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FERTILIZER SUBSIDY REFORMS AND

MAIZE IN MALAWI MARIAM A.T.J. MAPILA

MASSP RESEARCH DISSEMINATION SEMINAR

GROWTH, POVERTY, NUTRITION LINKAGES AND THE ROLE OF FISP

APRIL 9, 2014

CROSSROADS HOTEL, LILONGWE

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Introduction

Positive impact of input subsidies on maize commodity market in Malawi - undoubted

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WHY REFORM STRATEGIES

Input subsidies intended to be short term strategy

Resistance to scaling down or removal from:◦Beneficiaries ◦Non-beneficiaries ◦Politicians

OBJECTIVES OF THE STUDY

Analyze the impact of reforms of the Farm Input Subsidy Program on Malawi’s maize commodity market

Malawi maize model

Key Endogenous variable

Exogenous variable

L Lag

Local maize price

Local economy

Parity prices Malawi policy instruments

Domestic production/consumption

ADMARC maize price

Trend

Local maize production

Household income (with maize income)

Local maize consumption

Local rainfall

L

Net exports

Domestic maize

consumption

Trend Per capita GDP

Aggregate demand

Yield

Area

Domestic production

 

Aggregate supply

RainfallPrice of fertilizer

Per capita maize

consumption

L

L

Population

Source: Mapila, 2011

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Model simulations A) Baseline scenario – fertilizer subsidy continues B) Reforms of subsidy program:

1) Complete removal of subsidy program 2) Scale down amount of subsidized fertilizer 3) Reduce number of targeted beneficiaries 4) Complement exit strategies with improved Agricultural Extension Services

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Baseline scenario (con’t)

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

1,141.50

1,143.00

1,144.50

0

1000

2000

3000

Domestic maize production & acreage

Maize Production Area

Agricultural season

Hec

tare

s

Thou

sand

mt

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

0.00

0.75

1.50

2.25

0

1000

2000

3000

Domestic Maize production and yield

Maize Production Yield

Agricultural Season

mt /

hec

tare

Thou

sand

mt

Acreage Yield Domestic production

Domestic consumption

ADMARC maize price

-40

-20

0

20

Impact multiplier (2012/13)

Total long run dynamic multiplier

% c

hang

e

Area planted Yield Domestic production

Domestic consumption

ADMARC maize price

-40

-20

0

20

40

Impact multiplier (2012/13)

Total long run dynamic multiplier

% c

hang

e

Complete removal combined with extension services

Complete removal of subsidy

Area Yield Domestic production

Domestic consumption

ADMARC maize price

-60

-40

-20

0

20

Impact multiplier (2012/13)

Total long run dynamic multiplier

% c

hang

e

Area planted Yield Domestic production

Domestic consumption

ADMARC maize price

-30

-20

-10

0

10

20

Impact multiplier (2012/13)

Total long run dynamic multiplier

% c

hang

eReduced amount of fertilizer

Reduced amount of fertilizer combined with extension services

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Conclusions Complete removal of farm input subsidies is feasible only at a cost ◦ Negative impacts on maize commodity market ◦ Cost of new investments i.e. in extension services

Scaling down more likely to occur using more ‘practical’ options:◦ Scaling down number of targeted beneficiaries◦ Scaling down amounts of subsidized fertilizer

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Conclusions Considerations in designing reforms:

◦ Gradual implementation ◦ Need for complementary strategies to minimize losses◦ Duality of smallholder farmers – producer and

consumer to be taken into account ◦ Entrenchment of fertilizer subsidies in the African

political agenda

Other areas of research – impact of exit on households, private sector input markets and networks

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Zikomo kwambili