1 Potential of Input Vouchers as a Mechanism for Integrating the Non-Commercial and Commercial Input Markets: The Case of Malawi By Richard Kachule and Thabbie Chilongo Centre for Agricultural Research & Development Bunda College of Agriculture Paper Presented at FANRPAN Stakeholders Regional Policy Dialogue and AMG Crossroads Hotel, Lilongwe, 2-5 th September, 2008

Presentation Outline BackgroundBackground Purpose and Objectives of the StudyPurpose and Objectives of the Study Major FindingsMajor Findings ConclusionsConclusions RecommendationsRecommendations 2

3BACKGROUND Malawi has had recurring food deficits from mid 1990s Contributing Factors Disasters such as droughts and floods Disasters such as droughts and floods Lack of and/or inadequate use of improved technologies due to poverty Lack of and/or inadequate use of improved technologies due to poverty The impact of HIV/AIDS The impact of HIV/AIDS Poorly managed liberalisation of the markets Poorly managed liberalisation of the markets Insufficient arable land, poor/declining soil fertility Insufficient arable land, poor/declining soil fertility

4 Interventions to alleviate the suffering of those affected by the declining agricultural productivity: Emergency relief programmes Emergency relief programmes The programmes have involved distribution of agricultural inputs The programmes have involved distribution of agricultural inputs principally seeds of various crops and fertilizers principally seeds of various crops and fertilizers Inputs Interventions: Starter Pack Scheme, Targeted Input Program, Input subsidy, Seed Fairs Inputs Interventions: Starter Pack Scheme, Targeted Input Program, Input subsidy, Seed Fairs Funded by: The Government of Malawi, The European Union (EU) and The Department for International Development (DFID)Funded by: The Government of Malawi, The European Union (EU) and The Department for International Development (DFID) Some of the NGOs involved in input interventionsSome of the NGOs involved in input interventions –Canadian Physicians for Aid & Relief (CPAR), Catholic Relief Services (CRS), CADECOM, etc. BACKGROUND (contd)

Thus the input market has roughly been dualistic in nature with both non-commercial (the interventions/distortions) and commercial markets (minus interventions/distortions) running side by side.Thus the input market has roughly been dualistic in nature with both non-commercial (the interventions/distortions) and commercial markets (minus interventions/distortions) running side by side. However, there has been poor integration of commercial and non-commercial input supply systems. For instance, there was an outcry in the 2005/06 subsidy programme that the private sector was not fully involved.However, there has been poor integration of commercial and non-commercial input supply systems. For instance, there was an outcry in the 2005/06 subsidy programme that the private sector was not fully involved. 5 BACKGROUND (contd)

6 PURPOSE & OBJECTIVES OF STUDY Purpose of the study To demonstrate the potential impacts of integrating the inputs delivery systems through an input voucher system which can be used to enhance the purchasing power of the poor while the commercial sector can expand their distribution networks. To demonstrate the potential impacts of integrating the inputs delivery systems through an input voucher system which can be used to enhance the purchasing power of the poor while the commercial sector can expand their distribution networks. Objectives of the study To test the potential benefits of using voucher systems to integrate the commercial and non-commercial input distribution channels. To test the potential benefits of using voucher systems to integrate the commercial and non-commercial input distribution channels. To establish the nature of fraud and to determine anti- fraud measures so that the system is not abused. To establish the nature of fraud and to determine anti- fraud measures so that the system is not abused.

Improved household and national food security (0.5million metric tonnes and 1.3 million metric tonnes surpluses in 2005/06 and 2006/07 respectively)Improved household and national food security (0.5million metric tonnes and 1.3 million metric tonnes surpluses in 2005/06 and 2006/07 respectively) Increased yield from <1 ton/ha up to 2.04 tons/ha.Increased yield from <1 ton/ha up to 2.04 tons/ha. –Increased sales volume by commercial agencies –Program provided an assured market for input dealers –Increased per capita use of inputs (fertilizer and hybrid seed) Small agro-dealers were marginalized because most of them did not participateSmall agro-dealers were marginalized because most of them did not participate 7 MAJOR FINDINGS

