Discussion Paper

FANRPAN Food, Agriculture and Natural Resources Policy Analysis Network

MALAWI INPUT VOUCHER STUDY: A LITERATURE REVIEW ON AGRICULTURAL MARKETING AND INPUT VOUCHER SYSTEMS

Phase 1

Submitted to

Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) 141 Cresswell Street Silverton,

Pretoria South Africa Tel: +27 12 845 9100; +27 12 845 9138

By

Richard N. Kachule and Thabbie M.S. Chilongo University of Malawi,

Bunda College of Agriculture Centre for Agricultural Research and Development (CARD)

Agricultural Policy Research Unit, P. O. Box 219, Lilongwe

Tel: 265 1 277433; 265 1 277 438

JUNE 2007

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS ............................................................................................... iv LIST OF ACRONYMS ...................................................................................................... v ABSTRACT ....................................................................................................................... vi 1.0 BACKGROUND .......................................................................................................... 1

1.1 The Agricultural Sector....................................................................................... 1 1.2 Policies and Acts ................................................................................................. 1

1.2.1 The Structural Adjustment Programme ...................................................... 1 1.2.2 Competition Policy ..................................................................................... 2 1.2.3 Policies and Acts on Fertilizer and Seed Sectors ............................................... 3

1.2.3.1 Fertilizer Policy ....................................................................................... 3 1.2.3.2 Fertilizer Act .......................................................................................... 3 1.2.3.3 Strategies on Fertilizer ............................................................................ 3

1.2.4 The Malawi Seed Industry .......................................................................... 3 1.2.4.1 The Seed Policy .......................................................................................... 4 1.2.4.2 Seed Act ................................................................................................. 4 1.2.4.3 Implementation Strategies of the Seed Act ............................................. 4

1.3 Introduction to Subsidies and Vouchers ................................................................... 5 1.3.1 Starter Pack Initiative ............................................................................................. 6

1.3.2 Targeted Input Programme ................................................................................ 6 1.3.3 Targeted Fertilizer Subsidy Programme ............................................................ 7

2.0 AN UPDATE OF PREVIOUS STUDIES .................................................................... 8 3.0 LITERATURE REVIEW ........................................................................................... 11

3.1 The Seed and Fertilizer Markets in Malawi ...................................................... 11 3.1.1 The Seed Market Size ............................................................................... 11 3.1.2 Market Entry for Seed Production and Sale ............................................. 12 3.1.3 Seed Marketing Channels ......................................................................... 12 3.1.4 Smallholder Seed Production Programs ................................................... 13

3.2 The Fertilizer Market ........................................................................................ 14 3.2.1 Fertilizer Demand and Supply Constraints ............................................... 14 The supply side constraints include: ......................................................................... 15 3.2.2 Institutional Setup and Profiles for Fertilizer and Seed Suppliers ................... 15

3.2.2.1 Institutional Setup ..................................................................................... 15 3.2.2.2 Institutional profiles .................................................................................. 16

3.3 Economic Theory on Subsidies .............................................................................. 18 3.4 Experiences with Vouchers in Malawi ................................................................... 19 3.5 Experiences with Vouchers in Other Countries ...................................................... 20 3.6 Effects of Government and Donor Involvement on Input Markets ........................ 22 3.7 Challenges on the Use of Vouchers ........................................................................ 23

4.0 THE POLICY CYCLE THEORY AND EMPIRICAL EVIDENCE ......................... 25 4.1 Definition of Policy........................................................................................... 25 4.2 Theoretical Perspective of a Policy Cycle ........................................................ 25 4.3 Steps/Stages of a Policy Cycle .......................................................................... 25

4.3.1 Problem definition/Issue identification ..................................................... 25

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4.3.2 Agenda setting .......................................................................................... 26 4.3.3 Policy Formulation/Creation, Analysis and Decision ............................... 26 4.3.4 Implementation and Coordination ............................................................ 27 4.3.5 Evaluation, Restatement of Policy and/or Policy Termination ................. 28

4.4 Policy instruments ............................................................................................. 28 4.5 Malawi’s Experience with the Policy Cycle ..................................................... 29

REFERENCES ................................................................................................................. 30

List of Tables Tabel 1: Summary of Malawi Relief Seed Interventions Reviewed ................................. 13 Tabel 2: SWOT Analysis of ITF/Voucher Programme in Mozambique ........................ 27

List of Figures Figure 1. Channels for Seed Distribution (Source: IFDC/DAI, 2000) ............................. 13 Figure 2. Impact of Subsidy and Market Distortions ....................................................... 24 Figure 3. The policy Cycle .............................................................................................. 32

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ACKNOWLEDGEMENTS This study was made possible with funding from the Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN). Special mention should be made of Dr. Doug Merrey of FANRPAN who was the overall coordinator of the project for a job well done. The authors are also indebted to Dr. Julius Mangisoni, an Associate Professor from University of Malawi based at Bunda College of Agriculture, for his role as a regional coordinator of the study. Thanks should also go to the management of the Centre for Agricultural Research and Development (CARD) of Bunda College of Agriculture for hosting the study. Finally but not least, the authors would like to thank all the individuals and institutions who were involved in one way or the other in coming up with report but whose names are too numerous to be mentioned. The work reported in this publication was made possible through support provided by the Regional Center for Southern Africa, U.S. Agency for International Development, under the terms of Cooperative Agreement No.690-A-00-05-00185-00. The opinions expressed in this publication are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International Development.

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LIST OF ACRONYMS

ADD Agricultural Development Division ADMARC Agricultural Development and Marketing Corporation AGRA Alliance for Green Revolution for Africa APIP Agricultural Productivity Improvement Programme ARET Agricultural Research and Extension Trust CADECOM Catholic Development Commission of Malawi CPAR Canadian Physicians for Aid & Relief DAI Development Alternatives Incorporated DARS Department of Agricultural Research Services DRCs Domestic Resource Cost FANRPAN Food, Agriculture and Natural Resources Policy Analysis Network FPMIS Fertilizer Production and Marketing Information Systems FSP Fertilizer Subsidy Program GDP Gross Domestic Product GMOs Genetically Modified Organisms IAP Input for Assets Programs IFDC International fertilizer Development Centre IMF International Monetary Fund MASIP Malawi Agricultural Sector Investment Program MOPAM Multiple Objective Policy Analysis Matrix NGOs Non-Governmental Organizations ODI Overseas Development Institute OPV Open Pollinated Varieties PASS Program for Africa Seed Systems PVP Plant Variety Protection SADC Southern Africa development Community SADLF Southern African Drought and Low Fertility Project SAPs Structural Adjustment Programmes SDC Southern Africa Development Community SFFRFM Smallholder Farmers Fertilizer Revolving Fund of Malawi SMAG Seed Marketing Action Groups SME Small and Medium Enterprises SPI Starter Pack Initiative SPLIFA Sustainable Productive Inputs Livelihoods through Inputs for

Assets SSA Sub-Saharan Africa SSMGs Smallholder Seed Multiplication Groups SSMS Smallholder Seed Multiplication Scheme T/A Traditional Authority TIP Targeted Input Programme UNDP United Nations Development Program

