Much has been said about the agricultural input subsidy program that was introduced by government in 2005. The success of the subsidy program, aside from pop star Madonna’s adoption of David and Mercy, is one story that has helped transform the profile of the country. It is a successful case study that is now often cited in agricultural policy classroom sessions to demonstrate to students about how governments in the developing world can help attain food security for their populace. In a world faced with widespread food shortages coupled with increasing food prices, Malawi has become an example of how sound domestic policies, rather than imported ideas, can work for the people. As a result of the successful implementation of the subsidy program, coupled with favourable weather, the country has since 2005 trebled maize production from 1.2 million tonnes to 3.4 million tonnes in the 2007/2008 agricultural season. It has never felt so good to be a Malawian.

Malawi’s recent success in turning around the agriculture sector and ensuring food security for the country has confounded critics. Economists have generally tended to regard subsidies as inefficient, expensive, socially inequitable and environmentally harmful, imposing a burden on government budgets and tax payers – all seemingly strong arguments against using them. They argue that subsidies distort prices and resource allocation decisions, thereby altering the amount of goods and services produced and consumed in an economy. A subsidy is government interference that takes money from taxpayers and gives it back to producers. While food prices tend to become lower, the savings are paid for by the taxpayer. This can be inefficient if the goal is to redistribute income as there are arguably better ways to do it, such as progressive taxation or even negative income taxes.

But how has the country gained from implementing the program? Malawi’s success in this program, against donor advice, has made the country a grain exporter and helped contain food costs. In addition, the program has helped save the country of the much needed foreign exchange. In fact, the phenomenal increase in maize production has saved the country a reported yearly budget of US$120 million that it had spent in 2005 importing food aid (was that free food?). Malawi has become a model to follow when it comes to using local policies to boost agricultural production. The emerging consensus now is that such subsidies are essential for African agriculture. As a result, last year the United Nations’ Food and Agricultural Organization rewarded President Bingu wa Mutharika, who also serves as the country’s Minister of Agriculture, with the Agricola Prize.

The rich nations have continued to prod the poor ones (through such institutions as the IMF and World Bank) to deregulate their economies by, among other things, eliminating subsidies and opening up their borders to free trade. Ironically, this donor opposition to agricultural subsidies in Africa is coupled with refusal by rich countries to reduce their own expensive subsidies to commercial farmers in their own countries and imposing prohibitive tariffs on commodities for which they know Africa has a comparative advantage, such as sugar. Yet the case for subsidies is far more compelling for African smallholder farmers who often lack minimum access to agricultural inputs.

The justification often given for the removal of subsidies has been that, with the cost of food so cheap globally, poor nations can always buy staple goods on the world market if necessary, and so would be better off putting their farmers and farmland to more efficient use (I would also argue that the food is supposedly ‘cheap’ globally because the rich countries are subsidizing its production). But with increasing global food prices, relying on the global market to feed your own is a highly flawed undertaking.

With the rising price of oil, the United States and the EU began providing incentives for their farmers to switch production from food to biofuels. Overall, rich nations now spend as much as $15 billion annually in biofuel subsidies. In the United States alone, some 20 million acres of cropland have been converted from growing maize for food to growing maize for fuel. This number is sure to rise, since America’s Renewable Fuel Standard legislation mandates that, by 2010, at least 28 billion liters of fuel used in the country must come from non-petroleum sources. There is thus no guarantee that Malawians will be able to access maize from these countries, let alone afford the ‘oil price of maize’.

If you cannot take care of your own, do not expect others to do it for you and the president is only trying to live up to that. If the argument is that the program is so costly and a huge burden on the government budget, someone will have to tell me how cheap it is to import maize from the US or Europe. My simple back-of-the-envelope calculation tells me it is more convenient and efficient to buy fertilizer now than to compete for maize with American and European vehicles later. In Malawi, the subsidy program has more than paid for itself by reducing costs for food imports, and therefore improving the country’s balance of payments. It is a lesson to the proponents of agricultural privatization that privatizing agriculture simply does not work for African countries. Removing the input subsidy program and privatizing ADMARC is simply not an option for Malawi, especially at this time in global history. Instead of pursuing a one-size-fits-all policy in Africa, the World Bank and IMF must start looking at each country individually.

However, even supporters of increased subsidies warn that subsidies must also be sustainable, and that other factors must be considered, including the cost of imported inorganic fertilizers and long-term impacts on the environment. It is imperative on the government to strongly consider increasing funding for agricultural research, the kinds of efforts that sparked the original Green Revolution–and might just provide the country with new ways to increase crop yields. Much focus should also be placed on promoting proper food storage and processing, which would help add value to production. In addition, there is a great need to develop rural market infrastructure so that farmers get good value for their production. This includes strengthening producer groups and other rural organizations to enable them gain mastery of the market and reduce transaction costs; gain access to information on domestic, regional and international markets and facilitate technology transfer.

Share on Facebook