IFAD/D.Magada Enabling poor rural people to overcome poverty in Malawi Rural poverty in Malawi Malawi is one of the world s poorest countries, ranking 160th out of 182 countries on the Human Development Index. Progress towards reaching the Millennium Development Goal of eradicating extreme poverty has been limited. According to the United Nations Development Programme s Human Development Report for 2009, about 74 per cent of the population still lives below the income poverty line of US$1.25 a day and 90 per cent below the US$2 a day threshold. The proportion of poor and ultra-poor is highest in rural areas of the southern and northern parts of the country. Access to assets, services and economic opportunities is profoundly unequal across the population. Larger households are more likely to be poor, particularly those with many children. Access to education, a major driver of relative wealth, is highly inequitable as well. Almost 30 per cent of poor children do not even start primary school, which is free in Malawi. Secondary and higher education is largely confined to non-poor households, mainly due to the required enrolment fees. Limited access to markets and services is another constraint. Poor rural people tend to live in remote
areas with few roads and means of transport, which limits their economic opportunities. Access to financial services is severely restricted, especially for smallholder farmers. Only 12 per cent of households have access to credit. Poor rural people in Malawi are unable to diversify out of agriculture and tend to remain underemployed for part of the year. More than a third of rural households earn their livelihood only from farming or fishing. An additional 25 per cent combine work on their farm with other jobs, largely in agriculture. Other income sources tend to be limited to poorly paid agricultural labour. Few economic opportunities combined with the marked seasonality of rainfed agriculture leads to labour shortages during the critical phases of the cropping season, with underemployment for the rest of the year. The recurrence of shocks frustrates attempts to escape rural poverty. The most common shocks are weather-related, such as crop failures and increases in the price of food. Illness or injury is also very common, as are shocks associated with death of family members, heightened by the HIV/AIDS epidemic, which has affected 11.9 per cent of the population. Shocks often force households to sell assets, thereby undermining their ability to engage in productive activities. As a result, poor households have to adopt costly coping strategies such as selling assets, withdrawing children from school and reducing food consumption. Agriculture is the most important sector of the economy, employing about 80 per cent of the workforce. The sector is dualistic, comprising smallholders and estates. More than 90 per cent of the rural population (2.5-3 million households) are smallholder farmers with customary land tenure. They cultivate small and fragmented landholdings over approximately 2.4 million hectares, with low yields, and are mainly IFAD/G.Pirozzi 2
IFAD/D.Magada subsistence-oriented. Average landholding size has fallen from 1.5 hectares in 1968 to around 0.8 hectares today. Over 80 per cent of this land is planted with maize. The estate land is mainly under freehold or leasehold tenure and the main crops are tobacco, tea, sugar and coffee. Tobacco is Malawi s largest export cash crop, accounting for over 50 per cent of export earnings, followed by tea and sugar. Malawi is able to produce around 3 million tonnes of maize, which is above the self-sufficiency level of 2.3 million tonnes. However, in poor seasons widespread food shortages are experienced. Many households with large families and small plots suffer chronic food insecurity and malnutrition. Despite the availability of better technologies, the productivity of most crops has not improved since the 1970s, largely as a result of declining soil fertility. Also contributing to the low yields are poor access to financial services and markets, unfavourable weather, small landholdings and nutrient-depleted soils, coupled with limited use of fertilizers. The use of improved varieties, together with fertilizers, better crop husbandry and irrigation, has the potential to greatly improve yields. Post-harvest losses are estimated to be around 40 per cent of production. Livestock ownership is very low by regional standards. Performance of the livestock sector is affected by low productivity of the cropping sector: as cropping extends into grazing areas, the number of ruminant livestock has been decreasing. Per capita meat consumption and animal protein intake are low, contributing to poor nutrition among children. 3
IFAD/D.Magada Eradicating rural poverty in Malawi In May 2002, the Government launched the Malawi Poverty Reduction Strategy (MPRS), with the goal of achieving sustainable poverty reduction through empowerment of the poor over a three-year period. The MPRS achieved a modest decline in poverty levels while real gross domestic product (GDP) growth averaged only 1.5 per cent per annum. In 2005, the MPRS was reformulated as the Malawi Growth and Development Strategy (MGDS), which remains the overarching policy framework for social and economic development. Under the MGDS, real GDP growth for 2006-09 averaged 8.4 per cent and is expected to continue to be strong, helped by increased revenue from mining. While growth was somewhat lower during 2009-10, it seems that Malawi will weather the global financial crisis. The fiscal deficit has been brought down, and debt relief under the Heavily Indebted Poor Countries (HIPC) initiative has greatly reduced the burden of debt service. Notwithstanding good recent performance, the ability to maintain a level of economic growth to ensure poverty reduction remains limited by: (i) the narrow economic base; (ii) the small domestic market; (iii) poor infrastructure/high transport costs; (iv) erratic power supply and heavy reliance on energy imports; (v) the presence of the State in the business sector; (vi) Government intervention in key markets; and (vii) weak management capacity in the public and private sectors. 4 Agriculture provides over 80 per cent of exports and contributes some 34 per cent to GDP; services make up 46 per cent of GDP and industry 20 per cent. The performance of agriculture is therefore critical for the economy. Average growth in the sector is highly dependent on climatic factors, and reached nearly 7 per cent during the 1990s and 9 per cent between 2002 and 2006, with a drop to -9 per cent in the 2005 drought. Growth has subsequently recovered with improved seasonal conditions, boosted by the Farm Input Subsidy Programme.
