yara and the fertilizer industry in malawi · role fertilizers and subsidies had played for small...

YARA AND THE FERTILIZERINDUSTRY IN MALAWI

The report is commissioned and funded by Norwegian Church AidNorwegian Church Aid is a member of APRODEV, which is an association of the 17 major development and humanitarian aid organizations in Europe, which worksclosely together with the World Council of Churches. APRODEV agencies engage inmany kinds of activities related to development cooperation: fund raising, fundingof emergency, capacity building, consultancy, awareness raising, education, andadvocacy.

Views here presented do not always correspond to that of the funding organization.

The author of the report on Yara were Professor Stein Holden and Rodney Lunduka,Department of Economics and Resource Management, Norwegian University of LifeSciences.

The attached interview with Yara Norway was done by Helene Hoggen and Merete Skjelsbæk (NCA).

Editor: Helene Hoggen, Advisor global economy, Norwegian Church Aid Front page photo: Thea DehlieOther photos: Thea Dehlie, Dragana Vasic and Stein Holden. Layout: AntennaPrint: AllkopiISSN 1891-4888

3NORWEGIAN CHURCH AID

THEOLOGICAL REFLECTION: Atle Sommerfeldt, Secretary General, Norwegian Church Aid

BACKGROUND AND SUMMARY OF FINDINGS:Helene Hoggen, advisor, Norwegian Church Aid

YARA, THE FERTILIZER INDUSTRY AND THEIMPACTS ON SMALL FARMERS IN MALAWIStein Holden and Rodney Lunduka, Department of Economics and Resource Management,Norwegian University of Life Sciences

INTERVIEW WITH YARA NORWAY:By Helene Hoggen and Merete Skjelsbæk from Norwegian Church Aid.

CONTENTS5

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NCA Norwegian Church Aid

UMB Norwegian University of Life Sciences/Universitetet for miljø- og biovitenskap

BAGC The Beira agricultural growth corridor

NASFAM National Smallholder farmers’ Association of Malawi

MAP Malawi Agricultural Partnership

AICC African Institute of Corporate Citizenship

AGRA Alliance for a Green Revolution in Africa

FAO Food and Agriculture Organization of the United Nations

MNC multinational company

ADMARC Agricultural Development and Marketing Corporation (Malawi)

DFID Department for International development, United Kingdom

NORAD Direktoratet for utviklingssamarbeid/ Norwegian Agency for Development Cooperation

ARL Agricultural Resources Ltd, Malawi

NPK Basic components of fertilizers: Nitrogen (N), Phosphorus (P), and Potassium (K)

SFFRFM Smallholder Farmer Fertilizer Revolving Fund of Malawi

CIAT International Center for Tropical Agriculture, Nairobi

TSBF Institute - The Tropical Soil Biology and Fertility Institute


REFLECTIONS

GIVE US TODAY OUR DAILY BREAD

“It is a brief and simple word, but ithas a very wide scope. For when youmention and pray for daily bread, youpray for everything that is necessaryin order to have and enjoy daily breadand, on the other hand, againsteverything which interferes with it.”“… this petition includes everythingthat belongs to our entire life in theworld, …” The Book of Concord: TheConfessions of the Lutheran Church.

This is how Martin Luther explains thefourth petition of the Lord’s Prayer:Give us this day our daily bread. InLuther’s time, and at the time of Jesusor Joseph, the son of the patriarch inPharaoh’s Egypt as well as in ourtime, the struggle for daily bread is themain occupation for most people. Thisis why it is so important to find out

what can ensure this daily bread, andwhat thwarts it. In Luther’s time, warand conflicts, natural disasters andhigh prices frustrated people’s foodsecurity. A large proportion of theworld’s population face the samesituation today, especially the poorestbillion of them.

Daily bread is not simply the food onthe table - it is also the income thatsecures food and clothes, house andhealth. Many people – perhaps asmany as 70 per cent of the populationin poor countries – have foodproduction as their source of income.And in many poor countries, where themajority of the population lives inrural areas, income from foodproduction constitutes the mainstay ofthe national economy and the basis forexport revenues. At the same time,these countries face great problemsfeeding their own populations.In today’s world, it is necessary toincrease food production volumes andensure that the poor and smallfarmers have opportunities forproduction, income, access to localmarkets, and can earn incomethrough exports.

To do this, all the actors - national andinternational, nation states, localauthorities, enterprises and multi-national corporations, together withfarmers’ and fishermen’s associations,

must mobilise for the common good.But all the actors must also be responsible for the effect of thecontributions they make so that theydo not become counter forces, but arerather contributors that join in theendeavour to secure all men our dailybread.

Norwegian Church Aid shall bringforth the perspective of the world’spoorest people. This report attemptsto provide a closer look at the goodresults achieved by Malawi, to whichYara has contributed. We hope thatthis report will serve to further improve the work to secure all people– and especially the poorest amongthem – their daily bread.

Atle Sommerfeldt, General Secretary

BACKGROUND AND SUMMARY

SUMMARY OF FINDINGS AND BACKGROUNDBY HELENE HOGGEN, ADVISOR, NCA

This preface sets out to put this report,commissioned by Norwegian Church Aid,into a broader context, as the food situationin the world today is very serious. Thenumber of hungry has increased to overone billion, according to FAO (2009). In spite of record breaking harvests acrossthe world, there is still 1,02 billion under-nourished people in the world. This is 100million more than in 2008. While trillionsof dollar have been made available forsaving banks and insurance companies,only 10-15% of the 20 billion dollarspromised have been made available by theG8 to support subsistence farmers indeveloping countries1.

This is an escalation of the food crisis. Thecause of poor people’s deteriorating accessto food, is a combination of high foodprices, low income and increasingunemployment (FAO, 2009). Further effectsfor poor people of the current foodsituation will be less money for health andeducation. Additionally, an increase ininfant mortality is expected, especially forgirls.

Norwegian Church Aid holds that we needto focus on building up the agriculturalsector in developing countries, and inparallel to this we must secureemployment in other sectors in rural andurban areas.

This report is building on the previousUnderstanding the issue 2/2007: DeadlyCombination: The Role of SouthernGovernments and the World Bank in theRise of Hunger written by Mark Curtis. It was commissioned by NorwegianChurch Aid, Dan Church Aid, Bread forthe World and Church of Sweden. Theformer report looked at how liberalization

policies had affected hunger prone areasin three case countries (Malawi, Zambiaand Ethiopia).

Some of the findings in the report werethat firstly, lack of inputs like fertilizers,seeds and credits contributed to thedifficult situation for poor farmers inhunger prone areas. Secondly, the reportfound that there was a need for subsidizedinputs among these farmers. Thirdly, lowor unstable prices on outputs fromagriculture added to the difficulties.

Mark Curtis also noted the strongpresence of the Norwegian multinationalcompany Yara on the African continent. AsYara was making big profits in Africa itseemed important to look closer into itsactivities in the African continent.Furthermore, the food crisis in 2008 madeit even more urgent to do this report.

Norwegian Church Aid therefore decided todo a follow-up report on the link betweenYara and small farmers in Malawi. Malawiwas singled out because it has been hailedas a success case, which has done muchbetter than its neighbors faced with thefood crisis. We were curious to see whatrole fertilizers and subsidies had playedfor small farmers in terms of food security,increased production and price stability.

YARA IS EARNING MONEY WHILE AFRICA IS STARVING Income numbers from Yara Internationalstands in stark contrast to the food crisis.Yara is the only multinational fertilizercompany (MNC) in Africa. The marketshares of Norwegian Yara shares went upfrom 40 in 2004 to 450 as they peaked in2008. The fertilizer prices doubled fromJanuary 2007 to January 2008. Thiscoincided with the food crisis in 2008 andwas one of the causes of the crisis.

The report clearly illustrates that the priceincreases for fertilizers in 2008 hasimpacted on the national budget in Malawi,in that the subsidy program for fertilizersurpassed the original budget with morethan 100 percent in 2008/9. The mainreason for this was Malawi’s fertilizer sub-sidy program. For a country like Malawifertilizers and seeds has, among otherthings, been prioritized at the expense ofessential services, like education.

Nevertheless, Malawi is referred to as a“success case”, which has managed betterthan other African countries to face up tothe challenges of the food crisis. This couldpartly be explained by the subsidy pro-gram, which contributes to keep the pricesof seeds and fertilizers more stable inMalawi than in other countries.Consequently, food prices have been morestable in Malawi than in other developingcountries. It could also be explained byMalawi not experiencing any seriousdrought period the last three years.

Furthermore, Malawi prohibited all trade andexports with maize in 2008, and demandedthat Malawi’s marketing board ADMARCshould be responsible for all big trade ope-rations with maize and securereasonable/decent prices for consumers.Production of maize has the last three yearsestablished food security in Malawi. It hasmade Malawi almost independent of importsand able to export to its neighbor countries.

Yara is a skilled promoter of the fertilizersubsidy program and is proudly claimingthat it is one of the actors that thegovernment in Malawi confers with whenmaking policy choices. In spite of Yara’sdecreasing market shares in the country,Yara’s income in Malawi has been securedby the increase in fertilizer prices. Yara sitsat both sides of the table in this situation

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and Norwegian Church Aid would claimthat there is reason to question whether itis possible for a multinational company(MNC) like Yara to balance its differentroles in Malawi.

CRITICISM OF YARA’S GREEN REVOLUTION Yara is one of the strongest promoters ofgreen revolution in Africa. Yara is hostingplatforms of multilateral donors andprivate industry with direct lobby resultssuch as the Declaration of Abuja 2007 thatsubsequently led to a change of WorldBank policy allowing subsidies forfertilizers.

Green revolution involves improved andpatented seeds, irrigation methods, as wellas agricultural chemicals such asfertilizers and pesticides. The maincriticism of this model is that it is verywater consuming, promotes monocultureswhich can reduce acute hunger, but whichleads to malnutrition and reducedbiodiversity over time.

Furthermore, the chemicals in fertilizersand pesticides can pollute the environmentand cause injuries to people. It thereforerequires knowledge at the consumer end,related to how to apply the product. Lastly,patented seeds and the required fertilizerscontribute to make farmers dependent onbuying inputs for their agriculture. Some ofthese weaknesses are reflected in thereport.

The report documents weaknesses in thesubsidy program and Yara has activelysupported the program. The subsidies arevulnerable for corruption and subsidiesare not sufficiently reaching the poorestpeople. The poorest part of the populationwould need another type of social support,in the form of credits or employment in

other sectors. When asked, Yara Norwayalso admits that fertilizer subsidies arenot necessarily the right answer to foodchallenges in Malawi and other developingcountries, and that credits is one optionthat could work better for the poorest.

Furthermore, the interview with YaraNorway uncovered that Yara does not takeresponsibility for providing product infor-mation to consumers, in the relevantlanguage. Yara leaves this responsibilityto local distributors. Norwegian ChurchAid questions whether this is good enough.Right use of fertilizers is vital for smallfarmers both in order to avoid damages topeople and soil, and order to maximizeproduction.

Lastly, the report finds that fertilizer sub-sidies contributes to crowd out organicfarming, which in most cases would bebetter for the soil and demands less water,and demands less finances for inputs, suchas seeds and fertilizers. The IAASTD2 reportconcluded that small-scale, agro-ecologicalfarming will be more effective at meetingtoday’s climate challenges than conven-tional farming. Organic farming is not partof the solution for most promoters of greenrevolution, but perhaps it should be? Thisreport illustrates that organic farmingcould be promoted both in itself and incombination with farming based onfertilizers, in order to improve the soil.

NORWEGIAN CHURCH AID’S ASKS TO YARANorwegian Church Aid is worried by thatfact that Yara is one of the closest advisorsof the government in Malawi in its policychoices. Norwegian Church Aid thereforeasks: • More openness and information around

Yara’s role as an advisor• That Yara takes the initiative to more and

better inclusion of civil society organi-zations in the political processes Yara isinvolved in, in Malawi or other developingcountries

• That Yara takes the initiative to make surethat information about their productsreaches the consumers in the right language, through the local distributors

WE NEED TO PRODUCE MORE FOOD IN THE NORTH IN ORDER TO FACEUP TO THE FOOD CRISIS?The argument of the Norwegian ministerof agriculture and his European colleaguesis that we need to produce more food in theNorth in order to handle food challenges inthe years to come. This report, however, llustrates that food production cansuccessfully be increased in the South inorder to end hunger, and that some kind ofsubsidy program directed towards subsi-stence farmers in general and women inparticular is necessary to achieve this.Furthermore, the report points out thatincreased food production in Malawi canhave positive effects for food prices andconsequently food security in neighborcountries in the region.

On the other hand, import of subsidizedfood from the North will often distort Southern markets. In conclusion, althoughthere are certain problems with thefertilizer subsidy regime in Malawi,problems are even worse when it comes tosubsidy regimes in the North. Therefore,the answer to the food crisis must be topromote and support sustainableagricultural production among smallfarmers in the South.

1 Right to Food and Nutrition Watch, 20092 International Assessment of Agricultural Knowledge, Science and Technology for Development, 2008.

YARA REPORT

1. INTRODUCTIONBY STEIN HOLDEN AND RODNEY LUNDUKA

This study focuses on the role of a Multina-tional Company (MNC), Yara International,as the only MNC fertilizer producer andtrader in Africa (Bistandsaktuelt, 2008). It made large profits during the period withvery high fertilizer, oil and food prices until the financial crisis hit the globaleconomy in October 2008. The marketvalue of Yara shares increased from 40 in2004 to 450 at the maximum in 2008 afterwhich it fell down to 100 before it haspicked up again to above 200 in June 2009.It may therefore be questioned whetherYara makes large profit due to its monopolyposition in Africa. At the same time thefertilizer prices in Africa are higher thananywhere else and some may also wonderwhether this is due to the strong monopolyposition of Yara.

Yara International ASA is the largestfertilizer producer and distributor in theworld with assets in 50 countries and distribution to 120 countries. (http://citizenship.yara.com/en/citizen-ship_approach/global_industry/index.html).

1.1. AFRICA AND FERTILIZERS Africa is a net exporter of Nitrogen andPhosphate fertilizers and a net importer ofpotash fertilizers (FAO, 2008). The fertilizerprices surged in 2007-2008 with the highoil and grain prices and it appears that

the 30 year trend of falling food prices hasbeen broken. Strong economic growth inChina and India and changing demandsfor food and increasing demand for landfor biofuel production triggered thischange. Land scarcity is becoming severealso in parts of Africa which has been seenas a land-abundant continent. Populationgrowth has, however, been strong in manydecades and some African countries faceproblems with emerging landlessness andsevere land scarcity. Malawi is one ofthese countries which is experiencingdiminishing farm sizes especially in thesouthern parts of the country. Householdfood security has therefore become critical and this is exacerbated bydroughts, limited off-farm employmentopportunities and high dependence on asingle crop, maize, as the main staplefood. Maize is also a crop that is highly responsive to fertilizer application whenrainfall is adequate in the typical soils inMalawi and other African countries. At thesame time the availability of alternativeorganic fertilizers is limited for poorsmallholders, causing maize yield levels tobe very low for households that are unableto obtain fertilizers for their crops. Due todroughts and bad policies Malawi facedsevere food shortages in 2003/2004 andthis lead to a reintroduction of fertilizersubsidies from 2005/2006 and thefollowing three growing seasons. This islikely to continue also next year since

President Bingu wa Mutharika was re-elected in the elections on May 19th,2009, and one of his main policies is thecontinuation of the targeted fertilizer subsidy program where the targeted beneficiary households only have to paybelow 10% of the market price for thefertilizer package they receive.

Fertilizer prices rose from January 2007 toJanuary 2008 in the case of di-ammoniumphosphate (DAP) from $252 to $752 (U.S.Gulf price); Urea rose from $272 to $415per ton (Arab Gulf price); and muriate ofpotash (MOP) rose from $172 to $352(International Center for Soil Fertility andAgricultural Development, 2008). In Malawifertilizer prices were controlled by thegovernment in the case of subsidizedfertilizer while the unsubsidized fertilizerprices largely rose with the world marketprices.

The costs of fertilizer subsidies for theMalawian government have also increasedwith the increase in fertilizer prices. In 2006/07 the fertilizers represented 40%of the Agricultural Budget (Dorward et al.,2008). With the very high fertilizer prices in2008/09 the spending on fertilizer importand the fertilizer subsidy programexceeded the initial budget of 19 billionMKw by more than 100% (Logistic Unit,2009).

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YARA, THE FERTILIZER INDUSTRY AND THE IMPACTS ONSMALL FARMERS IN MALAWI


This study focuses on the agribusinessactivities of Yara in Malawi and its potentialand real effects for small farmers. Theinteraction between Yara and theGovernment of Malawi, Yara’s position inthe fertilizer trade and distribution in thecountry, and how Yara’s strategy andnational fertilizer policies affect smallfarmers, are central issues of the report.

The study aims to answer the followingresearch questions: a. Agricultural spending in Malawi has

produced successful results over thelast years, but has the full potentialbeen achieved for exporting farmers aswell as subsistence farmers and poorpeople who purchase food?

b. What characterizes the role of Yara fertilizers and its impacts on the broadeconomic situation in Malawi and in theregion?

The first of these research questionsrequires a broad assessment of thenational agricultural policy and how it hasbeen implemented and consequently hasaffected the economy and the differentstakeholder groups. Furthermore, Yara’srole in this bigger picture is discussedwithin a wider global perspective. It isnecessary to understand that Malawi is asmall country for Yara while Africa maybecome an important future market. Yarahas therefore taken an active role to promotean African Green Revolution.

