Theme: From Basket Case to Bread Basket: How subsidy reform can help Southern Africa surmount the

food crisis Topic: Some successes and failures of African subsidy policies in the agricultural sector Date: 3 November 2008
Lindiwe Majele Sibanda (CEO, FANRPAN) lmsibanda@fanrpan.org
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Outline of Presentation

About FANRPAN Level of the FOOD Insecurity Crisis Policy Responses Subsidies FANRPAN Studies on Input Subsidies Recovery vs Rescue Plans

FANRPAN
Network Topography
CSOs Farmers Government Malawi Zimbabwe Botswana Namibia Zambia
Node Secretariat

Private Sector

Researchers

Angola

FANRPAN Regional Secretariat

Mozambique Madagascar

Lesotho

Tanzania

Swaziland South Africa

Mauritius

Membership and Expectations

Communications Strategy
Government/Policy Makers

Policy Advice/Options/Evidence to support policy development

Enabling policies Production to Trade and Markets (Value Chain) Enabling policies Production to Markets (whole Value Chain) Platform for research, analysis and dissemination

Farmers Organisations

FANRPAN

Private Sector Researchers/Policy Analysts Technical Partners

Development Partners

Grant worthiness track record

Rallying point for regional FANR news

Media and Advocacy

FANRPAN Policy networking and Policy Process

Stage of policy process
Agenda setting

Objectives
Convince policymakers that the issue does indeed require attention Inform policymakers of the options and build a consensus

Network roles
Marshall evidence to enhance the credibility of the argument Extend an advocacy campaign Foster links among researchers, CSOs and policymakers Collate good-quality representative evidence and act as a resource bank Channel international resources and expertise into the policy process Build long-term collaborative relationships with policymakers Bypass formal barriers to consensus Enhance the sustainability and reach of the policy Act as dynamic platforms for action Provide good-quality representative evidence and feedback Link policymakers to policy end-users Provide a dynamic environment for communication and collaborative action Provide support and encouragement Provide a means of political representation

Formulation

Implementation
Evaluation

Complement government capacity

evidence and channel it into the policy process Capacity building for CSOs aiming to influence policy

Underlying

Highlights of Policy Dialogues

CAADP Compact dialogues Agricultural Inputs (Seeds and Fertilizers) Land and Water Food Security (Vulnerability and Targeting)

Trade and Markets

HIV and AIDS

Response to burning policy issues- Biofuels, Climate Change

Food Security Crisis: FOOD, FUEL, FERTILIZER, FINANCIAL

The Food Crisis Threatens to destroy years of economic progress. Disproportionately affect the worlds poorest citizens As many as 100 million people will be affected by the high price of food (World Bank, 2008) 21 countries hardest hit are in Africa (FAO, 2008). Fuel price increases Heightened costs of agricultural inputs -FERTILIZER. Increased demand for biofuels Increased of costs of agricultural production FINANCIAL CRISIS Less demand for commodities Less donor aid
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Corn
$10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0

/3 1

/0

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USA Today, 23 October 2008

Wheat
$14 $12 $10 $8 $6 $4 $2 $0

/3 1

/0

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USA Today, 23 October 2008

Goal & Purpose of Subsidies

Definition of Food Security

Accessibility Availability Utilization

A Food Secure Africa Free From Hunger and Poverty Profitable enterprises along the whole agric. value chain: (inputs, farming, processors, wholesalers, retailers, households, etc.)

A condusive policy environment for all Players

The case of strategic grain reserve
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Why subsidise?

To promote adoption of new technologies thus increase agricultural productivity

Give farmers access to

Fertilisers and improved seeds at lower cost=reduction in disincentives to adoption that stem from farmers cash constraints, risk aversion and low expectations of returns from investments in inputs.

To encourage economically and technically efficient use of inputs. Means for raising farm incomes, particularly where farmers were being taxed in other ways through export tariffs and low fixed domestic prices
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FANRPANs Work on Subsidies

In 2006 FANRPAN with the support of USAID commissioned a study on The Potential Of Using An Input Voucher System To Integrate The Commercial And Non-commercial Input Distribution Systems: Malawi, Mozambique Zambia Lesotho Swaziland
The objectives of the study To test the potential benefits of using voucher systems to integrate the commercial and non-commercial input distribution channels. To demonstrate the potential impact of implementing a full cycle of policy research, analysis and engagement, using the case of seed and fertilizer input vouchers.

