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Africa: Subsidies that Work
AfricaFocus Bulletin
Jan 22, 2009 (090122)
(Reposted from sources cited below)
Editor's Note
In the 2008/2009 agricultural season, Malawi is spending $186
million to subsidize fertilizer and seeds for poor farmers,
tripling the previous year's figure of $62 million. Malawi's
success in this program, against donor advice, has made the country
a grain exporter and helped contain food costs. The emerging
consensus is that such subsidies are essential for African
agriculture. In November the UN's Food and Agricultural
Organization rewarded Malawi President Bingu wa Mutharika, who also
serves as his country's Minister of Agriculture, with the Agricola
Prize.
Ironically, donor opposition to agricultural subsidies in Africa
was coupled with refusal by rich countries to reduce their own
expensive subsidies to commercial farmers in their own countries.
Yet the case for subsidies is far more compelling for African
smallholder farmers who often lack minimum access to agricultural
inputs. In Malawi, the program has more than paid for itself by
reducing costs for food imports.
Even supporters of increased subsidies warn, however, that
subsidies must also be sustainable, and that other factors must be
considered, including the cost of imported inorganic fertilizers
and long-term impact on the environment. Scientists who
collaborated in a multi-year "International Assessment of
Agricultural Knowledge, Science and Technology for Development"
(IAASTD) stressed the need to find and implement more energysustainable
forms of agriculture, adapted to different ecological
conditions.
This AfricaFocus Bulletin contains several articles on the food
input subsidy program in Malawi and its impact on policy thinking
on the continent, as well as links to several additional
references.
Another AfricaFocus Bulletin placed on the AfricaFocus website
today (but not sent out by e-mail given its length and technical
content) contains the Sub-Saharan Africa Summary from the IAASTD
meeting last year in South Africa, as well as a statement by civil
society organizations released at that meeting). See
http://www.africafocus.org/docs09/ag0901.php, For more from and
about IAASTD, see
http://www.agassessment.org,
http://www.agassessment-watch.org, and
http://www.panna.org/jt/agAssessment
For previous AfricaFocus Bulletins on agricultural issues, see
http://www.africafocus.org/agexp.php
For previous Bulletins with material on Malawi, visit
http://www.africafocus.org/country/malawi.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Malawi's grain subsidy programme bears fruit
Southern African News Features SANF 09 no 2, January 2009
http://www.sardc.net
Sanf mailing list: Sanf@sardc.net
http://lists.zol.co.zw/mailman/listinfo/sanf
The turnaround in Malawi, from being a food deficit country to one
producing surplus grain and overcoming food shortages has
demonstrated that regional countries have the capacity to be food
secure if they apply the right policies.
The grain subsidy programme that was introduced in 2005 has seen
the government increasing the provision of maize seed and
fertiliser to the smallholder farmers by more than 75 percent.
As a result, Malawi has since 2005 trebled maize production from
1.2 million tonnes to 3.4 million tonnes in the 2007/2008
agricultural season.
The government policy intervention -- a reintroduction of
fertiliser and seed subsidies that began in 1999 -- is profoundly
supported by the Malawian President Bingu wa Mutharika, who doubles
as Minister of Agriculture.
Starting in 2005, the government distributed coupons to low-income
farmers to allow them to purchase two 50kg bags of fertiliser
equivalent to US$7, one-fifth the market price.
In addition, the government provided vouchers to buy seeds enough
for planting half an acre each. As a result, the average farmer's
yield increased to two tonnes per hectare from 0.8 tonnes in 2005.
In the 2007/2008 agricultural season, the subsidy programme cost
the government US$62 million or 6.5 percent of its total budget.
The programme was initially criticised by economists and
multilateral agencies who argued that the expansion of subsidies
would worsen the budget deficit and create distortions in the
market.
But Malawi's recent successes in turning around the agriculture
sector and ensuring food security for the country has confounded
critics. In fact, the phenomenal increase in maize production has
saved the country a yearly budget of US$120 million that it had
spent in 2005 importing food aid.
