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July 27, 2008

The many unanswered questions about the long-term sustainability of Malawi's fertiliser subsidy

by Chido Makunike

Malawi has achieved bumper maize harvests three years in a row after instituting a subsidy program for fertiliser and hybrid seed. There has been an excited buzz in agricultural, economic and developmental circles about just what the right take-home lessons are of this experiment.
In just a few years Malawi has gone from being dependent on donor handouts of its staple crop to being self-sufficient and even exporting surplus to neighbouring countries like Mozambique and Zimbabwe.
One of the factors about this remarkable development is that Malawi embarked on the subsidy program with its own funds rather with loans or donor funds. The multilateral and bilateral donors on which the country is dependent on for a good part of its budget advised against the idea of subsidies. During the years of the “Washington consensus” the IMF, World Bank and Western ‘donor governments’ in general held that the solution to many developmental problems lay in the development of a strong private sector rather than in government intervention.
The ideology was that governments should withdraw out of many areas they were involved in so that the private sector could have a chance to develop and provide those goods and services more efficiently, while also producing widespread downstream economic growth. The supply of inputs and various other agricultural services were two areas that many African countries were arm-twisted to reduce support for in order for them to continue to benefit from credit and other assistance from various Western governments and financial institutions.
Unfortunately, the divestiture of governments from key areas like agriculture did not cause the more efficient flooding in of the private sector, for many reasons. Extension services suffered, fertiliser and other inputs became harder to get and much more expensive. Already low agricultural production in many countries declined even further, a situation which was compounded by factors like drought.
In Malawi this caused famine in 2005, causing President Bingu wa Mutharika to swear that his country would not again bear the indignity of begging for food. Hence the government’s decision to throw out the conventional wisdom of the Western experts and fund its own massive fertilizer and maize seed subsidy program. Fortunately the program has coincided with years of excellent rain, bringing about the bumper harvest that Malawi can be justifiably proud of. Many analysts from all over the world are keenly studying the implications of Malawi’s so-far successful experiment, and many governments seek to emulate this unfortunately unusual example of African agricultural success at the national level.
But amidst all the excitement are many questions about the sustainability of the subsidy model for Malawi or any other country. Some caution that it is only useful as a temporary measure, and that more complicated long-term interventions and investments need to be made to ensure long-term food security for Malawi.
Among the many questions to be asked:
Can Malawi sustain these subsidies in the face of the increasing demand for them that is partly fuelled by the initial success? Fertilizer prices worldwide have increased by unprecedented, enormous proportions to record highs in the last year. They are now generally over US$1000 per tonne, a more than three-fold increase in little more than a year. There are no indications that this trend will stop soon. Fertiliser is a fossil-fuel byproduct, and the price of oil is creeping towards an unheard of US$150 per barrel, with worse to come. Apart from the price of oil as a fertilizer raw material, there is also the escalating expense of shipping it. When you add the many middle men and speculators in the supply chain, not to mention the bribery that is an unfortunate part of fertiliser tendering the world over, one gets an idea of just how expensive it is going to become to get the product in the hands of the African farmer.
Fertiliser has long been considered the single most expensive 'input' in farming, and this was even before the recent dramatic price increases. Its expense is the main reason it has been out of reach of African farmers.
So is the Malawian government not entrapping itself into a situation where it would not be politically tenable to abandon the subsidy when it becomes unaffordable, even if it is no longer working as it should for one or another reason?
Given the foregoing, is the subsidy a short-term measure leading up to other strategies, or is it open-ended? What are the implications of either? There is little sign that these issues are being seriously discussed.
What went wrong with previous efforts to subsidise fertilizer in Malawi and elsewhere? Have steps been taken to prevent the recurrence of such problems?
Fertilizer addresses the symptoms of the problem of low soil fertility, not the underlying causes (poor/wrong and over-use of soils). Without somehow at least partially addressing the issue of the inherent degradation of the soils, one needs higher amounts of fertilizer every season to produce the same yield of crop. The costs are not only financial, but there is the issue of the poisoning of the soil and water that is an inevitable part of fertilizer use. Is this being considered and strategized for? If not, why not? If so, how?
How much are Malawi’s recent maize bumper harvests really due to fertilizer anyway? 100%, 70%, 40%, 10%? Obviously there is no easy way to quantify this, although that hasn’t stopped some from trying. But in short, some say the subsidy has just happened to coincide with a cycle of particularly good rains in that region of Africa.
When the expected drought cycles come (which partly contributed to previous famines) no amount of fertilizer will make much difference, and fertilizer on parched soils can actually scorch plants, causing even lower than expected yields. Climate predictions are that sub-Saharan countries like Malawi should expect more seasons of low rainfall than of the current heavy rainfalls, and that the model of heavy reliance on fertilizer is precisely the wrong way to prepare for this.
“Natural” means of enhancing soil fertility, while a lot of work initially, end up giving the soil more drought-tolerance by enhancing its moisture-retention qualities, etc. At the very least, fertilizer use should be an adjunct to enhancing soil fertility by improving its inherent structure. It should not become a sole strategy as is becoming the case, setting the country up for dramatic failure if the precise mix of good rainfall and widely available fertilizer is not available. Is this part of the debate at all in Malawi?
Is the subsidy not indeed hurting the potential for the development of an agro-related private sector, as the WB argues? It is said that instead of just being availed to poor farmers who could not afford it on their own, even well to-do farmers see no point in buying a commodity that there is now the possibility of getting at a fraction of its market price, even though in theory these farmers should not qualify for the subsidised fertilizer. This has led to many allegations of all sorts of corruption, and it has definitely hurt private fertilizer importers/vendors. What are the implications of all this in the long term?Is the development of a private sector not also important? If so, how can that take place inan environment where government intervention through subsidies makes fertiliser and other inputs available at below-market prices?
I have merely scratched the surface of this topic and the many questions that need to be carefully pondered to make Malawi's example part of a long-term trend, rather than just a flash in the pan. Here is a list of some useful further reading on an important subject for African agriculture that deserves close scrutiny over the years:
1.Fertilizer subsidy boosts Malawi maize yields but questions remain
2.How IMF-World Bank structural adjustment programs destroyed African agriculture
3.Malawi bumper harvests due to more than just fertilizer subsidy
4.Caution urged on Malawi fertilizer subsidies despite bumper harvests
5.Required: A new agriculture for a new Africa
6.Africa reconsidering agricultural subsidies
Understandbly, a lot has been said and written about the positive development of the record harvests. They are a wonderful example of an African country taking charge of its own agricultural affairs. Then there is the powerful symbolism of an African country being so committed to a well-thought out path of economic intervention that it is willing to dig deep into its own treasury to fund a program it believes in, even at the risk of angering the purportedly all-knowing foreign experts and donors.
Malawi's successful example, therefore, is significant for more than just the agricultural and economic reasons, although their importance are obviously also considerable. But all these reasons why Malawi's feat is of such huge symbolic importance to Africa are precisely why tough questions should be asked about the long term. Appropriate modifications can then be made to ensure that this development does not end up in failure when one or another critical element of its success is suddenly missing. If the right lessons are learned and appropriate adjustments made, Malawi may indeed blaze a unique trail to agricultural development for other countries to emulate.

African Agriculture

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