Preliminary analysis of coupon receipt and use reported in the IHS3

This paper provides a preliminary analysis of coupon receipt in the 2008/9 and 2009/10 seasons as reported by households interviewed in the 2010/11 Malawi Integrated Household Survey (IHS3). Information on the 2008/9 season was obtained from a smaller number of households than for the 2009/10 season, with a longer recall period that may have affected the accuracy of some data. The sampling population included urban and rural households and broadly but not exactly comparable with sample populations for the household surveys conducted in the FISP evaluations in 2006/7, 2008/9 and 2010/11. Estimates of total fertiliser coupon distribution are similar to but lower than estimates from the FISP evaluation surveys but there is consistency in apparent increased reduction in diversion after the 2008/9 season. General patterns of targeting of fertiliser coupons and of ‘sharing’ are similar across the different surveys. Across the surveys there is no evidence of pro-poor targeting and some evidence of bias against poorer households, but not against female headed households. IHS3 respondents reported very few of irregularities in coupon distribution and redemption. Estimates of seed coupon receipts are, however, very low

Impacts of the Farm Input Subsidy Programme in Malawi: Informal Rural Economy Modelling

This paper presents a partial equilibrium model of the impacts of the Malawi Farm Input Subsidy Programme on smallholder livelihoods in two major and contrasting livelihood zones over the period 2005/6 to 2010/11. Despite inherent difficulties in modelling the multi-scale and complex relationships that are involved, model findings show direct impacts on subsidy recipients (increasing maize production and real incomes), differences between poorer and less poor households (with poorer households normally gaining more proportionally but not necessarily absolutely from the same subsidy package), and differences between central and southern region maize growing areas with different rates of poverty incidence and land pressure (with greater absolute and proportional gains in poorer southern region areas). The results also show the impacts of the programme on wages and maize prices. However, a significant finding of model simulations is that beneficial indirect effects may be greater than direct impacts in maize growing areas with high rates of poverty incidence and high land pressure. These indirect effects arise through increases in the ratio of wages to maize prices, and benefit poorer households (who sell ganyu labour and buy maize) while potentially harming in the short term the incomes of less poor buyers of ganyu labour and sellers of maize (these households should however gain in the medium and long run from increased livelihood opportunities with wider economic growth). This finding has important implications for programme design, implementation and evaluation. Much more emphasis should be placed on ensuring that the programme and other policies are managed to maximise these indirect benefits, and on assessing these benefits in programme evaluation. There are particular implications for the design and management of area and household targeting and graduation

The Farm Input Subsidy Programme (FISP) 2009/10: A review of its implementation and impact

This report reviews the 2009/10 implementation of the Farm Input Subsidy Programme 2009/10 in the context of experience from 2005/6 to 2008/9. The 2009/10 programme differed from previous years in restriction of fertiliser subsidies to maize production, reduced fertiliser distribution budgets which were also adhered to, large increases in maize (particularly hybrid) and legume seed distribution, considerable carry forward of fertiliser stocks from previous year purchases, and earlier sales of fertiliser. These changes all have important positive implications for the programme’s effectiveness and efficiency as a result of reduced displacement, improved targeting, reduced programme costs (which also benefited from lower fertiliser prices), improved returns to use of subsidised fertiliser on hybrid maize, and food security, diversification and soil fertility benefits from the increased legume seed sales. Increased maize and legume seed sales through private retailers should also stimulate input market development. The economic benefit cost ratio for the programme is estimated at 1.12, a respectable result (despite the many difficulties with this analysis and its blindness to many longer term and intangible benefits) with considerable potential for further improvement. The macro-economic costs of the programme have also been substantially reduced as compared with the previous year and the year on year rises in costs halted. These are important achievements. There are two main areas where it is proposed that programme implementation could look for substantial improvements in the future: first in achieving greater transparency in beneficiary identification and coupon issues and second in allowing earlier sales of inputs. Greater transparency in beneficiary identification and coupon issues should build on achievements over the last four years (for example in improved targeting and use of open meetings) by (a) resolving inconsistencies both in changing MoAFS farm family numbers across regions and with NSO estimates, (b) improving effective communication about coupon allocation and distribution systems, (c) increasing the transparency and accountability of these processes with, for example, the involvement of different stakeholders representing farmers, and (d) sharing and implementing good practice in particular districts or areas more widely across the country. Earlier input sales are important for reducing the costs and risks faced by farmers in redeeming coupons, promoting higher yield responses from earlier planting and fertiliser application, reducing pressures and costs in fertiliser deliveries to markets, and giving farmers more voice and choice when redeeming coupons. This requires that the 2009/10 improvements in fertiliser deliveries and in seed contracting are sustained and accompanied by earlier finalising of coupon allocations and printing than in 2009/10 – as has already been recognised by strenuous attempts to achieve earlier commencement of sales in 2010

