Transcript Reclaiming Policy Space? Malawi’s 2005/2006 Fertilizer

www.future-agricultures.org
WDR Politics and
Policy Processes
Workshop
IDS – Jan 07
Reclaiming Policy Space? Malawi’s 2005/2006
Fertilizer Subsidy Programme
Blessings Chinsinga
Department of Political and Administrative Studies
Chancellor College
P.O. Box 280
Zomba, Malawi
Tel: (265) 8 577 842
Fax: (265) 1 525 900/524 046
Email: [email protected]/[email protected]
January 2007
Structure of the Presentation
Main message
Origins and context for the programme
Components and magnitude of the subsidy
Implementation arrangements of the programme
Perceptions and positions of various stakeholders
Emerging issues
Summing up
Main Messages
Domestic political economy context matters in
any policy process. Unique circumstances of
each country have to be taken into account in
policy formulation.
A case study of a nationwide political consensus
for fertiliser subsidy; fragile government (which
donors saw as an improvement on its
predecessor) trying to devise and deliver a policy
in the face of very fluid domestic politics and
donor scepticism.
Origins and Context
Political and Economic Context
•
•
Recurrent hunger crises since the 1990s:
• Regular occurrence of droughts and adverse climatic
conditions.
• Roller-coaster in 1990s and early 2000s of removal of
subsidies on key farm inputs coupled with massive currency
devaluations; and donor acquiescence in short term subsidies
• A Starter Pack (later called targeted input programme) which
had delivered near universal access to small packages of free
fertiliser and seeds, but which had ended in 2004 with DFID
declining further support
Strong national consensus for fertiliser subsidy, reflected in political
campaigns in the lead up to the 2004 general elections:
• Universal fertilizer subsidy for maize producers from MK 3000
to MK 1500 per 50kg bag (UDF and coalition partners).
• Universal fertilizer subsidy for both maize and tobacco
farmers from MK 3000 to MK 950 per 50kg bag (MCP and
Mgwirizano coalition)
• The differences between the subsidy proposals of the political
parties a consequence of variation in regional support (e.g.
between Center and South)
Origins and Context
Political and Economic Context Cont’d
• Suspension of donor aid since 2001 notably the
PRGF by IMF due to gross fiscal indiscipline and
rampant official corruption and patronage
• Malawi implementing the MPRSP as a precondition
for qualification for debt relief with restoration of fiscal
prudence and discipline as one of the triggers for
reaching the completion point.
• Post election, the new President ditches UDF and
forms new party-DPP-without support in Parliament.
Origins and Context
Political and Economic Context Cont’d
• Government fails to honour the pledge to reduce fertilizer
for the 2004/2005 growing season.
• Serious hunger crisis hits the country during the same
period affecting more than 4 million Malawians.
• As noted earlier, DFID discontinues support to the
Targeted Input Programme (TIP).
• Need for interventions to the agricultural sector becomes
very pressing in the context of a devastating hunger
crisis.
Origins and Context
Adoption of the Fertilizer Subsidy Programme
• In April 2005, Parliamentary Committee on Agriculture and
Natural Resources (PCANR) undertakes a critical review of food
security situation, possible interventions and status of
agriculture in general.
• Recommends several strategies but prioritizing universal
subsidy for maize and tobacco.
• Subsidy on maize addresses the production side of food
security
• Subsidy on tobacco addresses the market side of food
security
• May 2005 PCANR holds consultative meeting with the President
where interventions are discussed emphasizing on universal
subsidy for maize and tobacco (MK700-MK 900 per 50kg of
fertilizer for both maize and tobacco).
Origins and Context
Adoption of the Fertilizer Subsidy Programme Cont’d
• June 2005, the President announces the introduction of fertilizer
subsidy targeted at resource constrained but productive maize
farmers in the 2005/2006 budget speech justified on the basis of
lessons learnt from TIP. Universal fertilizer subsidy would be
unaffordable.
• Proposed fertilizer subsidy targeted at maize was estimated to
cost between MK 2-3 billion.
• Presidential speech ignites intense debate in Parliament.
Opposition block clamours for universal subsidy for maize and
tobacco setting it as a condition for passing the 2005/2006
budget.
• Government succumbs to the demands for universal fertilizer
subsidy including tobacco which pushes the subsidy budget to
MK 4.7 billion.
Components and Magnitude of the Subsidy
• Budget for the subsidy stood at MK 4.7 billion (about US$35
million).
• Fertilizers involved:
–
–
–
–
50, 000 metric tonnes of Urea.