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ABSTRACT Conducted mainly through a desk study, this paper aimed at giving an overview of the agricultural sector in general and specifically, agricultural input marketing, voucher systems and the policy environment in Malawi. The agricultural sector in Malawi is dualistic where the smallholder and estate sub-sectors live side by side. This dualism was inherited from the colonial era but was also perpetuated soon after independence. Owing to its strategy on export-oriented growth, the post-independent Malawi formulated its policies in favour of the estate sub-sector such as limiting the production of high value crops such as burley tobacco to the estates. Thus the smallholder farmers were confined to producing low value mostly subsistence crops. Nevertheless, the smallholder sector still received some support from the government in form of subsidies up until mid 1990s. The structural adjustment programmes (SAPs) necessitated input market liberalization, which consequently led to the removal of the subsidies. Although liberalization led to a substantial increase in the number of input merchants, however, it also led to a sharp increase in input prices. In an attempt to alleviate the plight of those affected by declining agricultural productivity, the government, in collaboration with the donor community and various NGOs has had a number of interventions. Notable among these interventions were the Starter Pack Initiative, Targeted Input Programme and a policy reversal to the in subsidy programme from 2005/06 season. While the subsidy programme was conceived as a universal, vouchers were used to ensure that fertilizer was received by Malawian farmers, given the large amount of cross border trade and slowed down the speed of purchasing large consignments, discouraging traders. Some of the major challenges encountered so far with the vouchers include: identification and targeting of beneficiaries and conflict between government and private sector participation. Despite having its own mineral resource raw materials for production of inorganic fertilizer, Malawi is a net importer of fertilizer. Malawi, however, does have fertilizer blending and granulation plants. Worthy noting is also the fact that Malawi does not have a clear and coherent policy on fertilizer. The country normally, embarks on ad hoc programs based on cabinet directives and sometimes motivated by donors. However, the country has a Fertilizer Act of 2003, which aims at protecting the consumer and persons selling fertilizer in Malawi by assuring that all fertilizer sold or offered for sale in Malawi is in compliance with the provisions of the Act and any regulations enacted under the Act. In contrast, the seed sector has both its policy and Act of Parliament. Malawi’s seed sector is highly dominated by hybrid maize and tobacco. Hybrid maize is principally traded by private sector while tobacco seed is traded by the Agricultural Research and Extension Trust (ARET). Theoretically, the policy cycle consists of five interconnected steps of problem definition, agenda setting, policy formulation, implementation and restatement of policy or policy termination. Malawi’s experience on policy formulation may be categorized into three administrative periods namely the colonial era, the post colonial era and the multiparty democratic era. The colonial era saw most of the policies being imposed by the colonial masters without the involvement of the indigenous people in the formulation process. During the immediate post colonial era, the trend was almost similar to that of the colonial era in that much focus and emphasis in the agricultural sector was given to the estate sub-sector as the engine of growth. With the advent of multiparty politics and democratic rule a series of policy reforms were initiated in the agriculture and other sectors. The recent policy reforms have followed the theoretical process of a policy cycle with a wider participation of stakeholders at various levels.

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1.0 BACKGROUND

1.1 The Agricultural Sector The agricultural sector in Malawi has a distinct dualistic structure characterized by estate and smallholder sub-sectors. This structure though inherited from the colonial era, was deliberately enforced in the post independence period through a number of policy or legislative frameworks governing production and marketing of agricultural inputs and produce. Some of the major regulatory frameworks include the Special Crops Act which gave the monopoly of producing high value cash crops to the estate sub-sector as a government central policy strategy for of managing its export oriented economic growth. As a result, Malawi’s agricultural sector saw the growth of tobacco, sugar and tea in the estate sub-sector (Government of Malawi, 2000). Equally important policy direction in the agriculture sector was provided by the Agricultural and Livestock Marketing Act which restricted the marketing of smallholder agricultural produce, i.e., low value cash crops such as cotton and food crops such as maize, rice, beans, etc. In essence, this gave undue monopolistic marketing opportunities to the government marketing body -- the Agricultural Development and Marketing Corporation (ADMARC), which also had exclusive marketing rights of agricultural inputs at subsidized prices. These restrictive production and marketing policies have now been removed under the current liberalization process. With respect to agricultural inputs, the restrictive legislative frameworks that governed the sector were the Fertilizer, Farm Feeds and Remedies Act and the Seed Act. Both of these have now been amended to allow for easy private sector involvement in the importation, packaging and distribution of all agricultural inputs.

1.2 Policies and Acts

1.2.1 The Structural Adjustment Programme Increased productivity in Malawi’s agricultural sector principally depends on increased adoption and use of improved technologies such as organic and inorganic fertilizers, hybrid seeds, and crop protection products (CPPs). Availability of reasonably priced inputs can enhance uptake by the farming community and hence increased output. The Malawi economy just like other economies within the region has undergone some structural reforms beginning from the early 1980s. Principal among the agricultural sector reforms was the liberalization of agricultural markets with the principal goal of increasing private sector participation in agricultural input and output marketing. Increased private sector participation in agricultural marketing was also expected to lower transaction costs, which would result in lower prices of commodities such as fertilizers and hybrid seeds comparable to those prevailing on the world markets and also in the neighbouring countries in the region.

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The country’s liberalization process through Structural Adjustment Programmes comprised reforms to redress the policy bias against smallholders, removing constraints on private sector participation in all areas and liberalising external sector. Under a new, market based system, the exchange rate was liberalised. It was expected that the flexible, new exchange rate system would help to increase the supply response in the agricultural sector (Government of Malawi, 2000).

1.2.2 Competition Policy The aim of this policy is to encourage competitiveness and fairness in trading among and between buyers and sellers through the removal of barriers to entry and exit and restrictive business practices, and protection of the consumer. This policy is supported by a Competition Act, which stipulates legal action against any firm or individual contravening or failing to comply with provisions of competition and fair trading guidelines.

The competition policy aims at protecting the consumers’ interests and promoting economic efficiency (Government of Malawi, 1997). It is stipulated that strategies to be followed by Government in pursuit of these policies will involve action to:

(a) lower barriers to entry; (b) reduce restrictive business practices; and (c) protect the consumer.

The competition policy primarily focuses on the areas of:

1. Business behaviour calculated to eliminate or reduce competition including price fixing, collusive tendering or customer allocation and tied sales;

2. Market structures which permit abuse by an entity in a position of market

power. It is important to note that, where economies of scale exist, there may be economic benefits arising from a monopoly or oligopoly situation. The focus is therefore on abuse of dominant positions rather that the existence of monopolies or oligopolies per se;

3. Government legislation, both existing and proposed, which may impact on

the operation of the free market in Malawi; and

4. Unfair business practices, which have an impact on consumers.

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1.2.3 Policies and Acts on Fertilizer and Seed Sectors 1.2.3.1 Fertilizer Policy Currently, Malawi does not have a clear and coherent fertilizer policy. There is no document in the country that one would point to as a fertilizer policy in contrast with seed, extension, irrigation and other agricultural inputs. The country normally embarks on ad hoc programs based on cabinet directives and sometimes motivated by donors. The overall goal of the micro-level fertilizer policy is to ensure food security of the majority of Malawian population. The key policy issues include the overall policy on fertilizer, pricing, subsidies and trade.

1.2.3.2 Fertilizer Act The Fertilizer Act of 2003 aims to protect the consumer and persons selling fertilizer in Malawi by assuring that all fertilizer sold or offered for sale in Malawi is in compliance with the provisions of the Act and any regulations enacted under the Act. The Act empowers the Minister responsible for agriculture to make such regulations as may appear to him to be necessary or expedient for the purpose of giving full effect to the provisions of the Act and without prejudice to the generality of the Act (Government of Malawi, 2003). 1.2.3.3 Strategies on Fertilizer The vision of the fertilizer strategy is to achieve high levels of agricultural productivity ensuring equity in household food security, income and employment and sustainable utilization of natural resources. The strategies are categories into short-term, medium-term and long-term (Ibid).

1.2.4 The Malawi Seed Industry Malawi’s seed sector is highly dominated by hybrid maize and tobacco. Hybrid maize is principally traded by private sector companies, which include Monsanto, Pannar Seed, and SEEDCO of Zimbabwe while tobacco seed is traded by the Agricultural Research and Extension Trust (ARET) (Government of Malawi, 2000). However, in recent years, the companies (Monsanto, Pannar Seed, and SEEDCO) have diversified into horticultural seeds, principally vegetables sourced from South Africa. In recognition of the fundamental importance of a sustainable seed industry, the government has established a conducive environment for its development. Principally government investment is in research, training and seed quality control while private investment is encouraged through policies promoting ease of entry to the market, fair competition and establishment and promotion of effective support services. The government also recognizes that quality seed varieties suitable for local conditions are available from reputable sources outside the country; as such seed imports are

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encouraged as long as the Seed Act and Regulations are complied with (Maideni and Mataya, 2006). 1.2.4.1 The Seed Policy The Malawi National Seed Policy recognizes the fundamental importance of a sustainable seed industry in contributing to increased agricultural production and diversification. The government therefore recognizes the need to develop strong linkages between Government activities in research, extension, quality control and the commercial seed sector for a vibrant seed sector while at the same time assuring that the needs of the farmers are being satisfied. The seed policy therefore stipulates a number of action points that the government in conjunction with the private sector will endeavour to undertake amongst which are:

• Operate an effective and market-oriented variety improvement programme for all the main crops grown in Malawi.

