic policies Specific donor support for seeds, logistics, private sector involvement, evaluation study

Objectives Impacts? Government stated objectives: Increase Resource poor households access to Beneficiaries input use inputs Food & cash crop production National & beneficiaries National & household food self-sufficiency production Income of resource poor households Other (others ) objectives? Promotion of economic growth Poverty reduction Beneficiaries income Benefit : cost analysis Land & labour productivity Structural change Income levels, food access & security, prices, nutrition, wages, vulnerability, education, Develop private sector agro dealer Dealer network, volumes, network finances Political gains???? 5

Evaluation challenges Scope of objectives & focus of evaluation Political profile of programme Household & market impact pathways Scale effects Measures /indicators of impact Data Analytical methods So what are the potential or expected impacts? LIDC, January 2011 6

Input supply system Different players investment, finances, innovation, services Effects on recipients Production & productivity Income & food security Market activities Subsidy Implementation Scale, cost, modalities Rural Household Impacts Markets etc Labour, maize, other farm, non-farm, etc Effects on Macro economy Fiscal & Forex balances. Sectoral spending Effects on nonrecipients Production & productivity Income & food security Market activities Other macroeconomic management Political & policy processes Previous season(s) events & outcomes Weather Other rural economic activities Global & regional prices Maize price policies

Rural household impacts (1): poverty & the low maize productivity trap High poverty rates (50% <$0.40 in 2004) Small holdings (50% < 1.0ha) Continuous maize cultivation Declining soil fertility Recurring food insecurity Highly variable maize prices 97% farmers grow maize (half also buyers) >70% cultivated land under maize LIDC, January 2011 Limited agric. credit 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 8

Rural household impacts (2): households & markets RURAL HOUSEHOLDS Poorer households Resale Nutrition, schooling, welfare, hh relations Farm/ non farm investment Y1 Increased real incomes Y2 Increased real incomes Input Subsidy Incremental use Displacement use Less- poor households Y1 Increased production Y2 Increased production RURAL ECONOMY Y1 Increased wages Y2 Reduced maize prices Y2 Increased wages Community Input service relations Farm/ non 9 farm demand & investment demand & investment

Other impacts? Positive Nutrition Schooling Wider longer term contributions to growth from higher land & labour productivity, lower maize prices, growth & diversification of local economies, reduced food insecurity Replenishment of soil fertility Reduce extended cultivation onto more marginal slopes and soils and into forested land. Reduced fiscal & social costs of food imports & shortages in bad years Negative other costs incurred by government agencies & staff implementing the programme, & their lost productivity crowding out of other activities eg agricultural research & extension, roads, schools or health facilities & services Fertiliser & hybrid seed dependence & lock-in LIDC, January 2011 10

Implementation processes & stakeholders Input purchase Input distribution (transport & storage) Planning & budgeting Coupon redemption Secure coupon printing Coupon distribution Coupon issue District coupon allocations Farmer registration Beneficiary identification Payments & control Political & technocratic coordination & control Stakeholders FARMERS MoAFS: HQ, LU, ADDs, DADOs, ASs, FAs DCs, TAs, VDCs, Police, CSOs Fertiliser importers, retailers Seed suppliers, retailers Parastatal suppliers: HQ, districts, markets Transporters Donors: HQ, country offices Politicians: national, local

Assessing impacts: information gathered, analysis Implementation Processes, volumes, timing, targeting, access & receipt, costs, diversion Progamme records, industry records, household surveys, focus group discussions Rural economy targeting, access & receipt, subsidised & unsubsidised input use, production, sales / consumption, food security, prices, wages, well being. Household panel surveys, focus group discussions, agronomic sources, market price sources, Input supply Annual changes in subsidised & unsubsidised input sales, dealer density / competition, supply challenges Industry sources, key informants, outlet surveys Macro economics Government finances, national economic data Budget statements, Reserve Bank reports 12

Input volumes: Fertilisers & Seeds 13

Timing of Fertiliser Uplifts & Sales December 2010 14

Beneficiary access Survey estimates December 2010 15

Fertiliser Coupon receipts Urea and/or 23:20 Coupons 0 0.5 1 2 >2 Mean/ recipient North 28% 0% 14% 50% 8% 2.03 Centre 35% 3% 39% 20% 3% 1.42 South 33% 2% 37% 24% 3% 1.49 National 33% 2% 36% 25% 3% 1.52 Male headed 34% 2% 34% 26% 4% 1.55 Female headed 32% 3% 41% 22% 2% 1.45 Working age head 35% 2% 35% 25% 3% 1.53 Elderly head 28% 4% 38% 0% 30% 1.49 Receipts per FHH as % receipts per MHH 2006: 89% 2008: 96% 16