A wide variety of sources of informationare used in the study, including informationfrom media, the research literature,internet sources, national and localMalawian government sources, represen-tatives of Yara and of Yara’s distributor inMalawi (Agricultural Resources Ltd.),donor sources (DFID, NORAD, World Bank),

NGOs, small farmers’ organizations inMalawi, and about 150 small farmersinterviewed in Kasungu and Zomba districtsof Malawi.

Part 2 of the report focuses on the first ofthe broad research questions while part 3focuses on the second of the broadresearch questions. Each of the parts areorganized by answering a set of morespecific research questions that wereincluded in the Terms of Reference (TOR)for this study. Additional parts were addedwhen it was felt that the TOR was toolimited and it was important to bring inadditional dimensions.

Maize field in October. Photographer: Thea Dehlie

YARA, THE FERTILIZER INDUSTRY AND THE IMPACTS ON SMALL FARMERS IN MALAWI

2. FERTILIZER SUBSIDIES FOR AGRICULTURAL DEVELOPMENT IN MALAWI2.1. WHY DID THE GREEN REVOLUTION FAIL IN AFRICA? The Green Revolution that was verysuccessful in Asia from the 1960s did notmake any significant impact in Africa andgrain yields remained stagnant there untilthe end of the Millennium. This has beenexplained by the lower potential of Africansoils, poorer market access due to poorlydeveloped infrastructure, includingirrigation, abundant land and bad policies.Attempts at increasing agriculturalproduction were made through stateinterventions including provision of subsidized fertilizers, improved seeds andcredit through parastatal organizationswhile input and output prices werecontrolled. A debt crisis hit many Africancountries from the early 1980s and theywent through stabilization and structuraladjustment reforms where removal offertilizer subsidies was one of the require-ments from the World Bank and IMF tobalance national budgets, repay their loansand to qualify for new loans. The pastpolicies created problems due to the highly inefficient and corrupt parastatal organizations in charge of distributingfertilizers, providing credit, and collectingand distributing the crop output.

The new policies were, however, alsounsuccessful in stimulating economicgrowth and fertilizer use remained very lowor declined and so did the land productivity,therefore leading to higher food insecurity. Itwas easier said than done to leave theagricultural development to the marketforces and the private sector. Upon the startof the new Millennium fertilizer rates inAfrica were only 8 kg/ha, compared to 96kg/ha in East and Southeast Asia and 101kg/ha in South Asia (Morris et al., 2007).After that a number of the poorestcountries have been granted debt relief andthis has given them a better starting pointfor moving forward with a new policy. Atthe same time the private sector has beengiven a chance to develop gradually.

2.2. THE MALAWIAN ECONOMY AND THE ROLE OF FERTILIZERSMalawi is among the poorest countries inAfrica with about 13.1 million people, islandlocked, highly dependent on export ofa single commodity, tobacco, and is foodinsecure due to high population pressure,low yields, unreliable rainfall and politics.More than 80% of the population is ruraland depends on agriculture as the mainsource of income. Maize is the main staplefood and provides 60% of the calorie intake.Almost the whole production is rain-fedand produced in a single rainy season fromNovember to April. Average maize yieldshave until recently been about 1.3 tons/ha.With shrinking farm sizes due topopulation growth, these yield levels causean increasing share of the rural populationto become net buyers of maize. However,fertilizers have the potential to makeMalawi self-sufficient with maize and evenbecome a surplus producer.

2.3. BACKGROUND FOR THE FERTILIZERSUBSIDY PROGRAM IN MALAWIAfter some years with substantial maizedeficits in Malawi in the mid-1990s aStarter Pack program for maizeproduction was introduced in 1998/99 and1999/2000. This consisted of a package of15 kg fertilizer, 2 kg hybrid maize seeds,and 1 kg of legume seed. This wassufficient input for 0.1 ha of land withrecommended levels of inputs. In 2000/01the program was scaled down andtargeted only towards the pooresthouseholds, and further scaled down thefollowing year with only 1 million packs(Levy, 2005). Following a new maize deficitin 2001/02, the program was againexpanded to 2 million packs in 2002/03and self-sufficiency was again achieved in that year. The packs were capable of increasing the maize production by 100-150 kg per household. The packs weredistributed free and were for that reasonpopular among the people. It was alsocheaper for the government to provide

input subsidies than to import the maizedeficit that would be there without thestarter packs and provide it as food aid.

The 2004/05 growing season had a severedrought during January-February causingaverage yields to fall to only 0.76 tons/haand this caused maize deficit of above 40%for the country. A large share of thepopulation, 5 million people, needed foodaid. This led to the reintroduction oftargeted fertilizer subsidies in thefollowing growing season with supportfrom several donors. However, thedecision was controversial and wascriticized by several donors due to the highcost and the lack of an exit strategy.

Starter Packs were motivated both bythem being a tool to introduce new tech-nologies and as helping poor householdsto become more food secure. The first ofthese objectives may indicate morestrongly that Starter Packs should be onlya temporary solution as also the name“Starter Packs” signals. The programtherefore had to involve targeting of thepoor in order to defend its continuationprimarily as a safety net instrument.

The scaling back of the Starter Pack Program in 2000/01 while the aim was totarget it to the poorest householdsrevealed substantial problems withachieving this targeting objective. It wasrather the friends and relatives of thechief that received the packs than thepoorest households in the villages(Øygard et al., 2003). Another problemwith the Starter Packs was the admini-stration as less-well established traderswere excluded from the distribution, therewere delays in obtaining funding alsoaffecting the timeliness of the distributionof the Starter Packs. A third problem wasthe drain it represented on the financialresources of the government and the needfor donor support for its financing. A fourth problem may be that provision of

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free inputs may not enhance their efficientutilization. However, the importance ofeach of these effects is an empiricalissue. A review of studies on this followsin the next section.

The new fertilizer subsidy programintroduced from 2005/2006 has boostedthe national maize production and madethe country self-sufficient with maize. Withthe sharp increases in energy, fertilizerand food prices in 2007 and 2008, the costsof the fertilizer subsidies also rose sharply.In 2007/08 Malawi even exported 400,000tons of maize to Zimbabwe. Also tobaccofetched high international prices in 2008and the country also introduced a fertilizersubsidy for 10,000 tons D compound and10,000 tons CAN for tobacco production in2008/2009. The fertilizer prices for the2008/09 season were as high as 9,000 to10,000 MKW per 50 kg bag, but with thefinancial crisis reducing the internationaldemands for fertilizer the market pricesfor fertilizer had dropped to 4,000 to 5,000MKW in May 2009.

2.4. A REVIEW OF STUDIES ON IMPACTS OF FERTILIZER POLICIES WITHSPECIAL FOCUS ON MALAWIFertilizer promotion policies in AfricaThere are a many studies of the fertilizerpolicies and programs in Malawi and otherAfrican countries. A brief review of their focus and findings follows. It isclear that these programs, driven bygovernment policies, have a strong impacton the private fertilizer sector, thefunctioning of input markets and input use,on production, degree of self-sufficiency,prices, and therefore the welfare of smallfarmers and other consumers.

Crawford, Jayne and Kelly (2006) discussalternative approaches for promotingfertilizer use in Africa. They conclude thatthere is not one approach that is betterthan other approaches as such programscan have different objectives and weightthese objectives differently as well. Use offertilizer or other input subsidies is onlyone of several approaches that can beused. Other approaches include: a) Improvement of markets for inputs and

outputs by investing in infrastructure toreduce transportation costs and pro-

moting the development of the privatesector to enhance competition

b) Reduce taxation on agriculturec) Investments in agricultural research,

extension, and educationd) Provide alternative types of safety nets

for the poor, like food-for-work, work-for-fertilizer, cash-for-work

Use of subsidies may also be based ondifferent objectives. Such objectives can beeconomic, environmental, social, financialand political and may be short-term ormore long-term. In the end it becomes anempirical issue which approach is better in a given setting, where the local and

country-specific conditions also willaffect the performance of the alternativeapproaches.

Arguments for the use of subsidies include:i) Enhance the dissemination of improved

technologiesii) Alleviate financial constraints that cause

suboptimal use of fertilizers in environ-ments with market imperfections

iii) Reduce poverty by targeting subsidiestowards the poor

iv) Provide subsidized inputs to enhancefood security (safety net) as a cheaperapproach than providing food aid

A bag of Yara fertilizer. Photographer: Stein Terje Holden.


v) Enhance more sustainable land usewhere too low fertilizer use lead to morerapid land degradation due to nutrientmining (Holden and Shanmugaratnam,1995; Holden, Lofgren and Shiferaw,2005)

vi) Inorganic fertilizers are needed in addi-tion to organic fertilizers to meet thefood needs of poor, land-constrainedfarm households (Pender, Nkonya andRosegrant, 2004)

vii) Fertilizer subsidies are important in apackage to break the poverty trap andenhance economic development (Sachset al., 2004; Sanchez, 2002)

viii) Fertilizer subsidies can facilitate landuse intensification and reduces the useof extensive cultivation methods likeshifting cultivation that lead to morerapid deforestation (Holden, 1991; 1993)

Arguments against use of fertilizer subsidiesinclude:i) They are costly and represent a drain on

government resourcesii) They can lead to overuse and misallo-

cation of resourcesiii) They can crowd out use of organic

fertilizersiv) They can lead to mono-cropping of crops

like maize instead of crop diversifica-tion and favor crops that are “fertilizerhungry”

v) Subsidies on fertilizers that lead to soilacidification can have long-term negativeproductivity impacts on acidic soils(Holden, 1991)

vi) Corruption and inefficient administrationcan cause targeting failures and mis-use of government funds (elite capture)(Pender, Nkonya and Rosegrant, 2004;Donovan, 1996)

vii) Unpredictable subsidy policies can increase uncertainty for the privatesector and crowd out private sector development

The existence of a lot of opportunisticagents both within the government sector,the private sector and civil society hasstrong impacts on the performance of subsidy programs and can itself be a majorreason for the instability and breakdown ofsuch programs and cause a need forfrequent changes in the programs.

There are alternative views on theenvironmental sustainability effects offertilizer subsidies. On the one hand Shalitand Binswanger (1984) have argued thatsuch fertilizer subsidies only make sensein areas with high population density andwhere wages are high (justifying a substitution of inorganic fertilizers for labor-intensive organic fertilizers). Pender,Nkonya and Rosegrant (2004) and Sanchez(2002) have argued that application of organic materials are insufficient to arrestsoil fertility decline without use of inorganic fertilizers as well. A recent focuson enhancement of sustainable agriculturein Africa (e.g Pretty, 1999) argues that itmay be possible to feed Africa’s populationbased on low external input methods. Moreresearch may be needed to investigate thispotential in specific African settings.

STARTER PACK PROGRAMCrawford, Jayne and Kelly (2006)characterized the Starter Pack program inMalawi as successful in making improvedtechnology available to poor farmers whootherwise would not have been able to afford these inputs, and therefore tocontribute to poverty alleviation, especiallywhen the program had wide coverage. Theproblems with the program were identifiedas its high cost when the coverage wasuniversal, the problems with targeting thepoorest groups when the distribution wasmore restricted to reduce overall costs,and crowding out of commercial demandsfor fertilizers.

Levy (2005) provides a comprehensive assessment of the Starter Pack programin Malawi. The Starter Pack program hadmany similar features as the currentfertilizer-seed subsidy program but thepacks were smaller and therefore thecosts were also smaller. Levy emphasizesthat the Starter Pack was invented in asetting before market liberalization whenprices were more stable and that it wasmeant to kick-start production and createsufficient cash for households themselvesto buy inputs in the following years.However, one may question whether thepacks were big enough to produce a surplus for sale as most householdsremained net consumers. The instability ofprices and markets, both due to unreliable

weather and changing policies and othershocks, makes it also unrealistic to thinkthat a one-shot Starter Pack would besufficient to do the trick in an environmentwhere only 15% of the producers wereproducing a surplus for sale. It is no doubtthat the Starter Pack contributed tonational food security and food pricestability and therefore also complementedthe other safety net programs. The StarterPack program also experienced targetingproblems and one study was carried outon the communities’ attitudes to beneficiary selection and povertytargeting. It found that narrow communitytargeting did not work in Malawi based onthe experiences in 2000/01 and 2001/02(Chinsinga, 2005).

TARGETED FERTILIZER SUBSIDY PROGRAM (2005-2008)Ricker-Gilbert and Jayne (2008) usehousehold data from Malawi to assess theimpacts of the 2006/07 fertilizer subsidyprogram in the country and how it hasaffected their decisions to purchasecommercial fertilizer (at market price).They use econometric methods to controlfor unobservable characteristics ofhouseholds and endogeneity related tohow subsidized fertilizers are acquired.They find that subsidized fertilizers crowdout the purchase of commercial fertilizerssuch that one kg extra access to subsidizedfertilizer reduces the purchase ofcommercial fertilizers by 0.61 kg. Theyconclude that the government subsidy programs should be designed to targethouseholds without effective demand inorder to ensure that fertilizer subsidy programs maximize their impacts on totalfertilizer use and hence contribute to theircost-effectiveness.

A problem with this analysis is that itignores the indirect effect on fertilizer useefficiency. Those who do not demandcommercial fertilizers may also be lessefficient fertilizer users and the amount ofmaize produced per kg fertilizer is likely tobe lower with such a targeting strategy forthe targeted fertilizer. The advantage ofcourse is that it increases the availability offertilizer to cash-constrained and otherpoor households. The question is whetherthis is the best approach to target these

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households or whether better approachesmay exist. This will vary as this is also aheterogeneous group of households.Cash-poor households with sufficient labor force and other resources, like land,are likely to be able to utilize the fertilizerefficiently. Cash- and labor-poorhouseholds may not be able to do so andmay resort to sell the fertilizer coupon oruse it in a more inefficient way. Such verypoor households may benefit more fromdirect food aid.

Dorward et al. (2008) made a morecomprehensive assessment of the 2006/07agricultural input subsidy program inMalawi. A brief summary of their mainfindings follows. The program distributed2 million seed coupons and 3 millionfertilizer coupons initially and was supp-lemented with more than 1 million extrafertilizer coupons. The total cost was estimated at 10.3 billion MKW (91 millionUSD) where GoM funded 87%. Theseexpenses were 25% above what had beenbudgeted and represented 40% of thebudget of the Ministry of Agriculture.Overall the program was assessed to contribute positively to a pro-poorgrowth in the country, however, severalweaknesses and room for improvementwere identified. The total maize productionwas estimated at 3.4 million tons, 30%above the record harvest the year beforebut some reservations were made as thisestimate may be too high. They estimatedthe incremental output effect of the subsidy program to be 670,000 tons or tobe in the range 500,000-900,000 tons. Theuncertainty was related to the possiblecrowding out effect on commercialfertilizer use. The subsidy programappears to have improved household foodsecurity by improving subsistenceproduction, lowering of maize prices tonet consumers, and improving wage rates.The private sector was involved inprocuring or distributing 180,000 tons offertilizer which was higher than in theprevious year but lower than before thesubsidy program was implemented.Dorward et al. indicated that the sub-sidized fertilizers displaced an equivalentamount of 30-40% commercial purchases,reducing the overall efficiency of the program as well as its targeting efficiency.

They found a significant proportion of thesubsidized fertilizers to have gone to lesspoor households and that is where thecrowding out effect on commercialfertilizers are largest. They emphasizedthat better targeting towards poorerhouseholds would reduce the crowdingout effect. At the same time theyrecognized that the targeting issue was adifficult and sensitive issue. They alsothought that the private sector should beallowed to supply a larger share of thefertilizer market in order to reduce the program costs and to strengthen theprivate sector by mobilizing many of the small entrepreneurs as agro-dealers.The uncertainty due to erratic policychanges may also reduce the investmentsof the private sector. Other weaknessesidentified were the lack of integration ofthe fertilizer subsidy program and thesafety net programs, lack of coordinationwith other policies and programsstimulating rural development.

Denning et al.(2009) give a very favorableassessment of the Malawian input subsidyprogram as a step towards an AfricanGreen Revolution. The article providessome additional insights from theMillennium Villages where the maizepackage was combined with the“Sasakawa planting method” for maize thatwas advocated by the Sasakawa Global2000. They were using a closer distancebetween ridges, 75 cm instead of 100 cm,and single seeds per station at 25 cm spacing in the rows rather thanmultiple seeds per station at 50 cmspacing as is traditionally used. Theadvantage of this planting method is that a small package of seeds can cover alarger planted area and therefore increasethe total output from a package offertilizers and seeds where the seedcomponent is in short supply. Yieldsobtained in the Millennium Villages from11,000 farmers were 5.18 t/ha ascompared to an average of 2.21 t/ha forother areas demon-strating a clearadvantage of this planting method. Betterutilization of the seed component cantherefore also greatly enhance fertilizeruse efficiency, but it is important that thehouseholds get both seeds and fertilizers,including both types of fertilizers.

Denning et al.(2009) recognize the operational challenges that Dorward etal.(2008) identified, such as; delays in pro-gram design and implementation leadingto delays in input delivery in some areas,cumbersome coupon processing andredemption systems, the need to improveprogram information sharing with theintended beneficiaries and general public,shortage of fertilizers and mismatch ofcoupons and fertilizer types in some areas,absence of agro-dealers in some remoteareas, and limited government financialand human resources to meet thedemands. They conclude, however, thateach year of implementation has resultedin design improvements and are also inspiring other countries to emulate theMalawian experience. It is this incrementalimprovement of the design and imple-mentation that we are able to assess inthe 2008/09 program that we review below.