The Farm Input Subsidy Programme was launched in 2005-06 to increase agricultural production and ensure food security, by providing government-subsidized agricultural inputs to smallholding farmers. The scheme has coincided with a significant jump in maize production, although it is unclear how much of this is attributable to the subsidy and how much to improved seasonal conditions. The subsidy programme is now a firmly established pillar of agricultural policy. However, it presents a number of policy dilemmas: (i) the cost of the programme is so high that most other initiatives have to be sidelined, including the extension and research services needed to ensure optimal use of the inputs; (ii) the programme has tended to displace commercial input purchases by farmers; and (iii) the distribution of inputs has tended to favour the more food-secure households. Over 50 per cent of the Ministry of Agriculture s budget is used for subsidised fertilizers, which greatly reduces expenditure on agricultural research and extension. IFAD s strategy in Malawi IFAD s investments support long-term growth paths for two groups: poor emergent smallholder farmers who are located in medium- and highpotential areas and who have the potential for achieving economic independence marginal farmers and vulnerable households, including households headed by women, youth and orphans To reduce poverty by improving poor people s livelihoods, IFAD finances operations that: strengthen agriculture as the main livelihood for its beneficiaries by intensifying production, enhancing natural resource management and improving access to profitable markets secure and diversify the livelihoods of marginal farmers and vulnerable households by supporting effective use of their limited resources and by promoting non-farm employment opportunities strengthen local institutions and resources at community and household levels by providing support for the decentralization process. Projects: 10 Total cost: US$314.0 million Approved IFAD loans: US$126.8 million Directly benefiting: 1,235,950 households Participating in policy dialogue with other donors and with the Government ranks high on IFAD s agenda in Malawi. Priority areas for dialogue include the issue of market-led agricultural growth as a means of poverty reduction, incentive frameworks for agriculture and the need for consistency in policy implementation, especially at the grass-roots level, to foster the emergence of private-sector operators and farmers organizations. IFAD focuses on the promotion of sustainable and good agriculture practices as well as the integration of the private sector in agricultural development. To support its strategy, IFAD has committed US$126.8 million for ten programmes and projects in Malawi, and US$2.4 million for three technical assistance grants since 1981. Early investments supported area-based rural and agricultural development projects, which aimed to improve community infrastructure and smallholder access to credit. The projects supported increased use of fertilizer to improve yields on land characterized by declining fertility. 5
IFAD/D.Magada IFAD partners in Malawi Working in partnership with the Government and with other United Nations agencies, donors and various NGOs, IFAD invests in development with the objective of reducing rural poverty in Malawi. Since 2003 IFAD has collaborated with the Government in a changing framework that emphasizes decentralization. In this context IFAD participates in donor working groups and in policy discussions on agriculture. In the key sector of irrigation IFAD supports strong government initiatives related to water management that include users participation and the institutionalization of water management practices at the local level. Several large donors, particularly the Department for International Development of the United Kingdom of Great Britain and Northern Ireland and the European Union, as well as a number of bilateral organizations, provide substantial grant resources to Malawi. Much, if not all, of this assistance focuses on supporting the poor. Though its financing of the Malawi Social Fund, the World Bank supports the development of basic infrastructure in rural areas. To draw development down to the grass-roots level and empower local communities, the United Nations Development Programme supports the decentralization process in Malawi. IFAD shares this objective, along with the Norwegian Agency for Development Cooperation, the German Agency for Technical Cooperation, the German Credit Institution for Reconstruction and the World Bank. In this changing framework, IFAD and the World Bank have renewed their longtime partnership and are financing the Irrigation, Rural Livelihoods and Agricultural Development Project. 6
