Agric ricultura ral I Input S Subsidy bsidy P Pro rogra rams - - PDF document

10/31/13 ¡ 1 ¡

Eye on Africa Seminar, MSU African Studies Center

Nicole M. Mason (MSU/AFRE), T.S. Jayne (MSU/AFRE), & Rhoda Mofya-Mukuka (IAPRI)

Agric ricultura ral I Input S Subsidy bsidy P Pro rogra rams s in in T Theory ry a and in d in P Pra ractic ice: The C Case se o

• f Z

f Zambia bia

31 October 2013

Input subsidy programs (ISPs) in Africa

§ Cornerstone of many countries’ agricultural

sector & poverty reduction strategies

§ 2011: 10 SSA countries spent US$1 billion on ISPs (29% of public spending on ag; 60% of SSA population) (Jayne & Rashid 2013a)

§ Fertilizer, hybrid seed at subsidized prices § ISP objectives:

§ Increase access to and use of modern inputs § Raise crop yields and production § Improve food security and reduce hunger § Raise incomes and reduce poverty

1

10/31/13 ¡ 2 ¡

We’ve been here before …

§ Universal ISPs common until 1980s/early 1990s § Scaled back – structural adjustment § Renaissance over last decade (targeted/universal)

§ 2003: AU Maputo Declaration / CAADP – 10% of national budget to agriculture § 2006: AU Abuja Declaration – “member states … must improve farmers’ access to fertilizer, by granting …targeted subsidies …with special attention to poor farmers” § 2007: Morris et al. – “smart subsidies” - “if subsidies are to be used to promote fertilizer use, they should be market- smart”

2

• 1. ISP is part of a wider strategy
• 2. Support market development / private sector

investment

• 3. Promote competition
• 4. Pay attention to farmer demand
• 5. Insist on economic efficiency
• 6. Put farmers in the driver’s seat
• 7. Have an exit strategy
• 8. Pursue regional integration
• 9. Ensure sustainability
• 10. Pro-poor

3

Smart subsidy criteria (Morris et al. 2007)

10/31/13 ¡ 3 ¡

Outline

§ Zambia’s ISPs over last decade

§ Objectives, design, implementation, impacts

¨

How do these compare to “smart subsidy” concepts and how has this affected outcomes?

§ How to redesign to better achieve objectives?

§ N. Mason, T.S. Jayne, and R. Mofya-Mukuka.

• 2013. “Zambia’s input subsidy programs.”

Agricultural Economics

http://onlinelibrary.wiley.com/doi/10.1111/agec.12077/abstract

4

Zambia’s ISPs since 2002/03

• 1. 02/03-08/09: Fertilizer Support Programme (FSP)

§ 400 kg fertilizer, 20 kg hybrid maize seed § Uniform package § Farmers pay 20-50% of market price for inputs

• 2. 09/10-present: Farmer Input Support Programme

(FISP)

§ Pack size halved § Rice, sorghum, groundnuts, cotton recently introduced (small quantities, few districts)

Smart subsidy red flags?

• 3. 00/01-present: Food Security Pack Programme

5

10/31/13 ¡ 4 ¡

10 20 30 40 50 60 70 80 90 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 Fertilizer subsidy rate (%) MT of subsidized fertilizer Subsidized fertilizer (MT) Fertilizer subsidy rate (%)

Fertilizer distributed through FSP/FISP

6 Source: MAL (2012). Note: *2013/14 MT is preliminary estimate. Despite decline in MT, # of beneficiaries is still 900,000.

Smart subsidy red flags?

6

ISPs = large share of gov’t spending

§ 2011: US$184 million (0.8% of GDP)

7

FISP 30% FRA 56% Other 14%

% of total ag sector spending

FISP 34% FRA 64% Other 2%

% of ag sector Poverty Reduction Program spending

Smart subsidy red flags?

