The Future of the Farm Input Subsidy Programme (FISP): A Political Economy Inquiry

Blessings ChinsingaDepartment of Political and Administrative Studies

Chancellor College, University of Malawi P.O Box 280, Zomba

E-mail: kchinsinga@yahoo.co.uk

Outline of the Presentation

• Setting the Context• Origins and Context for FISP• Donor Engagement with FISP• Design, Implementation and Management

Experiences of FISP• The Future and Alternative Scenarios for FISP• Concluding Remarks and Reflections

Setting the Context

• FISP has been considered as a huge success both locally and internationally since its launch in the 2005/06 growing season

• Malawi has been able to produce surplus food over and above the annual food requirements breaking a long time tradition of dependency on food aid and commercial imports

• Echoes of FISP’s success have been heard in several forums on the international stage:– “Malawi ending famine [by] simply ignoring experts” New York

Times, 2007– “Africa’s green revolution may be several steps nearer after a

pioneering experiment in seed and fertilizer subsidies to smallholder farmers in Malawi” UK Guardian

Setting the Context Cont’d

– “A model of success showing the rest of the African governments the way towards a sustainable version of the African green revolution” AGRA, 2009

– “In a few short years, Malawi has come from famine to feast: from food deficit to surplus; food importing country to food exporting country” UN Secretary General, undated

• The success of FISP reportedly contributed to Malawi’s Economic Miracle between 2004 and 2009

• FISP has not been without its critics, mostly donors, opposed to subsidies since they are ineffective and inefficient policy instruments– And no donor directly supported the maiden FISP

• The apparent success of the maiden FISP somewhat moderated the position of most donors opting to engage with government on how to improve on the design, implementation and management of FISP– And it appears the patience of most donors is running out underlined by

the push for a medium term strategy

Setting the Context Cont’d

• This is an opportune time to reflect on the future of FISP having been implemented for six consecutive growing seasons

• Evaluations and studies have been carried out that have generated a wealth of policy lessons and experiences

• They present a solid basis for a thorough, critical and deeply reflective review about the future of FISP

• Attempting to do so using a political economy framework – But what is it all about?

• The political economy framework is ideal for this exercise because it provides the opportunity to understand the political, economic and social processes that promote or block pro-poor change as well as the role of institutions, power and the underlying context for policy processes

Setting Context Cont’d

• ….policies are more effective when they are informed by an understanding of power relations, incentives and change processes

• ….making and shaping of policy is less of a set of organized, predictable and rational choices than a complex, often unpredictable and above all a political process

• ….context matters a great deal since policies’ chances of success cannot be judged abstractly in their theoretic or technical attributes without considering the institutional, political and cultural context in which they are applied

• What is it that we can say about FISP after implementation for six consecutive growing seasons?

Origins and Context for FISP

• The origins of FISP can be traced back to the May 2004 May elections against the backdrop of less satisfactory agricultural sector input support initiatives– Starter Pack (SP) 1998-2000– Targeted Input Programme (TIP) 2001-2005

• Reinforced by the incidence of two severe hunger crises in 2001/02 and 2004/05 growing seasons– “….following the 2001/02 hunger crisis, [the question of food security has

appeared in the platforms of politicians, on the agendas of policy makers, in the programmes of public bureaucracies, among the duties of village chiefs, and on the pages of national newspapers and is thoroughly debated and researched”

• Consequently all major political parties made manifesto commitments to fertilizer subsidies as the most feasible alternative to dealing with pervasive food insecurity and chronic food shortages

• The differences in the subsidy proposals between and among political parties reflected to a large extent the variations in their regional support bases and constituencies

Origins and Context for FISP Cont’d

• National consensus on fertilizer subsidies in the May 2004 elections generated a simple but very persuasive narrative

• “…. Hunger and recurrent food crises are best responded to by supporting agriculture, and this means providing subsidies to get agriculture moving with a focus on key crops notably maize and tobacco”