The Rural Livelihoods and Economic Enhancement Programme introduced in 2009 seeks to ensure that poor rural households engaged in agriculture, livestock and fish production have a role in the increasingly competitive, liberalized economy. The programme will engage the private sector to provide small-scale crop, livestock and fish producers and processors with the knowledge and skills they need to participate fully in the marketplace. A seven-year project financed by IFAD in partnership with the World Bank, the Irrigation, Rural Livelihood and Agricultural Development Project, supports irrigation development and rehabilitation of existing irrigation schemes, in line with the government s view that irrigation is one of the means available to significantly expand agricultural production. The project emphasizes operation, management and eventual ownership of irrigation schemes by local farmers, who are grouped in water users associations. Many of the farmers are women. The project builds on another IFAD-funded operation, the Smallholder Flood Plains Development Programme (1998-2006), which tapped the potential for small-scale, supplementary irrigation development in flood plain areas. It improved the efficiency and extent of wetland gardening and flood plains rice cultivation, and expanded small- and medium-scale irrigation from surface water and groundwater. Investments in the ongoing Rural Livelihoods Support Programme (2004-2013) are strengthening the decentralization process by building the capacity of local people and institutions and promoting agriculture and sustainable natural resource management. The programme is also introducing schemes to help improve household food production capacity; and has also partnered with Opportunity International Bank in Malawi to bring rural financial services closer to the poor. IFAD s operations in Malawi are in harmony with the government s focus on promoting growth in rural areas to reduce poverty and improve people s living standards. IFAD s goal is to strengthen the livelihoods of poor rural people through agricultural development and diversification. (An emerging area of IFAD s experience will be in rural commercialization through the Rural Livelihoods and Economic Enhancement Programme.) 7
Ongoing operations Rural Livelihoods Support Programme Irrigation, Rural Livelihoods and Agricultural Development Project Rural Livelihood and Economic Enhancement Programme Lilongwe " Rural Livelihoods and Economic Enhancement Programme Malawi is currently undergoing economic liberalization, under which the Government is restructuring parastatal marketing institutions and market interventions to move into the global market economy. The main objective of the Rural Livelihoods and Economic Enhancement Programme is to ensure that poor rural households engaged in agriculture, livestock and fish production have a role in the increasingly competitive, liberalized economy. Activities focus on supporting poor rural producers so they can benefit from efficient markets and added value for their agricultural products. The programme aims at engaging the private sector by working with them to support small scale farmers engage with the value chains. It seeks to strengthen farmers' participation in the market by improving production, transport, storage, processing and marketing systems for commodities such as groundnuts and Irish potatoes. The goal is to sustainably improve the incomes of economically active poor rural households. Total cost: US$19.24 million Approved IFAD loan: US$8.4 million Approved DSF grant: US$8.3 million Government: US$ 0.4 million Beneficiaries: US$ 2.04 million Duration: 2009-2017 Directly benefiting: 24,000 households Cofinancing: The Royal Tropical institute of the Netherlands (US$0.1 million) The programme is partly financed under the Debt Sustainability Framework (DSF). 8
IFAD//D.Magada Irrigation, Rural Livelihoods and Agricultural Development Project The project, co-financed with the World Bank, seeks to increase the incomes and agricultural productivity of poor small-scale farmers. In response to the current food crisis in the country, the project provides farmers with seeds and fertilizer to restore agricultural production. To reduce the risks associated with rainfed farming, the project also supports rehabilitation and development of new irrigation systems, reservoirs and rainwater harvesting structures. Farmers gain access to support services that enable them to improve marketing of their produce. The project also aims to strengthen local government institutions and support capacity building for farmers and their organizations. Total cost: US$52.1 million Approved IFAD loan: US$8.0 million World Bank IDA: US$ 39.99 million Government: US$ 2.8 million Beneficiaries: US$ 1.29 million Duration: 2006-2012 Directly benefiting: 196,550 households Cofinancing: World Bank/International Development Association (US$40.0 million) Interventions also focus on the development of small-scale and mini-scale irrigation schemes. 9