Improving benefit cost analysis for Malawi’s farm input subsidy programme, 2006/7 to 2010/11

This paper develops improved estimates of benefits and costs of the Malawi Farm Input Subsidy from 2005/6 to 2010/11. It sets out principles and purposes for Benefit Cost Analysis (BCA) for the programme and applies them to develop a relatively formal partial equilibrium methodology for BCA that distinguishes between real income gains to subsidy recipients, other producers, and consumers. This allows differential multipliers to be applied to these income gains to allow simple analysis of wider equilibrium and dynamic effects of the subsidy programme. Benefit cost analysis faces difficulties due to lack of reliable data on the number of farm households in Malawi and on cropping parameters needed for estimation of the programmes’ impact on production. Nevertheless the modified benefit cost analysis leads to increased estimates of returns to the subsidy programme. The benefit cost ratio averaged across 2005/6 to 2010/11 was previously estimated at 1.22, with an average fiscal efficiency of 0.31, using moderate assumptions regarding prices and yield responses to fertiliser and improved maize seed. Precise estimate of returns to the programme are difficult due to a variety of methodological and data quality difficulties, but with the revised methodology the average benefit cost ratio is estimated at around 1.6, with fiscal efficiency of around 0.45. The analysis provides important pointers to ways in which programme design and implementation can be improved to make the programme more effective and efficient. It also suggests that with good implementation the programme can provide returns that are comparable to and exceed those achievable from alternative and complementary investments in infrastructure, education and agricultural research. The programme therefore has an important role as a critical element in a strategy of balanced government investments promoting poverty reducing growth in Malawi

The Malawi Agricultural Input Subsidy Programme: 2005-6 to 2008-9

Malawi’s implementation of a large scale agricultural input subsidy programme in 2005/6 and subsequent years has attracted significant international interest. This paper reviews the background, processes, achievements and outcomes of the programme over the period 2005/6 to 2008/9. The very large scale disbursement of heavily subsidised fertilisers and (mainly hybrid and composite maize) seed to very large numbers of beneficiaries across the country represents a significant logistical achievement and led to significant increases in national maize production and productivity, and this has contributed to increased food availability, higher real wages and wider economic growth and poverty reduction. However the latter years of the programme have also been accompanied by very high international fertilizer prices and costs and by high maize prices, the latter undermining the programme’s food security, poverty reduction and growth benefits for the majority of Malawian farmers, who are very poor and rely on purchased maize for significant amounts of their staple food requirements. Estimated economic returns to the programme have been satisfactory, given other benefits of the programme not captured in cost benefit analysis. With substantial reductions in both prices and subsidised volumes of fertilisers in subsequent years, there is considerable scope for building on achievements to substantially raise programme effectiveness, efficiency and benefits. Any application of Malawi’s subsidy experience to other countries needs to take account of special characteristics of the Malawian maize economy and of measures needed to raise such programmes’ effectiveness and efficiency and ensure their best fit with and contribution to sustainable development policies

The role of real and nominal variables in defining business cycles: dynamic properties of a hybrid model - an alternative view

The paper provides an alternative view to the Real and New Keynesian business cycle theories. The paper focuses on the combination of both real and nominal variables in explaining the cyclical movements of business cycles. We propose using Vector Autoregressive (VAR) technique on the production function approach in order to empirically assess the relative importance of both real and nominal variables in defining the shape of a business cycle (or output gap). An economy-specific variable (inflation) is introduced in the production function and is used to control the severity, persistence and magnitude of a given real shock. The model employed is tested in four countries namely: United States of America, United Kingdom, Canada and Germany. The results show that indeed real and nominal variables play an important and major role in explaining movements in business fluctuations. The bulk of impulse responses given a real shock to the output gap may also be attributed to movements in nominal variables mainly as a result of inflationary movements. This economy specific parameter conveys the same message that Ragnar Frisch hypothesized in 1933 based on his ‘rocking-horse theory’. The paper thus provides policy makers to identify key choice variables to use when reducing the impact of shocks in a given economy within a specified period of time.Business cycle; Vector autoregression; Impulse and propagation mechanisms; Hodrick-Prescott filter; Production function approach.