• UDF won the elections but was hesitant to implement the subsidy programme for fear of jeopardizing donor support

• Uncertainty in the subsidy coupled with a serious drought resulted in the 2004/05 devastating hunger crisis which affected more than 4 million people

• The devastating effects of the hunger crisis coupled with the dramatic changes in the political landscape resulted in the implementation of FISP in the 2004/05 growing season

Origins and Context for FISP

• …..but FISP is a necessary evil in Malawi for two reasons– 1) Since the 1970s Malawi’s agriculture has not survived without any form of

support forcing some scholars to characterize maize as life and Malawi’s politics as essentially politics of maize

– …hence the legitimacy of the government in Malawi is closely linked to its ability to make maize readily available either through subsidizing production or guaranteeing affordability in the market

– 2)Malawi is locked up in a low maize productivity trap (LMPT) due to instability in inter year maize prices with the following implicationsFear of low prices inhibits net producers’ investment in maize

production who make up 10 percent of maize growersFear of high prices inhibits net consumers’ reliance on the market for

maize who make up 60 percent of maize growers…hence inhibits poor farmers’ exit from low productivity maize

production• FISP is therefore seen a means of liberating Malawi from the LMPT

enabling farmers to step up and eventually step out of agriculture• The key question, however, is how is the FISP designed, implemented

and managed?

Donor Engagement with FISP

• Donor engagement with FISP has evolved tremendously since it was launched in the 2005/06 growing season

• No donor supported the implementation of the maiden FISP and three categories of donors could be distinguished– Those entirely against FISP using the conventional arguments against subsidies

(subsidies distort market operations)– Those skeptical but willing to engage in search for the holy grail of subsidies (smart

subsidies); subsidies well targeted, designed to correct for market failures and with concrete exit strategies

– Those supportive of subsidies as the only means to kick start the fledging agricultural sector (subsidies cannot distort the market which does not exist in the first place)

• Success of the maiden phase prompted most donors to engage with FISP in hope of contributing to improvements in the design, implementation and management of FISP

• Some results of donor engagement with FISP have included: 1)involvement of the private sector in the importation and distribution of inputs particularly seed;2) Diversification of crops targeted beyond maize and tobacco to include legumes; 3) and improvement in the design features of coupons to enhance security features, identification and targeting beneficiaries, and improvement in logistics to ensure timely delivery and distribution of FISP inputs

Donor Engagement with FISP Cont’d

• It appears with the benefit of hindsight donors’ position on FISP is now skewed toward the search for the holy grail of subsidies

• Donors are generally willing to continue supporting subsidy but within the framework of a well defined medium term strategy

• Medium term strategy is justified on the following accounts:– Would ensure predictability as opposed to the ad hoc nature of design,

implementation and management of FISP– Clearly spell out goals and objectives of the programme– Lay out procedures for critical elements of the programme such as procurement

and distribution of inputs– Clearly stipulate indicators for success or failure– Serve as a planning tool for donors either individually or as a consortium

• Call for a medium term strategy for FISP has been a bone of contention between donors and government since the 2007/08 growing season

• Government is apparently reluctant to commit itself to the medium term strategy for FISP on the basis that it is a strategic ploy by donors to force it to exit from FISP

• The popular line especially among political cadres is that as a country we cannot exit from eating

Design, Impletn and Mangt of FISP

• Lack of clarity of the objective of the programme– Is FISP a productivity enhancing or social protection

programme?• Hanging in: avoidance of falling down and out• Stepping up: intensification and increased productivity in existing

activities• Stepping out: moving out of agriculture into new and more

productive activities

– Unclear, inconsistent, fluid and varying criteria of targeting within and across areas

– No clear plans for beneficiaries graduating out of FISP– Lack of clear linkages with other complementary programmes

such as research and extension, integrated soil fertility management, agricultural and rural development

– No systematic linkages to post production activities such as storage, processing, marketing etc