As highlighted by Malawi's Deputy Minister of Agriculture, Frank
Mwendifumbo, the important lesson for policy makers in the region
is that government subsidies are necessary for growth in
agriculture. Such an intervention is in line with the SADC
Declaration on Agriculture and Food Security that was adopted by
SADC Member States in Tanzania. [in 2004; http://www.sadc.int/index/browse/page/173]
Among the medium to long term targets, the SADC leaders agreed to
ensure that all Member States progressively increase agricultural
finance allocation to at least 10 percent of national budgets
within a period of five years.
In the 2008/2009 agriculture season, Malawi plans to spend US$186
million in an ambitious farm input subsidy programme for 1.7
million peasant farmers, agriculture authorities recently
announced.
ADB & Mozambique Back Farm Subsidies
Mozambique 130 - Joseph Hanlon - June 9, 2008
For full issue see:
http://www.gg.rhul.ac.uk/Simon/GG3072/Moz-Bull-130.pdf
"You can't manage agriculture commercially without subsidies", said
Mozambique's Planning and Development Minister Aiuba Cuereneia.
"This used to be taboo, but now it is being accepted. We are now
seeing international organisations talking about subsidizing
agriculture."
Cuereneia is chair of the African Development Bank (ADB) Board of
Governors, and he was speaking at a press conference in Maputo on
16 May after the ADB approved the African Fertiliser Facility to
make subsidised fertilizer available to farmers. He said the
decision was not unanimous. The United States was opposed to the
fertilizer facility, "but the Board of Directors voted for it".
ADB President Donald Kaberuka said African agriculture used to
suffer from low producer prices, and farmers had little incentive
to produce. Now, with the sharp rise in grain prices
internationally, there were incentives -- but fertilizer prices had
also soared, so "there must be some degree of fertilizer subsidy".
Such subsidies should be "market-smart" and targeted, and they
would require support from international institutions. He
recognised that "fertilizers are not enough. If there is no road,
you will produce tomatoes, but they will rot. For markets to
operate, the infrastructures must be working -- the roads and the
irrigation systems -- this will prevent the crops from rotting
before they reach market".
But speaking to parliament on 7 May, Agriculture Minister Soares
Nhaca made no mention of fertiliser subsidies. Instead, he said the
government was promoting large scale imports of fertilizer which
should reduce the price paid by farmers. The longer term solution,
he claimed, is to attract private investors willing to set up
fertilizer factories in Mozambique.
A harvest of hope for African farmers
Malawi subsidies stimulate a bumper crop
By Michael Fleshman
Africa Renewal, United Nations
Email: africarenewal@un.org
Web: http://www.un.org/ecosocdev/geninfo/afrec/
Africa Renewal, Vol.22#3 (October 2008)
In a world still shaken by skyrocketing food prices and the
sometimes violent street protests that have accompanied them (see
Africa Renewal July 2008), the search is on for ways to increase
food production in Africa and other chronically hungry regions.
Tito Jestala, who farms a tiny plot of land in Chiseka, Malawi,
thinks he has the answer.
In 2005, more than 30 of his neighbours died of malnutrition in one
of the periodic droughts that have swept Southern Africa. Even in
a good year, he told the UK newspaper The Independent, he could
coax barely 250 kilogrammes of maize from his exhausted land. But
over the past two years his harvest has tripled, producing plenty
of food for his family and leaving more than enough to sell at the
local market.
The difference, Mr. Jestala says, is fertilizer. For years this
basic input was simply beyond his means and those of millions of
other African farmers. Costing the equivalent of about $50 a bag,
fertilizer was just too expensive to use. And buying it on credit
was too great a risk for farmers at the mercy of unreliable rains
and poor-quality seeds. But in 2005 the government of President
Bingu wa Mutharika began subsidizing fertilizers and high-yielding
seeds for Malawi's smallholders. The action cut fertilizer prices
by 80 per cent and slashed the cost of hybrid maize seeds from 600
kwacha per bag to 30.
The impact was dramatic. The following year Malawi's maize harvest
more than doubled, to 2.7 mn tonnes. It rose again in 2007 to 3.4
mn tonnes - enough to feed the nation and sell 400,000 tonnes to
the UN's World Food Programme (WFP) and hundreds of thousands of
tonnes more to neighbouring countries, generating $120 mn in sales.