Denning et al. also provide a financial assessment of the program demonstratingthat provision of input subsidies is lesscostly than provision of food aid. The cost ofimporting food in 2004/05 was 110 millionUSD and donor aid to Malawi was 578million USD in 2005 (44 USD/person). Theyconcluded that the fertilizer subsidy program, costing 50 million USD in thefollowing year, provided food self-sufficiency although they seem to forgetthat the subsidy was not implemented in adrought year.

2.5. BASIC CHARACTERISTICS OF THE TARGETED FERTILIZER SUBSIDYPROGRAM OF 2008/09This section draws on information obtainedfrom the Logistic Unit in charge ofmonitoring the fertilizer and subsidy program as well as informal interviews intwo districts as well as other sources of information.

The program in 2008/09 had a similar basicstructure as that in 2006/07 but there werealso some significant differences; a) moreemphasis was given to targeting poor andvulnerable households, b) the programwas more politicized due to 2009 being anelection year, c) the costs of the programhad increased sharply because of the veryhigh international fertilizer prices in 2008.


14

The program in 2008/09 was stated to bemore targeted towards the poor than inthe earlier program years. The beneficiaryselection criteria included; vulnerablehouseholds like child-headed, female-headed and orphan-headed households;households with disabled persons;households with land that are residents inthe village. However, these targetingcriteria are not very clear.

The main aim of the targeted programwhere the poor are given coupons is toincrease food self-sufficiency in thevillages. The argument used by thegovernment and President Bingu waMutharika is that a universal subsidy willonly help the rich to make huge profits.The opposition leader, John Tembo, MCP,has on the other hand stated that hewould introduce a universal fertilizer subsidy if he were to win the election(something he did not do). His argumentagainst the targeted subsidy is that it isriddled with controversies includingallegations of corruption and favoritism(The Nation, May 11, 2009).

THE FERTILIZER COMPANIES INCLUDED IN THE PROGRAMThe selection of companies responsiblefor importing and supplying fertilizers wasmade by the Government of Malawi in2006/07 and 2007/08 without includingYara International or AgriculturalResources Ltd. as the local dealer withmonopoly position to deliver fertilizersfrom Yara, as one of the suppliers. It is notclear what the criteria were for selection ofsuppliers. The following companies wereused in 2006/07: Export Trading Company,Mulli Brothers, Niiombo, Optichem, Sealand, Smallholder Farmers FertilizerRevolving Fund, and Transglobe ProduceExports. The same companies were usedin 2007/08 and in addition Rab Processorsand Simama. The GoM apparently put thefertilizer supply for the subsidy programout on tender for the first time in the2008/09 season and AgriculturalResources Ltd. was then competing withother companies for delivering fertilizersin the country. A committee had been giventhe role to choose among the companiesbut its recommendations were notfollowed by the GoM. Also this time ARL or

Yara were not successful in being one ofthe suppliers. This appeared to be becausetheir offered prices were not good enough(Logistic Unit, 2009). Mainly the samecompanies as those that delivered thefertilizers in the previous years were alsogiven contracts in 2008/09, but theadditional companies Agora, FarmersWorld, MFC and Pioneer were included.None of these fertilizer supply companiesare large international companies andeach of them have a fairly small marketshare in the country. This may have beenintentional from the GoM side but we haveno official confirmation of this.

The fertilizer suppliers were only askedto provide tenders for delivery of the four basic fertilizers, NPK (23-21 and D-compound) and Nitrogen (Urea andCAN) at specific delivery points, specifyingquantities and prices. Other fertilizer

types cannot therefore be sold at sub-sidized prices.

SUBSIDIZED PRICESThe identified target households for maizeproduction were to receive coupons(vouchers) for one 50 kg bag of 23-21-0basal fertilizer, one 50 kg bag of urea(Nitrogen topdressing) fertilizer, and onebag of seeds, either 2 kg hybrid (HYV) or 4 kg open-pollinated variety (OPV) ofmaize. These inputs were consideredsufficient to plant one acre (0.4 ha) of landwith maize. The recipient of a fertilizercoupon could go to the ADMARC depot andget a fertilizer bag by paying 800 MKW andsubmitting one coupon, while the marketprice for fertilizer in 2008/09 was 9000-10000 MKW per bag. This impliedthat the subsidized price was less than10% of the market price.

Malawi farmers with Yara fertilizers. Photographer: Stein Terje Holden.


According to Logistic Unit (2009) 1.96million fertilizer packages for maize and1.15 million maize seed packages weredistributed in 2008/09. This was sufficientto reach 50 and 31% of the total number ofhouseholds that had been registered intheir household data base that consistedof 3.8 million households. The calculationis presented in Table 2.5.1. There is abasic problem with this data base,however. With an average household sizeof 4.5, this gives a total population of 17.1million. This is 3 million higher than thetotal population of Malawi as estimated bythe recent population census. Thisimplies that there are some who are registered more than once, and there mayeven be fake households and villages inthe registry. This problem has beenpointed out to the Ministry of Agricultureand Food Security but nothing has beendone to correct it, e.g. by integrating itwith the recent population census.

It is assumed that the beneficiariesreceived two 50 kg bags of fertilizer. Thenumbers in Table 2.5.1 indicate that eachvillage should have received at least asmany bags of fertilizer as there arehouseholds in the village. However, giventhat the total number of households is inflated, we may correct the rural population

by assuming that it should be 85% of apopulation of 13.1 million, based on therecent population census. We then get thefollowing distribution (Table 2.5.2):

These corrected figures imply that thereshould be on average 1.5 bag of fertilizer perhousehold, taking all three distributions in2008/09 into account. In other words, 77% of

the households should have received twobags of fertilizer for maize if no single bagswere distributed. In addition to this, 0.2million packages of fertilizers for tobaccowere distributed and these should havereached about 8% of the households, givinga total average coverage of 85% of thehouseholds with two bags of fertilizer, oran average of 1.7 bags per householdthrough the subsidy program.

DISTRIBUTION OF FERTILIZERS IN KASUNGULet us now look at the actual distribution inthe villages we visited in Kasungu. This isalso a tobacco producing area wheretobacco fertilizer packages were dis-tributed. The distribution took place inthree rounds. In Kasungu ADD we wereinformed that in the first round 42% of thehouseholds were to get vouchers. In thevillages we visited, however, about 5households in each received a maizepackage in the first round. One of thesevillages had 60 households, this impliedthat less than 10% of the householdsreceived a maize package in the firstround. As a result the villagers shared thefertilizer packages two and two, while the

seed packages were distributed to otherhouseholds. This was one of the worstcases and the village complained to theADD and after some time they received

Source: Logistics Unit (2009).

Registered number of households 17100000 3800000 1.00in the database of Logistic Unit

Number of maize fertilizer beneficiaries, 1500000 0.39first round distribution

Number of maize fertilizer beneficiaries, 118500 0.03second round distribution

Number of maize fertilizer beneficiaries, 338400 0.09third round distribution

Number of maize seed beneficiaries, 1000000 0.26first round distribution

Number of maize seed beneficiaries, 68500 0.02second round distribution

Number of maize seed beneficiaries, 84700 0.02third round distribution

Total beneficiaries for fertilizer for maize 1956900 0.51

Total maize seed beneficiaries 1153200 0.30

Population Number Percent of of households total registered

households

Table 2.5.1. Overview of maize fertilizer and seed vouchers for distribution in 2008/2009

Corrected total number of rural/ 13100000 2530680 1.00agricultural households

Number of maize fertilizer beneficiaries, 1500000 0.59first round distribution

Number of maize fertilizer beneficiaries, 118500 0.05second round distribution

Number of maize fertilizer beneficiaries, 338400 0.13third round distribution

Number of maize seed beneficiaries, 1000000 0.40first round distribution

Number of maize seed beneficiaries, 68500 0.03second round distribution

Number of maize seed beneficiaries, 84700 0.03third round distribution

Total beneficiaries for fertilizer for maize 1956900 0.77

Total maize seed beneficiaries 1153200 0.46

Population No. of rural Percent of households total registered

Table 2.5.2. The distribution of maize fertilizer and seed packages with corrected rural population


a second and third allocation, and we weretold that almost all households thenreceived a coupon for fertilizer or seed andthis was better than most other villages inthe area.

The program was set out to target especially poor households includingorphans, elderly, sick and disabledhouseholds. The communities were them-selves to identify the needy householdsand provide a list of those to theagricultural extension officers in theirarea. They had previously submitted listswith all households in the village as a basisfor establishing the list of beneficiaries asa sub-sample of these. The submitted listsof beneficiary households were often foundnot to satisfy the criteria of the agriculturalofficers and tended to have more namesthan the number of vouchers that had firstbeen allocated to the village. Many villagesand households thought that they hadreceived too few vouchers and complainedabout it. Such complaints may havecontributed to the two additional dis-tributions of vouchers within the sameyear. A larger share of the householdstherefore received vouchers, although thiswas also achieved by splitting the maizevoucher packages such that; a) onehousehold got one of the fertilizer bags,another household got the other fertilizerbag, and a third household got the seedvoucher, b) each bag of fertilizer and theseeds were shared among two households.It is not possible from the available data toassess whether it was primarily thehouseholds that should have been targeted(the poorest of the poor) or whether morewealthy households obtained the freevouchers.

ILLEGAL MARKET OF FERTILIZER VOUCHERSAnother complicating problem was that anillegal market for vouchers had developed.Both selling and buying of vouchers wereconsidered to be illegal and people thatwere caught could be put in prison. Stillthis market was very active and trans-ferred coupons from those who neededcash and were less able to obtain or usethe fertilizer to; a) vendors making abusiness out of trading vouchers and/oralso trading subsidized fertilizer, b) other

farmers who saw this as an opportunity toobtain cheaper fertilizer. This implied thatthere could be a range of fertilizer andvoucher prices in an area. The fertilizerprices were from 800 MKW per bag if thecoupon was brought to ADMARC orSFFRFM depots and no “top up” had to bepaid to get the fertilizer there. The cost ofgetting this fertilizer could, however, alsoinclude having to wait for 1-2 weeks in cueat the depot and having to travel and trans-port the fertilizer from a depot that couldbe at quite some distance from the home ofthe household. It is obvious that theseadditional transaction costs could be toomuch for the poorest households that wereto get the coupons unless they had somerelatives or friends that could help them.Many such households that were lucky toget one coupon or two therefore opted tosell the coupon as they were not in aposition to even pay the 800 MKW or theadditional transaction costs and may alsohave been short of the additionalcomplementary inputs, such as land, labor,tools, transport equipment, etc. that wouldbe required to produce a good maize crop.They may also have been more in need ofthe cash they could obtain from selling thecoupon for buying food, medicines or othercommodities to meet their short-term basicneeds. The prices for coupons were there-fore often found to be as low as 2000 – 2500MKW for poor households selling them. Onthe other side of the market for vouchers,vendors were able to obtain as much as5000 – 6000 MKW for them in some areas.

A new element that came in the 2008/09season was that the coupons had district-specific numbers and could not be changedinto fertilizer outside the district they wereintended for (not the case for all coupons).Many households who bought coupons toget additional fertilizers did not know this,however. They then risked, after havingbought a number of coupons and havingbeen waiting in cue outside the ADMARCdepot, that they were unable to obtainfertilizer for these illegally purchasedcoupons. The cash spent on such couponswas therefore lost and they may thereforealso have been unable to buy fertilizer at thecommercial market price. The specificnumbering system for the vouchers (district-specific numbers and two

consecutive numbers for the 23-21 basaldressing and urea top-dressing fertilizers)sold in the northern districts (e.g. Kasungu)in the country caused this to be a more likelyoutcome while it appeared not to be aproblem in the southern districts (e.g.Zomba). We found that 8 out of 20households we included in a group interviewhad bought such coupons that they laterwere unable to obtain fertilizers for. Theyhad paid MKW 3500 – 6000 per coupon. Fourof these households were female-headedand had managed to buy just one coupon.One had bought as many as six coupons.

RENT-SEEKING AND ILLEGAL ACTIVITYThe number of coupons reaching thevillages appeared also to be lower than itshould have been based on the total numbers at national and district levels.There was evidence of rent-seeking behaviorand illegal activity at all levels from; a) A top political party member beingcaught with coupons that he had obtainedfrom a minister in the governmentb) a paramount chief being caught sellingcoupons and therefore put in prison untilthe president himself reacted quickly toget him released c) illegal extra printing of coupons and noproper records provided to the Logistic Unitfor how printing was organized and therelated costs d) use of the subsidy system in relation tothe parliamentary elections to buy votes, e) partly distributing coupons to andthrough the chiefs to get their support andhave them to organize the identification ofbeneficiaries with use of village levelcommittees where they were found f) ADMARC depot workers being told toask for a top-up of 200 MKW per bag offertilizer in many cases g) no audit being carried out on the 800MKW per bag that has been collected andtransferred to the Ministry of Agriculture(the money is said to have disappeared byinformed sources) h) numerous other leakages due to the inflated numbers of households, lack oftransparency and poor accountability dueto the involvement of many political andrent-seeking interest groups.

It is therefore very difficult to detect theactual distribution to different types of

16


stakeholders, especially at the higherlevels. During this study it was not evenpossible to obtain any information, likethe official plans for the subsidy programfor the last season, plans for next seasonetc. from the Ministry of Agriculture andFood Security that is in charge of thefertilizer subsidy program, as the PS hadmade it clear that any information givenshould be cleared by him. After manyfailed attempts to get an appointmentwith him or a clearance from him to hisstaff, we therefore had to rely primarilyon other sources for information. Luckily,these sources were much more willing toprovide relevant information for thisstudy.

Some of the reasons why MoAFS did notlike to reveal information were that thefertilizer subsidy program has becomepolitically sensitive and our study came ata time just 2-3 weeks before theparliamentary elections. The initiallycleared budget for fertilizer subsidies hadbeen 19 billion MKW, later adjusted up to29 billion MKW, and by the Logistic Unit(2009) found to be 40 billion MKW, notincluding the operation costs of ADMARCand SFFRFM, Ministry headquarter anddistrict operational costs, voucherproduction costs, balance of retrievalcosts from unit markets, and bankcharges on 2007/08 “buy back” stocks.The current stock of fertilizers, estimatedat 74 000 tons, is also “sold” to banks (52 000 tons to Standard Bank) for “buyback” for next season to hide some oflast season’s costs. One problem for nextseason is that the fertilizer prices havedropped to less than half of what theywere purchased for during 2008.The planis to buy another 170 000 tons the comingseason and the President promised in hispolitical campaign that people have topay only 500 MKW per bag. The marketprices for fertilizers in the country havedropped from 9000-10000 MKW per bagto 4000-5000 per bag from the beginningof 2009 till May 2009, meaning that thenew subsidized price may still be onlyabout 10% of the market price. However,the total cost of the program for 2009/10should also go down due to the reductionin international fertilizer prices.

2.6. FINDINGS FROM OUR HOUSEHOLDSURVEY IN KASUNGU AND ZOMBABased on interviews of 150 households inKasungu and Zomba districts about theirexperiences with obtaining fertilizers andother inputs, their access to the targetedinput subsidies and their perceptions ofthe related impacts we present the mainfindings in this section. Table 2.6.1. givesan overview of the responses related to input access for the interviewedhouseholds.

We see that the % of households thatobtained fertilizer coupons increasedfrom about 59% in 2006/07 to 69% theyear after and to 82% last season(2008/09). We also see that the % of thehouseholds that have received either oneor two fertilizer coupons have increasedover the three years. Notice however, thatthe “optimal” package of seeds andfertilizers should have contained twocoupons of fertilizer, one bag of basaldressing and one bag of topdressing. Thepercentage of households that received

the “full package” of fertilizers was only17% in 2006/07, 21% in 2007/08 and 32% in2008/09. The implication is that most ofthe packages have been split to achieve awider coverage of households. This mayindicate that the targeting has not workedefficiently and this is likely to have affectedthe fertilizer use efficiency; that is theamount of maize produced per kg fertilizerused. This efficiency is likely to be higherwith a combination of improved seeds andappropriate amount of both basal and topdressing fertilizers.

The table also shows that the coveragewith improved seeds was poorer than thatof fertilizers. The recipients of improvedseeds increased from 25% in 2006/07 to42% in 2008/09. This means that at least40% of the households that receivedfertilizers did not have improved seeds toapply the fertilizer on. Another factor thatmay explain sub-optimal utilization ofseeds and fertilizers is indicated by the responses about delivery time of theinputs. More than 40% of the households

% of households receiving 58.7 69.2 81.8fertilizer coupons

% of households receiving one 46.2 38.5 35.0fertilizer coupon

% of households receiving two 16.8 20.9 31.5fertilizer coupons

% of households receiving more 5.6 7.7 15.4than two coupons

Average amount of fertilizer 81.9 91.0 126.9obtained per household, kg

% of households receiving 25.2 32.2 42.7maize seeds

% of households receiving 18.9 25.9 29.4hybrid seeds

% of households receiving open- 6.3 5.6 12.6pollinated varieties (OPVs)

Average fertilizer cost per household, MKW. 4098 5778 10631

Average fertilizer cost/kg fertilizer, MKW. 37.7 40.9 54.3

Average fertilizer price per 50 kg bag 1885 2045 2715

Did sufficient fertilizers and seeds arrive on time? % responding:

Yes 43.4 52.0

Too late 31.0 15.8

Insufficient supply 14.2 16.5

Too late and insufficient supply 10.6 15.8

Variable description 2006/07 2007/08 2008/09

Table 2.6.1. Fertilizer and seed access, use, and costs


in 2007/08 and above 30% in 2008/09indicated that the inputs arrived too late.