• Improvement of extension messages and demonstrations through the

Department of Agricultural Extension & Training.

• Improvement of the traditional seed sector to develop an organized seed production system through the establishment of Smallholder Seed Enterprises by the Smallholder Seed Multiplication Groups (SSMGs).

• Promotion of gender equity through activities of Non-Governmental

Organizations (NGOs) in targeting male and female smallholder seed producers.

1.2.4.2 Seed Act

The amended Seed Act of 1996 aims at providing for the minimum standards in the seed sector, regulation and control of production, processing, sale, importation, exportation and testing and further provides for the certification of seed and for matters incidental to or connected therewith. The Act spells out how the entire seed sector is to be regulated and highlights areas of focus in the Act including administration of the seed sector with respect to control, evaluate and release of varieties and registration of seed of various crops. 1.2.4.3 Implementation Strategies of the Seed Act A number of strategies are outlined in the Seed Act, including:

• Encourage seed production on both estates and small-scale farms. • Provide an enabling regulatory framework to guarantee the production and

supply of quality seed to farmers.

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• Train farmers and private traders in seed production;

• Establish a foundation seed multiplication programme which can provide start-

up planting material in a sustainable manner;

• Facilitate the harmonisation of regional variety release procedures in order to facilitate the introduction of new varieties and the development of buffer seed stock.

1.3 Introduction to Subsidies and Vouchers In the last ten to fifteen years, Malawi has experienced continued food deficits for a number of reasons including recurring natural disasters (droughts and floods) and poor macro-economic factors. A combination of these factors has contributed to declining productivity of the agricultural sector and hence food insecurity at both household and national levels. Prevalence of HIV/AIDS has also exacerbated the decline in agricultural productivity due to its impact on availability of labour and diversion of financial resources to caring for those affected by the pandemic.

In addition, most developing countries, including Malawi, adopted World Bank/IMF-initiated economic reform measures from the mid-1980s. As a consequence, the agricultural sector was liberalized, a process, which included gradual removal of input subsidies and closure of some ADMARC markets. Fertilizer and maize seed subsidies were phased out completely in the 1994/95 season (Government of Malawi, 1999).

Although liberalization led to a substantial increase in the number of input merchants, however, it also led to a sharp increase in input prices. A drop of 43 percent was reported of the usage of fertilizer in the year (93/94) preceding subsidy removal. Seed sales declined by 56 percent during the same period. Input supply to most of the remote rural areas is poor because of withdrawal of ADMARC. Local traders find it costly to move in because of reasons including the road network which is in disrepair and own limited financial capacity. To date, input supply is one of the major constraints to crop productivity. The key issues relating to supply are: availability, distance to supply points, timeliness of supply, and affordability (Government of Malawi, Ibid). In an attempt to alleviate the plight of those affected by declining agricultural productivity, the government, in collaboration with the donor community and various NGOs has implemented a number of interventions. Most notable amongst these has been the provision of agricultural inputs, principally seeds and fertilizers using various mechanisms including free distribution, inputs for work programmes and “soft” agricultural input loans1 and the government inputs subsidy programme.

1 Low interest loans such as the Agricultural Productivity Improvement Programme (APIP).

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Thus, since 1994, the input interventions in Malawi can be roughly categorized into three:

(a) Starter pack initiative (SPI)

(b) Targeted input programme (TIP)

(c) Targeted fertilizer subsidy programme.

1.3.1 Starter Pack Initiative The Ministry of Agriculture initiated the Starter Pack Programme in 1998. Extension support and free inputs consisting of enough fertilizer and seeds (cereals and legumes) to plant 0.1 hectare were issued to 1.8 million households. The aim was to improve household food security while maintaining soil fertility.

Starter Packs provided a degree of imposed coordination between complementary inputs. The maize varieties MH17 and MH18, incorporated into the pack, were shown scientifically and in field to use whatever fertility was available much more efficiently than traditional varieties. While traditional varieties produce 8 – 10 kg of maize per kg of nitrogen, these improved hybrids produced 20 – 25 kg. Subsequent evaluations showed Starter Packs increased production by 125 to 150 kg per household. Total production in each year of the Starter Packs was 2.5 million tonnes – half a million tonnes higher than ever before, and 67 per cent higher than 20 year average (GoM, 1999).

The 1999 Starter Pack distribution also included a pilot voucher project that distributed two different types of vouchers, in a test to see whether the vouchers received by some of the farmers were more effective than the packs received by other farmers. The pilot project was designed to distribute up to 50,000 starter packs or other household items utilizing existing private-sector retail outlets. Selected households did not directly receive starter pack input packages, rather vouchers redeemable at local retailers. Forty-nine thousand of these vouchers were redeemable only for starter packs. The remaining 1,000 “flexi vouchers” could be redeemed for either a starter pack or goods valuing up to MK 450.00 (about US$9 at that time). Subject to availability, flexi vouchers could be redeemed for soap, salt, oil, fertilizer (often limited in availability), hybrid maize seed, agricultural tools, pots and pans, blankets, lamps, or similar household items. Participating retail outlets varied between the southern, central, and northern regions. The purpose of the voucher pilot project was to test the capability of the national retail chains to transport, store and distribute packs to recipients, and to examine the various modalities of distribution (Gough et al., 2002).

1.3.2 Targeted Input Programme Targeted Input Programme (TIP) evolved from Starter Pack, targeting only the most vulnerable households: the elderly, disabled, and the sick. Under this programme, households were given a pack of free inputs containing 12.5 kg of basal fertilizer (23:21:0+4S), 12.5 kg of top dressing fertilizer (urea) and maize seed. Included in the pack were also legume seeds. Village Development Committees (VDC) - headed by a village headman - were responsible for selection of beneficiaries at village level.

Only 40 per cent of the non-poor households were targeted meaning that about 60 per cent recipients of TIP were not the intended beneficiaries. Still more, other schools of

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thought critique that by targeting the elderly, disabled and the sick, TIP left out the productive members of the society. Spooner (2006) further observed that TIP was more defined by budgetary parameters than by actual needs, thereby leaving out many deserving households in the process.

1.3.3 Targeted Fertilizer Subsidy Programme In 2005/06 season, the TIP was replaced by a rationed fertilizer subsidy. While the programme was conceived as a universal, vouchers were used to ensure that fertilizer was received by Malawian farmers, given the large amount of cross border trade and slowed down the speed of purchasing large consignments, discouraging traders (Spooner, 2006). By implication, the issuance of vouchers effectively made the programme a targeted one as opposed to universal.

Allocation of the subsidised fertilizer per district was based on a distribution matrix designed by the Ministry of Agriculture by taking into account the verified number of smallholder farming households, and specifically those involved in maize and tobacco production. This approach meant that distribution was not based on effective demand for fertilizer and therefore led to a degree of mismatch between supply and demand (Spooner, 2006).

The Smallholder Farmers’ Revolving Fund of Malawi (SFFRFM) was mandated to import fertilizer on behalf of government. Government also open-tendered fertilizer procurement to allow participation of the private sector. However, for easy monitoring and probably control, Government opted to use the Agricultural Development and Marketing Corporation (ADMARC) and SFFRFM to distribute the subsidised fertilizer countrywide. Distribution was shared between ADMARC and SFFRFM in the ratio of 64:36, with the former taking the larger share mainly due to its wide market network (Nakhumwa, 2006).

In summary, these interventions faced a number of challenges including;

i. Scale of operation, i.e. targeted or universal; ii. Targeting and identification of the intended beneficiaries (in case of

targeted interventions); iii. Type/range of inputs and quantities per beneficiary; iv. Mechanisms of accessing the inputs by the beneficiaries; v. Conflict between government and private sector participation; and

vi. The role of agricultural markets in facilitating access to the inputs.

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2.0 AN UPDATE OF PREVIOUS STUDIES A synthesis of input supply programmes (Kachule and Madola, 2006; Longley, et al., 2006) revealed that there have been numerous interventions ranging from relief- to development-oriented input supply systems within the smallholder sub-sector. A summary of these is presented in Table 1. Amongst these interventions, the government subsidy programme implemented during the 2005/06 and 2006/07 agricultural seasons have proved to have contributed to improved food security both at national and household levels. Apart from these interventions there have been no new approaches to getting the inputs to the poor communities. Questions that remain unanswered include:

i. How sustainable are interventions such as government subsidy programmes that rely to a larger extent on donor funding and draw heavily on government resources?

ii. Has the future impact of cash transfers on local financial services; savings, credit

and micro insurance been considered? iii. Will cash transfers be an incentive or disincentive for communities to save or

borrow? iv. How can cash transfers be implemented in a sustainable way?