50, 000 metric tonnes of NPK (23: 21: 0+4S)
22, 000 metric tonnes of D Compound
15,000 metric tonnes of CAN
• Urea and NPK fertilizers sold at MK 950 per 50kg bag and D
compound and CAN at MK 1400 per 50kg bag.
• Maize farmers entitled to one bag of 23: 21: 0+4S and Urea while
tobacco farmers 2 bags of D Compound and one bag of CAN
• One pack of hybrid or OPV maize seed at half of the price.
• Government succumbs to the demands for universal fertilizer
subsidy including tobacco which pushes the subsidy budget to
MK 4.7 billion.
Implementation of the Programme
• Access to subsidized fertilizer was on the basis of
coupons so as to limit the quantity per household.
• Procurement and distribution of the fertilizer:
• A great bulk procured through SFFRFM and private sector firms
through a competitive tendering process.
• Private sector firms not involved in distribution. Fertilizer was
wholly distributed by ADMARC and SFFRFM. ADMARC has a
countrywide network of markets across the country.
• Government was and is skeptical about the capacity of the private
sector given the national importance of the programme.
• Food security-maize-is at the centre of politics in
Malawi. The PCANR describes Malawi’s politics as
“maize politics”.
Implementation of the Programme cont’d
• Subsidy programme closely linked with Public
Works Programmes (PWPs) to the tune of MK
1 billion to boost the purchasing power of the
beneficiaries.
• Farmers were allowed to work on the PWPs up
to 4 weeks at MK MK 200/day (about
US$1.5/day).
• Coupons for subsidized fertilizer flowed from
MoA to DCs/DADOs to ADCs (TAs) to VDCs to
Beneficiaries.
Perceptions of Stakeholders on Subsidy
• Key stakeholders include the following:
– Government/opposition parties
– Donors
– NGOs
– Private sector (Fertilizer firms and agro input dealers)
Perceptions of Stakeholders
Government/opposition parties
•
Generally agree on the need for subsidy but disagree on the scope and
magnitude (Targeted versus universal). There are regional differences
(north, centre and south).
•
“A nation that cannot feed itself cannot claim to be a sovereign state.
We, in Malawi, must therefore be able to feed ourselves.”
•
Need to look at the uniqueness of Malawi. It is better to subsidize
production than consumption. Difficult and costly to import food in times
of crisis. Food imports for the 2005/2006 hunger crisis stood at MK 13
billion compared to MK 4.7 billion for fertilizer subsidy.
•
Fertilizer subsidy represents a more cost effective approach to
achieving food security than the alternative interventions.
•
Food security is equated predominantly with own production.
Perceptions of Stakeholders
Initial Donor Reactions
• Donors were generally opposed for the following reasons:
– Programme not fiscally sustainable exerting unnecessary burden on the
budget (Universal subsidy would cost MK 12-MK15 billion more than
10% of the total budget)
– Not best use of funds since subsidies involve providing support including
even those who can afford (Subsidies are very difficult to target to the
extent that Malawi might be subsidizing the entire southern Africa).
– Provision of subsidy contradicts government’s own policy on private
sector development.
– Surplus maize without corresponding interventions dealing with
marketing and storage issues would create disincentives in the
production of maize.
– Donors had a very negative view of politics and government capacity (in
2004)
• No donor supported the 2005/2006 subsidy programme.
Perceptions of Stakeholders
Donors
• Three categories of donors
– Totally opposed to subsidy
– Sceptical but willing to engage with subsidy
(searching for the holy grail “smart subsidy”?)
– Supportive of subsidies
Perceptions of Stakeholders
Donors against subsidies
• Include IMF, USAID and of course private sector firms dealing in
fertilizer and seed if excluded from supply.
• Impossible to develop the private sector with subsidies (Excessive
market distortions).
• Implementation of fertilizer subsidy risks wiping out the entire private
sector. Smallholder demand for fertilizer is estimated at 200,000
metric tonnes per annum against 150,000 metric tonnes provided
through the subsidy programme. Could be more because excess
coupons have always been printed over and above initial
consignments.
• Difficult to establish a vibrant private sector with a subsidy
programme targeted or universal.
Perceptions of Stakeholders
Donors “skeptical but willing engage with” subsidies
(smart subsidies?)
• Include World Bank, DFID and EU.
• Advocate for well targeted subsidy with market friendly mechanisms,
well defined in terms of duration and financial commitments to ensure
predictability.
• Unpredictability in terms of duration and financial commitments would
create excessive market distortions.
