By: Jan Duchoslav and Joachim De Weerdt
On 20 October 2023, His Excellency the President launched the 2023/24 Affordable Inputs Programme, dubbed AIP 2.0. Details about the program emerged a few days earlier when the AIP Implementation Guidelines were published, and the Minister of Agriculture held a press conference on the same. The guidelines and the ministerial statement clarified many aspects of the AIP reform, but three crucial questions remain unanswered.
Who will bear the risk of higher fertilizer prices?
The national budget allocates just under K110 billion to this year’s AIP. This is nominally on par with last year, but represents a real term decrease of around 30% considering Malawi’s high inflation rate – a move that was likely necessitated by Malawi’s unfavorable macroeconomic situation. With this funding, the program intends to reach 1.5 million smallholder farmers, mostly with a package of subsidized inputs for maize production containing 100kg of fertilizer and 5kg of seed per farmer (just under 10,000 farmers will instead be offered 2 goats each at a subsidized price). Farmers are expected to pay K15,000 per 50kg bag of fertilizer (and K15,000 per goat). For seed, the program will contribute K3,500 per 5kg bag and farmers will pay the balance depending on market price. Fertilizer currently retails at around K70,000 per bag, so the government will have to contribute around K55,000 for each bag that it procures at full cost, or around K50,000 if the fertilizer is procured at bulk discount. Some fertilizer remains from last year’s AIP and some more will likely be donated, so the government will have to procure 122,000 MT from this year’s AIP budget. That is equivalent to 2.44 million bags. By simple arithmetic, the program will therefore have to contribute K122 billion to fertilizer alone, i.e., more than the allocated budget, which will also have to cater for seed (K5.2 billion), goats and, importantly, the entire logistical operation of AIP. In other words, something will have to give, which leads to the first question about this year’s AIP:
| QUESTION 1 - What will happen if fertilizer can only be procured and distributed for higher prices than those assumed by the program? Will the farmer contribution increase, or will the number of beneficiaries be reduced? |
This trilemma is unfortunately baked into the design of the program. The AIP budget is set at the beginning of the fiscal year in April. To ensure timely procurement, the amount of subsidized fertilizer (which currently depends on the number of targeted beneficiaries) should be fixed around the same time. The two in turn determine how much the government can contribute to each subsidized bag. Currently, the government makes an assumption about the price it expects to purchase fertilizer for and announces the level of farmer contribution accordingly. This would work just fine if fertilizer prices were stable. Alas, they are not and since Malawi does not produce its own fertilizer, the government has little control over its price. So, hard decisions about what to cut will have to be made. Such situation is not new – the program faced similar challenges in 2021 and 2022. The way out of these troubles is obvious: fix the number of farmers, fix the subsidy amount per farmer, and let the amount of farmer contribution vary depending on prevailing prices (in the same way it is already done with subsidized seed).
How will beneficiaries be targeted?
The only fiscally responsible alternative to a flexible farmer contribution would be to keep adjusting the number of farmers receiving subsidized fertilizer as its price develops. This would make timely targeting very challenging. AIP 2.0 is meant to target productive farmers using the following criteria:
- has access to land of about 0.4 hectares;
- is ready to contribute more to fertilizer on the commercial market;
- belongs to a farmer organization;
- does not receive support from other programs/projects;
- has no history of selling farm inputs support; and
- is a citizen of the community.
It is, however, unclear how beneficiaries will actually be identified. In one place, the AIP guidelines state that the “identification of AIP beneficiaries will be done centrally through random selection to avoid biasness and will be based at GVH level,” while on the next page it says that “productive farmers will be selected from the validated farming household register based on the above stipulated criteria. For the first time this season, beneficiaries will be identified based on constituency.” The latter selection method was also mentioned by the minister, who spoke about a verified list of 1.5 million beneficiaries. The guidelines refer to a harmonized database (a merger of four existing databases, presumably the National Agriculture Management Information System, the Unified Beneficiary Registry, the Farming Household Register, and Farmer Organization Register), which needs to be updated and validated because of data gaps. It is unclear whether this process has begun and, if so, how far along it has come. More worryingly, even a consolidated database will not contain all the information necessary to judge whether a farmer meets the criteria. It is also unlikely that precisely 1.5 million smallholders will meet the criteria and it is unclear how further selection would be made among those who fit the criteria. The program needs a mechanism to systematically determine which farmers should be given priority, especially if beneficiaries are to be reduced in the face of rising fertilizer costs (see question 1). This raises a second question:
| QUESTION 2 – Who exactly can access subsidized fertilizer? From what database will beneficiaries be selected? According to what observable criteria? And if more than 1.5 million farmers meet the criteria, who will be prioritized and how? |
Even with a detailed and up-to-date database of farmers, it will be hard if not impossible to identify the productive farmers because productivity is hard to observe. If AIP 2.0 is to achieve its stated goal of targeting the most productive farmers, it does not need to do so according to predefined criteria, which are, at the same time, inaccurate and difficult and expensive to measure. Farmers themselves know whether or not they can make productive use of fertilizer, so a simple price mechanism could get productive farmers to self-select into the scheme, and unproductive farmers out of it. To ensure that subsidized fertilizer does not leak into the commercial sector in such a set-up, its purchase can still be limited to eligible smallholders and capped at a maximum amount per person.
How will vulnerable, but unproductive farmers be assisted?
In the past, AIP fulfilled a social protection role for many unproductive smallholders, who often sold their subsidy entitlement for a fraction of its monetary value. This made AIP’s social protection function extremely inefficient. Shifting 1 million unproductive smallholders from AIP to true social protection programs as specified by the minister is therefore a step in the right direction. It is however not clear how the transfer of AIP beneficiaries to social protection programs will be achieved. It is also unclear whether social protection programs have sufficient budget for expansion. This could leave vulnerable smallholders without any protection at all, even as Malawi enters what is shaping up to be one of the worst lean seasons on record. It is therefore crucial that a third remaining question about this year’s AIP be answered:
| QUESTION 3 – What process will be used to transfer vulnerable, but unproductive former beneficiaries that have been dropped by AIP to social protection programs? |
Way forward
It is essential that the three questions outlined above are clarified as soon as possible so that the program can get underway. If input deliveries to farmers are delayed beyond the onset of the rainy season, subsidized fertilizer will have little effect on yields. It is equally important to address some of the fundamental issues that underlie the three questions raised in this blog, and which we already highlighted in a previous blog on AIP reform in March 2023. Until they are resolved, AIP will keep finding itself in need of constant adjustment, hindering its timely and effective implementation.