The average price that households had topay for the fertilizer is an indication onwhether the fertilizer was obtained by cas-hing in coupons that they received throughthe fertilizer subsidy program or not. In2008/09 this “cashing in price” for fertilizercoupons was 800 MKW while the averageprice paid was about 3.5 times this price,2715 MKW. A closer inspection of the datarevealed that 45% of the householdsreceived fertilizers at the fully subsidizedrate in 2008/09, the others had to paymore, at least for some of the fertilizers.These households that had to pay more,paid on average 5020 MKW per bag. Thiscould be because they partially purchasedfertilizer at the full market price and partlyreceived coupons, or they managed to buyfertilizer coupons or subsidized fertilizersthrough the (illegal) markets for these. A further inspection of the data revealedthat only 6% of the households purchasedfertilizer at the full market price only, whilein addition to that 12% of the householdsthat did not get any coupons managed to

purchase fertilizer at a reduced pricethrough the “illegal” markets. This wasalso the case for many households thatreceived coupon fertilizer. They managed tobuy additional fertilizer as well at areduced price. The implication is that evenif targeting had been perfect in reachingonly the vulnerable and poor households,there would be substantial leakage to otherhouseholds through these informal(“illegal”) markets for coupons and sub-sidized fertilizer. One may also questionthe appropriateness of making thesemarkets illegal as these markets also havesome positive effects in form of providing apayment to poor households that areunable to utilize the coupons themselves.At the same time they transfer the fertilizerto more efficient producers and they aretherefore likely to contribute to enhancefertilizer use efficiency.

Table 2.6.2 shows that there was no bigchange in the production of maize from2006/07 to 2008/09 for the interviewedhouseholds while the fertilizer use hadincreased more than 50%, and this points indirection of lower fertilizer use efficiency.

The table also reveals that the % of netbuyers of maize has been fairly stable andnot been reduced as about 2 of 3households still consume more maize thanthey produce. Less than 20% of thehouseholds were net sellers of maize. Still,about half of the households perceived thatthe access to fertilizer coupons hadcontributed to increased maize productionby the households. Almost 60% of thehouseholds perceived that the subsidy pro-gram has improved their food security andabout 56% perceived that the general foodsecurity in their village had improved. Ifone also factors in the additional effect ofthe fertilizer subsidy program, that it hascontributed to lowering the price of maizein the market, there is no doubt that theprogram has had positive effects for netconsumers of maize by reducing the cost oftheir consumption.

We will then look at some other potentialsocial effects of the fertilizer subsidy pro-gram based on the perceptions ofhouseholds, see Table 2.6.3.

Table 2.6.3 includes information on otherperceived social effects of the targetedfertilizer and seed program. About 26% ofthe households indicated that it hascontributed to improved health of thechildren in the household while 4%indicated that it has contributed toworsened health situation of the children.About 28% stated that it has contributedto improved school attendance whilehardly any perceived the opposite to betrue. Perceptions of crime level effectswere “balanced” as about 13% indicatedan increase or a decrease in crime levelsdue to the subsidy program. This mayrelate to the next question and saysomething about what is perceived as“crime”. As much as 41% of thehouseholds stated that the subsidy pro-gram has contributed to more conflicts intheir village while 27% perceived the conflict level to have been reduced. Wewill also return to this issue afterpresentation of the findings in thefollowing two tables as they provideadditional explanations in relation to thisissue. Finally, the table revealed that asmuch as 58% of the households perceivedthat all households benefit from the

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Average maize production 659 589 661per household, kg

Average maize consumption 738 758 748per household, kg

% of household being Net sellers 18.7 16.6 19.4Self-sufficient 16.6 15.8 14.5Net Buyers 64.8 67.6 66.1

Perceived effect of access to fertilizer coupons on household’s maize production, % of households No effect 48.3 35.1Higher production 45.8 51.9Lower production 5.0 12.2

What is the overall effect offertilizer coupons on the food security of the household? No change 25.9Worsened 14.4Improved 59.7

General perceptions of the household: Have the fertilizer coupons improved the food security in the village? No change 32.4Worsened 11.3Improved 55.6

Variable description 2006/07 2007/08 2008/09

Table 2.6.2. Households’ maize production, consumption, self-sufficiency andperceived effects of access to fertilizer coupons on food security


subsidy program, while 21% perceive thatthe wealthiest households benefit and20% perceived that the poorest house-holds benefit.

The following table (2.6.4) summarizes thequalitative responses from households onwhat they perceived as the main problemswith the current input supply system, whilethe next table (2.6.5) summarizes thequalitative responses to what they thoughtshould be done to improve upon thecurrent input supply system.

The responses have been grouped, first,into problems related to insufficient supplyof coupons and how the distribution ofcoupons is carried out, and second, intoproblems related to fertilizer and seedsupply. We can see that a large share of thehouseholds perceived the supply ofcoupons was insufficient and that thiscaused corrupt and dishonest behavior ofthe chiefs, conflicts and hatred among thepeople, favoritism and improper allocation.As much as 39% of the householdsperceived there to be administrativeproblems related to the distribution ofcoupons.

There were also problems with late,unreliable, and insufficient supply of theinputs themselves. Such problemsresulted in long waiting time in cue forfertilizer when they should have beenworking in the field, few and wrong

fertilizer types available, use of bad seeds,and having to go very far to get access to the inputs. Overall, more than 50% of the households indicated that they hadexperienced such types of problems.

Table 2.6.5 (see next page) summarizessolutions, first, to the problems with thecoupons, and then afterwards to the input

supply problems. The main solution theysuggested for the first problem was simplyto provide more coupons. We will return tothis in the overall discussion, given the highnational costs of the fertilizer subsidy program. The other and more economicalsuggestion was to abolish the fertilizertargeting system and rather introduce ageneral subsidy such that all fertilizersbecome cheaper. An alternative solutionsuggested was to use farmers’ clubs for the distribution of coupons. Several responses included other suggestions toimprove the administrative distribution of coupons, demonstrating lack of trustand lack of satisfaction with how the distribution currently is undertaken. Inall, about 34% of the households hadcome with specific recommendations forimprovement of the coupon distributionsystem.

For the input supply there were also manyrecommendations for improvements.These included delivery of inputs beforethe rains start, increase of quantities supp-lied, better variety of inputs supplied,increase in the number of delivery points,and increase the number of suppliers

Is the health situation of the children No effect 69.3affected by the fertilizer coupons and Improved health of children fertilizer access of the household? (more and better food) 25.7

Worsened health situation of children 4.3

Are there any effects of the fertilizer No change 71.1coupon system in your community Improved 28.2on school attendance? Worsened 0.7

Are there any effects of the fertilizer No change 73.8coupon system in your community on Increased 12.8the crime level? Reduced 13.5

Are there any effects of the fertilizer No change 31.4coupon system on conflicts in your Less conflicts 26.5community More conflicts 41.3

Who benefit most from the fertilizer The poorest households 19.7coupon system in your village? The wealthiest households 21.1

All benefit 57.8

Question asked Response category %

Table 2.6.3. Perceived social effects of the fertilizer coupon system by households in Kasumgu and Zomba districts

1. Insufficient supply of coupons 30.7

2. Insufficient supply of coupons leads to corruption 12.6(and lack of honesty by chiefs)

3. Insufficient coupons leads to conflicts and hatred among people 9.8

4. Insufficient coupons leads to favoritism and improper allocation 7.0

5. Lack of transparency by village headmen and sellers of the fertilizer 2.8

6. Poor distribution procedures and administration 2.1

7. Unfair distribution (the rich exploit the system, not everybody benefit, some rationed out). 2.8

Total points 2-7 indicating administrative problems with coupon distribution 38.5

8. Late and unreliable supply of inputs 13.3

9. Insufficient supply of fertilizer and other inputs 19.6

10. Long distance to market points for fertilizer/too few market points 7.0

11. Long waiting time in cue for fertilizer (instead of working in the fields) 4.2

12. Few fertilizer types available 4.2

13. Lack of competition in fertilizer supply 0.7

14. Inputs not available when they want to buy 1.4

15. Lack of seeds cause them to recycle seeds 0.7

Total points 8-15 indicating inadequate input supply 51.7

Problem category and sub-category % of sample

Table 2.6.4. The main problems with the current input supply system as perceived by the households


(involve the private sector more). Overall,about 41% of the households had specificrecommendations for improvements in theinput supply system. Finally, as the aim ofthe fertilizer subsidy program was to targethouseholds with a proportional share offertilizer to the population in each districtand village it may make sense to assesswhether our surveyed households andvillages received their fair share of thecredit fertilizers. We find that they receivedbelow 75% of this share, as a simple es-timate of the leakage on the way. However,this has to be assessed at a broader scaleto get a more reliable estimate of thisleakage.

GENERATION OF CORRUPTION All in all, this illustrates that there aremany concerns about the current ope-ration of the program even though it isgenerally agreed that it has had positivewelfare effects for people. That does notmean that it cannot be improved orchanged into an even better program. Themost severe problem seems to be that thetargeting system generates a lot ofcorruption and rent-seeking behavior that

also leads to conflicts, in addition to thehigh financial costs of the program. Thedanger is that these problems can growworse as the program is scaled down because of lack of funding. Three possibleways out would be to; a) go into a generalsubsidy for basal fertilizer only, b) distributesmaller quantities to each household likein the Starter Pack system, c) combining awork for fertilizer scheme for investmentin public goods with another safety net program for the poorest of the poor thatare unable to work.

We will finally look at some of the responses from households regardingtheir production system and how it isaffected by the subsidy program. The issuesrelate to how fertilizer subsidies for maizeaffect the production of other crops,whether it crowds out organic manure, andwhat the perceived residual effects are oncrops grown after maize.

Only a small share of the households (5%)stated that they had increased their maizearea due to the fertilizer subsidy program.This means that the production increase is

primarily due to a yield increase and not somuch a chance in the area under maize.Another 8-10% of the households statedthat the subsidy program has made themable to expand their area under tobacco,because they could use the fertilizer ontheir tobacco crop. It was particularly thebasal fertilizer for maize that they coulduse on the tobacco, while the Urea topdressing fertilizer intended for maize wasless suitable for tobacco. For other cropsthere were very few households that statedthat the area under these crops had beenaffected by the fertilizer subsidy program.We may therefore conclude that the effectson the cropping patterns have been smallin the two districts where we carried outour survey.

A fairly large share of the households(26.4%) perceived manure and fertilizers tobe close substitutes. Many households thatfailed to obtained coupons or buy fertilizerat a high price resorted to production anduse of organic manure. This was seen as alabor-intensive alternative and if they weresuccessful in obtaining fertilizer they couldsave labor and produce less organicmanure. Others stated that because theyobtained insufficient amount of fertilizerthey complemented it with organicmanure. This implies that fertilizer sub-sidies contribute to crowd out theproduction and use of organic manure.

RESIDUAL EFFECTS OF FERTILIZERS AND ORGANIC MANUREThe other and related issues for which weinvestigated the households’ perceptions,were the residual effects of fertilizers onthe yields of crops grown on the same landin the following years. The responses weremixed as 21.8% of the households statedthat they had experienced a positive yieldresponse and 12% of the householdsstated that they had experienced annegative yield response. This is not sur-prising given that such effects may dependon the types of soils (e.g. more or lessacidic), the types of fertilizers used, and thetypes of crops grown in the following years.That more households stated a positiveeffect is likely to be due to the residualnutrient effect from the fertilizers, whilethe negative effect may be related to soilacidity although we are not in a position to

20

1. Increase number of coupons per household 20.3

2. Distribute coupons through farmers’ clubs 7.7

3. Abolish coupon system and introduce general subsidy 14.0

4. Lower fertilizer prices in general 6.3

5. Improve administrative system for coupons 2.8

6. Distribution of coupons by neutral people 0.7

7. Distribution by government officials, not by chiefs 1.4

8. Agricultural officers should not be involved in the distribution because they steal 0.7

9. Involve more police officers to avoid bribes 0.7

Total points 2-9 indicating needed improvements in the administrative system for coupons 34.3

10. Timely supply of inputs before the rains start 11.9

11. Increase quantities supplied 14.0

12. Increase supplies of all types of fertilizer 2.1

13. Increase the number of selling points 7.7

14. Government should involve more suppliers to improve the access 3.5

15. Transparency by selling officers (no bribes) 0.7

16. Quick response when inputs finish 0.7

Total points 10-16 indicating needed improvements in the input supply 40.6

Solution category and sub-category % of sample

Table 2.6.5. Solutions to the problems with the current input supply system suggested by households


check this. One thing we observed bycloser inspecting the data, however, wasthat a fairly large share of the householdsthat experienced a positive residual effectwere also using organic manure whilenone of those who had experienced anegative effect were using organic manure.This may be more than a coincidence asorganic manure may protect againstnegative effects from soil acidificationand may enhance the positive nutrienteffects from the inorganic fertilizers.However, more studies should be carriedout to investigate these issues.

As an overall assessment of the programand whether there have been any furtherimprovement in the design that Denning etal.(2009) have identified in earlier years,our findings on the situation in 2008/09 arecompared to earlier years. However, lastyear’s program appears to suffer from thesame weaknesses demonstrating a lack ofincremental improvement. Even there it

appears to be signs of deterioration whilethe financial costs of the program have escalated from 50 million USD in 2005/06,to 72 million USD in 2006/07, and to morethan 300 million USD in 2008/09. In 2007the total donor assistance was 500 millionUSD, which was 12% of the GDP (Curtis,2007). The high fertilizer prices is the mainreason for the high increase in financialcosts in 2008/09 but there appears also tobe a lot of leakage of fertilizers even thougha better targeting of the pooresthouseholds have been attempted.

It is possible that the political electionshave contributed to the increasingproblems. The government organs incharge of the program seem to be unwillingto reveal information and are clearly notdoing enough to improve the program asthey are not taking the necessary action toreduce the problems that have beenpointed out. Rent-seekers seem to havebecome cleverer in this period, leading to

large leakages and severe targeting errorsthat have greatly reduced the benefits fromattempting to target the poor and has alsoreduced the input use efficiency by thefertilizer/seed packages being split suchthat the synergy effects of combining themare being lost. It appears that a lot of entrepreneurial skills are now devoted tounproductive rent-seeking and doing illegalbusiness and therefore also underminingthe moral standards in the country, thetrust in traditional leaders as well asgovernment officials. This may be a toohigh cost to pay in the long run althoughthese have to be weighed against thepositive effects of the program.

2.7. GENERAL DISCUSSION OF EFFECTS OF THE PROGRAMThis part provides responses to a numberof more specific questions raised in theTOR. While data and time is not availablefor a rigorous analysis to answer thesequestions it is possible to provide answers

School under a tree. Photographer: Dragana Vasic


based on economic theory and the generaland more specific information available.This in particular relates to thenational/regional economy and effects onthe poor:

1) What kind of impact has Malawi’s increased export of maize had on foodprices internally in Malawi and in theregion?

One should expect that increased maizeexport would lead to higher internal maizeprices in Malawi and possibly lower pricesin the countries/areas to which the maizeis exported. It appears that in 2006/07some maize was exported and even toomuch such that some additional importshad to be made to meet the nationaldemand. This may indicate poor ability topredict the production related to theconsumption needs but there may alsohave been uncontrolled export that wasnot accounted for. Unlike for fertilizer imports, where procedures are very strict,for exports the control is less limited.Leakages can also go across borders inseveral directions and can be very hard tocontrol. The export of maize is definitelygood for poor consumers in Zimbabwe andin other neighboring countries that maybenefit from it.

The level of inflation was estimated at 10%in 2003, 14% in 2004, 17% in 2005, andthen to have fallen to 9% in 2006, and to 6-7% in 2007, 2008 and 2009 (GoM, 2008).The rate of GDP growth is estimated at 4%in 2003 and 2004, 2% in 2005, up to 8% in2006, and 6% in 2007 and 2008 (GoM, 2008).This pattern is correlated with the droughtin 2004/05, and the following introductionof the new fertilizer subsidy program whichstimulated production and contributed tolower maize prices, which also affectedthe rate of inflation.

2) How have prices on fertilizers impactedon food prices in Malawi and in the region?

The link between fertilizer prices and maizeprices is not direct and simple. However,higher fertilizer prices lead to lowerfertilizer demand. The output supply effectof that depends on the substitutability

between fertilizer and other inputs and thesubstitutability between different types ofoutputs that depend more or less onfertilizer as one of the inputs. In Malawicereals, and especially maize, representthe main staple food, and maize yields respond strongly to fertilizer and there is ashortage of alternative organic manures,therefore total output, and especially maizeoutput, will respond negatively to higherfertilizer prices. With lower output supplyof maize, the price will go up if the demandcurve is unchanged. With substitutes tomaize, like cassava, rice, wheat orsorghum that people are willing to switchinto when maize prices go up, this willreduce the price increase for maize butcan also contribute to an increase in thesesubstitutes. Therefore the food price effectof an increase (decrease) in fertilizer pricesis likely to be positive (negative). However,the main reason for high food prices overthe recent years is not primarily due tohigh fertilizer prices but due to falling foodstocks at global level and high energyprices, causing a closer link between foodand energy prices because of biofuel cropproduction. Especially the decision by theUSA to use a high share of its maizeproduction for biofuel had a strong positiveeffect on food prices.

3) Have government spending on fertilizersin Malawi affected other spending(health and education etc.)?