Initial consideration of approaches and methods for estimating wider FISP contributions

This paper provides an initial consideration of possible approaches and methods for estimating the wider contributions of FISP to growth, poverty reduction and resilience. Previous estimates of the economic benefit cost ratio have only examined producer benefits and have noted but not explicitly estimated the wider indirect benefits of, for example, lower maize prices to consumers. Estimates of these wider indirect benefits will be developed and ‘triangulated’ using information from livelihood and rural economy model simulations and from estimates of consumer surplus. Both of these methods require estimation of key parameters and, given difficulties in making precise estimates, will provide ranges in estimated returns under different assumptions. These estimates will both feed into and benefit from data collection and analysis to estimate direct and indirect impacts of the programme on incomes and poverty reduction, vulnerability and resilience, and marginalisation and exclusion. This work will involve gathering of a third round of household and community survey data with focus group discussions. Analysis of the new household survey data with panel data from previous survey rounds will be augmented by data collection on some new variables. Poverty incidence will be estimated using seasonally adjusted WMS models. Information on income from different sources and on asset holdings will provide indicators on welfare changes, and with consideration of diversification of income and asset portfolios, will also provide indicators on changes in vulnerability and resilience. This will be augmented by analysis of panel data on the incidence, severity and effects of shocks and stresses recorded in the different surveys

A review of methods for estimating yield and production impacts

This paper documents methodological lessons from experience in estimating yield and incremental production benefits from the Malawi Farm Input Subsidy Programme (FISP). Critical issues raised concern difficulties in obtaining reliable estimates of smallholder maize production, areas and yields with and without fertiliser. Comparison of methods and findings across a number of studies suggests that there is a significant upward bias (or overestimate) in area estimates obtained by relying on information from farmers on the areas of their crops. Use of GPS technology appears to provide an affordable but more reliable alternative method for measurement of plot areas, but further investigation is advisable regarding its accuracy and possible bias in measuring small plot areas. Estimates of yield from information on total plot harvests are affected by bias in area measurement and, for given estimates of production per plot, over-estimates of area lead to under-estimates of yield. However these yield estimates are also dependent upon the accuracy of farmer estimates of plot production, and these are potentially prone to (a) errors in farmer estimates of production and harvest, (b) unwillingness of farmers to reveal total harvest, and (c) errors in reporting harvests in standard units. While (b) is likely to lead to under-estimates of harvest and yield, (a) and (c) might lead to over- or under- estimates of harvest. It is not clear what overall bias this might lead to. The main alternative method of yield estimation (enumerators harvesting yield sub plots) is costly and widely considered to lead to over-estimates of yield. Estimates of crop yield response to fertiliser application are not affected by bias in plot area estimation if yield is estimated from reported whole plot harvest. However fertiliser responses are over- (under-) estimated if whole plot harvest is over-(under-) estimated by farmers. Fertiliser responses are also over-estimated if yield sub plots over-estimate yield, and this is exacerbated if plot areas are over-estimated, as this leads to an under-estimate of fertiliser application rate. Over-estimates of fertiliser yield responses are also likely if analysis does not allow for the effects of early planting, plant density, seed type, number of weedings and early weeding: these management practices raise yields but tend to be correlated with fertiliser use. Analysis of subsidy impacts needs to separate out the effects of these practices and also estimate how far management practices are changed by receipt of subsidised inputs. The following recommendations are highlighted regarding area and yield survey methods: • IHS2 estimates of crop areas and yields should be treated with caution as they are likely to have over-estimated areas and under-estimated yields • Further work is needed to investigate the accuracy of GPS area measurement for small plots, but GPS methods are preferable to farmer estimates of plot areas • Continued work is needed to develop accurate methods for estimating plot yields • Investigation of fertiliser yield responses may need to rely on formal trials to address problems of multi-collinearity across management practices • Due attention should be paid to both inter cropped and pure stands in analysis and reporting of yield and area estimate