Sources: MFNP (2012), IMF (2012)

10/31/13 ¡ 5 ¡

Objectives

§ Improve household and national food security § Raise incomes and reduce poverty § Increase small-scale farmers’ access to inputs § Build private sector capacity

8 Source: MACO (2008); statements by Min. of Ag. And Livestock

Selection criteria for FISP beneficiaries

• 1. Capacity to cultivate 0.5 ha of maize
• 2. Small-scale farmer (cultivate <5 ha)
• 3. Ability to pay farmer share of inputs costs

§ US$15 for 10 kg of hybrid maize seed § US$38 for 200 kg of fertilizer (2012/13)

• 4. Cooperative member
• 5. Not receiving Food Security Pack

 Will come back & evaluate how pro-poor

9 Source: MAL (2012)

10/31/13 ¡ 6 ¡

How FISP works – input distribution

§ Input suppliers selected through national tender

process à transport inputs to gov’t FISP depots

§ Through 2012/13, same 2 companies every year

§ Representatives from farmer cooperatives pick up

inputs from gov’t FISP depots à to beneficiary farmers

§ Local agro-dealers not involved in FISP

Smart subsidy red flags?

10 Source: MAL (2012)

What we did

• 1. Use nationally-representative HH survey data to:
• a. Compare HH characteristics to FISP criteria
• b. Identify the factors affecting kg of FISP fertilizer

received (regression analysis)

• 2. Synthesize empirical evidence on FISP:
• 1. Targeting
• 2. Effects on farmer behavior & economic well-being
• 3. Political economy

11

10/31/13 ¡ 7 ¡

FISP recipients vs. eligibility criteria

(2010/11 agricultural season)

12

§ 30% of smallholder HHs eligible for FISP § 30% of smallholder HHs received FISP fertilizer

BUT 21% of recipients technically ineligible

§ Mainly due to not being coop member (53% of ineligible) and/or cultivating 5+ ha (33%)

§ Targeting performance fairly good based on

eligibility criteria

Source: Mason et al. (2013a)

How well did FISP target poor HHs?

(2010/11 agricultural season)

13

Ha cultivated % of total HHs $1.25/day poverty rate (%) % of total HHs below $1.25/day % of total FISP fertilizer 0-0.49 17.0 78.4 17.7 2.5 0.5-0.99 23.6 83.2 26.0 13.0 1-1.99 31.9 80.6 34.1 29.6 2-4.99 23.5 65.8 20.5 41.0 5-9.99 3.3 37.9 1.7 10.7 10-20 0.6 14.8 0.1 3.2 All HHs 100 75.5 100 100 77.8 72.5 45.1

Source: Mason et al. (2013a)

54.9

10/31/13 ¡ 8 ¡

Better to target larger farms because they produce more maize per kg? No!

14

Farm size (ha) AP of fertilizer (kg/kg) 0-0.99 3.73 1-1.99 3.48 2-4.99 3.52 5-9.99 3.68 10-20 3.46

Sources: Burke et al. (2012a), Ricker-Gilbert et al. (2013)

Also little effect on maize prices: on average, FISP reduces retail prices by < 3%

14

Factors affecting receipt of FISP fertilizer

15

Sources: Mason et al. (2012, 2013a)

§ HHs w/ more land and/or livestock get more § HHs closer to towns/roads get more § HHs in const. won by the ruling party get more

10/31/13 ¡ 9 ¡

Rural poverty rates, Zambia: 1996 - 2010

82 83 78 80 78 10 20 30 40 50 60 70 80 90 1996 1998 2004 2006 2010 Rural poverty rate (%)

16 Source: CSO (2009, 2011) 17

Input subsidy impacts

• n smallholder behavior

& economic well-being

10/31/13 ¡ 10 ¡

Crowding out & diversion reduce FISP impact on total fertilizer use

18

§ FISP fertilizer crowds out/displaces commercial

fertilizer purchases

§ Crowding out less among poorer HHs

§ 1/3 of fertilizer intended for FISP diverted & resold

• n commercial markets

§ è gov’t injects 1 MT fertilizer for FISP into system

à 0.54 MT increase in national fertilizer use

§ Crowding out also an issue w/ subsidized seed

Sources: Mason & Ricker-Gilbert (2013); Mason & Jayne (2013)

FISP fertilizer effects on fertilizer use, crop production, & fallow land

19

§ Small, positive effects on:

§ Fertilizer application rate on maize (kg fert./ha maize) § Maize area planted, yields, & kg harvested (1.9 kg/kg)

§ No stat. sig. effect on area to other crops § Small, negative effect on area under fallow

Sources: Mason et al. (2012); Mason et al. (2013a)

10/31/13 ¡ 11 ¡

Why such low maize – subsidized fertilizer response rate (1.9 kg/kg)?