• Clear case for subsidy if there is market failure but should be properly
targeted (Economically active and productive beneficiaries).
• Need for well spelt out exit strategies since subsidies are only a short
term intervention and unsustainable in the wrong run.
Perceptions of Stakeholders
Donors supportive of subsidies
• Include most UN Agencies and Scandinavian donors. (Millennium
Village project a major influence)
• Agriculture cannot survive without subsidies. Subsidies would not
distort the market because the private sector is almost non-existent.
• Without some kind of pan territorial subsidy some areas would not
be served at all because of high costs in remote areas.
• Uptake of fertilizer is too low to achieve food security. Fertilizer
uptake among smallholder farmers is estimated at about 34kg per
hectare against the recommended maximum of 150kg depending on
input-output price ratios.
Perceptions of Stakeholders
NGOs/Civil Society
• Include most local NGOs/CSOs, Action Aid, Oxfam, Care
International, Plan International etc
• Need for subsidies underlie gross failure of neoliberal market
reforms.
• Emphasis should not be on economic cost-benefit analysis but
on social cost-benefit analysis. It does not make sense where
the majority of the people are very poor.
• Advocate for universal subsidy implemented in a phased
manner to ensure affordability.
• Need for the subsidy programme to be properly institutionalized
to ensure predictability and facilitate planning among farmers.
Perceptions of Stakeholders
Evolution of Donors’ Views: Toward Consensus?
• Government’s determination to implement the programme without
support from donors has greatly changed the position of various
donors.
• “We have come to the realization that government will not change its
position. The programme will be implemented for sure the next three
years. Moreover, government has been scaling up resources from
MK 4.7 to MK 7.2 billion this year. We have no choice but explore
how we can strategically support the programme”.
• “There is total government ownership and commitment. We better
support it otherwise we shall become redundant”.
• “Government has made a choice, it is firmly standing by it, we have
to make the programme work!”.
Perceptions of Stakeholders
Evolution of Donors’ Views: Toward Consensus? Cont’d
•
Several donors have supported the 2006/2007 subsidy programme but on
condition that government meets certain conditions which include:
– Involvement of the private sector in both procurement and distribution of
subsidized fertilizer on equal terms with ADMARC and SFFRFM.
– Promotion of choice among beneficiaries in terms of the range of
fertilizers involved, outlets where fertilizer and seeds are procured.
– Subsidy should extend beyond maize and tobacco in order to promote
crop diversification which has been the government’s own policy for
some time.
– Government must address issues of marketing and storage in times of
excess surplus.
•
A group of donors working closely with the government have commissioned
a study to assess efficiency and effectiveness of the programme.
Emerging Issues
• Access to subsidized fertilizer (Coupons versus farmers clubs).
• Capacity of private sector to deliver (Poor infrastructure and
weak capitalization).
• Role of traditional leaders and politicians in the distribution of
coupons (Political patronage??).
• Usage of the inputs and availability of extension services.
• Logistical problems in terms of planning and distribution of
inputs.
• Equity: do the poorest get coupons? If they do, can they match
with cash or simply sell the coupons?
Summing UP
•
Domestic political economy context matters in any policy process. Unique
circumstances of each country have to be taken into account in policy
formulation.
•
Policy designers need awareness of history (implicit social contract between
smallholders and state, with ADMARC as instrument)
– E.g. in 2006 ADMARC had a major role in buying the unexpectedly
large maize surplus
•
Need to fully grasp the whole array of stakeholders and their interests,
competing views and demands in policy issues. Understanding how various
interests play out is critical for analysing potential trade offs in the policy
process.
•
Government leadership and determination is creating an environment of
give and take between various stakeholders in the policy sector especially
among donors. Donors pledging to support the programme as long as
government meets certain negotiated conditions.
Summing Up Cont’d
– The Malawi case demonstrates potential for supporting not
necessarily the best policy options but second best policy
options that appear to work given the peculiarities of
countries concerned (One size fits all dogmatic policies are
not feasible).
– Pragmatism among donors seems the way to go. A
consortium of donors are evaluating the 2006/2007 subsidy
for purposes of assessing its technical efficiency and
effectiveness (How can it be made to work better? Strategic
support to the programme?).
• What happens when democracy collides with donor
policies? There appears there is a genuine political
mandate for the fertilizer differences between the
government
and
opposition
politicians
notwithstanding.
THE END
www.future-agricultures.org
WDR Politics and
Policy Processes
Workshop
IDS – Jan 07