The formerly aid-dependent country even donated 10,000 tonnes of
maize to the WFP's nutrition programme for people living with
HIV/AIDS.
This year the government plans to spend $170 mn to expand the
programme in the hope of reaching more farmers and capitalizing on
higher world maize prices. "As long as I am president," Mr.
Mutharika was reported to have told his cabinet in 2007, "I don't
want to be going to other capitals begging for food."
'A very bold decision'
In fact, say experts at the UN Food and Agriculture Organization
(FAO), Malawi's turnaround is the result of a combination of
factors, including the return of sufficient rain, the incentives
offered by higher world food prices and increased government
investments in other parts of the country's rural economy.
Yet there is little doubt that the decision to make high-quality
seeds and fertilizers affordable for smallholders like Mr. Jestala
has been the key to Malawi's success. The subsidy programme is
already being seen as a model by a growing number of African
governments and international development and agriculture agencies.
But the programme has encountered difficulties in gaining
acceptance from donors. In 1999 the government had introduced a
more modest programme of free "starter packs" of fertilizer and
seeds for family farmers in an effort to boost production. The
results were impressive, but the subsidies ran afoul of the
pro-market policies of the World Bank and International Monetary
Fund (IMF), which argued that subsidies were "crowding out"
commercial sales and constituted undue government interference in
the economy. Under considerable pressure from these financing
institutions, the programme was phased out. The IMF also insisted
that Malawi sell much of its national grain reserve to pay off the
debts of the state-owned maize marketing agency.
Most Malawian farmers, however, were too poor to pay commercial
rates for fertilizer and seeds. As a result, maize yields plunged.
When drought struck in 2001 neither farmers nor the government had
adequate grain stores to see them through, and more than a thousand
people are estimated to have died. Then after the failed 2005
harvest left 5 million of Malawi's 13 million people on the brink
of starvation, the newly elected government of President Mutharika
defied the donors and launched the subsidy scheme with its own
funds.
That move proved decisive, Kanayo Nwanze, vice-president of the
UN's International Fund for Agricultural Development (IFAD), told
Africa Renewal. "It was a very bold decision to provide subsidies
for seeds and fertilizers over the objections of the development
partners," he said, noting that during one meeting with senior
Malawian officials a furious representative of a donor country had
stormed out of the room. "But the government stood its ground and
said 'We're going to do it. It is our programme and we're going to
do it.'"
With success literally growing all around them, "the next year the
donors supported it," Mr. Nwanze noted. It also made good economic
sense, he continued, since the savings from reduced imports and
increased export sales generated three to four times more revenue
than the subsidies cost.
The importance of the Malawi subsidy programme for the rest of
Africa, Mr. Nwanze observed, is that "t is a story that can easily
be repeated in other parts of Africa"and has the potential to
produce big gains in a short time at relatively modest expense. A
growing number of countries, including Zambia, Ghana, Senegal and
Kenya, have announced plans for similar subsidies and more
governments are expected to follow suit.
The African Development Bank (ADB), often a critic of state
interventions in economic affairs, announced in May that it had
established a special fund to mobilize financial resources for
greater fertilizer production and use, including subsidized sales
to family farmers. The move was part of a $1 bn increase in the
ADB's farm lending portfolio.
Failed policies
The new emphasis on smallholder farming and food self-sufficiency
represents a sharp break with past policy by donors, international
financial institutions and African governments alike. Since at
least the 1980s, African governments have pursued structural
adjustment policies mandated by the World Bank and IMF. These
included focusing on high-value commercial and export crops and
developing non-agricultural pursuits for those displaced by such
activities. Government subsidies and marketing programmes were said
to be too costly, to impede private business involvement and to be
prone to mismanagement and corruption. Government withdrawal from
agriculture, donors insisted, would allow the private sector to
move in.
But as FAO and World Bank data show, investment in African
agriculture instead went into a steep decline. This was reflected
in reduced use of fertilizers and improved seed varieties, fewer
agricultural extension and marketing services and a steady drop in
crop yields, soil fertility and rural incomes.