In addition to these questions, there has also been debate on how best to implement the government subsidy programme with regard to targeting. Some have advocated for universal subsidies as opposed to a targeted approach2. The programme has also faced logistical problems such as timing and transport. These are some of the issues that one of the components of this study (the focused field research) will attempt to address.

2 The political opposition leaders in Parliament are for universal subsidy program.

Table 1: Summary of Malawi Relief Seed Interventions Reviewed Project Programming

mechanism Scale Inputs distributed Aims and additional information

1998 Starter Pack Scheme

Direct distribution

2.8 million beneficiaries

5kg of Basal dressing fertilizer, 5 kg Urea, 2 kg OPV Maize seed and 1 kg of an appropriate legume

Increased access to improved maize seed and fertilizer technology. Encourage diversification of the cropping system through the adoption of locally suitable combinations with grain legumes. To improve household food security in Malawi.

2002 Targeted Inputs Programme

Direct distribution with chits to identify beneficiaries

2.0 million beneficiaries

5kg of Basal dressing fertilizer, 5 kg Urea, 2 kg OPV Maize seed and 1 kg of an appropriate legume

Increased access to improved maize seed and fertilizer technology. Encourage diversification of the cropping system through the adoption of locally suitable combinations with grain legumes. To improve household food security in Malawi.

Government Subsidy Programme

Beneficiaries given two chits which entitled them two bags of fertilizer

2.8 million smallholder farmers

147,000 metric tones of fertilizer and 6000 metric tones of OPV maize seed

To ensure that smallholder farmers throughout the country have access to inputs especially improved maize seed and fertilizer. The problem with the programme is that it does not benefit the poorest smallholder farmers and escalating costs could force government to withdraw the program.

Inputs for Assets Programme

Direct distribution with chits to identify beneficiaries

43,700 beneficiaries, of which at least 20% must be female headed households

Cash (MK2,000.00) Strengthening the input distribution network of the country. Rehabilitation/construction of identified rural infrastructure such as roads, irrigation channels and schools and increasing agricultural productivity through the provision of farm inputs to farmers in kind vouchers for wages earned on public works.

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CPAR Support to Local Seed Systems

Seed fairs and vouchers

3,555 beneficiaries

Voucher worth MK750 used to buy inputs on a designated market day (seed fair)

The objective of the project was to strengthen community–based seed production systems so as to provide a wide range of suitable planting materials (grain, legumes and vegetable etc) to small scale farmers and ensure seed access by the most needy farmers.

CRS/CADECOM Programme

Seed Fairs and Vouchers

37,500 beneficiaries

Vouchers worth MK500 (equivalent to US$6) used to buy inputs on a designated market day (seed fair)

To improve household food security and access to improved seed. The main challenges faced by the programme were that due to low literacy levels some people were confused in converting voucher values to kg of seed. The seed fairs were also off track in terms of timing.

SPLIFA Project Direct distribution using chits redeemable at participating agro-dealers

100,000 smallholder farming families

Voucher specified the amounts of seed and fertilizer each beneficiary is entitled to (50kg urea and 10kg maize seed in the first cycle, 25kg urea and 5kg seed in second cycle).

To enhance the food security status of marginal farmers in selected areas of Malawi including generating marketable surpluses, increasing household food security, and helping the intended beneficiaries grow out of poverty, and to create community assets such as roads which would contribute towards easy market access and reduced marketing costs, thereby expanding agro-dealer business and trade in agricultural input and outputs.

World Vision Seed Multiplication Programme

Inputs provided on loan basis through direct distribution

3000 beneficiaries

ZM621, Msundwe and Masika, groundnuts (CG7), chickpeas, beans, cowpeas, sorghum, pearl millet and sunflower

The objectives were to increase household crop production, productivity and diversification in order to improve food security. Improving soil fertility and seed security for smallholder farmers.

Source: Longley et.al (2006), Table 1, Page 9

3.0 LITERATURE REVIEW

3.1 The Seed and Fertilizer Markets in Malawi

3.1.1 The Seed Market Size From a regional perspective, Malawi is considered to have a medium-size seed market, larger than countries such as Mozambique, Tanzania, and Uganda but smaller than Zimbabwe and South Africa. Malawi’s total annual commercial seed sales—to and through--government and donor programs as well as direct to farmers through private markets were recently estimated at about $18-20 million versus $4 million for Uganda or Tanzania (IFDC and DAI, 2000). Malawi’s commercial seed sales are often inflated by government purchases for non-market distribution, which on the other hand depress direct retail sales to farmers. In recent years, Malawi’s farmers have relied on commercial seed for about 25%-40% of maize planted area, all of cotton and tobacco planted area, most of the nut and coffee area, and smaller shares of areas planted to vegetables and minor field crops. Hybrid maize is the largest proportion of national seed consumption, accounting in recent years for roughly US $13 million in annual sales. Currently, the major companies producing and marketing hybrid seed in Malawi include MONSANTO, Pannar seed, SEEDCO and Pioneer (through Chemicals and Marketing). SEEDTECH and MRI (Crop Save) are amongst those companies that have also started seed production in Malawi. Government research station at Chitedze has developed maize hybrids of which the most popular has been MH18 until some 10 years ago when it became highly susceptible to grey leaf spot. Other seed companies are also involved in production and sale of open pollinated varieties (OPVs) in response to market demand, mainly government subsidy programmes and NGO relief seed activities. The second largest seed market is for horticultural crops, including vegetables, fruit and nut trees, and others. Almost all the vegetable seed is imported from South Africa. Two companies currently share most of the market—Mayford has dominated Malawi’s vegetable seed market for many years and Starke-Ayres entered (along with Pannar) over the last several years. With one exception (Sensako, which owns Mayford), none of the major vegetable seed companies in the world are represented in Malawi. Government and at least one project (with financial and technical assistance from Taiwan) also produce and distribute some vegetable seed through ADDs and outside market channels at no cost to farmers. Apart from maize and horticulture, seed markets are developing for several other field crops. The Agricultural Research and Extension Trust (ARET) produces seed for tobacco, whereas Clark Cotton produces cotton seed and Cheetah produces limited supplies seed for paprika. Over the past 10 years various government and NGO relief and development projects have been responsible for almost 100% of seed distribution for many other cash and food crops including open-pollinated varieties (OPVs), groundnuts, pigeon peas, cowpeas, beans, soybean and rice. However, distribution of project-linked

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seed has been unpredictable and lack of dependable and competitive supplies of commercial seed in rural areas has limited farmers’ access to quality seed. Furthermore, farmers’ choice of improved seed varieties, released through government and donor supported relief seed programmes has been limited. Seed companies in Zimbabwe and Zambia currently produce and market seeds for groundnut, millet, sorghum, pulses, and other crops, and could without much additional expense extend sales into Malawi if seed policies and practices are harmonized. Various non-governmental organizations and farmer organizations have been responsible for the production, distribution and marketing of seed for legumes (groundnuts, pigeon peas, cow peas, beans and soya beans among others). Farmers can also get fruit and nut tree planting material from various sources, including Bvumbwe Research Station, Coffee Research Station, Tea Research Station, and various projects, and estates.

3.1.2 Market Entry for Seed Production and Sale Major changes to Malawi’s seed sector date back to the mid-1990s when government revised its Seed Act to open the market allowing companies to produce and sell seed without Ministry of Agriculture licenses and to introduce new varieties for all crops except hybrid maize, hybrid sunflower, and tobacco without government tests and approvals. Despite these developments, it has been noted that commercial seed companies do not yet serve some important seed sub-markets. Thus, apart from government purchase and non-market distribution, there is little or no commercial sale of low value OPV seeds for crops such as groundnut, sugar beans, rice, pigeon pea and chickpea.