1. To bring about policy changes for enhancing input s to small farmers. 2. To develop training materials for policy analysts to engage in complete policy analysis cycle.

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FANRPAN Studies on Input Subsidies in the southern Africa region

Case study programmes by country
Malawi Emergency Cash Transfers Input Subsidy Programme Public Works Programmes Mozambique Food Assistance Programme Food Subsidy Programme Input Trade Fairs
Education Material Fairs

Swaziland Neighbourhood Care Points Public Assistance Grants Chiefs Fields Food and Inputs for OVC Zambia Food Security Pack Social Cash Transfer Pilots

Zimbabwe Small Livestock Transfers Rural Micro-Finance

Urban Food Programme
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Agricultural input subsidies

1960s and 70s

Agriculture input subsidies a common element in agricultural development in poor rural economies Responsible for successful green revolutions such as the in the Asian green revolution.

1980s and 90s

Dominant donor thinking- subsidies seen as ineffective and inefficient policy instruments in Africa, Subsidies seen as contributing to government over- spending and fiscal and macro- economic problems.

2000-2008

A resurgence of interest in agricultural input subsidies in Africa, emergence of innovative subsidy-delivery systems.

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MALAWI Story

Malawis economy - agro based with 85% depending and surviving on subsistence farming. Agriculture sector generates over 90% of the countrys export earnings. Contributes 40% of the GDP. Smallholder sector with 3.2 million households less than 1 ha of land. Smallholder sub-sector dominates with a contribution of 75% of the food crop production in the country. Since Malawi got independence in 1964, the agricultural sector has undergone through several policy reforms.

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Malawi Success Story cont

Objectives of AISP

Long term

Improve national food security

Immediate

Improve accessibility and affordability of agricultural inputs among the most vulnerable farmers in the country

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Malawi Success Story

Agricultural policy reforms:

2004/2005

Political commitment to implement the Input Subsidy Programme

2005-2007

the Agricultural Input Subsidy Programme (AISP) launched- financed by Government of Malawi, DfID, Norway, EU, WB, Irish aid, UNDP

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Main Goal for ISP

The main objective of ISP

Improve national food security Improve accessibility and affordability of agricultural inputs among the most vulnerable farmers in the country

The immediate objective

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Maize production VS national requirement

4,000,000 3,500,000

3,000,000

2,500,000

2,000,000

Maize production National Requirement

1,500,000

1,000,000

500,000

2001 2002 2003 2004 2005 2006 2007 2008

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BACKGROUND TO ISP

2005/2006 ISP 147,000 mt of fertiliser for both maize and tobacco production A surplus of approximately 500,000 mt of maize 2006/2007 ISP 176,000 mt of fertiliser

156,000mt for maize growers 20,000 mt for tobacco growers

A surplus of about approximately 1.1 million mt of maize

2007/2008 ISP 216,500 mt of fertiliser

193,000 mt 23,500 mt

A surplus of about approximately 500,000 mt of maize has been produced

Current food requirement 2.4 million metric tonnes

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Malawi Success Story: SUBSIDY OR RISK SHARING

Value of the pack Government contribution per target household:

tWO 50KG bags fertilizer 2 bags seed

Expected harvest: 1-3 tons maize Landed maize cost per ton: USD 284

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Government Subsidies: The Case of Malawi

CROP Maize Rice Groundnuts Pulses Cotton Cassava Sweet potatoes Tobacco Wheat Millet sorghum 2004/05 YIELD 2005/06 YIELD 2006/07 YIELD (mt/ha) (mt/ha) (mt/ha) 0.83 0.91 0.57 0.42 0.67 14.27 8.08 0.51 0.46 0.30 0.28 1.61 1.75 0.83 0.62 0.94 17.13 13.51 0.89 1.20 0.65 0.77 2.04 1.95 1.02 0.69 1.04 18.78 15.32 0.99 2.30 0.72 0.86