IFAD//D.Magada Rural Livelihoods Support Programme Most small-scale farmers in three rural districts in the southern-most part of Malawi do not have enough land to meet their food requirements. Four out of five households have no food security for at least three to four months a year. Fluctuations in rainfall and in availability of household labour make them even more vulnerable to food shortages. The aim of the programme is to improve access by poor rural people to resources, such as land, water, farm inputs and farming services, and to ensure more efficient use of these resources. It is designed to: Total cost: US$16.6 million Approved IFAD loan: US$14.8 million Government: US$ 1.22 million Beneficiaries: US$ 0.57 million Duration: 2004-2013 Directly benefiting: 38,000 households empower poor rural people to organize themselves and their production in a more effective way improve the way service providers respond to rural poor needs reduce the hunger gap and improve dietary and nutritional status by investing in production and income-generating activities. help keep the rural poor better informed about market and agricultural information The programme supports Malawi s decentralization policy, working with the decentralized institutions that are emerging in the villages and with local ministry line staff, who play a key role as service providers. It promotes the active participation of all groups in village-level processes, particularly the poorest groups, including landless people, households headed by women and families affected by HIV/AIDS. 10
Completed operations Smallholder Flood Plains Development Programme Total cost: US$15.5 million IFAD loan: US$12.5 million Co-financing: Ireland (US$1.1 million) Denmark (US$1.1 million) Duration: 1998-2006 Geographical area: the districts of Karonga in northern Malawi, Nkhotakota in the central region and Machinga in the southern region Directly benefiting: 14,700 households Smallholder Agricultural Credit Project Total cost: US$14.2 million IFAD loan: US$6.4 million IFAD grant: US$500,000 Co-financing: World Bank/International Development Association (US$5.9 million) Duration: 1988-1994 Geographical area: nationwide Directly benefiting: 400,000 households Rural Financial Services Project: Mudzi Financial Services Sub-Project Total cost: US$50.0 million IFAD loan: US$12.0 million Co-financing: World Bank/International Development Association (US$25.0 million) Duration: 1995-2001 Directly benefiting: 80,000 households Kasungu Agricultural Development Project Total cost: US$16.1 million IFAD loan: US$13.6 million Duration: 1985-1993 Geographical area: Kasungu Agricultural Development Division Directly benefiting: 23,400 households Smallholder Fertilizer Project Total cost: US$30.0 million IFAD loan: US$10.3 million IFAD grant: US$1.0 million Co-financing: World Bank/International Development Association (US$5.0 million) Duration: 1983-1988 Geographical area: nationwide Directly benefiting: 400,000 households 11
Agricultural Services Project: Smallholder Food Security Sub-Project Total cost: US$79.1 million IFAD loan: US$13.0 million Co-financing: World Bank/International Development Association (US$45.7 million) African Development Bank (US$12.7 million) Duration: 1994-2000 Geographical area: nationwide Directly benefiting: 50,000 households Dowa West Rural Development Project Total cost: US$9.5 million IFAD loan: US$10.8 million Duration: 1981-1993 Geographical area: Dowa West in the Kasungu Agricultural Development Division Directly benefiting: 9,300 households Building a povertyfree world The International Fund for Agricultural Development (IFAD) works with poor rural people to enable them to grow and sell more food, increase their incomes and determine the direction of their own lives. Since 1978, IFAD has invested about US$12.9 billion in grants and low-interest loans to developing countries, empowering more than 370 million people to break out of poverty. IFAD is an international financial institution and a specialized UN agency based in Rome the United Nation s food and agricultural hub. It is a unique partnership of 166 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD). Contact Miriam Okong'o Country programme manager IFAD Via Paolo di Dono, 44 00142 Rome, Italy Tel: +39 0654592191 Fax: +39 0654593191 m.okongo@ifad.org For further information on rural poverty in Ethiopia, visit the Rural Poverty Portal: www.ruralpovertyportal.org Enabling poor rural people to overcome poverty IFAD/D.Magada International Fund for Agricultural Development Via Paolo di Dono, 44 00142 Rome, Italy Tel: +39 06 54591 Fax: +39 06 5043463 E-mail: ifad@ifad.org www.ifad.org August 2011