A 2007 analysis of agricultural lending to Africa by the World
Bank's Internal Evaluation Group confirmed that countries had been
pressured into privatizing marketing and extension services and
ending farm subsidy programmes to make room for private
entrepreneurs and investors. But, the analysis added, such
businesses too often failed to materialize.
In addition, FAO Director-General Jacques Diouf noted at a June
2008 food summit in Rome, the percentage of official development
assistance devoted to agriculture dropped from 17 per cent to 3 per
cent between 1980 and 2005.
The shift in emphasis away from agriculture, in particular
smallholder food production, was no oversight. Under the
pro-market, trade liberalization policies pursued by international
financial institutions and many bilateral donor agencies,
governments were advised to stay out of farming and allow
commercial growers to produce niche-market products like flowers
and seasonal fruits instead of low-value food items.
The view of these groups was expressed succinctly by then US
Agriculture Secretary John Block, who, according to journalist and
activist Martin Khor, told a world trade conference in 1986 that
"the idea that developing countries should feed themselves is an
anachronism from a bygone era. They could better ensure their food
security by relying on US agricultural products, which are
available in most cases at lower cost.
Dwindling donor support, the World Bank evaluation asserted,
encouraged neglect by national governments as well. "s the decline
in lending continued, so too did the decline in recognition within
governments that agriculture was central to development."World Bank
advice and structural adjustment policies have had a major impact
on African agriculture, the study acknowledged, "ut results have
fallen short of expectations."
'An absolute disaster'
In the view of many agronomists and development economists, the
results have been little short of ruinous. After being a net food
exporter in the 1970s, Africa is now heavily reliant on commercial
imports and emergency aid, the FAO reports. Some 42 African
countries depend on imports in even the best of times. It is the
only world region where crop yields per hectare have remained
stagnant - and where as many as one in three people are
chronically malnourished.
"The end of government subsidies to African farmers because of
structural adjustment programmes was an absolute disaster," says
Akin Adesina, the vice president of the Alliance for a Green
Revolution in Africa (AGRA), a non-governmental rural development
initiative headed by former UN Secretary-General Kofi Annan that is
a leader of international efforts to revive African agriculture.
"Today African farmers are almost the only ones in the world who
receive absolutely no government support of any kind," he told
Africa Renewal, noting that farmers in wealthy countries currently
receive more than $300 bn in government payments annually. African
farmers "are left on their own to sink or swim, and as we have seen
they are simply sinking."
"What AGRA is saying," Mr. Adesina continues, "is that there is a
need now to recognize that government has to play a role in
subsidizing African farmers. The key with subsidies is to do them
in ways that reach the poor and also build the market. We are
calling those smart subsidies, and we are calling for smart
subsidies all across Africa. If Malawi can do it, everyone can."
IFAD's Mr. Nwanze agrees. Previously, he explains, the depth of
poverty in African farming communities made it impossible for most
farmers to buy the improved seeds, fertilizers, tools and other
inputs they need. "I can't for the life of me understand why
[subsidies] have been blocked in the developing world. It's totally
ridiculous. Here we are talking about an environment where most
farmers have no access to credit and no access to inputs and we're
telling governments that you cannot subsidize agricultural
production."
For three decades, Mr. Nwanze notes, IFAD has worked with
governments in developing countries to provide credit to family
farmers, increase access to inputs and connect them to local and
regional markets. "We have seen it work time and again. To me,
smallholder agriculture is the key for those countries."
Arguing with success
But have the global food price shock, recognition of the economic
importance of African agriculture and the Malawi success story
brought the era of "sink or swim" policies to an end? Have they
prompted a generous helping hand to Africa's hard-pressed, mostly
female family farmers? Not quite.
Agronomists, economists and governmental and intergovernmental
policymakers agree that neither subsidies nor fertilizer is by
itself a solution to Africa's complex agricultural problems. Making
African farming profitable, sustainable and productive will require
land reform, political empowerment of rural communities, access to
local, national and global markets and long-term investments in
irrigation, sustainable fertilizer use and soil management, health
and education, modern farm technology and extension services, and
transport and communications systems. These strategic investments
are detailed in the Comprehensive Africa Agriculture Development
Programme of the continent's development blueprint, the New
Partnership for Africa's Development (NEPAD).
