Agricultural Input Subsidy Programs in Theory and in Practice: The Case of Zambia

Transcription

1 Agricultural Input Subsidy Programs in Theory and in Practice: The Case of Zambia Nicole M. Mason (MSU/AFRE), T.S. Jayne (MSU/AFRE), & Rhoda Mofya-Mukuka (IAPRI) 31 October 2013 Eye on Africa Seminar, MSU African Studies Center Input subsidy programs (ISPs) in Africa 1 Cornerstone of many countries agricultural sector & poverty reduction strategies 2011: 10 SSA countries spent US$1 billion on ISPs (29% of public spending on ag; 60% of SSA population) (Jayne & Rashid 2013a) Fertilizer, hybrid seed at subsidized prices ISP objectives: Increase access to and use of modern inputs Raise crop yields and production Improve food security and reduce hunger Raise incomes and reduce poverty 1

2 We ve been here before 2 Universal ISPs common until 1980s/early 1990s Scaled back structural adjustment Renaissance over last decade (targeted/universal) 2003: AU Maputo Declaration / CAADP 10% of national budget to agriculture 2006: AU Abuja Declaration member states must improve farmers access to fertilizer, by granting targeted subsidies with special attention to poor farmers 2007: Morris et al. smart subsidies - if subsidies are to be used to promote fertilizer use, they should be marketsmart Smart subsidy criteria (Morris et al. 2007) 3 1. ISP is part of a wider strategy 2. Support market development / private sector investment 3. Promote competition 4. Pay attention to farmer demand 5. Insist on economic efficiency 6. Put farmers in the driver s seat 7. Have an exit strategy 8. Pursue regional integration 9. Ensure sustainability 10. Pro-poor 2

3 Outline 4 Zambia s ISPs over last decade Objectives, design, implementation, impacts How do these compare to smart subsidy concepts and how has this affected outcomes? How to redesign to better achieve objectives? N. Mason, T.S. Jayne, and R. Mofya-Mukuka Zambia s input subsidy programs. Agricultural Economics Zambia s ISPs since 2002/ /03-08/09: Fertilizer Support Programme (FSP) 400 kg fertilizer, 20 kg hybrid maize seed Uniform package Farmers pay 20-50% of market price for inputs 2. 09/10-present: Farmer Input Support Programme (FISP) Pack size halved Rice, sorghum, groundnuts, cotton recently introduced (small quantities, few districts) Smart subsidy red flags? 3. 00/01-present: Food Security Pack Programme 3

4 6 Fertilizer distributed through FSP/FISP Smart subsidy red flags? MT of subsidized fertilizer 200, , , , , ,000 80,000 60,000 40,000 20, Fertilizer subsidy rate (%) Subsidized fertilizer (MT) Fertilizer subsidy rate (%) Source: MAL (2012). Note: *2013/14 MT is preliminary estimate. Despite decline in MT, # of beneficiaries is still 900, ISPs = large share of gov t spending Smart subsidy red flags? : US$184 million (0.8% of GDP) Other 14% FISP 30% Other 2% FISP 34% FRA 56% FRA 64% % of total ag sector spending Sources: MFNP (2012), IMF (2012) % of ag sector Poverty Reduction Program spending 4

5 Objectives 8 Improve household and national food security Raise incomes and reduce poverty Increase small-scale farmers access to inputs Build private sector capacity Source: MACO (2008); statements by Min. of Ag. And Livestock Selection criteria for FISP beneficiaries 9 1. Capacity to cultivate 0.5 ha of maize 2. Small-scale farmer (cultivate <5 ha) 3. Ability to pay farmer share of inputs costs US$15 for 10 kg of hybrid maize seed US$38 for 200 kg of fertilizer (2012/13) 4. Cooperative member 5. Not receiving Food Security Pack Will come back & evaluate how pro-poor Source: MAL (2012) 5

6 How FISP works input distribution 10 Input suppliers selected through national tender process à transport inputs to gov t FISP depots Through 2012/13, same 2 companies every year Representatives from farmer cooperatives pick up inputs from gov t FISP depots à to beneficiary farmers Local agro-dealers not involved in FISP Smart subsidy red flags? Source: MAL (2012) 11 What we did 1. Use nationally-representative HH survey data to: a. Compare HH characteristics to FISP criteria b. Identify the factors affecting kg of FISP fertilizer received (regression analysis) 2. Synthesize empirical evidence on FISP: 1. Targeting 2. Effects on farmer behavior & economic well-being 3. Political economy 6