3.1.3 Seed Marketing Channels IFDC and DAI (2000) identified three major channels for seed distribution from seed growers to Malawi farmers (Figure 1): These channels are:

i. Informal farmer-to-farmer sales; ii. Government purchase and distribution through non-market channels (e.g., free

seed); and iii. Seed company distribution through stores.

Due to frequent natural disasters (droughts and floods) in the recent past, a new dimension has emerged in these channels of distribution. This is the involvement of the Non-Governmental sector through either non-market (free distribution to the poorest farmers) or market-oriented channels (voucher systems and seed fairs). The farmer-to-farmer sales, seed company sales and the voucher and seed fairs channels allow farmers to choose the variety that they want and to patronize farmers or companies that have a reputation for good seeds and service. On the other hand, the government and

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some NGO non-market distribution take those decisions away from farmers. Such non-market distribution cannot operate without subsidies, which distorts markets. Figure 1. Channels for Seed Distribution (Source: IFDC/DAI, 2000)

3.1.4 Smallholder Seed Production Programs Government’s support for Smallholder Seed Production Programs is viewed as one way of enhancing Malawi’s seed markets. Through the Smallholder Seed Multiplication Scheme (SSMS), several thousand farmers are organised to produce seed for groundnut, OPV maize, beans, and other crops. Through this programme, seed producers’ associations are organised at the Agricultural Development Division (ADD) level and a National Smallholder Seed Producers’ Association at the national level. Seed Marketing Action Groups (SMAGs), with each SMAG being responsible for a crop, are also organised alongside the Seed Producers’ Association.

Malawi farmers grow seed for (a) informal sale to other farmers; (b) sale to government, (c) sale to seed companies (a) (b) (c)

Government buys seed (from Malawi seed companies, estates, small farmers, and foreign companies) and distributes through non-market channels (targeted credit, Starter Pack, etc.)

Malawi seed companies buy seed from seed Malawi farmers, clean, and package seed or import seed from foreign seed companies.

Malawi farmers use own seed or: (a) buy seed informally (e.g., from neighbours); (b) get seed free or otherwise from government: or (c) buy seed from seed companies, most often through retail stores.

Retailers buy seed from companies and re-sell it to farmers.

Foreign farmers grow seed for sale to foreign seed companies, that then sell to (b) Malawi government or (c) Malawi seed companies (b) (c)

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The SSMS sell seed through several channels, including: farmer-to-farmer sale; to MOAI for the Agricultural Productivity Investment Programme (APIP) and/or Starter Pack Scheme; to MOAI for redistribution through SSMS for another round of seed production; to NGOs for other seed production programs; etc. Weaknesses associated with government and NGO small farm seed production and marketing programs include:

i. Distributing seed for multiplication at prices that are too low (i.e., less than commercial seed prices); and

ii. Not getting at least some seed into commercial trade, making it difficult to assess

whether or not seed produced has a market demand. iii. With subsidized prices for initial seed and non-market distribution for produced

seed, there is no clear path for farmers to keep producing seed when such program support ends.

The Malawi seed industry is constrained by a number of factors as identified by IFDC and DAI (2000). Among others the constraints include:

i. Policy uncertainties from continuing government interventions in seed markets, i.e. government’s non-market distribution;

ii. Missing institutions and institutional linkages in the seed industry; iii. Controls on introduction of maize hybrids; iv. Weak entrepreneur and dealer knowledge about seed industry options; and v. Weak farmer knowledge about crop and variety options; and

vi. Weak complementary markets: low output prices and high fertilizer prices.

3.2 The Fertilizer Market Malawi is a net importer of fertilizer. In the last ten years imports have increased from 54,000Mt to 215,000Mt in 2003/4, predominantly from the Middle East, East Asia, Ukraine and South Africa. Despite reliance on imports, Malawi has its own mineral resources for fertilizer manufacture including rock phosphate, sulphides, gypsum, potash rocks and limestone (phosphate, sulphur, potassium, calcium and magnesium). These minerals are very valuable resources in the manufacture of fertilizers but currently the country does not have fertilizer manufacture plants. Malawi, however, does have fertilizer blending and granulation plants.

3.2.1 Fertilizer Demand and Supply Constraints A number of factors impinge upon the consumption levels of inorganic fertilizers in Malawi. The factors can be categorised into demand and supply factors. The following are some of the constraints on the demand side:

i. High fertilizer prices ii. Poor access to credit

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iii. Low output prices iv. Poor farmer organisation v. Limited fertilizer application technologies

vi. Other constraints on the demand side.

The supply side constraints include: i. Unfavourable macro-economic environment

ii. High procurement, transport and hence distribution iii. Poor market information systems iv. Inadequate agro dealer network v. HIV/AIDS pandemic

vi. Poor public-private partnership. The fertilizer products sold in Malawi are imported primarily from South Africa, Saudi Arabia, Zimbabwe, Greece, Russia, and East Europe by about five private importers and, occasionally, by the two government parastatals (ADMARC and SFFRFM). Most of the fertilizer is imported in bags and transported by truck to the importers’ distribution points (warehouses). There are about 15 of these major distribution points. The fertilizers are then delivered by the importers to their own retail outlets or picked up by independent retailers from the importers who do not operate their own chain of retail outlets. The main importers with their own retail outlets are Rab Processors, Farmers World, and Agora. The main importers who market to independent retailers are YARA Malawi and TransGlobe. Some fertilizer is imported into Malawi in bulk by Malawi Fertilizer Company (a blending plant owned jointly by Farmers World and Agora) and Optichem (a granulation plant). The private retail network consists of 3 basic tiers:

(1) The importers’ network of retail outlets (their own and independents). These outlets are usually quite large, selling hundreds of tonnes/year. In addition to selling directly to farmers, they often sell to the 2nd and 3rd tier dealers. The total number of these retail outlets is about 225.

(2) A network of permanent, small independent dealers who may sell, at most, 50-100 tonnes/year. These dealers usually procure their fertilizers from the tier 1 retailers. The total number of these dealers is no more than about 100.

(3) Seasonal dealers who may sell, at most, a few tonnes/year. These dealers usually procure their fertilizer from the tier 1 retailers. These seasonal dealers usually serve small remote villages where there is no permanent retailer or dealer operating. Their numbers are unknown, but probably number between 30-50.

3.2.2 Institutional Setup and Profiles for Fertilizer and Seed Suppliers 3.2.2.1 Institutional Setup Considerable progress has been made towards liberalization of the fertilizer and seed markets, which in recent years has resulted in the private sector’s dominance in supplying these inputs. The major private fertilizer suppliers are YARA Malawi Limited and Farmers World/ Agora while ADMARC and Smallholder Farmers Fertilizer Revolving Fund of Malawi (SFFRFM) are public institutions also dealing in fertilizers. These hold

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over 90 percent of the total fertilizer market in Malawi and the rest of the market is in the hands of small private companies. The seed industry is currently dominated by a few major players namely Monsanto, PANNAR Seed and Seedco. 3.2.2.2 Institutional profiles YARA Malawi Limited Yara formerly known as Norsk Hydro is the world's leading supplier of plant nutrients in the form of mineral fertilizers, an essential ingredient in modern agriculture. The company has sales outlets in more than 120 countries. The core business of Yara is production and marketing of nitrogen fertilizer such as urea and nitrates. Yara also produces and sells ammonia, the key raw material for all nitrogen fertilizers. To complement its nitrogen based product offerings. Yara also markets third-party sourced phosphate and potash fertilizers containing the other two primary plant nutrients, phosphorous (P) and potassium (K). This enables Yara, through its global downstream network, to offer customers a balanced nutrient portfolio. YARA’s fertilizers range from those based on the most widely needed nutrients, N, P and K, through those incorporating growth and quality enhancing nutrients, like calcium and magnesium, to micronutrients that help prevent or cure deficiencies resulting from particular soil or crop conditions. To position its fertilizer business for further growth, Norsk Hydro decided to list Hydro Agri on the Oslo Stock Exchange as an independent company under the name Yara International ASA. The company was listed on March 25th, 2004. Farmers World Farmers World first came into being in 1995. In the year 2001 a takeover happened and it became part of the Farmer’s World Group on its incorporation with Agora Ltd. The Farmers World Group comprises five companies all of which aim to serve the farmer. The first of these is the Farmers World Ltd, which is a vast network of retail shops selling agricultural inputs and household products in Central and Northern Malawi. Then there is Agora Ltd, a supplier of farm inputs and household products operating 25 branches in Southern Malawi. This is followed by Malawi Fertilizer Company (MFC), a fertilizer processing plant in Liwonde, which is able to handle more than 50 percent of the country’s current fertilizer demand per annum, using new technologies from the USA. Fourthly the Group also has Demester Agricultural Limited - a seed production company for both local sales and exports, operating a fully irrigated system in Balaka. The company, now under new ownership and management, aims to service the national agro-industry and the rural household. As a first priority, the company aims to provide inputs to farmers at their door step in their 113 distribution outlets. In addition to this, the