It is obvious that the fertilizer subsidy program is taking a substantial part ofgovernment resources. Especially in the2008/2009 season it exceeded even theinitially cleared budget by more than100%. Partly this is because of theextremely high fertilizer prices in the period before the financial crisis hit the global economy, and the delays in thetendering process from the GoM sideduring a period of increasing prices. Partlyit was due to higher purchases thaninitially planned, and partly many othertypes of costs related to the targeted program and lack of careful budgetary andfinancial monitoring. This could also beexplained by this being an election yearand the subsidy program being highly political and essential in the short-termcompetition for votes in the election in May

2009. However, it is highly likely that thiswill backfire in the post-election period.IMF is one of the international observersthat have posed critical questions regard-ing the lack of budgetary discipline andhave imposed the requirement that theMinistry of Finance shall have a closercontrol in the next year program. Ministryof Agriculture has also failed to carry outan audit that had been required by IMFdue to lack of continuity of staffing in IMFaccording to reliable sources (notdisclosed).

The total cost has therefore been es-timated to be around 43 billion MKW,against the initial approved budget of 19billion MKW, that was later increased to 29billion MKW (Logistic Unit, 2009).

Budget allocation is largely a zero-sumgame and the large expansion in the budgetfor fertilizer subsidies must obviously becompensated by reducing some otherbudgets/spending or increasing the debt.For example, the share of educationspending averaged 29 percent between2001/02 and 2004/05, but dropped to 21 percent in 2005/06 as a result of theemergency food operations. The share ofhealth expenditures averaged around 12percent in 2001/02-2004/05, but increasedto 18 percent in 2005/06 probably due tothe extra health problems that came withthe drought and food shortages showing atrade-off between short term health needsand more long term educational needs(http://www.imf.org/external/np/vc/2007/051707.htm).

A mission from IMF visited Malawi inSeptember 2008 and in the report on themission it was stated: “The mission dis-cussed with the authorities the im-plications of the recent sharp increases infertilizer prices on the fertilizer subsidyprogram. The IMF team agreed with thegovernment's intention of meeting anyspending increases on the fertilizer pro-gram though a combination of increasedsupport from donors, improvements indomestic revenue performance, andspending restraint elsewhere in thebudget” (http://imf.org/external/np/sec/pr/2008/pr08209.htm).

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IMF has a controversial position in Malawiafter it was partly blamed for the foodcrisis in 2001/2002 (Devereux, 2002; Owusuand Ng’ambi, 2002 ; Menon, 2007). A closerexamination indicates that the crisis wascaused by a complex of factors includingmismanagement of the Strategic GrainReserve by government officials,inadequate information about local foodreserves from the Early Warning System,bad price policies by GoM, poor confidencein the GoM among many donors, andsupply chain constraints when new infor-mation about the food shortage situationwas finally received.(Owusu and Ng’ambi, 2002; Menon, 2007; http://www.imf.org/external/np/vc/2007/051707.htm, http://medilinkz.org/news/news2.asp?NewsID=10563;http://www.sarpn.org.za/documents/d0001213/P1344-Do_no_harm.pdf; Øygard etal., 2003).

4) How are the fertilizer subsidies funded?

The seed component is financed by a groupof donors (Norway, Ireland, UK and EU).The agricultural budget is used forfertilizer subsidies as a part of the total

GoM budget which again depends ongeneral budget support from variousdonors. The government funds used forsubsidies obviously compete with otheruses.

5) How stable are prices internally inMalawi and are any price stabilizationmeasures considered?

Food is a necessity and the demand forfood responds relatively little to food pricechanges; that is food demand is inelastic.This implies that if there is no trade infood, the supply of food is coming only frominternal production. If supply is dependenton weather conditions, like rainfall, andrainfall is highly variable, supply will alsoshift from year to year and this will causelarge changes in food prices. The pos-sibility of trading food across the bordersand between surplus and deficit areas willreduce such price swings. Better infra-structure, less restrictions on trade, andlower transportation costs help to stabilizeprices. The Government of Malawi has alsoattempted to stabilize prices by procla-mation of minimum prices for crops, likemaize and tobacco. However, suchattempts may not be very efficient as they

are very difficult to enforce. One example isthe tobacco auctions where tobacco isexported and producers and internationaltraders come and buy the tobacco. Thegovernment tried also this year to set a minimum price for tobacco but the existence of a large surplus of tobacco,partly due to fertilizer subsidies for tobaccoproduction, has resulted in tobacco pricesfalling below the minimum price set by thegovernment. The total production was inMay estimated at 25 million kg, and theinternational “quota” for export at 20 million kg. It is obvious that this reducesthe bargaining power of the producers andconsequently the price they can achieve. Itis better to get a low price than beingunable to sell your tobacco.

Malawi has imported food in years withdeficit production to meet the food needs ofthe people and this has also contributed tokeep food prices down in such years. Like-wise, the export of surplus maize in recentyears, has prevented food prices from falling to very low levels. However, in May2009, when we carried out our fieldwork,there was again a situation with surplus ofmaize and we were told that the price for abag of maize had fallen to 800 MKW invillages not too far from Lilongwe. Theprices had been 2500 MKW not long ago.According to the official statistics fromMoAFS, the maize price doubled fromJanuary 2008 to January 2009, from 1709MKW to 3461 MKW, so the drop down to800 MKW implies a drop to less than 25% ofthe average price in January, four monthsago. However, one must be aware thatthere is large variation in the maize priceswithin Malawi due to market imperfections,poor infrastructure, high costs of trans-portation, and poor flow of information. Toillustrate this the average price in 2008varied across locations from a minimumof 1317 MKW to a maximum of 2796 MKW,that is the maximum average price wasmore than the double of the minimumaverage price across locations. The averageacross locations at a specific point in timewill even be higher for the same reasons.As an example, the average monthly priceacross locations from which prices werecollected, in February 2009, varied from2329 MKW to 5157 MKW for a 50 kg bag.

Agricultural Resources Ltd is Yara’s distributor in Malawi. Photographer: Stein Terje Holden


Some basic lessons to draw from this isthat the government has limited capacity tocontrol prices. The “laws of demand andsupply” tend to overrule price regulationsin form of minimum or maximum pricesunless extremely strict and consequentlyvery costly price control mechanism areimplemented. For a poor government it islikely to be better and more feasible to usevarious price stabilization mechanisms,like improving the system for informationdissemination of prices, have a goodmonitoring system for production as abasis for social protection and disaster riskmanagement, allow import and export ofmaize to get a better balance betweeninternal supply and demand, improve theinfrastructure, and strengthen the privatesector that can help to reallocate theproduction within the country to reduce theinternal price differentials. In addition it isrelevant to have a buffer stock of maize incase droughts hit but the size of this stockshould also be seen in relation to theavailability and cost of importing food ifneed arises.

6) Do export revenues improve the lives ofonly a small group of people or are poorpeople included?

Export of the maize surplus is good for theproducers and traders who carry out suchexport. It is good for producers becausethe reduction in supply of maize inside thecountry leads to higher local maize prices.In the short run this is not good for the netbuyers of maize who have to pay a higherprice but even they may benefit in thelonger run as such export may stabilizeprices over time and ensure that producerprofits vary less and that they are thereforemore likely to stay in the business. Becauseof the inelastic demand for food there canbe large price variation in response tosupply changes unless these can be leveledout through international trade. If suchexport is taking place due to subsidies innormal and good years, this is also good fornet buyers of food in the neighboringcountries receiving the surplus food. Theinternal demand for maize per year is estimated at 2.2 million tons while theproduction in 2008/09 season is estimatedat about 3.6 million tons. A recent studyrevealed that crop forecasts may be toohigh, or at least they seem to have been

so in the 2006/07 and 2007/08 seasons (http://brightsonani.wordpress.com/2009/01/13/malawi-sexed-up-the-maize-estimates%E2%80%94us-study-maize-supplies-may-be-depleted-before-harvest-time-point-at-inaccurate-crop-estimates-as-the-main-cause/). Even if this estimate is on the high side, thesurplus of maize is likely to be more thanone million tons. Not allowing any exportwould in such a case be irresponsible andlead to a drastic fall in maize prices.However, one should not rule out the possibility that here is a political gamewhere the surplus producing commercialfarmers who also may have succeeded inobtaining cheap fertilizers, want toincrease their profits by exporting more. Itmay also result in large unaccountedleakages across the borders to theneighboring countries. An export tax tocover up for the input subsidy may seem tobe appropriate. However, it goes beyondthis study to assess whether and how thiscould be implemented.

Higher export of tobacco from Malawi mayeven affect the international market fortobacco unless they stay within their quota.This year (2009) there is an excessproduction of 50 million kg that has nomarket. Partly this high production is dueto the new subsidy program for fertilizerfor tobacco and one effect now is that in theauctions in the country the realized tobaccoprices are on average below the minimumprices that have been set by thegovernment. Excess production may there-fore in this case lead to even lower totalrevenue to the country because of the largesurplus. This may imply that there will bemore losers than winners from the tobaccofertilizer subsidy program. The winnerswill be those who managed to get cheapfertilizers and sell their tobacco at areasonable price and those that tradefertilizer coupons with a profit. The loserswill be those who bought fertilizers atordinary market price but failed to sell alltheir tobacco and/or got a low price fortheir tobacco.

GoM in 2008 banned trade and exports ofmaize by large traders and requiredADMARC to take responsibility for largemaize trade operations and for ensuringreasonable maize prices to consumers

(http://www.fews.net/docs/Publications/Malawi_outlook_2008_10.pdf;http://www.busrep.co.za/index.php?fArticleId=4578807). GoM also introduced a minimum salesprice for maize. There may be difficulties inimplementing the ban on exports by privatetraders as Malawi has a long border andconsiderable leakage may occur if thereare large price differentials across theborder. The success will also depend onthe efficiency of ADMARC in implementingits new role. Farmers’ Union of Malawihas expressed strong reservations againstgiving such a dominant role to ADMARC(http://forum.uniterra.ca/documents/TexteReflexionFarmers.pdf). This can also beanother opportunity for ADMARC officials’rent-seeking activity and careful studiesand full accountability requirements fromthe GoM should be expected, followed upwith proper auditing. Similar requirementsshould be established for the privatetraders.

7) Have the lives of poor people who do notproduce own food improved or not, interms of ability to buy food?

The general effect of the fertilizer subsidyprogram is a surplus of maize, which isthe main staple food in the country. Thishas resulted in lower food prices(compared to a situation without such sub-sidies) and this has made the purchase ofstaple food more affordable. Still, maizeprices have been very high until recentlydue to the international pressure on foodand energy markets and many poor peoplemay not have been able to buy sufficientamounts of maize and may have had toswitch to cheaper substitutes, like cassavaor other crops, or have been under-nourished. The fertilizer subsidy programhas clearly reduced this problem inMalawi. This is also why most people inthe country perceive the overall effect ofthe program to have been positive.However, the country is still veryvulnerable to droughts as maize is verysensitive to droughts.

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3. YARA INTERNATIONAL AND ITS ROLE IN AFRICA

3.1. YARA’S ROLE AND POSITIONIN MALAWIYara was separated out from Norsk Hydroin 2004. The Norsk Hydro Agri division ofNorsk Hydro then became YaraInternational. From 2005 Yara decided todrop retailing in Africa and to concentrateon manufacturing, wholesale, and trade.The African retail offices that Yara hadwere offered the opportunity to makemanagement buy-out. The managementteam in Malawi then decided to take thisopportunity and formed Agricultural

Resources Ltd. in October 2007 as aseparate company with exclusive rights tosell Yara fertilizers in Malawi. This teamhad been running the Norsk Hydro/Yararetail system in Malawi for 12 years andcontinued without restructuring this retailsystem.

Yara has a global fertilizer market share of7%. Yara’s annual sale of fertilizers in Africais about 1.7 million tons. The total fertilizeruse in Malawi has been about 225,000 tonsper year and last year Yara supplied less

than 10%, 17,000 tons of this while themarket share was considerably higher afew years back, 105,000 tons at the most ina year (64% market share in 2004).

Which farmers and products are targetedand what are the priorities of the GoM, andwhat characterizes the role that Yaraplays? Yara via ARL tried also in 2008/09 tocompete by bidding to deliver fertilizersfor the GoM fertilizer purchases of 170,000tons, however, without success.

Other activities supported by Yara inMalawi:

a) African Institute of Corporate Citizenship

Yara International has supported the AfricanInstitute of Corporate Citizenship (AICC) inMalawi to promote public-private partner-ships. One of the issues this organizationworks with is to reduce corruption, whichis a substantial problem. Another is theformation of the Malawi AgriculturalPartnership (MAP) which is an agreementbetween AICC and NORAD and related to apartnership agreement between Govern-ment of Norway and Yara (Yara memo toMinister Erik Solheim, May 2009). A threeyear plan for the roll-out of the MAPincludes a cotton development partnershipcomponent, a rice partnership component,a value chain support component, and ageneral development and facilitationcomponent for commodity partnerships.This involves a value chain approach toenhance efficiency and profitability for allpartners in the chain. This implies that Yarahas no ambitions of linking up directly withfarmers but that they rather leave this responsibility to their local partners andprovide these partners the necessary infor-mation about their products.

Women play an important role in the Malawian agriculture especially as small farmers.Photographer: Dragana Vasic


26

b) Development of new fertilizer for maizeproduction

This is a new basal dressing, 23-10-5 withadditional S, Mg and Zn and which hasnutrients that are more available to theplants than the standard NPK fertilizer(23-21-0 + 4S) used on maize in Malawi. Italso contains Zink in addition to sulfate asZn-deficiencies have been observed in soilsamples. The standard fertilizer also doesnot contain any potassium (K) and thatcould also lead to deficiencies.

Yara covers the costs of testing of this newfertilizer and this has been going on for 6 years in the country at the ChitedzeResearch Station. They focus primarily onthe needs of specific crops, like maize,when determining the nutrient mix of thefertilizers. With better information aboutlocal soil variation and a consequentchange in the demand for more specificfertilizer types Yara may consider to blend

new fertilizer types in the new bulk storagefacility that they are establishing in Beira inMozambique. However, the subsidy policyof GoM has implied a focus on only fourstandard fertilizer types that are wellknown and this has made it more difficultto introduce new fertilizer types to smallfarmers in Malawi. The investment in newfertilizer types may therefore only have animpact in the longer run.

c) Improving market access in Africa byfast tracking agricultural growth corridors

This is not only concerning Malawi but hasimportant implications also for Malawi.Yara International has actively promotedinvestment in developing agriculturalgrowth corridors as an importantcomponent of an African green revolutionwhich is based on public-private partner-ships. The Beira Agricultural GrowthCorridor (BAGC) in Mozambique is anexample of such a public-private partner-

ship where Yara International has played anactive role as one of the private partners.This growth corridor is one of SouthernAfrica’s main transport routes with the roadand railway network linking Malawi,Zambia, Zimbabwe and Mozambique to theIndian Ocean through the Beira port. Theinfrastructure decayed during theMozambican civil war and later but newinvestments are now coming. The Govern-ment of Mozambique, private investors,farmers’ organizations and internationaldonors are now working together to speedup the process of developing this corridorby boosting investments in improved infrastructure.

A new concept note on Agricultural GrowthCorridors was launched at the UN GeneralAssembly meeting in New York inSeptember 2008 to stimulate this initiative,and was followed up by meetings in theWorld Economic Forum in Davos in January2009. Yara International and AGRA chaired

Maize crop. Photographer: Thea Dehlie


this meeting where it was agreed to fast-track a process where Mozambique shouldtake a leading role in developing the BAGC. Follow up meetings have been held inMaputo in March 2009 and in Cape Town inJune 2009. These meetings were held tomobilize the local partners in identifyingpriority investments and potentials tocome up with a plan of action. Major invest-ments are now undertaken not only foragricultural development but also forexpanded mining activity, particularly coalmining, which will require a largeexpansion of the capacity of the port.

Other projects to be served are large forestry and ethanol projects and YaraInternational is planning a 35 million USDinvestment to develop a bulk fertilizerhandling terminal and blending unit at theBeira port (BAGC, 2009). Other investmentfunds are provided by the EU, the EuropeanInvestment Bank, The World Bank and theJapanese International CooperationAgency (JICA), among others. Theseinvestments are meant to reduce trans-portation costs, increase transportationcapacity and improve market access forimports and exports. They may improveaccess to fertilizers and reduce fertilizerprices in Malawi.

3.2. FERTILIZERS AND SUSTAINABLE FARMING

8) How is the link secured between thefertilizer producer Yara and the smallfarmers?

The GoM fertilizer subsidy program haslargely delinked Yara from the smallfarmers and Yara’s market share has beenmuch reduced. Since Yara is not supplyingany of the fertilizer for the subsidy pro-gram, most of its fertilizers are sold tocommercial growers and to smallholderswho can afford to pay the full price.

9) Is this link as good as with exportingfarmers?

Agricultural Resources Ltd. appears to havea stable set of customers in Malawi that arecommercial growers outside the subsidysystem. Even though they have lost manycustomers in the recent years the business

has been good due to the high fertilizerprices. With prices being reduced by 50-60% in 2009, the profit margins for ARLmay also be squeezed, like they are for Yara.

10) Does Yara consider the different needsof different types of farmers when advising on products and is sufficientinformation (“bracket recommenda-tion”) about products provided?

Yara International is not in a good positionto give direct advice to Malawian farmerssince they no longer have a distributionnetwork in the country. It is the Malawianresearch and extension branch that shouldbe responsible for such advice as well aslocal partnership organizations. If Yara canconvince the Malawian research andextension branch that their products arebetter than other products and even havesome influential “model” farmers to testtheir products, this may open a market fortheir new fertilizer that they havedeveloped for Malawian maize growers.Products from commercial producersshould preferably always be tested byneutral scientific experts that themselveshave no direct benefits due to theirrecommendations. However, if invited, Yaraor ARL or other fertilizer suppliers mayprovide their information and participate inmeetings on product quality etc.