7 12 FISP recipients vs. eligibility criteria (2010/11 agricultural season) 30% of smallholder HHs eligible for FISP 30% of smallholder HHs received FISP fertilizer BUT 21% of recipients technically ineligible Mainly due to not being coop member (53% of ineligible) and/or cultivating 5+ ha (33%) Targeting performance fairly good based on eligibility criteria Source: Mason et al. (2013a) 13 How well did FISP target poor HHs? (2010/11 agricultural season) Ha cultivated % of total HHs $1.25/day poverty rate (%) % of total HHs below $1.25/day % of total FISP fertilizer All HHs Source: Mason et al. (2013a) 7

8 10/31/13 Better to target larger farms because they produce more maize per kg? No! Farm size (ha) AP of fertilizer (kg/kg) Also little effect on maize prices: on average, FISP reduces retail prices by < 3% Sources: Burke et al. (2012a), Ricker-Gilbert et al. (2013) Factors affecting receipt of FISP fertilizer 15 HHs w/ more land and/or livestock get more HHs closer to towns/roads get more HHs in const. won by the ruling party get more Sources: Mason et al. (2012, 2013a) 8

9 Rural poverty rates, Zambia: Rural poverty rate (%) Source: CSO (2009, 2011) 17 Input subsidy impacts on smallholder behavior & economic well-being 9

10 18 Crowding out & diversion reduce FISP impact on total fertilizer use FISP fertilizer crowds out/displaces commercial fertilizer purchases Crowding out less among poorer HHs 1/3 of fertilizer intended for FISP diverted & resold on commercial markets è gov t injects 1 MT fertilizer for FISP into system à 0.54 MT increase in national fertilizer use Crowding out also an issue w/ subsidized seed Sources: Mason & Ricker-Gilbert (2013); Mason & Jayne (2013) FISP fertilizer effects on fertilizer use, crop production, & fallow land 19 Small, positive effects on: Fertilizer application rate on maize (kg fert./ha maize) Maize area planted, yields, & kg harvested (1.9 kg/kg) No stat. sig. effect on area to other crops Small, negative effect on area under fallow Sources: Mason et al. (2012); Mason et al. (2013a) 10

11 20 Why such low maize subsidized fertilizer response rate (1.9 kg/kg)? 1. Crowding out (Mason & Jayne, 2013) 2. Late delivery (Xu et al., 2009) to 20-30% of beneficiaries Late delivery halves maize-n response rates 3. High soil acidity (Burke et al., 2012b) > 90%+ of maize fields have ph < 5.5 Maize-fertilizer response rates 50-67% lower on highly acidic soils 21 FISP seed generally improves indicators of economic well-being FISP subsidized hybrid maize seed é maize production (106 kg) é HH income (1.1%, US$32) ê prob. that below US$2/day poverty line (0.7 p.p.) ê severity of poverty (poverty gap 2, 0.8 p.p.) ê relative deprivation (income inequality, 0.4%) Source: Mason & Smale (2013). Changes are per 10 kg of subsidized hybrid maize seed. 11

12 Do FISP benefits outweigh the costs? 22 Costs = farmers costs + net costs to government Benefit-cost ratios: Profitable if BCR > 1 è (Benefits > Costs) Fertilizer (Jayne et al., 2013) 2006/ /11 BCR = 0.90 Seed (Mason & Smale, 2013) BCR generally > 1 Does FISP win votes for ruling party? 23 No, but ruling party s share of votes increases with reductions in: Poverty Income inequality Unemployment 2006 & 2011 elections Sources: Mason et al. (2013b) 12

13 Policy implications: is FISP the most cost-effective way to achieve objectives? 24 Some key objectives of FISP are: improving food security, raising incomes, reducing poverty Need to consider other means of achieving these goals (empirical evidence needed!) No empirical evidence that FISP wins votes but program is unlikely to be eliminated à How can Zambia s ISPs be redesigned/ reformed to better achieve their objectives? Policy implications: how to make Zambia s ISPs more pro-poor? 25 Persistently high rural poverty despite heavy spending on input subsidies Fertilizer going disproportionately to better-off HHs, reduces impact on poverty Focus FISP on HHs cultivating ha (60.1% of HHs below $1.25/day poverty line) Scale up Food Security Pack to target <0.5 ha Note: maize-fertilizer response rates similar across farm sizes à targeting smaller farms shouldn t jeopardize national food production (Burke et al., 2012a) 13

