Evaluating Fertilizer Subsidies in Malawi

Since the 1950s, Malawi has used a national fertilizer subsidy program as a way to spur use of inorganic fertilizers, boost domestic maize production, and ensure food security and self-sufficiency for smallholder farmers. According to new working paper from the Malawi Strategy Support Program, however, the national subsidy program may not be the most efficient investment for improving the country’s food security and domestic production goals.

Inorganic fertilizers provide significant benefits to agricultural production, particularly in areas like Malawi where the consumption needs of burgeoning populations mean less time for land to lie fallow between maize plantings. While repeated planting can deplete soil nutrients, fertilizers can remedy this situation. Especially when combined with improved seed varieties and good crop management practices, fertilizer use can lead to maize yields several times higher than those seen without fertilizers.

For smallholder farming households, however, it can be difficult to use fertilizers profitably. Fertilizer prices, driven by global markets, can be high, while the price farmers receive in local markets for their domestically produced maize can be relatively low. The challenges posed by extreme weather, such as floods and drought, add to the financial risk of investing in fertilizers. To help overcome these barriers, the Malawian government has provided regular subsidization of fertilizer for a majority of the country’s smallholders, costing as much as 3 percent of the country’s GDP and reaching more than 2 million households.

Over time, the scale of the subsidy program has expanded and contracted, as has international donor support. For example, the subsidy program was reduced in 2000-2004 and scaled back up starting in 2005-2006; this was followed by another round of scalebacks in 2015. At the same time, the stated objective of the program has shifted, from increasing farmer awareness of the benefits of fertilizers to making smallholder farming households self-sufficient in maize production to strengthening food security for vulnerable populations.

The latest iteration of the program, the Affordable Inputs Programme (AIP), began in 2020 and provided nearly 4 million beneficiary households with subsidized fertilizer and improved seeds. AIP cost more than 1.5 percent of Malawi’s GDP in its first season, becoming one of the government’s most expensive public programs. In subsequent years, AIP has again been scaled down due to questions of fiscal sustainability and rising global fertilizer prices.

Such a reduction in expenditures on the subsidy program, the MaSSP paper suggests, may not be a bad thing. While national maize output in Malawi consistently improved following the expansion of the subsidy program in 2005-2006, maize production remained generally stable in later years when the program’s reach was again reduced. This suggests that higher maize production is possible at a lower cost than that incurred by large-scale fertilizer subsidization. Smaller, and thus less expensive, subsidy programs targeted at farmers who use fertilizer most efficiently could be a better use of government funds.

Public funds could also be redirected from extensive fertilizer subsidies toward extension services that help farmers adopt better agricultural technologies and techniques and toward social protection programs that help households move out of the agricultural sector altogether.

Finally, while the subsidy program seems to have had positive impact on the goal of increasing maize output at the national level, the goal of household-level maize self-sufficiency has not seen similar results. The study finds that only 17 percent of Malawian households who produce maize grow more than they need to be self-sufficient for their own food needs; this is even lower for the poorest quintile of households, at 5 percent. Further, even in years when weather is favorable, millions of Malawians still require food aid during the lean season. In an average year, 13 percent of the country’s population is food insecure during these periods. The country’s rapidly growing population, declining topsoil that makes fertilizers less effective, and late delivery of subsidized fertilizers have all contributed to this lack of household-level self-sufficiency in maize.

Smallholders in Malawi may be better served, the paper suggests, if the funds currently invested in the fertilizer subsidy program were used for alternate programs to help ensure adequate maize consumption. One such program would be a cash transfer equivalent to the value of the current fertilizer subsidy. Many households currently encompassed by the fertilizer subsidy produce less maize than they could purchase with an equivalent cash value. Thus, a cash transfer would provide a more effective social protection mechanism with which to enhance household food security.

Sara Gustafson is a freelance communications consultant.