It is a general knowledge that somefertilizers have strong acidifying effects onsoils and this can be a serious problem onsoils that already are acidic and low in organic matter and where large quantities ofsuch fertilizers are applied. It should be theresponsibility of the national research andextension system to provide such knowledgeto farmers and farmers’ organizations may help in the dissemination of such information. Farmers’ organizations, likeNASFAM and Farmers Union of Malawi havebecome more active in recent years and theymay also help to bridge the gap betweenthe industry and farmers.

It is clearly a problem that only onefertilizer recommendation exists for maizein Malawi. This implies that there are noadjustments in the recommendations forthe variation in the soils in the country.This is clearly highly unsatisfactory since

there are large variations in soil quality interms of soil texture, pH, and nutrientcomposition and contents.

A new project has recently been imple-mented that will change this, however. CIAThas announced a four year project to con-struct a digital soil map for sub-SaharanAfrica. The map will be made availablethrough an interactive online map, knownas the African Soil Information Service(AfSIS) (http://bioversitylibrary.wordpress.com/2009/02/18/ciat-announces-soil-map-for-africa/). The Tropical Soil Biology andFertility (TSBF) Institute of CIAT, based inNairobi, will lead the work. They will begin bymaking ground observations at 60 so-called"sentinel" sites (areas of 100 squarekilometers) proposed for 21 Africancountries. This will be combined with soilsdata from other sources. This informationis then used to predict soil quality indetailed maps. The information will includecrucial elements like basic compositionand constraints like Aluminum toxicity onacid soils. From this the map will then becontinuously updated and improved as newsoils data are made available. The bestsoils maps in Africa have a resolution ofabout 10 by 10 km. With the new map thiswill be improved to a resolution of 1 ha(100 by 100 meters). Scientists will be ableto post soils data online by the end of 2009.The next step will be to train agriculturalextension workers to interpret and utilizethe soil map for making recommendationsto farmers. This also has a potential thenfor improving the basis for formulation offertilizer recommendations in Malawi.

11) Do current fertilizer recommendationsand use ensure that the soil is treated inthe best possible way?

Farmers’ decisions on fertilizer use willtypically be affected both by the availabilityof information (extension advise, advisefrom others), availability of inputs as wellas their prices, expected output prices andfood needs, and their available resources,including cash. If acidifying fertilizers arecheaper than non-acidifying fertilizers because they are cheaper to produce andgive higher short-term returns to the cashexpenditures than other fertilizers that are

not acidifying and better balance soilnutrient for the future, poor farmers whotend to have high discount rates (meaningthat they think less about future effects)will prefer the fertilizers that give highshort-term returns. If such acidifyingfertilizers also are subsidized, this willenhance the use of such acidifyingfertilizers. Both Urea and CAN areacidifying Nitrogen fertilizers that are subsidized by the government program formaize and tobacco production. Althoughthese are less acidifying N-fertilizers thansulfate of ammonia and ammoniumnitrate, the effect can be substantial inproduction systems where maize is mono-cropped or rotated with tobacco on acidicsandy soils (like in Kasungu). From a sustainability perspective it may then makemore sense to subsidize only the non-acidifying basal dressing fertilizer sothat its short-term yield effect is as good

as for the acidifying N-fertilizers. But it isalso very important to enhance the use oforganic manures. Subsidized seedpackages for N-fixing legumes likegroundnuts, beans, soyabeans and pigeonpeas may therefore be defended onenvironmental grounds (reducing the needfor N-fertilizers). These are valuable inrotation or as intercropped with maize, and on health/nutrition grounds (valuablesources of protein). It could even berelevant to put an environmental tax onthe most acidifying N-fertilizers. One mayalso think of alternatively using subsidiesor provide credit to stimulate livestockproduction that can enhance positive crop-livestock interactions.

Here it is relevant to ask how the currentfertilizer subsidies affect the use of alter-native organic fertilizers. In our surveys inKasungu and Zomba we included questions

on this to the farmers we interviewed. Theresponses revealed that about 26.5% ofthe households saw a clear link betweenfertilizer use and manure use. Manuremaking and use was considered labor-in-tensive and therefore many preferredfertilizer if that was available through thedistribution of coupons. Many householdsthat received fertilizer coupons thereforeindicated that this allowed them to spendless labor on making manure. Many alsostated that because they received very fewor no coupons for fertilizer, they insteadprepared manure as an alternativestrategy. Ownership of livestock improvedaccess to manure and some saw the needto complement the limited access tofertilizers with extra use of manure. Wemay conclude that fertilizer subsidies maypotentially crowd out the use of manure,particularly for households that face laborconstraints and lack livestock. At the sametime these may be among the poorerhouseholds who also potentially may beforced to sell their fertilizer coupons.

12) How does Yara ensure that smallfarmers have necessary information tomake the best possible use of fertilizers,and how is this communicated to endusers that does not read?

It is unrealistic and not preferable that Yarashould have such a role. Farmers arebetter served by a research and extensionsystem that partly may be driven byfarmers’ own organizations. Yara’s roleshould be to provide relevant informationto the researchers and possibly farmers’organizations. Yara only provides the basicrequired information on the fertilizer bagsthat they deliver. In some countries theymay provide some additional leaflet infor-mation. Besides that they only provide theinformation to their partnership organizations that are responsible for disseminating this information.

13) Does Yara provide information aboutthe cheaper products and advantages ofalternatives, like other products thanmaize or organic farming, to the Govern-ment of Malawi and to small farmers?

Yara has developed its new fertilizerproduct as explained already. Yara is not in


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Fertilizer subsidies may reduce the use of manure for many small farmers. Photographer: Dragana Vasic


a position to tell GoM what crops should begrown in the country and should clearlynot be expected to be an authority of organic farming since organic farming doesnot accept the use of mineral fertilizers.Yara has supported the MAP with focus onpublic-private partnership for cotton andrice production in Malawi. The core custo-mers of ARL in Malawi are producers ofsugar, tea, cotton, rice, coffee, tobacco andmacademia and are commercial farmers.

3.3. YARA’S BUSINESS RELATIONS

14) What kind of relationship does Yara havewith providers of seeds and pesticides toMalawi (cooperation on products or isadvice on prioritization of plants only pro-vided by seed producers)?

Yara’s value chain and partnership approach implies that they interact withtheir partners on how to identify the bottle-necks and opportunities that should bedeveloped. Yara may engage in supportingsuch activities where feasible. Yara doesnot directly engage in partnerships withseed or pesticide producers. The seedindustry for maize seeds is a separateindustry and delivers the maize seedpackages for the subsidy program and EUand Government of Norway covered muchof the cost of this seed component for the2008/2009 year. Yara supports the GreenRevolution initiative for Africa (AGRA) andsees the combination of provision of seedsand fertilizers as important elements toenhance land productivity in Africa. Thevalue chain approach also implies that theysee the need for development of betterstorage facilities for small farmers so thatthey are able to store their products for aperiod to achieve a better price than justafter harvest. This would help reduce post-harvest losses and improve their bargainingpower towards the buyers of theirproducts. This may also be linked to abetter system for financing storage andrelaxing the liquidity constraints thatfarmers may face. The cotton and ricedevelopment partnerships in Malawi areexamples where Yara has played a role.

15) What relationship does Yara have withthe local fertilizer company in Malawi(competition or capacity-building)?

It is not clear what local fertilizer companythat is indicated but it may be the fertilizerfactory that a Taiwanese company hasattempted to establish until recently. Thecompany has now given up as therelationship between the Malawian andTaiwanese governments has beenterminated and the plant is for sale butthere are no interested buyers (VictoriaKeelan, pers. com.). Yara is no longer a direct fertilizer distributor in Malawi asexplained earlier. ARL has signed a contractwith Yara International, becoming theexclusive agent for Yara’s products in the country. ARL also has a distributionagreement with Yara. ARL is one of manyimporters of fertilizer to Malawi. Two otherorganizations (ADMARC and SFFRF) areresponsible for the import and distributionof subsidized fertilizers to smallholders,especially for maize.

Yara has not played an important role in therecent expansion of the maize productionin the country through the fertilizers subsidy program. This is an outcome of thepolitical decisions made by the GoM as wellas ARL not getting any of the fertilizercontracts with GoM. These changes make itless relevant for Yara to spend moreresources in Malawi, especially after thefinancial crisis which at least temporarilyhas reduced the profits in the fertilizerindustry, reduced the global demand forfertilizer and reduced the internationalfertilizer prices. The politics involved in thefertilizer program in Malawi makes it bothdifficult and highly risky for a company likeYara to establish a distribution network. Inthis perspective it therefore makes moresense for Yara to invest in the BeiraAgricultural Growth Corridor which mayfacilitate fertilizer supply to severalcountries in a more efficient way.

3.4. ENVIRONMENTAL, HEALTH AND SOCIAL DIMENSIONS

16) Does Yara get involved in activities inMalawi beyond its core business, likewater management, irrigation, drinkingwater, seeds and pesticides?

The type of activities that Yara hassupported that may not directly be seenas their core business in Malawi is the

support to AICC and establishment ofvarious public-private partnershipsthrough MAP. Sean de Cleene, who is thevice president of the Global BusinessDevelopment and Public Affairs at Yara wasinvolved in founding the AICC, was based inMalawi for a period and then engagedmore heavily with the local partners there.

17) Do Yara’s activities or products causeany environmental problems in Malawi?

Fertilizers applied at the wrong place at thewrong time can cause environmentalproblems but the high price of fertilizersprovided by Yara, especially since Yara doesnot supply any of the subsidized fertilizers,are likely to reduce the probability of exces-sive use. Yara also supplies some of theacidifying nitrogen fertilizers that arecheaper than other fertilizers and this canbe bad on acid soils. However, ARL claimsthat these fertilizers are only used on thelakeshore soils where soil pH is very high(sugarcane production). It is a generalproblem for farmers, extension agents, thefertilizer industry, the GoM, and donorsthat no good data exist that are easilyavailable on the soils in the different partsof the country such that more location-specific recommendations can be made.The potential negative effects of currentfertilizer use are therefore also unknown.The plan to prepare easily available soilmaps in many countries in SSA, includingMalawi, is a welcome exercise.

18) Does Yara realize its responsibility toprotect natural resources for instancein catchment areas for water supplies,or does it perceive this as the responsi-bility of the GoM?

The main activity of Yara that hasenvironmental, health and therefore socialdimensions is its development of afertilizer that has a better composition forsustainable maize production. Some of theproblems with the existing fertilizers arethat they are not well balanced in thecomposition of nutrients, not all nutrientsare easily released for the crops, and theyare acidifying the soils to varying degree.The new fertilizer is better with respect toall these three properties. It is considereda better alternative than the 23-21-0-4S

basal dressing that is now used for maize.The composition is 23-10-5-3S-2.5Mg-1Zn.Sulfur (S) and Zink (Zn) deficiencies havebeen found to be common in soil samplesin the country. According to Victoria Keelan,ARL, the new fertilizer should increasemaize yields particularly by filling themaize cobs better towards the ends. Itshould also have positive effects on healthby strengthening the immune system ofpeople. ARL and Yara think that the bestwould be to use it instead of the Ureatopdressing which also has an acidifyingeffect. The fertilizer has been developedand tested at a research station in Malawiover the last 6 years and the compositiongradually modified. Trials are also set upwith well known farmers. Also the currentand former PS of Ministry of Agricultureare trying this new fertilizer at their farms,according to Keelan. When I contacted theDirector of Research in MoAFS, however,she had no specific knowledge of thisfertilizer, and indicated that this fertilizerhas to go through the national system fortesting etc. before it could be recommendedfor use. ARL is currently selling smallamounts of this new fertilizer from itsdepots in the country at commercial (un-subsidized) prices. Yara’s involvement onthe environmental side is otherwiseprimarily linked to their support of a GreenRevolution for Africa where they emphasizethe need for increase land productivity toprovide food security and to conservecarbon in the soils given the climate changesituation (Arne Cartridge, pers. com.).

The basic problem is that the betterfertilizers may be a bit more expensive,especially more expensive than theacidifying nitrogen fertilizers like Sulfate ofAmmonia, Ammonium Nitrate, CAN andUrea. However, these acidifying fertilizerswill have long-term negative effects on theproductivity of the soils that are acidic. Thiswill especially be the case on such soils forfarmers with very small farm sizes andwhere most of the area is used for maizeproduction every year (mono-cropping) andif they have little organic manure to applyin combination with the fertilizers. Sub-sidizing such fertilizers is therefore reallyquestionable but currently Urea for maizeand CAN for tobacco are subsidized. TheSulfate of Ammonia is used for production

of sugarcane along the lake shore wheresoil pH is very high, that may not be tooproblematic.

In our survey we asked the householdswhat their perceptions were of the residualeffects of fertilizers as already discussed inpart 2 of the report.

19) How does Yara look at the agriculturalsubsidy scheme that has been estab-lished in Malawi?

Yara realizes the need for better incentivepackages to increase land productivity inAfrica and the GoM has achieved this withits targeted subsidy program. Still, Yarahas a mixed feeling about the subsidyscheme as it has a number of dilemmas;like the need for tender processes thathave their problems; use of subsidies andtheir financing has problems, subsidiesmay create dependencies; and there arecorruption risks. The volatility of prices offertilizers also contributes to uncertaintiesabout the costs of subsidies. GoM is alsoclimbing a steep learning curve in how tohandle the targeted subsidy scheme butappears to have been successful inreaching small farmers. The G8 have nowpromised more funds to stimulate small-holder agricultural production in Africaand that sets the stage for moreinvestment in agricultural production(Arne Cartridge, pers. com.).

3.5. CORPORATE SOCIAL RESPONSIBILITYYara International has declared itself as aglobal responsible citizen since 2007(http://citizenship.yara.com/en/citizens-hip_approach/index.html). Yara puts itselfinto a global sustainable developmentperspective with a focus on energy,climate, food and health, issues that werehigh on the agenda in 2007 when food andenergy prices reached very high levels andthe awareness of the impacts of humanactivities on the global climate wasstrengthened through the studies by theIntergovernmental Panel on ClimateChange (IPCC) and the UN ClimateConference in Bali. Based on this Yaradeclares on its webpage: “Throughout the company we drive performance not onlythrough operational excellence and profitable

growth but also through developing ourpeople to meet high health, safety,environmental, ethical and social standards.We aim to work with our stakeholders,partners and communities to promote sus-tainable corporate practice. Our being asignatory to the UN’s Global Compact is atestament to that commitment”.

Furthermore it states:“Within this volatile and challenging globalframework of politics and economics,ecology and technology, Yara is developingits strategy for sustainable businessdevelopment, closely interlinked with adetermined global environmental focus,linked to sustainable agriculture. Thecompany sees global corporate citizenshipas key to its future success, and recognizescommitment to society as being closely tiedto commercial focus. In short, Yaraconsiders corporate citizenship as a long-term opportunity rather than a short-termliability. It will help the company to createshared value for stakeholders and society atlarge, while building momentum towardssustainable agriculture and a sustainablefuture.”

As part of its global strategy YaraInternational established the YaraFoundation for an African Green Revolutionin 2005. The objective of the foundation is tosupport the African Green Revolution. Thefoundation is also responsible for awardingthe Yara Prize since 2005 to honor workthat increases food productivity, securityor availability through improvements infood systems, advancements in sustainableagriculture and development of localmarkets. The prize consists of a financialgrant of USD 100,000, a diploma and atrophy. The prize aims to encourageinnovation and entrepreneurship (http://www.yara.com/sustainability/africa_pro-gram/the_yara_prize/). The receivers ofthe Yara Prize have been the EthiopianPrime Minister Meles Zenawi in 2005,Celina Cossa from Mozambique andFidelis Wainaina from Kenya in 2006,Akinwumi Adesina from Nigeria andJosephine Okot from Uganda in 2007, andFlorence Wambugu from Kenya and VictorMfinanga from Tanzania in 2008. Thisdemonstrates a strong focus on Africa andpromotion of a Green Revolution in Africa.


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In 2009 the Yara Prize was awarded to PeterMunga, Chairman of Equity Bank in Kenyaand the National Smallholder Farmers’ Association of Malawi (NASFAM) for theirtransformational contributions to thereduction of hunger and poverty in Africa.The explanation for selection of NASFAM isthat it has been playing a key role inachieving Malawi’s recent progress. It hasgiven farmers an effective voice in policynegotiations, built their commercialcapacity, catalyzed the development of a successful agricultural commodity exchange and promoted the use of sustain-able agricultural practices (http://allafrica.com/stories/200907210876.html).Arne Cartridge, Secretary General of theYara Foundation states the following: "Mak-ing progress against some of the world’s

most ambitious development goals startswith the smallholder farmer. Both EquityBank and NASFAM are prime examples of alocally driven value chain approach thatengages farmers directly, increases theiryield and improves access to markets. Bothof the winners of this year’s Yara Prizedeserve praise and recognition for helpingto innovatively strengthen agricultural valuechains and increase Africa’s food security."

Yara has since 2006 participated in theUnited Nations Global Compact and hasworked towards implementing its tenprinciples throughout the organization inthe areas of human rights, labour, theenvironment and anti-corruption.(http://en.wikipedia.org/wiki/United_Nations_Global_Compact).