Source of data: MoAFS (Ministry of Agriculture office)

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Malawi Success Story cont

2005/2006 ISP

147,000 mt of fertiliser for both maize and tobacco production A surplus of approximately 500,000 mt of maize 176,000 mt of fertiliser 156,000mt for maize growers 20,000 mt for tobacco growers A surplus of about approximately 1.1 million mt of maize 216,500 mt of fertiliser 193,000 mt 23,500 mt A surplus of about approximately 500,000 mt of maize has been produced

2006/2007 ISP

2007/2008 ISP

Current food requirement 2.4 million metric tonnes

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Managing the subsidy--COUPON DISTRIBUTION

Dates are announced in advance for the beneficiaries to gather at an open fora Those registered receives the coupons as follows:

Maize growing NPK (23:21:0 + 4S), Urea & Maize seed coupons Tobacco D Compound (8:18:15) & CAN Others flexible coupons (cotton, ground nuts, common beans, soya beans, pigeons peas).

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Subsidy Management structure

MINISTRY OF AGRICULTURE AND FOOD SECURITY MANAGEMENT

INPUT SUBSIDY PROGRAMME SECRETARIAT

LOGISTICS UNIT

AGRICULTURE DEVELOPMENT DIVISION

DISTRICT ASSEMBLIES DISTRICT AGRICULTURE OFFICE

ADMARC, SFFRFM AND PRIVATE TRADERS

AREA DEVELOPMENT COMMITTEE EXTENSION PLANNING AREA

BENEFICIARIES

VILLAGE DEVELOPMENT COMMITTEE

Coupon Flow Communication and coordination Registration Process

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Program Expenditures
Description Suppliers of fertilizer Transporters Redemption of fert. coupons Redemption of seed Coupon Operational costs Other Costs Total Actual Expenditure 10.7 billion 859 million 3.2 billion 1.05 billion 304 million 654 million 16.7 billion % OF Total 64 5 19 6 2 4 100
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Malawi Success Story cont

YEAR NATIONAL REQUIREMENTS (METRIC TONS) 2.039.291 PRODUCTION SURPLUS (DEFICIT) (306.166)

2004

1.733.125

2005 2006 2007

2.115.317 2.183.506 2.255.049

1.259.332 2.611.486 3.444.655

(855,985) 427.980 1.189.606

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Zambias Experience

Strategies for promoting increased use of improved inputs should heed the lessons of the past.

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Zambias Experience cont

Subsidies went to relatively wealthy farmers rather than intended beneficiaries. Program difficult to implement input subsidy extremely high costs, undesirable market and distributional effects.

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Distributing the Subsidy

Targeting Abuse

Political expediency
Transparency & accountability
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Unpacking the Africas Policy Responses

The challenges we face

Subsidies to boost the performance of farmers Subsidies to keep food costs below market prices

Entry point vs. End point The Yoyo Policy Games

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AFRICA: 1970-90s

SCRUBBLE 70s-90s A TIME FOR war of words in the colonies

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AFRICA: 1990s- Structural Adjustment

Programs (SAPS)

A TIME FOR SAPS- SNAKES AND LADDERS & Yo-Yo games

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Policy Responses
How African Governments have responded to food crisis Short Term Responses Knee jerk reaction / striking the match
Policy action Number of countries implementing 5 Probable consequences

Short-term policies

Conditional cash transfers, e.g. cash-for-work, food-forwork programmes Self targeted food-forwork programmes

Not feasible for low income countries, require high administrative capacities Less costly than administrative targeting, physical food transfer may lead to significant leakages Physical food transfer may lead to significant leakages, disincentive to producer supply response Do not address malnutrition at 34 infancy

Emergency food aid distribution

School feeding programmes

Policy Responses
How African Governments have responded to food crisis Medium Term Responses Case of Subsidy / extinguishing the fire
Policy action Number of countries implementing 8 4 Probable consequences