Design, Impletn and Mangt of FISP Cont’d

• Poor information flow and management– Overestimates of production surplus with 2007/08

growing season serving as a very good example– Disparities between NSO and MoAI&WD statistics of

farming families in Malawi with no sense of urgency to reconcile them (2.3 versus 3.8 million farming families)

– No knowledge of the full cost of the FISP particularly in relation to the overheads

– No knowledge about how the proceeds from FISP are used

– Inconsistent and vague targeting criteria for districts with the share of households allocated coupons varying between 33 and 49 percent• Variations justified on the basis of very general statements such

as population size, maize area and soil quality

2005/06 2006/07 2007/08 2008/09

Total Programme Costs (MK billion)PlannedActual

5,1007,200

7,50010,346

11,50013,362

19,48033,922

Total as % of MoI&WD n/a 61 61 74

Total as % national budget 5.6 8.4 8.9 16.2

Total as % GDP 2.1 3.1 3.4 6.6

FISP PROGRAMME COSTS 2005-2009

Design, Impletn and Mangt of FISP Cont’d

• Almost routinely spending more than actually planned• Increasing share of the programme budget as a proportion

of MoAI&WD and national budget• Increasing share of the programme budget as a proportion

of GDP• No clear sense of the exact scope of programme

expenditure since overheads are not computed• No proper accountability on the usage of proceeds from

FISP• Increasing levels of subsidy to farmers instead of decreasing• No proper accountability for supplementary or second

round of coupons peaking to the tune of 1 million in some cases

• Opportunity cost for the apparent displacement of some critically important activities in MoI&WD such as research and extension

Design, Impletn and Mangt of FISP Cont’d

• Fraud and Corruption– Unclear targeting criteria easily renders the

programme to manipulation– Awarding of contracts/tenders for fertilizer importation

and distribution degenerating into a source of patronage • Paying political debts?

– Disparities between MoAI&WD and NSO statistics on farming families• What is the motivation?

– Second round of coupons controlled by political functionaries

Design, Impletn and Mangt of FISP Cont’d

• Deinstitutionalization of the agricultural sector– Marginalization of the development of the private sector due to

displacement of commercial sales estimated at between 30-40 percent

– Displacement of the ideal agro-dealers network with opportunists whose lifespan is tied to FISP defeating the goal of easing farmers’ access to productivity enhancing technology

– Weakening of the domestic seed industry by fostering coincidence of interests of donors, government and seed companies

– Weakening of the fertilizer industry since FISP contracts are sidelining established fertilizer companies with heavy sunk costs but without political connections

– Marginalization of other important activities in the mandate of MoAI&WD such as research and extension due to heavy demands of FISP on staff time

The Future and Options for FISP

• Absolutely no concern about the future of FISP even if there is change of government in May 2014 since there is somewhat a national consensus about the desirability of FISP– An integral part of the social contract between government and citizens– FISP is a vote spinner and bolsters a government’s legitimacy

• The next President is likely to inherit the championship of the FISP because of the legitimacy it bestows on a government

• The concern should be about the manner in which the new champion will relate himself or herself to the technocrats

• The success of the programme depends as much on the political will as on the technical competence underpinning the FISP’s design, implementation and management– Maize is life and Malawi’s politics is about maize

• The main challenge is that the programme is highly personalized and heavily politicized which crowds out room for technical initiatives geared toward the improvement of the programme

The Future and Options for FISP Cont’d• The President was the Minister of Agriculture and Food Security

directly overseeing the implementation of the programme, having a huge imprint on the key parameters of the programme– Limiting technocratic engagement with regard to potential

improvements about programme design, implementation and management

– Worsened by two key factors: • Heavy politicization of the civil service to the extent that those championing

alternative views are often branded as opposition elements• Nature of the country’s political culture which places emphasis on deference

to authority• What more with the numerous international awards with respect to the

programme?