8 1.Registration System There was no systematic procedure on registration of beneficiaries There was no systematic procedure on registration of beneficiaries Identification of beneficiaries by VDC Identification of beneficiaries by VDC In some case VDC & Subsidy Committee In some case VDC & Subsidy Committee Most chiefs registered all the people in the village Most chiefs registered all the people in the village 2.Types of inputs and coupons Fertilizer 23:21:0 +4S (NPK + S) and Urea for maize 23:21:0 +4S (NPK + S) and Urea for maize D. Compound and C.A.N for the tobacco D. Compound and C.A.N for the tobacco Maize Seed Hybrid (2kg) and OPV (4kg) Hybrid (2kg) and OPV (4kg) Farmers asking for a minimum of 5kg Farmers asking for a minimum of 5kg

9 3. Quality of inputs and distributors Quality for all inputs was generally said to be good Quality for all inputs was generally said to be good Distribution networks - There were a number of outlets, namely: SFFRFM, ADMARC, Farmers World, Kulima Gold, Chipiku Stores, Individual small-scale agro-dealers, NASFAM Distribution networks - There were a number of outlets, namely: SFFRFM, ADMARC, Farmers World, Kulima Gold, Chipiku Stores, Individual small-scale agro-dealers, NASFAM 4. Logistical problems Mismatch between # of coupons and inputs Mismatch between # of coupons and inputs Much publicity on fertilizer and not seed Much publicity on fertilizer and not seed Mismatch between qty of fertilizer and seed (50kg vs. 2kg) Mismatch between qty of fertilizer and seed (50kg vs. 2kg) Lengthy coupon redeeming process Lengthy coupon redeeming process

10 4. Logistical problems contd More paperwork involved (for suppliers, donors) More paperwork involved (for suppliers, donors) Late planning for the program resulting in late coupon and input distribution Late planning for the program resulting in late coupon and input distribution Lack of supplier identification on the coupons Lack of supplier identification on the coupons Few input distribution points Few input distribution points Conflicting information on who are the intended beneficiaries Conflicting information on who are the intended beneficiaries Pan-territorial input distribution (e.g. CAN vs. Urea in Lower Shire) Pan-territorial input distribution (e.g. CAN vs. Urea in Lower Shire)

11 5. Fraud/Corruption Some companies not registered as input suppliers were offered tenders Some companies not registered as input suppliers were offered tenders Bribes being given at various levels (registration, issuance of coupons and at distribution points) Bribes being given at various levels (registration, issuance of coupons and at distribution points) Ghost names registered Ghost names registered Suspected selling of coupons by chiefs Suspected selling of coupons by chiefs Vendors found with coupons Vendors found with coupons

Despite some of the mentioned challenges, the program was generally a success.Despite some of the mentioned challenges, the program was generally a success. –Food security at national level –Increased use of inputs Input vouchers had shown great potential of integrating commercial and non-commercial input supply systems as demonstrated by:Input vouchers had shown great potential of integrating commercial and non-commercial input supply systems as demonstrated by: –Growth and expansion of private sector business –Increased per capita use of fertilizer Still more room for improvement of integrating commercial and non-commercial systems as the programme favoured large and well-established input suppliers at the expense of small-scale agro-dealers.Still more room for improvement of integrating commercial and non-commercial systems as the programme favoured large and well-established input suppliers at the expense of small-scale agro-dealers. 12 GENERAL CONCLUSIONS

13RECOMMENDATIONS Timely planning of activities: Timely planning of activities: –Beneficiary identification by June –Issue of coupons by August –Issue of inputs by September Need to have a clear targeting criteria Need to have a clear targeting criteria The subsidy package to consider ecological zones The subsidy package to consider ecological zones Coupons to identify suppliers Coupons to identify suppliers Government must ensure that unauthorized and unregistered companies and individuals do not trade in fertilizers and seeds to enhance quality and prevent corruption Government must ensure that unauthorized and unregistered companies and individuals do not trade in fertilizers and seeds to enhance quality and prevent corruption

Small-scale agro-dealers to be supported with capital by their respective association (e.g. AISAM and CNFA) in order to participate in the programme. This will:Small-scale agro-dealers to be supported with capital by their respective association (e.g. AISAM and CNFA) in order to participate in the programme. This will: –Assist in expanding the distribution network; –Eventually reduce distances the beneficiaries travel to input distribution points; and –Assist in building capacity of the agro-dealers. 14 RECOMMENDATIONS (contd)

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