Mediumterm

Reduction in tariffs and other taxes (VAT) on key staples Food consumption subsidies for the poor, e.g. price subsidies, ration card systems, etc. Bans or taxes on grain exports

Reduction in fiscal revenues Create disincentives for domestic food producers if entrenched, require high fiscal costs Limited impact on domestic prices, negative earnings for producers and exporters, sharp price fluctuations for net importing countries High fiscal costs management and governance, price effects not clear Private sector involvement, improved market efficiency

Grain buffer stock policies Market based risk management tools, market information systems

5 1

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Policy Responses
How African Governments have responded to food crisis Long Term Responses Making the bread basket / investment (risk sharing) Who invests in Infrastructure

Policy action

Number of countries implementing

Probable consequences

Long-term

Increased investment in agriculture sector R&D Investments in infrastructure inland transport links between surplus and deficit areas Support to an equitable international trading system

2 2

1
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Living in Interesting Times: 20032015

SUDOKU games- Business of numbers: 10% national budgets to agric sector; 6% annual growth for sector NEPAD CAADP- Africans driving an African agenda
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Leapfrogging from Subsidies to Investment

2008 food crisis and plus 3 Fs (Fuel, Fertilizer, Financial) calls for lasting solutions and not rescue plans

Bold visionary leadership Investment in infrastructure Institutional reforms Credible data for policy development Home grown solutions (optimize on local resources (human and financial) and with AID for gap filling Evidence Backed Advocacy (policy dialogues, radio, TV, print, online)
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Role of CSOs
Who
Ordinary Citizens
Farmer Organisations Research Organizations

What
Demilitarise and empower with evidence to strengthen advocacy and hold GVT to account
Honest , credible leadership, set the agenda communicate issues Relevance, Credibility, Consistency, North-South and South to South Partnerships Inter disciplinary and multi-disciplinary teams Longitudinal studies Contribute to policy process in a transparent manner

Private Sector (input suppliers, processors, wholesalers, retailers) Media Women

Rallying point for CSO engagement, editorial, opinion pieces, commentaries, features, profiles, hard news, photo journalism, story telling, visual and personally, analysis Empowerment, Have a voice and insist on being heard; Honest representation

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Policy Processes
Issue
Participation

Where we are now

Selected advisors, trusted partisans, donors

Medium term: 2010

-Strengthen multistakeholder policy dialogue platforms at local level -Build trust between Gvt and CSOs Invest in building capacity of ordinary citizens to participate Invest in longitudinal household surveys, production data, use local researchers to collect data Aligned development agenda

Long term: 2020

Strong networks with space and capacity to engage

Knowledge of the policy process Evidence and policy options

The elite, educated, technocrats , economists participate Unreliable data, Weak infrastructure for data collection Weak analytical skills Knee jerk reaction

CSOs participate and add value to policy processes Evidence is a public good and all citizens have access to information and voice

Long term-proactive planning

Policies and programmes aligned to common goal

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POLICY DEVELOPMENT PROCESSES

Donors
Agenda Setting

Cabinet
Policy Formulation

Parliament
Decision Making

Civil Society
Ministries
Policy Implementation

Monitoring and Evaluation

Private Sector
Source: John Young, Networking for impact. Experience from CTA supported regional 41 agricultural policy networks, 2007

Factors influencing policy making

Experience & Expertise Pragmatics & Judgement Contingencies Lobbyists & Pressure Groups

Evidence
Resources Values and Policy Context

Habits & Tradition

Source: Phil Davies Impact to Insight Meeting, ODI, 2005

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What does it take-Go for RED-Networks

External Influences

Political context
Politics and Policymaking Policy analysis, & research

Campaigning, Lobbying

Media, Advocacy, Networking Scientific information exchange & validation

Research, learning & thinking

Evidence

Links

Source: The Rapid Framework. Research and Policy in Development Programme Briefing Paper No1, October 2004

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Tightening the Loose Screws

TARGETTED INPUT SUBSIDIES ARE INVESTMENTS-RISK SHARING Being politically sensitive and professionally astute

The Global Food Crisis: Brings The Subsidy Debate to Full Circle LEARN & BUILD ON SUCCESS CASES
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Thank You