Fertiliser Coupon receipts Urea and/or 23:20 Coupons 0 0.5 1 2 >2 Mean/ recipient Maize for 0-3 months 43% 3% 38% 16% 1% 1.32 Maize for 4-7 months 30% 4% 41% 25% 1% 1.40 Maize for 8-10 months 27% 2% 35% 31% 5% 1.60 Maize for >10 months 36% 1% 30% 28% 6% 1.77 Poor 40% 5% 38% 17% 1% 1.31 ovutika 30% 3% 36% 28% 3% 1.50 Ovutikilako 30% 2% 38% 26% 5% 1.56 >=wapakatikati 36% 1% 28% 28% 7% 1.80

Fertiliser Coupon receipts Fertiliser Coupon numbers per hh Zero 0.5 to 1 1.5 to 2 >2 All % hhold female headed 26 31 24 17 27 * Owned Area (ha) 1.16 1.09 1.48 2.17 1.27 ** Value durable assets (MK) 19,621 15,630 20,340 28,111 18,702 Value Livestock assets (MK) 18,689 22,947 41,807 58,946 28,699 * Total Value livestock & 38,150 38,098 61,590 87,058 47,025 * durable assets (MK) Subjective score of hh food 1.5 1.5 1.6 1.7 1.5 * consumption last 12 months Subjective score on welfare 2.3 2.2 2.5 2.8 2.3 ** Month after harvest that maize ran out 7.2 7.1 7.9 8.6 7.4 * 18

LIDC, January 2011 19

Programme impacts January 2011 20

Estimates of incremental maize production over 2002/3 & 3/4, net exports & prices 21

Monthly maize prices (1990 MK/kg) Subsidy years But high prices in 2008/9 not accompanied by livelihood stresses & impacts of earlier years with high prices (eg 2001/2, 2005/6) LIDC, January 2011

Maximum maize price by maize availability 2000/1 2004/5 1996/7 1993/4 1993/4 to 2004/5 production seasons 2001/2 1994/5 2003/4 2002/3 1997/8 1995/6 2007/8 1998/9 2005/6 2006/7-2008/9 production seasons 2008/9 1999/00 2006/7 2009/10 January 2011 This has 2009/10 added carry over stocks will push this right? 23

Household Food Consumption over Past 1 & 12 months, 2006/07-2008/09 Proportion of households in 2006/07 (%) Less than adequate last month Just adequate last month More than adequate Proportion of households in 2008/09 (%) Less than adequate last month Just adequate last month More than adequate 38 51 10 10 63 27 Proportion of households in 2006/07 (%) Less than adequate last 12 months Just adequate last 12 months More than adequate Proportion of households in 2008/09 (%) Less than adequate last 12 months Just adequate last 12 months More than adequate 50 42 8 56 36 8 LIDC, January 2011 24

Subjective poverty ranking Mean Ranking of Own Poverty Assessment 2004 June June2009 (adjusted) 2007 Change in mean ranking 2007 2009 (%) Change in proportion of the very poor 2007 2009 (%) 2.02 2.19 2.35 +7.1-23.2 1 (very poor) to 6 (very rich LIDC, January 2011 25

Other impacts from FGD reduced begging (which benefits both poor and less poor people); reduced need to work off farm (ganyu) higher school enrolments(also attributed to increased school feeding programmes) ; reduced malnutrition; reduced theft and increased grain storage; improved social relations with less hunger, but poorer social relations where there was conflict over the allocation of very limited numbers of coupons; increased investments in houses and businesses Higher ganyu wages (but also higher maize prices) LIDC, January 2011 26

Wider impacts lack of evidence of food shortages despite high prices rising nominal wage rates from 2005/6 (greater than 2006/7 maize prices rises, matched 2005/6-8/9) poverty incidence estimates fallen from 52% in 2004/5 to 40% in 2007/8 and 2008/9 Economic growth impacts? Other contributors are high tobacco prices macro-economic stabilisation (also affected by FISP) good weather Indicative modelling: poor beneficiary households real income increases of 10% to 100%, poor non-beneficiary households real income increases 0% to 20% Economic returns sensitive to yield increment & maize prices, fiscal returns also sensitive to displacement LIDC, January 2011 27