There are also doubts about global and national political
commitment. Only six of Africa's 53 countries have followed through
on a 2003 commitment to devote 10 per cent of their national
budgets to agriculture.
Internationally, the recent collapse of talks at the World Trade
Organization, in part over the issue of subsidized Northern food
exports to poor countries, suggests that powerful farm lobbies in
wealthy countries still covet privileged access to developing
countries' markets at the expense of local producers. Europe's
system of trade preferences for African and other developing
country imports, dubbed the "everything but arms" initiative to by
EU trade ministers, has so many obstacles to agriculture imports
that it is only half-jokingly referred to as the "everything but
farms" agreement by critics.
Nor is everyone persuaded by Malawi's model subsidy programme,
despite its success. Michael Morris, a World Bank economist and
expert on fertilizer subsidies, confirms that there has been a
shift in the Bank's thinking about smallholder agriculture and
government subsidies. But he argues that government support for
family farmers should be smaller, "smarter" and better targeted
than in the past.
"The Malawi government is doing many things well" with its subsidy
programme, he told Africa Renewal. However, "We do have some
disagreement about tactics." Those disagreements, he says, concern
the costs, whether the subsidies are creating dependencies or
laying the basis for self-sustaining commercial sales, and whether
the subsidies are reaching the intended beneficiaries.
"We're always being charged that the bank is being ideological and
dogmatic about subsidies because economic theory tells us subsidies
are bad," Mr. Morris notes. "The bitter experience was that when
you had subsidies on fertilizer it really attracts . . .
politically and economically powerful people who go after the
fertilizer. I think that explains the ambivalence that the Bank has
had about subsidies. What has changed is the recognition that
things simply weren't happening on the ground. The private sector
wasn't getting the job done."
Under such circumstances, he concedes, governments can target
"market-smart" subsidies that "build the basis for a sustainable
private-sector-led input distribution system that can function on
its own." Even then, he cautions, "the conditions for using those
subsidies are pretty rigorous. You really want to be targeting them
not only at the end user but also at different stages along the
whole supply chain. . . . There are lots of opportunities to use
subsidies to lower costs in those various stages," including by
providing financing and training for importers and distributors and
by stimulating demand by educating farmers and distributing small
demonstration packs.
Governments and donors must also evaluate the cost of fertilizer
subsidies against other needs. Mr. Morris estimates that fertilizer
subsidies now consume 60 per cent of Malawi's agriculture budget.
"That's just a huge amount. There are many other things --
extension services, irrigation, research -- that are not being done
as a result." Unless African governments incorporate an "exit
strategy" into their subsidy programmes, he concludes, "you commit
larger and larger amounts of money into something that will never
be able to pay for itself. We need to think of other opportunities
and other options. We have to pick our spots."
To date, however, Malawi's subsidy programme has more than paid for
itself. And the government has cracked down at the first signs of
abuse, by sacking a senior cabinet minister for selling subsidy
coupons to wealthy farmers and by toughening eligibility
requirements and oversight procedures.
In a video address to a special meeting of the UN Economic and
Social Council on the world food crisis in May, President Mutharika
called on the international community to help Africa support its
farmers: "International stakeholders like the World Bank . . .
should not continue with the feeling that they have all the
solutions in Washington. They should listen to policymakers at the
local level and learn from that."
Additional Resources on Fertilizer Subsidies
UK Department of International Development
http://www.dfid.gov.uk/casestudies/files/africa/malawi-harvest.asp
"A record maize harvest in Malawi", 08 May 2007
International Fertilizer Association
http://www.fertilizer.org/ifa/Home-Page/LIBRARY/Issue-briefs
"Food Prices and Fertilizer Markets" 8 December 2008
International Federation of Organic Agriculture Movements (IFOAM)
http://www.ifoam.org
http://tinyurl.com/dxwdty
"Organic Agriculture, instead of chemicals, for food security in
Africa" 8/28/2008
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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