Malawi: Fertiliser subsidies comes under scrutiny

News and Press Release
Originally published
[This report does not necessarily reflect the views of the United Nations]

LILONGWE, 12 Jul 2005 (IRIN) - The Malawian government has decided to subsidise fertilisers to small-scale farmers across the board - a decision that will benefit previously ineligible tobacco growers.

However, the World Bank has sounded a note of caution over the expense involved and the possibly negative impact on funding poverty alleviation programmes.

Senior Agricultural Economist Stanley Hiwa told IRIN that "nowhere, have subsidies been cheap - the decision by government to universally subsidise fertiliser is good if it reaches the intended target groups".

"The targeting criteria relate to the intended beneficiaries, the types of fertiliser and seeds to be distributed, and the timing of the deliveries to preclude the possibility of late deliveries".

Minister of Finance Goodall Gondwe, who unveiled the budget last month, announced that the government intended spending more than US $20 million on the fertiliser subsidy, but with the inclusion of smallholder tobacco farmers the cost has shot up to almost $33.9 million.

If the budget is approved, the price of fertiliser will be reduced from $24 to between $8 and $11 for a 50 kg bag, depending on type.

The Donor Coordination Group on Agriculture and Food Security has also warned that increasing the fertiliser subsidy could affect the country's progress towards the completion point of the enhanced Heavily Indebted Poor Countries (HIPC) initiative, influencing the decision on its $11.3 million debt.

The HIPC initiative aims to achieve sustainable levels of debt for poor countries pursuing adjustment and reform programmes supported by the International Monetary Fund and the World Bank.

The coordination group, which comprises the World Bank, the United States Agency for International Development, the UK Department for International Development, the European Union and UN systems in Malawi, said the announced subsidy should lead to improved maize and tobacco output.

However, the subsidies "will not, or is most unlikely to, change rural income distribution," the group said in a statement.

Hiwa also warned of a high risk of corrupt practices creeping in, especially in distribution, because "someone could be tempted to start selling the fertiliser".

"Unless government puts in very strong measures aimed at addressing all these problems the costs will be even higher", he said.

The World Bank suggested that all the details of the subsidy programme be spelt out at the outset to avoid a situation where more harm than good would come from a purportedly positive intervention, and recommended that it should "be consistent with the fiscal framework".

The government is expected to raise the funds for the subsidy from cuts in other sectors in the 2005/06 budget of almost $1 billion, which is awaiting approval by parliament in the next two weeks.

Malawi Economic Network Justice National Coordinator Collins Magalasi cautioned the government from deducting money from sectors such as health and education.

The subsidised fertiliser programme replaces the extended Targeted Inputs Programme (TIP) - the free distribution of free seeds and fertiliser to the rural poor.

The TIP was initially run for two consecutive years, during the maize-growing seasons of 2000/01 and 2001/02, and provided small-scale farmers with an agricultural inputs pack containing fertiliser, maize seed and legume seeds. Although the programme received widespread acclaim, there were problems in implementing it.


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