Yara’s Africa Program supports the AfricanGreen Revolution by focusing on businessdevelopment, in particular through public-private partnerships and aims to act as acatalyst in designing and establishingpartnership projects on the Africancontinent. Yara is involved in such projects inGhana, Malawi, Mozambique and Tanzania.Yara established a value chain project in2007 that aims to build on the success ofMalawi’s fertilizer subsidy program (http://www.yara.com/sustainability/africa_program/partnerships/malawi/).

Yara International has supported theAfrican Institute of Corporate Citizenship(AICC) in Malawi to promote public-private partnerships. In a Memorandumthat Yara has submitted to the House of


Improved profitability of agriculture is central to reduce the rural poverty level. Photographer: Dragana Vasic


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Commons International DevelopmentCommittee in relation to the inquiry intothe Department for InternationalDevelopment (DFID) Annual Report 2008,it states among others:

“4. We share with the Committee the concernthat funding agricultural development hasnot been sufficiently prioritised and thatdonors have shifted their focus to othersectors. We believe that improving theprofitability of agriculture is central toreducing rural poverty levels, which is neces-sary to meet the United Nation's MillenniumDevelopment Goal of tackling overall poverty.DFID needs to recognise this objective in itsfunding allocations, in the priorities it sets inits Country Assistance Programmes and inthe agreements in reaches with recipients ofbudget support for priorities in allocatingthose funds.”

And “19. African farmers lack financing to buycritical inputs such as fertilizers and high-yield seeds. The donor countries wouldhelp Africa by focusing much more onhelping African farmers to gain access to theinputs they need for higher productivity. Anexemplary model is Malawi's voucher programme for smallholder farmers, whichgives impoverished farmers in Malawi theaccess to a modest amount of fertilizer andimproved seeds per household, at an afford-able price. DFID is one of Malawi's biggestdonors, and continues to support the voucherprogramme. In Malawi the fact that DFID donot have an agricultural advisor or growthand livelihoods advisor in the country meansthat their role, though beneficial, has lessdepth than otherwise would be the case. Thisis particularly so in terms of ensuring thatthese kinds of agricultural subsidy voucherschemes can be developed into smart sub-sidies that promote private-public sectorgrowth orientated partnerships along theagricultural value chain. It would seem tous that at present there is unprecedentedsupport for a multi-sector approach to scaling up agricultural production in Africabut this requires an investment from DFID onthe ground to promote and drive sustainableinitiatives that can go to scale.

20. Contrary to views held by certain NGOs,what African farmers need is not to reduce

fertiliser use from nine kilograms a year tonone; they need to increase it from nine to 50 to meet the commitment made byagricultural scientists in Africa through theNew Economic Partnership for AfricanDevelopment (NEPAD). As fertiliser usageincreases across the continent there ishowever a critical need for a joined up ap-proach to educating farmers as to appro-priate use of inputs and to develop thecapacity of local agro dealer networks andextension service delivery officers to ensurefertilisers are applied appropriately and inmoderation in a way that is suited to theneeds of local environments” (http://www.publications.parliament.uk/pa/cm200809/cmselect/cmintdev/220/220we17.htm).

This shows that Yara International has acommitment to promoting a GreenRevolution in Africa and largely representsthe same kind of strategy as proposed byJeffrey Sachs, Pedro Sanchez and otherproponents for the “big push” approach todevelopment. They believe that we havesufficient knowledge and that it is largelyabout providing sufficient funds and ifthose are provided for a long enough period, the “take-off” will come. While thisidea is far from new it has gained newsupport recently and private funding hasalso increased substantially recently withthe entrance of the Gates Foundation andalso other private donors as a complementto the public donors’ contributions. Theletter to DFID also reflects Yara’s criticalassessments of the fertilizer subsidy pro-gram in Malawi and DFIDs role there asone of the major supporting donors.

It is definitely a step in the right directionthat private companies, like Yara, signalthis kind of support and demonstratestheir public concerns. Still, private as wellas public actors should always be criticallyassessed in order to make them improvetheir actions. However, one should notforget that these are profit-makingcompanies that have clear implications forwhat roles they should be given and notgiven in society. Promotion of healthycompetition in the private sector may beone important way to prevent privatecompanies from taking advantage of theirmarket power. Having governmentregulations and public institutions with

special responsibilities for agriculturalresearch, extension and information dissemination, and risk and safety net pro-grams, are other important mechanismsas one cannot expect private companiesto always behave as neutral agents whenthis is in conflict with their profit-makinginterests.

Another area which could be important tofocus on is how Yara operates in thecountries where its fertilizers are producedor extracted. Phosphate fertilizers aremainly extracted in a few countries inNorthern Africa. Many multi-nationalcompanies that are involved in resourceextraction in Africa, like oil, gas anddiamonds, are known to have usedunscrupulous methods, like Shell andChevron in the Niger basin, as some of theperhaps worst case examples. Going intothese issues is also beyond this study. But this should be an area of high concernfor the Norwegian Government that is promoting Oil for Development and withStatoil as one of the operators in Africaand the scandal with Norsk Hydro in Libyathat was revealed when it was merged withStatoil in 2007. Although Yara is not directlyinvolved in phosphate extraction/production in Africa, it was recentlyrevealed that it has bought phosphate from Western Sahara even though such purchases have been banned by theNorwegian Government (http://www.afrol.com/articles/16718, http://www.vest-sahara.no/index.php?cat=71&art=1073). Morocco, which controls more than 50% ofthe phosphate reserves in the world, alsocontrols large phosphate reserves in theoccupied territories in Western Sahara.


4. CONCLUSIONSWe may conclude that the commercial roleof Yara International in Malawi hasdiminished after it pulled out of the retailbusiness in the country and thegovernment-led fertilizers-seed subsidyprogram was re-introduced from 2005/06and to date. Currently it supplies less than10% of the fertilizers to the country andmost of these fertilizers go to commercialgrowers and are sold at unsubsidizedprices. The report focuses on the importance of fertilizers for small farmersand how the fertilizer subsidy programhas affected smallholders. Overall, it hascontributed to improved household foodsecurity by stimulating national maizeproduction at a lower market price andhas even lead to export of maize toneighboring countries. This is importantfor all net consumers of maize in thecountry.

The very high international prices forfertilizer and oil have caused the nationalexpenses on the subsidy program to haveescalated from about 50 million USD in2005/06 to above 300 million USD in2008/09 and this is a substantial drain onnational funds. The targeting efficiency ofthe program seems not to have improveddue to corruption and rent-seeking be-havior and there is a risk of increasingtensions and problems if or when the pro-gram is to be scaled down. Errors ofinclusion and errors of exclusion in theprogram are still large and there are nosigns of incremental improvements ofthese aspects of the program over the lasttwo years. Rather, the elections havecontributed to a deterioration of the program.

The unofficial markets for coupons andsubsidized fertilizers contribute to thetargeting errors but also reflect that thepoorest households that receive couponsprefer to sell them at a low price ratherthan using them to obtain cheap fertilizers.This also means that the buyers of couponsand cheap fertilizers are those that reapthe lion’s share of the benefits from thefertilizer subsidies. It implies thatfertilizers are transferred to more efficientproducers who have the necessarycomplementary inputs (land, labor, skills).A general subsidy on basal dressingfertilizers that have no negative effects onthe soils may have achieved the same at alower social cost and with much lessgeneration of rent-seeking and corrupt behavior which currently appears to attracta lot of innovative agents and lead to adecay of moral standards. These agentswould have to go for more productiveactivities if these rent-seeking optionswere unavailable. There may also be betterways to reach the poorest of the poorhouseholds that lack complementaryresources to be able to utilize fertilizers.

It is not yet known how the fertilizer sub-sidy program will work in a situation whenMalawi again faces severe droughts.Certainly maize production will be severelyaffected by a severe drought that hits inone year and the buffer stock from theprevious year will provide some protection.The timing of the drought will affectwhether and how much fertilizers havebeen applied and partly lost or retained forthe following season.

The narrow focus on fertilizers for maizeproduction may crowd out organic

manures and other crops than maize thatmay be produced with less use of externalinputs. Some fertilizers are alsocontributing to soil acidification butnational fertilizer recommendations andthe subsidy program does very little to dealwith these issues.

Yara International has demonstrated a willingness to engage itself to promote aGreen Revolution in Africa. Currently, itsinvolvement in developing growth corridorsto improve the market access of land-locked countries, like Malawi, may be themost important as this could lead to betteraccess to inputs at more affordable prices.Besides that Yara has engaged in partner-ship collaboration with local organizationswith a crop and value chain approach toimprove input access and profitability ofcrop production. The establishment of theYara Foundation and the Yara Prize alsosignals the commitment to promotingAfrican development. NASFAM receivedthe 2009 Yara Prize together with PeterMunga, Chairman of Equity Bank in Kenya,and this should also be a stimulation ofagricultural development in Malawi. Yara isalso giving strong emphasis on itsCorporate Social Responsibility andparticipation in the UN Global Compact.This is a long-term commercial strategy ofYara, and is founded on a holistic valuechain and partnership approach. Publicfocus on the way Yara operates in practicemay therefore help to improve how thecompany operates and should educatepersons inside the company and create ahigher moral standard for how to conducttheir business. This can also be a goodexample for other MNCs operating inAfrica.


RECOMMENDATIONSWhat the Government of Malawi shouldbe encouraged to do1. Since the current president andgovernment have committed to continuethe targeted fertilizer subsidy program,pressure should be put on them to improvethe system of targeting by improving thetransparency and accountability to reducecorruption and leakages. There exist nogood excuses for continuing the currentflawed system which breeds corruption.This can be done by:a. Providing full public access to the registry

of all households and targeted house-holds at local level to eliminate ghosthouseholds. This information should beput up on the wall at a public place inevery village.

b. Develop clear criteria for who should be

targeted with explicit prioritization ofthese criteria to allow assessment ofthe existence of targeting errors.

c. Provide full information about the print-ing of coupons to the Logistic Unit anddevelop a system to avoid printing offalse coupons and prevent misuse ofcoupons.

d. Make ADMARC accountable for moneycollected from households in relation tothe targeted fertilizer subsidy.

e. Identify a way that organized export ofmaize through ADMARC can be used torecover some of the large costs of the2008/09 fertilizer subsidy program. MakeADMARC fully accountable for this acti-vity and follow up with careful auditing.

2. The government should test out alternativemethods of reaching the poorest households.

Poor households are a heterogeneousclass because they have a portfolio of assets and face risk and liquidity constraints. a. Allow poor households that cannot

utilize the fertilizer coupons themselvesbecause they are labor- and cash-poorto cash in the coupons or buy food forthem instead so that they can get ahigher share of the subsidy benefit.

b. Establish a system for Work-for-fertilizer for labor-rich and cash-poorhouseholds that have land and can uti-lize fertilizer efficiently but lack the cashto buy it. After drought years, it may bemore relevant to replace or combine thiswith Food-for-work.

c. Involve the communities themselves andNGOs and civil society to identify projects that can benefit from such local

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Maize is the mail staple food in Malawi. Photographer: Thea Dehlie


labor mobilization and in organizationof such Work-for-fertilizer schemes.This should be a good way of buildingsocial capital as well as physical capital(infrastructure, health, school, orphancare-taking, etc.).

d. Establish an alternative low-cost foodstorage system to tackle futuredroughts. This could be encouraged byproviding cuttings of improved cassavavarieties to poor households and legumeseeds for intercropping with cassava.E.g. each household could be advised toplant at least 0.1 ha with cassava as afood safety bank and provided freelegume seeds (soyabeans, pigeon pea,cowpea, beans, and/or groundnuts) as a reward. Cassava can be stored for several years in the ground and couldbe replanted from own cuttings after-wards. It produces a high yield withoutfertilizer, and can be an important energysupplement while the legumes provideprotein. This could substantially improvethe food security of cash- and labor-poorhouseholds and especially so in droughtyears and when maize prices go veryhigh.

3. The government should give priority todeveloping a better system for fertilizerrecommendations which takes intoaccount the local variation in soils by build-ing on the new initiative by CIAT to developbetter soil maps for Africa.

4. The government should pay closerattention to the possibility of obtaining improved fertilizers and use the fertilizersubsidy program to target fertilizers thatdo not acidify the soils

5. The government should give moreemphasis to crop diversification to reducethe vulnerability of the country to droughts,to reduce the costs of keeping a strategicfood reserve, and to reduce thedependence on donor assistance.

What donors including NORAD should beencouraged to do1. Donors should put more pressure onthe government to reduce the leakage andcorruption problem that has not beenproperly dealt with by the government.a. This can be done by requiring trans-

parency and accountability and seriousefforts to arrest the problems that causelarge leakages and targeting failures.

b. Targeting donor funds such that theyare more likely to achieve the intendedobjectives of the donor support i. A general fertilizer subsidy on e.g. basal

dressing would stimulate productionand lead to lower food prices and thusbenefit all net consumers with muchless bureaucracy and corruptionproblems than the current targetedsubsidy program.

ii. Collaboration with Civil society orga-nizations (NGOs) may be developedto achieve more successful targetingof the poorest of the poor and tobuild local social capital with strong requirements for transparency, accountability and professionalismin execution of the work. This would require establishment of bettermoni-toring and evaluation systemsin combination with a piloting systemto test alternative approaches withefficient incremental learning. Suchpiloting projects could include establishment of cassava-legumegardens as an alternative low-costfood reserve for poor households,work-for-fertilizers schemes forcash-poor and labor-rich households.

2. Donors may support the development ofa better system for provision of fertilizerrecommendations that are adjusted to thelocal soil qualities. Neutral expertiseshould be used in assessing the best wayto do this, including assessing the newfertilizers that Yara has developed. Buildingnational competence to take advantage ofthe new soil map for Africa that is in theprocess of being developed by CIAT, improving it by providing additional soilanalysis information, and developing asystem for development of location- andcrop-specific fertilizer recommendations,may be something that could besupported. A dialogue with the GoM wouldbe required to start this. Stronginvolvement of Farmers’ own organizationswould also be crucial.

3.Donors should carry out careful studiesof the performance of ADMARC in relationto the execution of the targeted subsidy

program and the new role as sole largetrader and exporter of maize in 2009. Itshould be investigated how this could beused to recover some of the large costs ofthe fertilizer subsidy program in the2008/09 season on behalf of the GoM.

What NCA and other NGOs/civil societycan doNCA can operate at the local and nationallevels in Malawi as well as interact with theRoyal Norwegian Embassy and NORAD inNorway and perhaps even have some influence on Yara International in Norway(I am doubting the latter). In Malawi, NCAcan have a useful role as a watchdog andcollaborator with local civil society organizations that advocate and promotetransparency, accountability and profes-sionalism by local (traditional) authorities,government officials, private businesses,and civil society organizations. NCA mayalso assess the extent to which it can getmore involved in alternative approaches totarget poor households stimulatinginvestment in public goods by mobilizinglocal labor resources and providingcomplementary inputs. They should alsobe in a good position to develop safetynets in collaboration with localcommunities and build social capital.Piloting a system with household levelfood banks in form of cassava-legumeplots could be something to explore as alow-cost insurance system in cased offuture droughts. This could be related toestablishment of safety nets includingWork-for-fertilizer and Food-for-worklinked to investment in local public goods,teaching of sustainable agriculturalmethods linked to the seed packages thatthe Royal Norwegian Embassy hassupported, and in collaboration withFarmers’ organizations. To maximize thelearning and facilitate scaling up, it is advisable to get strong professional backingin relation to design of pilot experiments,monitoring and evaluation/impact assess-ment.

REFERENCES

REFERENCESBistandsaktuelt (2008). Norsk gjødsel-enevelde i Afrika. Bistandsaktuelt 7/2008, p. 12-14.

Chinsinga, B. (2005). Practical and Policy Dilemmas of Targeting FreeInputs. In Levy, S. (ed.), Starter Packs: A Strategy to Fight Hunger inDeveloping Countries? CABI Publishing, Cromwell Press, Trowbridge,UK.

Crawford, E. W., T. S. Jayne, and V. A. Kelly (2006). Alternative Approaches for Promoting Fertilizer Use in Africa. Agriculture andRural Development Discussion Paper 22. The World Bank, Washington, D. C.

Curtis, M. (2007). Aprodev Project: The Impact of Economic Liberalization on Hunger-prone People. Malawi Case Study. Final version from consultant.

Denning, G., P. Kabembe, P. Sanchez, A. Malik, R. Flor, R. Harawa, P.Nkhoma, C. Zamba, C. Banda, C. Magombo, M. Keating, J. Wangila,adn J. Sachs (2009). Input Subsdies to Improve Smallholder MaizeProductivity in Malawi: Toward an African Green Revolution. PlosBiology 7, 1. www.plosbiology.org

Devereux, S. (2002). “State of Disaster: Causes, Consequences & Policy Lessons from Malawi.” June. Action Aid Malawi, Johannesburg.

Donovan, G. (1996). Agriculture and economic reform in sub-SaharanAfrica. AFTES, Working Paper 18. The World Bank, Washington, D. C.

Dorward, A., E. Chirwa, V. Kelly, T. Jayne, R. Slater, and D. Boughton(2008). Evaluation of the 2006/07 Agricultural Input Subsidy Programme, Malawi. Final Report. Study undertaken for the Ministryof Agriculture and Food Security, Malawi, DFID, USAID and FutureAgricultures Consortium.

FAO (2008). Current world fertilizer trends and outlook for 2011/12.United Nations Food and Agriculture Organization, Rome.

Government of Malawi (2008). Malawi Growth and DevelopmentStrategy. From Poverty to Prosperity 2006-2011. Summary.Government of Malawi, Lilongwe.