• Change of the incumbent may either present opportunities or constraints– It will all depend on the incoming champion; the role of leadership is

critical but it is difficult to see how food security cannot be politicised in this country

Alternative Scenarios for FISP

• Critical considerations– FISP is a necessary evil given the current state of

the country’s agricultural sector (the LMPT trap)– The main challenge is that FISP is seen as a quick

fix to the country’s food security problems and not as a means for catalyzing transformation of the country’s rural economy

– Evident in the fact that the programme is designed and implemented without any thought about beneficiaries graduating from the programme let alone exit strategies

Alternative Scenarios for FISP Cont’d

• Continue with the implementation of FISP as it is– The status quo will mean that the abrupt end of the programme will have

disastrous consequences for the agricultural sector– 1) The country is likely to be plunged back into a situation of chronic food

insecurity as was the case prior to the implementation of the subsidy– 2) Plunging into a state of chronic food insecurity will be inevitable due to the

disinstitutionalization of the key aspects of the agricultural sector the implementation of FISP has caused

• Consider scaling down the programme to few geographical areas especially if the idea is to enhance national food self-sufficiency– Reduction of scale would reduce the administrative and logistical challenges

associated with the programme– Target those districts considered as key producers of maize to support the

country’s food security agenda– An efficiently managed FISP run in a few districts would help make maize

affordable– Not everyone should be involved in maize production in order for Malawi to

achieve self food sufficiency– Would obviously not be politically feasible given the centrality of food security in

the country’s politics

Alternative Scenarios for FISP Cont’d

• Return to Starter Pack but the limitations of SP are well known• Redesign FISP within the framework of the mid-term strategy

with clear graduation or exit strategies while addressing the challenges currently affecting the programme– Clarify the notion of graduation which is well developed in the area of

social protection– Chirwa, et al (2011) have attempted to define graduation from FISP’s

perspective including setting out potential conditions of graduation– They construe graduation as follows: “removal of access to [FISP]

does not reduce land, labour and capital productivity in maize production”

– Conditions of graduation would help implementers to attend to the implementation challenges associated with FISP

Potential Graduation Conditions

Likely Processes and Requirements

Reduced input prices Efficient and competitive importers, suppliers, transporters, improved infrastructure

Increased efficiency in input use

Improved agronomy, complementary seed, inorganic and organic fertilizers, soil fertility management. Investment in agricultural research and extension

Substitution by cheaper inputs Increased legume cultivation with rotational fallows. Good legume seed supply, produce demand and markets; stable and reliable low maize prices; and high maize productivity for transition before subsidy removal

Increasing working capital for input purchases

Increased incomes, diversified incomes with reduced income seasonality

Diversification out of maize production

Stable and reliable low maize prices; strong demand for high value farm products and/or non-farm goods and services, land markets and safety nets

Access to low cost credit for inputs

Increased and diversified incomes, innovative and low cost micro-finance system

Potential Graduation Conditions from FISP

Source: Chirwa, et al., 2011

Concluding Remarks and Reflections

• FISP is a necessary evil for Malawi given the state of Malawi’s economy and an apparent national consensus on the desirability of FISP as a way of revamping the agricultural sector– There is so to speak a political-economic bind of the FISP since the question of

food security is firmly at the centre of the country’s electoral politics• The manner in which FISP is implemented is critical especially in the context

like Malawi where the question of food security is highly politicised• Political will to the implementation of FISP is vital but it has to be in such

away that it does not crowd room for technocratic maneuver and engagement geared toward the improvement of FISP

• Several possible scenarios exit for FISP but the most promising one is to redesign it with clear exit strategies and implemented in a manner that will catalyze dramatic and sustainable transformation of the rural economy

• Implementation of FISP as usual will simply lock the country in the LMPT with disastrous consequences should the programme be discontinued abruptly

• Food security should be one of those areas that should be insulated from undue political influence in a new negotiated political settlement just as is the case with the Bank of England in the UK

THANKSAKAMWIRE…..