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company connects farmers to markets in the country’s urban manufacturing facilities and export markets. Besides this, Farmers World also has an arrangement with Malawi Rural Finance Company (MRFC) where farmers can have access to loans from MRFC. ADMARC The Agricultural Development and Marketing Corporation (ADMARC) is a parastatal organization created in 1971 with the mandate to market agricultural produce and inputs, and to assist the development of the smallholder agricultural sector through marketing activities and investments in agro-industry enterprises. In addition, ADMARC was mandated with a food security role in maize markets by acting as a buyer and seller in remote areas, providing grain storage across seasons, and supporting a large marketing structure with distribution or market centres located throughout urban and rural areas. This function was especially critical at times of maize scarcity. The social role was reflected in the pan-territorial and pan-seasonal pricing system for smallholder farmers, particularly maize, and the establishment of markets in non-profitable areas. To fulfill its marketing mandate, ADMARC developed an extensive network and infrastructure of markets across the country. The market infrastructure includes regional offices, divisional offices, area offices, storage depots, parent markets, unit markets and seasonal markets. These markets are used to conduct sales of inputs, purchase commodities from smallholders, and sell food crops to net consumers. SFFRFM The Smallholder Farmers Fertilizer Revolving Fund of Malawi (SFFRFM) is a parastatal organization, which until 1991 procured all fertilizers intended for smallholder farmers and was distributed by ADMARC. SFFRFM mainly imported fertilizers for maize such as Calcium Ammonium Nitrate (CAN), Urea, Sulphate of Ammonia, Diamonium Phosphate (DAP) and 23:21:04S. The fertilizers imported by SFFRFM and distributed by ADMARC were subsidised by the government of Malawi. In addition to importation of fertilizers SFFRFM was responsible for the management of the Buffer Stock. Some compound fertilizers for smallholder tobacco were distributed by ADMARC at subsidized prices. The SFFRFM has three major warehouses in the cities of Blantyre, Lilongwe and Mzuzu and a number of retail outlets throughout the country. SEED Co Seed Co Ltd is a Zimbabwean company established in 1941 in the then Southern Rhodesia. Its commercial activities started around the same time from a government-backed research initiative. Since then, Seed Co Ltd has expanded significantly with commercial operations in over ten African companies including Zimbabwe (Administrative headquarters), Botswana, Zambia, Malawi, Kenya, Tanzania, Uganda, Angola, Lesotho, Cameroon, Egypt and South Africa. The company commenced its

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operations in Malawi in the year 2000. In Malawi, the company has its headquarters in Lilongwe and has a distribution sales center in the Blantyre and a retail outlet in Mzuzu city.

3.3 Economic Theory on Subsidies Subsidies may be regarded as negative taxes. They normally take the form of payments by governments to producers and are particularly important in the case of agricultural products. The effect of a subsidy is to reduce the costs of a product to the buyer. With a subsidy, the sellers’ price exceeds the buyers’ price, and the difference between the two is the amount of the subsidy (Pindyck and Rubinfeld, 1989; Samuelson and Nordhaus, 1998 and Grant, 2000). Figure 2 illustrates the impacts of subsidies.

Figure 2: Impact of Subsidy and Market Distortions

Using demand and supply analysis (in this case of an input such as fertilizer or seed) as illustrated in Figure 2, a subsidy moves the supply curve downwards by the amount of the subsidy, meaning that more is now supplied at the given market price. Price will fall and the quantity demanded will expand. Initially, the equilibrium price was P and quantity Q was demanded and supplied. A subsidy to producers has moved the supply curve from SS to S1S1. Price has fallen to P1 and demand has increased to Q1. The amount of subsidy is XZ. Consumers have benefited by a price fall equal to YZ. They now consume more at lower price. Producers have benefited from an increase in the supply from Y to X.

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However, for the Malawi case, there is no evidence that the subsidies of the previous two seasons (2005/06 and 2006/07) have increased input (especially fertilizer) supply on the market. This is a potential area for future studies where one can hypothesize that the subsidies have not resulted in an increase of fertilizer supplied on the market but rather the quantities supplied have remained the same but at a lower (subsidized) price.

Economic theory stipulates that the impact of a subsidy depends on elasticities of supply (Es) and demand (Ed). Grant (2000) observed that if demand were elastic, the granting of a subsidy would lead to a relatively small reduction in price, but a relatively large increase in consumption. If demand were inelastic, the movement of the supply curve would lead to a relatively large fall in price and a relatively small rise in demand. Pindyck and Rubinfeld (1998) give a general relationship of demand and supply elasticities visa avis subsidy impact by stating that the benefit of a subsidy accrues mostly to consumers if Ed/Es is small, and mostly to producers if Ed/Es is large. However, from this statement it is not very clear as to how large or small these ratios (Ed/Es) should be for the benefit to accrue more to consumers or producers. Again this could be an interesting area for future studies to determine the elasticities of demand and supply for the inputs.

3.4 Experiences with Vouchers in Malawi Nakhumwa (2006) conducted a rapid appraisal to evaluate the 2005 fertilizer subsidy in Malawi in order to find out:

• If the government successfully implemented the fertilizer subsidy programme; • Whether or not the use of coupons (vouchers) was indeed necessary; • What lessons could be drawn from this initial exercise and used to guide and

improve implementation of similar programmes in future. Among other things, Nakhumwa (2006) concluded that overall, the fertilizer subsidy programme was conducted successfully. At least 96 percent of the budgeted maize fertilizer had been distributed countrywide by 1st January 2006. Evidently, most smallholder farmers, especially in the south and centre, accessed this fertilizer in time for basal dressing. While more than 70 percent of the budgeted maize fertilizer was distributed by this time in the south and centre, only about 50 percent had been distributed in the north with 96% of the total budgeted amount already exhausted. Maize fertilizer sales were excellent in all the regions. Noteworthy, Urea sold better than 23:21:0+4S. On the contrary, tobacco fertilizers did not sell well throughout the country for various reasons. In the central region, tobacco farmers, citing high price of tobacco fertilizer, opted to apply maize fertilizer (23:21:0+4S) for their tobacco instead. Use of maize fertilizers in tobacco created a dilemma in assessing how much of the maize fertilizer was actually utilised for maize production. Overall, only 15 percent and 20 percent of CAN and D-compound, respectively, were sold countrywide as of 1st January 2006.

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It was noted that tobacco fertilizer coupons were not differentiated in any way from maize fertilizer coupons. As such, tobacco farmers easily switched coupons meant for tobacco fertilizer to buy maize fertilizer (particularly 23:21:0+4S), which they used for tobacco. Furthermore, because the subsidised fertilizer is not supposed to be sold by anyone else except for the authorised dealers, use clearly labelled bags of the subsidised fertilizer is necessary as it limits open sale of the subsidised fertilizer and thereby limiting informal cross border trade as well. The fertilizer subsidy program accounted for over 90 percent of the smallholder fertilizer market in Malawi. The share of the private sector in this program was only reduced to importation, where as their retail market share was reduced to 9-10 percent of the smallholder market. This was reported by the private sector as a serious threat to their survival as their market shrank. Most stakeholders at subsidy review meetings concurred with the private sector’s concern. By not involving the private sector, the government was warned that it was crowding it out, which could lead to serious repercussions on the economy such as losses in jobs and tax revenue in the event that some companies close down. The stakeholders noted that improved performance of the private sector in the subsidy programme could boost Government’s confidence in this sector, for the sake of liberalization but also considering the importance of the private sector in input marketing (Bokosi and Chilongo, 2006; Nakhumwa, 2006).