• 1. Crowding out (Mason & Jayne, 2013)
• 2. Late delivery (Xu et al., 2009)

§ to 20-30% of beneficiaries § Late delivery halves maize-N response rates

• 3. High soil acidity (Burke et al., 2012b)

§ > 90%+ of maize fields have pH < 5.5 § Maize-fertilizer response rates 50-67% lower on highly acidic soils

20

FISP seed generally improves indicators of economic well-being

21

§ FISP subsidized hybrid maize seed 

§ é maize production (106 kg) § é HH income (1.1%, US$32) § ê prob. that below US$2/day poverty line (0.7 p.p.) § ê severity of poverty (poverty gap2, 0.8 p.p.) § ê relative deprivation (income “inequality”, 0.4%)

Source: Mason & Smale (2013). Changes are per 10 kg of subsidized hybrid maize seed.

10/31/13 ¡ 12 ¡

Do FISP benefits outweigh the costs?

22

§ Costs = farmers costs + net costs to government § Benefit-cost ratios:

§ Profitable if BCR > 1 è (Benefits > Costs) § Fertilizer (Jayne et al., 2013)

¨ 2006/07-2010/11 BCR = 0.90

§ Seed (Mason & Smale, 2013)

¨ BCR generally > 1

Does FISP win votes for ruling party?

23

§ No, but ruling party’s share of votes increases with

reductions in:

§ Poverty § Income inequality § Unemployment

§ 2006 & 2011 elections

Sources: Mason et al. (2013b)

10/31/13 ¡ 13 ¡

Policy implications: is FISP the most cost-effective way to achieve objectives?

§ Some key objectives of FISP are: improving food

security, raising incomes, reducing poverty

§ Need to consider other means of achieving these

goals (empirical evidence needed!)

§ No empirical evidence that FISP wins votes … but

program is unlikely to be eliminated

§ à How can Zambia’s ISPs be redesigned/

reformed to better achieve their objectives?

24

Policy implications: how to make Zambia’s ISPs more pro-poor?

§ Persistently high rural poverty despite heavy

spending on input subsidies

§ Fertilizer going disproportionately to better-off HHs, reduces impact on poverty

§ Focus FISP on HHs cultivating 0.5-2 ha

(60.1% of HHs below $1.25/day poverty line)

§ Scale up Food Security Pack to target <0.5 ha § Note: maize-fertilizer response rates similar

across farm sizes à targeting smaller farms shouldn’t jeopardize national food production (Burke

et al., 2012a)

25

10/31/13 ¡ 14 ¡

Policy implications: incorporate other “smart-subsidy” principles

§ Fertilizer component of FISP not cost-effective

§ Crowding out/diversion, late delivery, and soil acidity reduce impact on maize production

§ Support market development/private sector

investment; promote competition; pay attention to farmer demand; insist on economic efficiency; put farmers in the driver’s seat

§ Better targeting to reduce crowding out § E-voucher to crowd in private sector, potentially improve timeliness of delivery and reduce diversion § Open up e-voucher to lime, inputs/equipment for other crops, livestock, fish

26

Policy implications: incorporate other “smart-subsidy” principles (cont’d)

§ FISP as part of wider strategy; promote regional

integration

§ Incorporate/promote other complementary technologies/management practices through FISP and improved extension, more ag R&D § Invest in infrastructure to reduce farmgate prices for inputs and increase farmgate prices for output, and to promote regional integration § Reduce FISP (and FRA) budget to create fiscal space

§ Need an exit strategy & increased emphasis on

program sustainability

27

10/31/13 ¡ 15 ¡

Thank you for your attention! Questions?

Nicole M. Mason http://www.afre.msu.edu/people/mason masonn@msu.edu MSU Dept. of Agricultural, Food, & Resource Economics http://www.afre.msu.edu/ Indaba Agricultural Policy Research Institute http://www.iapri.org.zm/index.php Food Security Research Project http://fsg.afre.msu.edu/zambia/index.htm

28

References

Burke, W. J., Jayne, T. S., Sitko, N. J., 2012a. Can the FISP more effectively achieve food production and poverty reduction goals? Food Security Research Project Policy Synthesis No. 51. Accessed March 2013, available at http://fsg.afre.msu.edu/zambia/ps_51.pdf. Burke, W. J., Jayne, T. S., Black, R., 2012b. Getting more ‘bang for the buck’: Diversifying subsidies beyond fertilizer and policy beyond