Holden, S. T.(1991). Peasants and Sustainable Development -the Chitemene region of Zambia - Theory, Evidence and Models.Unpublished dissertation submitted for the degree DoctorScientiarum (PhD). Department of Economics and Social Sciences,Agricultural University of Norway, Ås.

Holden, S. T. and Shanmugaratnam, N.(1995). Structural Adjustment,Production Subsidies, and Sustainable Land Use. Forum ForDevelopment Studies 2, p.247-266.

Holden, S. T.(1993). Peasant household modelling: Farming systemsevolution and sustainability in northern Zambia. AgriculturalEconomics 9, 241-267.

Holden, S., Lofgren, H. and Shiferaw, B. (2005). Economic Reformsand Soil Degradation in the Ethiopian Highlands: A Micro CGE Modelwith Transaction Costs. Paper presented at the InternationalConference on Policy Modeling (EcoMod2005), Istanbul, 29th June-1st July, 2005.Levy, S. (ed.) (2005). Starter Packs: A Strategy to Fight Hunger inDeveloping Countries? CABI Publishing, Cromwell Press, Trowbridge,UK.

Logistic Unit (2009). Monitoring report for 2008/09. Logistic Unit,Lilongwe.

Menon, R. (2007). Famine in Malawi: Causes and Consequences.Occasional Paper, Human Development Report Office, UNDP, NewYork.

Morris, M., V. A. Kelly, R. J. Kopicki, D. Byerlee (2007). Fertilizer Usein African Agriculture: Lessons learned and good practice guidelines.The World Bank, Washington, D. C.

Owuvu, K. and F. Ng’ambi (2002). Structural damage. The causes andconsequences of Malawi’s food crisis. World Development Movement,London.

Pender, J., E. Nkonya, and M. Rosegrant (2004). Soil Fertility andFertilizer Subsidies in Sub Saharan Africa: Issues andRecommendations. International Food Policy Research Institute,Washington, D. C.

Pretty, J. (1999). Can Sustainable Agriculture Feed Africa? NewEvidence on Progress, Processes and Impacts. Environment,Development and Sustainability 1, 253-274.

Ricker-Gilbert, J. and T. S. Jayne (2008). The Impact of Fertilizer Subsidies on National Fertilizer Use: An Example from Malawi. Paper presented at the American Agricultural Economics AssociationAnnual Meeting, Orlando, July 27-29, 2008.

Sachs, J. D., J. W. McArthur, G. Schmidt-Traub, M. Kruk, C. Bahadur,M. Faye, and G. McCord (2004). Ending Africa’s Poverty Trap. Brook-ings Papers on Economic Activity 1.

Sanchez, P. (2002). Soil fertility and hunger in Africa. Science, Volume 295.

Shalit, H. and H. Binswanger (1984). Fertilizer subsidies: A review ofpolicy issues with special emphasis on Western Africa. Discussionpaper ARU No.27. Research Unit, Agriculture and Rural DevelopmentDepartment, World Bank, Washington, D. C.

Øygard, R., R. Garcia, A. G. Guttormsen, R. Kachule, A. Mwanaumo, I.Mwanawina, E. Sjaastad, and M. Wik (2003). The Maze of Maize: Improving Input and Output Market Access for Poor Smallholders inSouthern African Region, the Experience in Zambia and Malawi.Department of Economics and Resource Management, NorwegianUniversity of Life Sciences, Ås.

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Interviews with persons and organizations during 3-11/5-2009

May 4th Ms.Idrissa Mwale Ministry of Agriculture, Food Security Unit

May 5th Households Village in Kasungu

May 5th Hastings Yotam Director, Kasungu ADD

May 5th Hastings Kalima Catholic Commission for Justice and Peace (CCJP) Mobile: 09295514

May 5th Shanton Shaba Agricultural Resources Ltd., Kasungu Depot (distributor of Yara fertilizers)

May 6th Victoria Keelan Managing director, Agricultural Resources Ltd., [email protected] Lilongwe head office. Mobile: 09960314

May 6th Chandiwira B. Chisi Program manager, Malawi Economic Justice Network [email protected] 0888395476Farmers’ Association of Malawi (NASFAM)

May 6th Mathews K. Zulu Farm Service Manager, National Smallholder [email protected]

May 6th Kinsley Makyoni Business and Marketing Manager, NASFAM

May 7th McDonald Njobvu Agribusiness and Marketing Manager, [email protected] Union of Malawi

May 7th Yona Kampahale Rodwel Nsonde, Director of Economic Planning, Deputy Director of Economic Planning, Ministry of Economic Planning and Development

May 7th Gerard Chigona Acting Country Director, NCA

May 8th Charles Clark Logistic Unit, Fertilizer and Seed Subsidy Program, [email protected]

May 8th Augustine Chikuni Marita Sørheim-Rensvik, Norwegian Embassy

May 8th Travel to Zomba with the survey team

May 9th Donex A. Chakoma Land Resource Desk Officer, Ngweleroe, Mayaka Mobile: 0884423696

May 9th Survey in Zomba

May 10th Return to Lilongwe

Date Person Organization Contact details

INTERVIEW

INTERVIEW WITH ARNECARTRIDGE AND SEAN DE CLEENEFROM YARA INTERNATIONAL

NCA: What has been the role of Yara inMalawi over the last three years?

A. Cartridge: For the last three years Yarahas played a smaller role in Malawicommercially than it did before 2006.However, in terms of partnerships we havebeen more active in Malawi during thatperiod than we were previously - pro-moting the role of smallholders within theagricultural value chain. Starting with theSustainable Agri Business Initiative (SABI),which has transformed more recently intothe Malawi Agricultural Partnership(MAP).

In the past, Yara’s Africa business wasmore made up of a series of disparateentities that had built up over time. Morerecently Yara has seen the need to developa more integrated regional structurebuilding on its strength as a wholesaler.Consequently, Yara pulled out of an activedistribution role in markets such asMalawi where a management buy-out waseffected by Agricultural Resources Limited(ARL), and started to build a regional hub

approach. In so doing we have also seen itas important to play a role in helping tosupport the development of the wideragricultural sector as a whole. In thiscapacity Yara is involved in a number ofpublic-private value chain and growthcorridor partnerships projects in Ghana,Malawi, Mozambique and Tanzania. In2007 in Tanzania, Yara established a valuechain partnership, the TanzanianAgricultural Partnership, which was thenreplicated in Malawi in 2009. It looks tobuild up the capacity of differentagricultural crop specific value chainsidentified as being important in a givencountry.

Yara has also been instrumental indeveloping the Agricultural GrowthCorridor partnership model. Thedevelopment of the Beira AgriculturalGrowth Corridor (BAGC) in Mozambiqueis an example of such a public-privatepartnership. This particular growthcorridor builds on the backbone of one ofSouthern Africa’s main transport routeswith the road and railway network linking

Malawi, Zambia, Zimbabwe andMozambique to the Indian Ocean throughthe Beira port. The concept of AgriculturalGrowth Corridors was launched at the UNGeneral Assembly meeting in New York inSeptember 2008. This was followed-up bya high level roundtable meeting jointlychaired by Yara and the Alliance for aGreen Revolution (AGRA) at the WorldEconomic Forum in Davos in January2009, at which it was agreed to fast-tracka process where Mozambique should takea leading role in developing the BAGC.Follow-up stakeholder meetings havebeen held in Maputo in March and August2009 as well as January 2010, and at WEFAfrica in Cape Town in June 2009.

These meetings were held to mobilizelocal partners and identify priority invest-ments and the scope for coming up with amulti-stakeholder plan of action. YaraInternational is looking into the possibilityof developing bulk fertilizer handlingterminals both in Beira port and Dar esSalaam ports, which would act as anchorinvestments into the corridor.

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For Norwegian Church Aid it has been important to give representatives for Yara a possibility to respond to the mainissues that were raised in the research-report. The following interview with Arne Cartridge and Sean De Cleene fromYara Norway was done by Helene Hoggen and Merete Skjelsbæk from Norwegian Church Aid.


In the last years there have been enough rain in Malawi for giving stability in the agricultural sector (Photo: Hege Opseth).

INTERVIEW

These investments and the wider corridorinitiatives are meant to help reduce trans-portation costs, increase transportationcapacity and improve regional andinternational market access for bothsmaller and larger farmers alike.

In the current situation with both hungerand population size continuing to increaseand with issues such as climate changeand water management starting to take onmore urgency, we need to be asking our-selves as a company – is there a role wecan play? Can we be part of the solution?Part of Yara’s mandate to date has beenpushing for agriculture to be at the for-efront of international discussions.Furthermore we need to work - along withother stakeholders - in achieving large-scale, on the ground, transformativechange to ensure the development ofefficient and sustainable agricultural valuechains works to the benefit of all.

NCA: How will Yara achieve capacity buildingthrough a public-private partnership ap-proach in Malawi? And regarding greenrevolution; there are some dilemmas with asubsidy program, for instance that they willeat up the funds for other issues?

Sean de Cleene: A key capacity-buildingrole is through the development of theMalawi Agricultural Partnership (MAP).MAP, which began in mid-2009, wasdeveloped in active consultation with arange of stakeholders including theGovernment of Malawi, NASFAM, FarmersUnion of Malawi, Bunda Agricultural Uni-versity, the Natural Resources College, I-LIFE, Research into Use among othersand is formalized in an agreement betweenthe African Institute of Corporate Citizen-ship (AICC) and NORAD. MAP currentlyconsists of a three-year plan, whichincludes catalyzing a cotton value chaindevelopment partnership, establishing arice value chain partnership, developing avalue chain support component and pro-moting the general development andsupport for broader commodity partners-hips with the aim to improve efficiency andprofitability of all partners in the valuechain, including smallholder farmers. Animportant next step will be linking thevalue chain partnerships promoted

through MAP into the Governments GreenBelt Initiative or the Agriculture GrowthCorridor strategies.

On subsidies Malawi is an interesting casein point. The Malawi government led thewider African subsidy debate through itsactions of deciding to subsidize inputs. Thesubsidy program itself has been a lear-ning journey for the government in Malawias well as others involved in the processincluding Yara.

The background for the current situation isthat in the late 1990s and in early 2001-2Malawi faced a particularly challengingsituation with several periods of droughtand food shortage having a significantnegative impact on the development of thecountry as a whole. In recent years througha combination of subsidy support and goodrains Malawi has achieved significantlymore stability in the agricultural sector.

With more stable food security a key nextstep is to develop the capacity ofagricultural value chains, which are oftenoverly complex and uncompetitive in adeveloping country context. The challengeis that as the subsidy program in Malawidevelops it is important to have a clearroadmap for getting to where one wants togo – that is to develop smart subsidies thatplay an active role in promoting sustainableand widespread agriculture sector growthfor the country. A lot of the discussion, inMalawi, is on this point – that is how do youconvert the current subsidy approach intosmart subsidies to make them moreeffective or appropriate. The governmenthas done a continuous re-evaluation of thesubsidy program, with a number ofchanges to the original approach havingbeen undertaken, but would probablyadmit there are more changes that couldbe made.

Yara does not “support” or “not support”the Malawi subsidy program. We feel thereis generally a need to be looking at how weuse incentives in a smart way such thatthey promote responsible growth and cutout the scope for malpractice. Subsidy forinputs or outputs is one option. Innovativefinancial mechanisms that promote re-sponsible business development is

another, this may be in the form ofchallenge funding, patient capital,guarantee funds etc that are targeted atbringing smallholder farmers actively intoexisting value chains while crowding-inearly stage agricultural investment alongthose same value chains. Increasing thescope for microfinance and small-scalefinance (including insurance) that is ap-propriate to the needs of smallholderfarmers is also key if agriculture is todevelop. Ensuring there is capacity to linksmall scale farmer groups into in-frastructure networks in support of ini-tiatives such as the Malawi GovernmentGreen Belt initiative, is also key.

Basically the critical challenge in bringingthis about is to realise that effective changeis beyond the scope of any one individualplayer and we need to be actively workingtogether on this. Rather than taking a con-flicting view we should be looking to workout how we can bring our different andrelevant skills to the fore in such a way asto optimize responsible agriculture sectorgrowth in Africa in a way that benefits allfarmers in Africa. In this capacity,partnerships and multi-sectorengagement at various levels is critical.Equally is the need for developing thoseindependent and neutral facilitator andpartnership brokerage institutions, at thelocal level, that can bring the variousparties together to promote a transfor-mative approach to agriculturaldevelopment.

It is important to note that in Africa thereare also a large number of subsistencefarmers who will need significant supportover the coming years to either developinto becoming small-scale commercialfarmers or be in a position to migrate outof subsistence farming altogether. NGOsshould advocate for separate safety netsfor the very poorest of these subsistencefarmers in order to help them make thetransition beyond subsistence farming andensure they are in a better position toabsorb exogenous shocks brought about bychallenges such as climate change.

A Cartridge: If we are to double productivityby 2050 to meet anticipated global demandwhilst addressing challenges like

40


population increase, climate change andwater management, then in that contextmore funds should be targeted to reachsmall holder farmers. The G8 have nowpromised more funds to stimulate small-holder agricultural production in Africaand sets the stage for more investment inagricultural production. If subsidiescontinue, more attention needs to be madeon developing smart subsidies that pro-mote both improved food security as wellas widespread agricultural growth.

There are a lot of dilemmas in relation tosubsidies: How do you create a sustainableplatform? How do you mitigate againstfluctuations and volatility in prices thatcontribute to the cost of subsidies? How doyou develop smart subsidies that promotegrowth across the whole sector? TheGovernment of Malawi has been on a steeplearning curve in how best to handle thetargeted subsidy scheme, but appears onthe whole to have been relatively success-ful in reaching small farmers.

NCA: Is Yara committed to its relations inMalawi? How does Yara engage theGovernment on the above issues?

S de Cleene: If Yara was not activelyengaged in Malawi over the longer term, itprobably would just have quit the marketwhen it was not selected for the fertilizersubsidy program in Malawi neither in 2006,2007, 2008 nor 2009. However, Yara hasstayed committed and has hosted orfacilitated discussions involving a numberof key stakeholders to look at whatdifferent ways exist to develop agriculturevalue chains in Malawi and maximizeefficiencies in a way that work best for thecountry as a whole.

On important issues in Malawi we havealso supported is the development of thelocal fertilizer association in order for themto speak on behalf of the whole industry. Itis important that the private sector,government, donors and civil society talkand find common ground on which nationalprogress can be made. Yara looks toactively work with a number of institutionsin the value chain and sees this as an im-portant feature of our partnership ap-proach in Malawi, as Yara does in other

countries where we have adopted apartnership approach, such as Tanzania,Ghana and Mozambique.

NCA: How does Yara reach smallholders?

A.Cartridge: Yara generally does not sell tofarmers directly, but tends to act as awholesaler product to procurement agentsor retailers. Yara will then traditionallypass on information to its agents orpartners. At the same time, in weakermarkets where there is less informationavailable to farmers generally, we haveseen the need to promote a value chainpartnership approach. This is how Yara canhave a wider impact. And this is why Yarahas chosen to work through initiativessuch as the Malawi Agriculture Partners-hip, which includes farmers’ organizationssuch as NASFAM and local agents such asARL so that if support or additional infor-mation is seen as needed there is an in-stitutional framework locally that canfollow through on this.

NCA: Is there any information about theproduct on the packages?

A Cartridge: Product information is madeavailable mainly on the bag. In somemarkets Yara will use printed material inaddition to the bags.

NCA: Does Yara make assessments on howwell information reaches consumers inMalawi?

No formal assessments have been madeby Yara regarding consumer information inMalawi. This is in part a consequence ofYara not being included in the governmentfertilizer subsidy program and not having alarge smallholder farmer market. Yarahowever sees the role of smallholderfarmers as crucial to Malawi’s future anda key part of any future business model. InAfrica, if global challenges (climatechange, food security and water scarcityetc) are to be addressed, it is vital thatproductivity and efficiency among small-holders is increased and that public-private partnerships are developed in sucha way as to support farmers in gettingaccurate and informed knowledge ofproducts and the markets they operate in.

In Malawi, the fact that there is already afairly strong retail network together with astrong network of support institutions, forinstance the farmer organization NASFAM,means effecting these kinds of partners-hips should be easier.

NCA: How does Yara plan to market the newfertilizers into Malawi?

For the last five years Yara has been work-ing with government institutions to look atthe development of a more appropriatebalanced fertilizer formula and approachthat takes into account soil and plantneeds, cost efficiency and the need forincreased micronutrient exposure such asZinc for health related purposes. This needfor a balanced fertilization strategy issomething that Yara sees as critical tomanage challenges brought about by soildegradation, water scarcity and climatechange related issues.

www.nca.no e-mail: [email protected]. no.: +47 22 09 27 00 Fax no.: +47 22 09 27 20Street address: Bernhard Getz' gate 3, 0165 Oslo, Norway Postal address: P. O. Box 7100 St. Olavs plass, 0130 Oslo, Norway Account no.: 1594 22 87248

Norwegian Church Aid is an ecumenical organization that is mandated by the churches ofNorway and founded in the belief that all human beings are created in God’s image as equalswith the same basic rights and obligations. Norwegian Church Aid works in a comprehensiveway, through churches, church-based, faith-based and value-based organizations in order tosave and protect lives, develop sustainable living conditions, and influence the attitudes andactions of the wealthy and powerful.

Norwegian Church Aid’s mission is to manifest God’s love in the world by challengingindifference, improving the living conditions of the poor and promoting basic human rightsregardless of gender, political beliefs, religion or ethnic origin. Norwegian Church Aid basesits work around the five core values: compassion, global justice, human dignity, inclusivecommunities and the integrity of Creation.

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