The subsidy programme was again extended to the 2006/2007 season. The government promised to consider the concerns raised by stakeholders during the evaluations of the 2005/2006 programme. However, since by the time this report was being prepared, not much evaluation had been done on the 2006/2007 input subsidy, concrete comparisons of the two seasons (2005/06 and 2006/07) could not be done.

3.5 Experiences with Vouchers in Other Countries Several of Malawi’s neighbouring countries such as Zambia and Mozambique have also been involved in input voucher interventions. According to Longley et al. (2005), since 2002, Mozambique had been combining vouchers and input trade fairs (ITFs) as mechanisms for responding to emergency needs within the agriculture sector. Under this system, farmers were provided with input vouchers, which were to be redeemed at an arranged ITF for different areas. Longley et al. (2005) conducted a strengths, weaknesses and opportunity (SWOT) analysis of the Mozambique ITF/voucher program. Their results are summarized in Table 2.

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Table 2: SWOT Analysis of ITF/Voucher Programme in Mozambique Strengths Weaknesses

• Seed fairs had ample coverage in areas where they were done.

• Quantity of seeds available at ITFs was usually sufficient to meet farmers requirements

• Seed multiplication plots were being developed and managed by private individuals and associations.

• Diverse seed varieties were available in the fairs

• Quality drought tolerant seeds of new varieties were being distributed

• Beneficiaries were able to choose from the seeds available

• Dissemination of information related to HIV/AIDS in some seed fairs

• Some low quality seeds was being sold at the fairs

• End use of seeds could not be easily verifiable – some beneficiaries were eating their seeds

• High seed prices • Delays in the execution of fairs and

in seed distribution • Undue focus on seeds at the cost of

other farming inputs • High cost to seed companies led to

attrition in company participation • Poor information regarding the

needs and wants of local farmers weakened companies’ response to the needs of farmers

• Difficulty of testing and assuring seed quality at the time of the fairs

Opportunities Threats

• Creation of rural based markets for local and improved seed varieties

• Untapped potential for increasing knowledge of improved cultivation techniques among rural population via small training sessions around the ITFs

• Distribution of a variety of farming inputs aside from seeds

• Increase information regarding rural populations needs to seed suppliers

• Lack of monitoring to verify end use of the seeds purchased

• High costs of formal sector seeds • Seed companies reduce

participation due to high costs • Transportation costs to and from

seed fairs in terms of time and money

• The supply of poorly adapted varieties through ITFs acted as a disincentive to the adoption of improved varieties by farmers

• Lack of information regarding appropriate seeds for the area increases transaction costs of seed suppliers

Source: Adapted from Longley et al. (2005)

Longley et al. (2005) therefore concluded that the ITF/voucher programme could be used to achieve the following objectives:

a. Emergency response to address lack of access to inputs;

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b. Social protection mechanism for vulnerable farmers;

c. Promotion of rural trade and agricultural marketing;

d. Promotion of the formal seed sector; and

e. Promotion of crop and varietal diversity.

3.6 Effects of Government and Donor Involvement on Input Markets Government and donors intervene in the input markets in order to achieve certain objectives. For most African countries, these interventions have been mostly aimed at increasing input uptake, thereby contributing to the goal of attaining household food security. However, just like any policy intervention, input market interventions sometimes produce other undesired effects. Longley et al. (2005) highlight the following as some of the consequences of government and donor seed market interventions (Although Longley et al. (2005) singled out seed market interventions, the same arguments can be applied to other input interventions in general):

i. Undermining of markets as channels for new seed technologies

� Government’s or donors’ purchase of seed through tender, contract production, spot purchase, etc. for non-market distribution denies farmers choice of their preferred varieties. Through such programmes, government and donors impose their own ideas about what is good for Malawi farmers, which in a way demonstrates lack of respect for farmers.

� As a way of enhancing farmer empowerment, inputs aid programmes

should be designed and channelled in a way that allows farmers to buy seeds and fertilizers of their choice, rather than using that aid to push expert ideas about what farmers should plant.

ii. Undermining development of wholesale-retail trading networks required to

get seed to small farmers

� Government or donor involvement in seed purchase encourages companies to look to governments for sales rather than to farmers. This implies fewer retail outlets, fewer demonstrations, and fewer seed companies active in the Malawi market.

iii. Increased risks of bad seed

� Companies risk a substantial investment in reputation and market

development if they sell bad seed directly to farmers. Hence, companies are normally careful to maintain seed quality on seed that moves through retail stores to farmers. On the other hand, when a government or donor tenders or buys a large quantity of seed—especially if governments are

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buying from foreign companies—many seed companies may see it as an opportunity to make a quick profit unloading old seed.

� In some cases, organizations buying seed for non-market distribution may

not have sufficient technical expertise to evaluate seed quality or even to determine what varieties are viable. All of these risks are less when government leaves seed companies to sell directly to farmers.

It should be pointed out that the above-discussed effects of input market interventions do not render the whole exercise irrelevant but rather act as a warning to policy makers that these are some of the expected effects of the interventions. In this way, the policy makers would know beforehand how to minimize and mitigate some of these effects where possible and/or necessary.

3.7 Challenges on the Use of Vouchers

The use of vouchers faces a lot of challenges. Some of these challenges have been documented and verified from various studies. In addition, more challenges have been reported in the media. Though this latter source is not reliable, it nevertheless forms a basis through which one can undertake a study to verify those claims. The following is a summary of these major challenges:

a. Targeting: Although vouchers were introduced to ensure that only the intended beneficiaries get the inputs, evidence suggests that targeting remains a problem. Cases of people selling the coupons or the inputs themselves have been common in the Malawian media. In addition, Nakhumwa (2006) reported cases of people using fertilizer meant for maize into tobacco.

b. Sustainability: One common characteristic of all the government input interventions is that no matter what form they take, they are expensive. Given that most of these programs largely rely on donors, their sustainability remains questionable.

c. Monitoring of input use: As reported by Longley et al. (2005), it is very difficult to monitor how the farmers use the inputs. This in turn proves to be a challenge in assessing impact.

d. Involvement of private sector: In 2005/06, the private sector cried foul because of not being involved the input vouchers. On the other hand, the government justified its decision by citing among other reasons that some of the private sector players lack capacity. Given that the subsidy programme took over 90 percent smallholder retail market from the private sector (Nakhumwa, 2006), something needs to be done to resolve this issue. Since the government promised to involve the private sector in this season (2006/07), there is need to assess how the private sector has performed and draw lessons for future programmes.

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e. Disruption of social set-ups: This is specifically for Malawi’s 2006/07 input voucher programme. Although not fully studied, but based on reports from the media of cases where traditional leaders were arrested for selling the vouchers, this has certainly disrupted the social set up of the communities. The following text box gives an example of some of the cases of fraud reported in the media that have potential to disrupt social set-ups. The story was reported in the Malawi Nation Online of 16th May 2007.

3 In Malawi vouchers are commonly referred to as coupons. 4 A Traditional Authority (T/A) is a very high rank of traditional chiefs. It is only two steps below the summit of chiefs’ hierarchy. The traditional chiefs’ ranks in ascending order are village headman/woman, group village headman/woman, senior group village headman/headwoman, traditional authority, senior traditional authority and paramount chief.

Court acquits Chief Mpando of coupons3 theft charge by Anthony Kasunda, 16 May 2007 - 02:42:05

The Ntcheu First Grade Magistrate’s Court on Monday acquitted Traditional Authority4 Mpando—who was charged with theft of fertiliser subsidy coupons—because of lack of evidence. Mpando was one of several chiefs across the country who were arrested for failing to account for coupons given to them to distribute to their subjects. Ntcheu Police public relations officer Gift Matewere on Tuesday said first grade magistrate Nellie Mkangala observed that there were no proper handovers of coupon books between Ministry of Agriculture and the chief. The magistrate, according to Matewere, observed that there was no indication as to how many coupons the ministry gave the chief. “It was on that ground that the court said the chief had no case to answer,” said Matewere. Mpando was arrested in January and spent a night in Police custody alongside his area committee members who were discharged after investigations revealed that they only carried out instructions from the chief. According to Matewere, police arrested Mpando after he failed to account for two books of 50 coupons each. Police instituted investigations following complaints from people from 14 villages that they did not receive coupons. “We made a follow up and found out that two books each containing 50 coupons were missing,” he said. Matewere said a case of theft was opened for the chief because he was the one charged with the responsibility of distributing the coupons. In December, police in Dedza also arrested T/A Kasumbu for allegedly misappropriating 200 coupons meant for his villagers after he only distributed 200 coupons out of the 400 he received. T/A Chikowi of Zomba and a 75-year-old group village headman Malopa Ned Mwachumu of Machinga were also arrested in November for allegedly misappropriating coupons. Government’s fertiliser subsidy programme was dogged with many problems, including the arrest of the chiefs.

