Towards 'smart' subsidies in agriculture? Lessons in recent experience in Malawi

Briefing papers
October 2008
Andrew Doward, Ephraim Chirwa, Duncan Boughton, Eric Crawford, Thom Jayne, Rachel Slater, Valerie Kelly and Maxton Tsoka

The recent spike in international food and fertilizer prices has underlined the vulnerability of poor urban and rural households in many developing countries, especially in Africa. The combination of factors that resulted in this spike has renewed policymakers’ focus on the need to increase staple food crop productivity. While the pros and cons of input subsidies have been hotly debated over the past decade, input subsidies are being introduced (or re-introduced) in several countries as a means to shore up food security in the short-term while also implementing longer-term investments to raise productivity. With fertilizer prices likely to remain high in the short to medium term, such subsidies will inevitably imply a high budgetary burden. The challenge is to design so-called “smart” input subsidy programmes that have a significant impact on the availability of food in the short run while stimulating growth and rural development and increasing (or at least not suppressing) effective demand for and commercial distribution of inputs in the long run. Beginning in 2005/6, after almost a decade of experience with smaller-scale subsidy programmes, Malawi introduced a large-scale input subsidy programme using vouchers. The purpose of this brief is to review Malawi’s experience in order to identify the challenges facing “smart” subsidy programmes if they are to be sustainable and cost effective in delivering on their goals.

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