1. FERTILIZER SUBSIDY
REFORMS AND MAIZE
IN MALAWI
MARIAM A.T.J. MAPILA
MASSP RESEARCH DISSEMINATION SEMINAR
GROWTH, POVERTY, NUTRITION LINKAGES AND THE ROLE OF
FISP
APRIL 9, 2014
CROSSROADS HOTEL, LILONGWE
1

2. Introduction
Positive impact of input subsidies on maize
commodity market in Malawi - undoubted
2

3. WHY REFORM
STRATEGIES
Input subsidies
intended to be short
term strategy
Resistance to scaling
down or removal from:
◦Beneficiaries
◦Non-beneficiaries
◦Politicians
OBJECTIVES OF THE
STUDY
Analyze the impact of
reforms of the Farm
Input Subsidy Program
on Malawi’s maize
commodity market
3

4. Malawi maize model
Key Endogenous
variable
Exogenous
variable
L Lag
Local
maize
price
Local economy
Parity prices Malawi policy
instruments
Domestic
production/consumption
ADMARC maize
price
Trend
Local
maize
production
Household income (with maize income)
Local
maize
consumptio
n
Local
rainfall
L
Net
exports
Domestic
maize
consumption
Trend Per
capita
GDP
Aggregate
demand
Yield
Area
Domestic
production
Aggregate
supply
RainfallPrice of
fertilizer
Per capita
maize
consumptio
n
L
L
Populatio
n
Source: Mapila, 2011
4

5. Model simulations
A) Baseline scenario – fertilizer subsidy continues
B) Reforms of subsidy program:
1) Complete removal of subsidy program
2) Scale down amount of subsidized fertilizer
3) Reduce number of targeted beneficiaries
4) Complement exit strategies with improved
Agricultural Extension Services
5

6. Baseline scenario (con’t)
0
1000
2000
3000
1,141.50
1,143.00
1,144.50
Thousandmt
Hectares
Agricultural season
Domestic maize production & acreage
Maize Production Area
0
1000
2000
3000
0.00
0.75
1.50
2.25
Thousandmt
mt/hectare
Agricultural Season
Domestic Maize production and yield
Maize Production Yield
6

7. -40
-20
0
20
Acreage Yield Domestic
production
Domestic
consumption
ADMARC maize
price
%change
Impact multiplier
(2012/13)
Total long run
dynamic multiplier
7
-40
-20
0
20
40
Area planted Yield Domestic
production
Domestic
consumption
ADMARC maize
price
%change
Impact multiplier
(2012/13)
Total long run
dynamic multiplier
Complete removal combined with extension services
Complete removal of subsidy

8. -60
-40
-20
0
20
Area Yield Domestic
production
Domestic
consumption
ADMARC maize
price
%change
Impact multiplier
(2012/13)
Total long run
dynamic multiplier
8
-30
-20
-10
0
10
Area planted Yield Domestic
production
Domestic
consumption
ADMARC maize
price
%change
Impact multiplier
(2012/13)
Total long run
dynamic multiplier
Reduced amount of fertilizer
Reduced amount of fertilizer combined with extension services

9. Conclusions
Complete removal of farm input subsidies is feasible only
at a cost
◦ Negative impacts on maize commodity market
◦ Cost of new investments i.e. in extension services
Scaling down more likely to occur using more ‘practical’
options:
◦ Scaling down number of targeted beneficiaries
◦ Scaling down amounts of subsidized fertilizer
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10. Conclusions
Considerations in designing reforms:
◦ Gradual implementation
◦ Need for complementary strategies to minimize losses
◦ Duality of smallholder farmers – producer and
consumer to be taken into account
◦ Entrenchment of fertilizer subsidies in the African
political agenda
Other areas of research – impact of exit on
households, private sector input markets and networks
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11. Zikomo
kwambili
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