Benefit cost ratios & fiscal efficiency Displacement 20-30% 30-40% 30-40% 20-30% 15% Maize price in analysis 143 154 250 280 266 Fertiliser price in analysis 393 490 590 1250 774 Benefit cost ratio: High response 1.38 1.30 1.90 1.08 1.34 Moderate 1.12 1.06 1.54 0.9 1.12 Low response 0.86 0.81 1.18 0.72 0.9 Fiscal efficiency: High response 0.76 0.44 1.13 0.09 0.46 Moderate 0.24 0.09 0.68 negative 0.16 Low response negative negative 0.23 negative negative BCR insensitive to displacement, FE sensitive difficult to estimate High maize prices raise returns but negative welfare & growth effects? Sensitive to yields & prices Very rapid returns (< 1 year) to rural incomes Bad year effects? LIDC, January 2011 28

Input supply impacts Fertiliser importers benefited from increasing subsidy sales, rising from 70,000MT to 162,000MT, some difficulties from exposure to foreign exchange losses from payment delays Maize seed suppliers benefited from significant growth in sales over the life of the programme Small agro-dealers excluded from retail sales of fertiliser subsidies, some, with larger retailers, able to sell subsidised maize seed from 2006/7 onwards. Some larger retailers able to sell subsidised fertilisers in 2006/7 and 2007/8, Participating retail outlets reported significant increase in unsubsidised sales in 2006/7 but private retailers exclusion from fertiliser sales in 2008/9 led to falls in reported unsubsidised fertiliser sales Farmer access: Timeliness? Choice? Information? Remote access? Prices? LIDC, January 2011 29

Macroeconomic impacts macroeconomic economic environment stable although high expenditure on AISP with high fertilizer prices increased government deficit in 2008/09 & domestic price instability Increases in official estimates of maize production from 2005/6 have had a significant positive impact on GDP growth - estimates of incremental production due to subsidy programme are lower but still very large: inflation increases due to higher maize and fuel prices moderated by subsidy s incremental maize production downward influence on maize prices? LIDC, January 2011 30

Cross country subsidy lessons Subsidy preconditions: stakeholder commitment, delivery systems, technology Subsidy context & focus: inputs for important staple crops with high response to input use but current market, profitability & affordability constraints; consumer & producer gains. Stability but flexibility (changing conditions, learning) Subsidy scale: sufficient to affect staple crop prices and/or labour markets, but limited to control costs with limited displacement, not crowding out other investments. Deal with the challenges & make the most of the gains 31

Assessing impacts: challenges Scope Economic, food security, intra-household issues, graduation/ exits, direct and indirect, education, health, immediate & long term; theory Data Farm families Yields, fertiliser response Food security Wages Panel attrition Methods Yields, fertiliser response Displacement effects unsubsidised purchases, diversion, crop substitution Inadequacy of BCA perverse food price effect; static Estimating market effects (wages, maize prices) Confounding policy effects? LIDC, January 2011 32

Assessing impacts: ways forward Scope Less depth on some issues (eg input supply systems, agronomy) & more on intra-household issues, graduation/ exits ( multi-scale graduation pathways ), direct and indirect, education, health, immediate & long term; develop theory Data Farm families very difficult Yields, fertiliser response very difficult, stop wasted data collection efforts! Food security & nutrition improve data, anthropometrics? Wages increased attention Panel attrition increased attention child headed households? Methods Improved BCA Consumer benefits from food price effects Nutrition & schooling benefits - least cost? Dynamic market effects? LIDC, January 2011 33

Fuller paper on findings Dorward, A and Chirwa, E. (2011) 'The Malawi Agricultural Input Subsidy Programme: 2005-6 to 2008-9.'International Journal of Agricultural Sustainability (IJAS), 9 (1). (Forthcoming) http://eprints.soas.ac.uk/9598/. Dorward, A. Rethinking agricultural input subsidy programmes in developing countries. p 311-374 in A. Elbehri and A. Sarris (eds). Non-distorting farm support to enhance global food production. Rome, Food and Agriculture Organisation of the United Nations. The book is available at http://www.fao.org/docrep/012/i1098e/i1098e00.htm. A longer technical paper is available at: http://www.fao.org/es/esc/common/ecg/586/en/dorward_fao_ Subsidy_Paper_FINAL.pdf 34

School of Oriental & African Studies Evaluating the impact of the Malawi Farm Input Subsidy U NIVERS ITY OF M ALAW I Ch ancellor Co llege Andrew Dorward & Ephraim Chirwa Centre for Development, Environment and Policy, School of Oriental and African Studies, University of London Department of Economics, Chancellor College, University of Malawi 35