14 Policy implications: incorporate other smart-subsidy principles 26 Fertilizer component of FISP not cost-effective Crowding out/diversion, late delivery, and soil acidity reduce impact on maize production Support market development/private sector investment; promote competition; pay attention to farmer demand; insist on economic efficiency; put farmers in the driver s seat Better targeting to reduce crowding out E-voucher to crowd in private sector, potentially improve timeliness of delivery and reduce diversion Open up e-voucher to lime, inputs/equipment for other crops, livestock, fish Policy implications: incorporate other smart-subsidy principles (cont d) 27 FISP as part of wider strategy; promote regional integration Incorporate/promote other complementary technologies/management practices through FISP and improved extension, more ag R&D Invest in infrastructure to reduce farmgate prices for inputs and increase farmgate prices for output, and to promote regional integration Reduce FISP (and FRA) budget to create fiscal space Need an exit strategy & increased emphasis on program sustainability 14

15 Thank you for your attention! Questions? 28 Nicole M. Mason MSU Dept. of Agricultural, Food, & Resource Economics Indaba Agricultural Policy Research Institute Food Security Research Project References Burke, W. J., Jayne, T. S., Sitko, N. J., 2012a. Can the FISP more effectively achieve food production and poverty reduction goals? Food Security Research Project Policy Synthesis No. 51. Accessed March 2013, available at Burke, W. J., Jayne, T. S., Black, R., 2012b. Getting more bang for the buck : Diversifying subsidies beyond fertilizer and policy beyond subsidies. Food Security Research Project Policy Synthesis No. 52. Accessed March 2013, available at Central Statistical Office (CSO), Living Conditions Monitoring Survey 2006 Draft Report Chapter 12, Poverty. CSO, Lusaka, Zambia. CSO, Living Conditions Monitoring Survey Report, 2006 and CSO, Lusaka, Zambia. International Monetary Fund (IMF), Zambia 2012 Article IV consultation. IMF Country Report No. 12/200. Accessed March 2013, available at Jayne, T. S., Mather, D., Mason, N. M., Ricker-Gilbert, J., How do fertilizer subsidy programs affect total fertilizer use in sub-saharan Africa? Crowding out, diversion, and benefit/cost assessments. Agric. Econ. doi: /agec Jayne, T. S., Rashid, S., 2013a. Input subsidy programs in sub-saharan Africa: A synthesis of recent evidence. Agric. Econ. doi: /agec Jayne, T. S., Rashid, S., 2013b. Input subsidy programs in sub-saharan Africa. Presentation at the IFPRI-MSU workshop on Input Subsidy Programs in Sub-Saharan Africa: Methods, Findings, and Implications for Policy. IFPRI, Washington, DC. April 16, Mason, N. M., Jayne, T. S., Fertilizer subsidies and smallholder commercial fertilizer purchases: Crowding out, leakage, and policy implications for Zambia. Journal of Agricultural Economics, in press. Mason, N. M., Jayne, T. S., Myers, R. J., Smallholder behavioral responses to marketing board activities in a dual channel marketing system: The case of maize in Zambia. Selected paper prepared for presentation at the International Association of Agricultural Economics Triennial Conference, Foz do Iguaçu, Brazil, August, Accessed March 2013, available at Mason, N. M., Jayne, T. S., Mofya-Mukuka, R., 2013a. Zambia s input subsidy programs. Agric. Econ. doi: /agec Mason, N. M., Jayne, T. S., van de Walle, N., 2013b. Fertilizer subsidies and voting behavior: Political economy dimensions of input subsidy programs. Indaba Agricultural Policy Research Institute Working Paper, in press. Mason, N.M., Ricker-Gilbert, J., Disrupting demand for commercial seed: Input subsidies in Malawi and Zambia. World Dev. 45, Mason, N.M., Smale, M., Impacts of subsidized hybrid seed on indicators of economic well-being among smallholder maize growers in Zambia. Agric. Econ. doi: /agec Ministry of Agriculture and Cooperatives (MACO), Fertilizer Support Programme Internal Evaluation. MACO, Lusaka, Zambia. Accessed March 2013, available at Ministry of Agriculture and Livestock (MAL), Farmer Input Support Programme Implementation manual, 2012/2013 Agricultural Season. MAL, Lusaka, Zambia. Ministry of Finance and National Planning (MFNP), Estimates of Revenue and Expenditure: Activity Based Budget, Government Printer, Lusaka, Zambia. Morris, M., Kelly, V. A., Kopicki, R. J., Byerlee, D., Fertilizer Use in African Agriculture: Lessons Learned and Good Practice Guidelines. World Bank, Washington, DC. Ricker-Gilbert, J., Mason, N. M., Darko, F., Tembo, S., What are the effects of input subsidy programs on maize prices? Agric. Econ. doi: /agec Xu, Z., Guan, G., Jayne, T. S., Black, R., Factors influencing the profitability of fertilizer use on maize in Zambia. Agric. Econ. 40,