• subsidies. Food Security Research Project Policy Synthesis No. 52. Accessed March 2013, available at

http://fsg.afre.msu.edu/zambia/ps_52.pdf. Central Statistical Office (CSO), 2009. Living Conditions Monitoring Survey 2006 Draft Report – Chapter 12, Poverty. CSO, Lusaka, Zambia. CSO, 2011. Living Conditions Monitoring Survey Report, 2006 and 2010. CSO, Lusaka, Zambia. International Monetary Fund (IMF), 2012. Zambia 2012 Article IV consultation. IMF Country Report No. 12/200. Accessed March 2013, available at http://www.imf.org/external/pubs/ft/scr/2012/cr12200.pdf. Jayne, T. S., Mather, D., Mason, N. M., Ricker-Gilbert, J., 2013. How do fertilizer subsidy programs affect total fertilizer use in sub-Saharan Africa? Crowding out, diversion, and benefit/cost assessments. Agric. Econ. doi: 10.1111/agec.12082. Jayne, T. S., Rashid, S., 2013a. Input subsidy programs in sub-Saharan Africa: A synthesis of recent evidence. Agric. Econ. doi: 10.1111/agec. 12073. Jayne, T. S., Rashid, S., 2013b. Input subsidy programs in sub-Saharan Africa. Presentation at the IFPRI-MSU workshop on Input Subsidy Programs in Sub-Saharan Africa: Methods, Findings, and Implications for Policy. IFPRI, Washington, DC. April 16, 2013. Mason, N. M., Jayne, T. S., 2013. Fertilizer subsidies and smallholder commercial fertilizer purchases: Crowding out, leakage, and policy implications for Zambia. Journal of Agricultural Economics, in press. Mason, N. M., Jayne, T. S., Myers, R. J., 2012. Smallholder behavioral responses to marketing board activities in a dual channel marketing system: The case of maize in Zambia. Selected paper prepared for presentation at the International Association of Agricultural Economics Triennial Conference, Foz do Iguaçu, Brazil, 18-24 August, 2012. Accessed March 2013, available at http://ageconsearch.umn.edu/bitstream/126927/2/MasonEtAl.pdf. Mason, N. M., Jayne, T. S., Mofya-Mukuka, R., 2013a. Zambia’s input subsidy programs. Agric. Econ. doi: 10.1111/agec.12077. Mason, N. M., Jayne, T. S., van de Walle, N., 2013b. Fertilizer subsidies and voting behavior: Political economy dimensions of input subsidy

• programs. Indaba Agricultural Policy Research Institute Working Paper, in press.

Mason, N.M., Ricker-Gilbert, J., 2013. Disrupting demand for commercial seed: Input subsidies in Malawi and Zambia. World Dev. 45, 75–91. Mason, N.M., Smale, M., 2013. Impacts of subsidized hybrid seed on indicators of economic well-being among smallholder maize growers in

• Zambia. Agric. Econ. doi: 10.1111/agec.12080.

Ministry of Agriculture and Cooperatives (MACO), 2008. Fertilizer Support Programme Internal Evaluation. MACO, Lusaka, Zambia. Accessed March 2013, available at http://www.aec.msu.edu/fs2/zambia/tour/FSP_Internal_Evauation_2008.pdf. Ministry of Agriculture and Livestock (MAL), 2012. Farmer Input Support Programme Implementation manual, 2012/2013 Agricultural Season. MAL, Lusaka, Zambia. Ministry of Finance and National Planning (MFNP), 2012. Estimates of Revenue and Expenditure: Activity Based Budget, 2011. Government Printer, Lusaka, Zambia. Morris, M., Kelly, V. A., Kopicki, R. J., Byerlee, D., 2007. Fertilizer Use in African Agriculture: Lessons Learned and Good Practice Guidelines. World Bank, Washington, DC. Ricker-Gilbert, J., Mason, N. M., Darko, F., Tembo, S., 2013. What are the effects of input subsidy programs on maize prices? Agric. Econ. doi: 10.1111/agec.12081. Xu, Z., Guan, G., Jayne, T. S., Black, R., 2009. Factors influencing the profitability of fertilizer use on maize in Zambia. Agric. Econ. 40, 437-446.