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4.0 THE POLICY CYCLE THEORY AND EMPIRICAL EVIDENCE

4.1 Definition of Policy

Anderson (1984) categorized policies as being substantive or procedural and defined substantive government policies as those that outline what the government intends to do through stated plans of action. Substantive policy is therefore a statement of intent for dealing with an issue requiring, or likely to require, the approval of the parliament, the cabinet or the Premier.

On the other hand, Anderson defined procedural policies as a consideration of how something will be done and by whom, often within government agencies. Procedural policies concern internal operations, often in the form of departmental manuals, operating standards and technical operations.

This section discusses the theoretical perspective of the policy cycle and highlights Malawi’s experience in policy formulation over the years.

4.2 Theoretical Perspective of a Policy Cycle Policy cycle can be defined as a framework that considers the emergence of problems, the formulation of proposals for dealing with these problems and the endorsement and introduction of these as the government's stated policy (Dye, 1998). Bridgman and Davis suggest that a policy cycle can be used to understand and structure policy development, bringing a system and a rhythm to a world that might otherwise appear chaotic and unordered. The cycle structures the policy process into manageable units of analysis. It should be appreciated therefore that policy development is not a linear process, neatly and predictably following a sequence of steps, rather, it is ambiguous and layered and not a single, uniform, transferable process. As such, the policy cycle should not be read as a staged and ordered process but as an active and iterative process. The policy cycle is a concept that has been developed out of the science of analysing policy and is based on an understanding that, under normal circumstances, a distinction can be made between the different phases in the policy-making process (Figure 3).

4.3 Steps/Stages of a Policy Cycle

4.3.1 Problem definition/Issue identification

Under problem definition, the public becomes aware of an issue as a problem and, because of demands being made by certain groups and dominant values in society, this problem is defined as a problem on which action needs to be taken. Issue identification involves understanding the issue, problem or concern commanding the attention of government and requiring a policy response. These issues form the policy agenda.

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Figure 3: The policy Cycle Source: Bridgman and Davis -Undated.

4.3.2 Agenda setting

The defined problem becomes a part of the decision-making agenda, implying that a decision has to be made as to when and who will deal with the problem and in what form. During this stage, efforts are made to raise the profile of the problem and possible solutions among the public and decision-makers. Strategies in agenda setting include:

• Community organization, • Public education, • Media and communication, and • Stakeholder consultation.

4.3.3 Policy Formulation/Creation, Analysis and Decision

This involves discussion of options and possible solutions and adoption of new or amendments of existing policy. The process is ideally consultative, involving public policymakers, the private sector and representatives of the general public. Consultation provides for participation in policy making by identifying and liasing with individuals or groups with an interest or stake in an issue. Fundamental to consultation is identification of these people, committees or organisations. The question policy practitioners must answer is, 'Who is affected by the issue and in what way?’ Consultation can occur both

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within government and with groups outside government. Common strategies used to impact policy adoption include:

• Issue advocacy, • Regulatory advocacy, • Community organizing, and • Public/private partnership creation.

This process ends with the laying down of an authoritative assignment of value in the form of a law, a provision or a program.

Policy formulation also involves an analysis of the policy and this entails designing, determining and considering choices and alternatives and the consequences (both intended and unintended), implications or impacts of alternative policy actions. In reaching potential policy solutions, policy practitioners need to:

• Research information and literature on the policy issues; • Develop feasible options and solutions to the policy issue; • Consider and assess the consequences and the advantages and disadvantages of

potential policy solutions; • Provide sound and thorough advice based on detailed analysis of the issues; and • Put forward a well-reasoned recommendation to address the issue.

Having analysed the policy and its alternatives, policy decisions have to be made and this involves choosing the policy option most likely to attain the desired goals. For policy officers undertaking intra-departmental procedural policy development, the requirements of the Senior Management Team or the Director-General will dictate the approval process.

Intra-departmental policy may also involve the Minister and cabinet. Other government decision-making forums are bound by the rules of cabinet, executive council and parliament.

4.3.4 Implementation and Coordination

This phase is often ignored because it is not as visible to the general public. However, implementation is an essential phase during which critical decisions are made that ultimately determines the policy's effectiveness. Implementation involves introducing the policy into practice after the decision to adopt a course of action is taken. It is important at all stages of the policy development cycle to consider practical, achievable implementation strategies. Approaches used include:

• Issue advocacy, • Regulatory advocacy, • Litigation, and • Public/private partnership creation.

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Coordinating policy implementation is important to facilitate consistency with government's overall strategy, priorities and objectives. Communication across departments is vital to synergise the actions being proposed and taken. In some economies there are Policy Co-ordination Divisions or Departments to ensure effective implementation of the policy.

4.3.5 Evaluation, Restatement of Policy and/or Policy Termination

After a policy is implemented, it is important to evaluate its effectiveness. Policy research and analysis are strategies to evaluate whether the policy is meeting its original intents and if there are any unintended outcomes. Evaluation, and monitoring the effectiveness and consequences of the policy are important in order to consider how it is operating and whether it is achieving the desired results. Evaluation of policy seeks to relate and assess the connections between actual policies and changes in the areas they are supposed to be influencing. Resources are assembled to produce the intended policy outcome and suggested changes and adjustments are made where necessary.

If the policy is not successful on any level, evaluation findings can be used during a new phase of problem definition. The policy life cycle begins again and continues until an effective policy is created and successfully implemented.

Public policy changes do not occur overnight; rather, they are the result of activities in each stage of the policy life cycle. Each phase can take weeks or years, depending on the depth of the issue, the people involved, and the intricacy of the policy itself.

This life cycle is only a framework. Not all policies are formulated according to this linear model. However, all policy creation is incremental and builds upon prior developments and activities. A number of different strategies are often required to create one policy change.

4.4 Policy instruments

Policy instruments are the ways and means of the policy process. They may be laws, such as Acts of parliament or regulations, programs administered by public servants or others, informative materials like brochures, or infrastructure. Usually there will be a combination of policy instruments.

Choice of policy instrument is a major concern in the policy process, and recommendations about policy choice must canvass the options for policy instrument. Cost and benefits, community and political acceptability and legality can all be fundamentally affected by the choice of policy instrument. The policy instrument choice may have major implications for the timing of policy implementation.

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4.5 Malawi’s Experience with the Policy Cycle

Malawi’s experience in policy formulation may be categorized into three administrative periods, namely the colonial era, the post colonial era and the multiparty democratic era. The colonial era saw most of the policies being imposed by the colonial masters without the involvement of the indigenous people in the formulation process because of the colonial mentality of regarding the indigenous people as inferior and illiterate. Most of the agricultural policies in this era favoured the estate sub-sector which was the white man’s occupation.

During the immediate post colonial era, the trend was almost similar to that of the colonial era in that much focus and emphasis in the agricultural sector was given to the estate sub-sector as the engine of growth. This attitude, which was fuelled by a dictatorial type of leadership, gradually changed whereby the smallholder farming community began to receive some recognition and support to improve productivity and marketing activities. Despite the change in attitude towards the smallholder sector, the smallholder farming community was still not represented in the policy formulation process. This trend continued to the period of structural adjustment programmes (SAPs) whereby institutions such as the IMF, the World Bank and other multilateral and bilateral donors imposed policies on the economy.

With the advent of multiparty politics and democratic rule and the increasing realization that the post colonial policies including the SAPs did not contribute significantly to the country’s economic growth, a series of policy reforms was initiated in the agriculture and other sectors. The process of policy reforms took into account the need for wider consultations hence the involvement of the public and private sector as well as the representatives of the general public. Recent policy reforms have followed the theoretical process of a policy cycle with wider participation of stakeholders at various levels (public officials, private sector and local communities). In the agricultural sector, the Malawi Agricultural Sector Investment Program (MASIP) has spearheaded the process of reforming most of the policies in the sector through a consultative process.

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