Public Expenditure Review of National Agricultural Input Voucher Scheme (NAIVS) September 2013

Study conducted by: – Department of Policy and Planning (MAFC) – Policy Research for Development (REPOA) – World Bank Purpose: – Review gains achieved – Evaluate gains relative to costs – Summarize lessons

Objectives of NAIVS 1.Raise domestic grain production in order to: – reduce the probability of imports in the face of the 2008 global price increase, and – reduce the rate of food price inflation

Global (and regional) maize prices had sharply increased in 2008 Rising grain prices NAIVS initiated

Objectives of NAIVS 2.Increase adoption rates of improved seed and fertilizer – Introduce potential new adopters to improved seed and fertilizer – Share the risks of experimentation with these inputs – Encourage successful graduation to commercial purchases

Global fertilizer prices (e.g. urea) had increased even more Rising fertilizer prices

Households Targeted Full time farmer Household cultivates less than 1 ha maize & rice Farmer willing to use inputs following recommended practices  Farmer willing and able to pay 50% of the input costs (top-up) Priority Priority given to female headed households, & farmers not using improved seed & fertilizer in previous 5 years ie. “middle class”, not the poorest

Regions Targeted 2009 Planned2013 Actual Iringa Mbeya Ruuvuma Rukwa Arusha Kilimanjaro Kigoma Tabora Manyara Mara Morogoro Iringa/Njombe Mbeya Ruuvuma Rukwa/Katavi Arusha Kilimanjaro Kigoma Tabora Manyara Mara Morogoro Mtwara Lindi Tanga Pwani Dodoma Shinyanga Singida Geita Mwanza Kagera From 2009, the program was being expanded into drier parts of the country, and more outlying areas

NAIVS Strategy 1.Farmer receives 3 vouchers (for 1 acre) – Maize or rice seed – Basal fertilizer (50 kg) – Top dress fertilizer (50 kg) 2.Bring 50% cash top-up to local agro-dealer and trade with voucher for inputs 3.Agro-dealer gets voucher countersigned by DALDO, and redeemed for remaining 50% of input costs at National Microfinance Bank 4.Farmer ‘graduates’ after 3 years of assistance

NAIVS Coverage and Costs SeasonNumber of Households Targeted CostShare of MAFC budget World Bank support (targeted 3 years) 2008/09737,000Tsh 50 b (?)42%0 2009/101,500,000Tsh 115b50% 2010/112,011,000Tsh 122 b44%50% 2011/121,780,000Tsh 127 b49%80% 2012/13940,783Tsh 64 b27%15% In addition, World Bank funding under the Accelerated Food Security Project supported i)strengthening of seed production systems; ii)training of agro-dealers; iii) independent impact surveys.

Implementation Challenges Delays in printing and distribution of vouchers (esp 2011/12 season) Delays in delivery of inputs Delays in payment of agro-dealers & seed & fertilizer suppliers Misallocation/misuse of vouchers

Did the NAIVS improve national food security? 2009/10 to 2012/13 (last 4 years) – Approximately 2.4 million t additional maize Worth about Tsh 840 billion (farmgate = Tsh 350) Worth about Tsh 1.34 trillion (import parity =Tsh 560) – Approximately 71,000 t additional paddy Worth about Tsh 42 billion (farmgate = Tsh600)

Did the NAIVS improve maize and paddy yields (kg/ha)? Average yield gain across all households – maize kg/acre [ave vouchers redeemed 2.5] – rice kg/acre [ave vouchers redeemed 2.2] – Because vouchers were late (or not delivered) Inputs were late Vouchers were shared Voucher were sold

But is the use of improved seed and fertilizer profitable?

NAIVS input package is unprofitable for “average farmer” at 2012 prices

Benefit cost ratio Maize At commercial farmgate prices: -20% to +93% ie. No immediate investment return At import parity prices: -12% to +501% Paddy At commercial farmgate prices: -29% to +50%

Maize Yield Frequency Distribution – 2010/11 17 Fertilizer is profitable  Fertilizer is not profitable

Paddy Yield Frequency Distribution 2010/11 18

Did farmers successfully graduate? 60% of expected graduates (after 3 years) still received vouchers a fourth year – Another family member enrolled? Graduates purchasing inputs without vouchers Previously tried inputsNot previously tried inputs 60% bought improved seed47% bought improved seed 44% bought fertilizer19% bought fertilizer

Key Factors Influencing Return on Investment Fertilizer Use Efficiency (kg grain per kg N) Farmgate cost of inputs – High transport costs; High costs of Late Payment Farmgate Price of grain product – Surplus vs deficit region – Time of sales after harvest

Conclusions NAIVS offers a positive rate of return if this reduces purchases of expensive imported grain – esp maize NAIVS offers little or no return based on domestic farmgate prices for grain surplus households Use the subsidy to reduce dependence on imports, but not to expand exports

Conclusions NAIVS offers a negative rate of return if the subsidy displaces commercial input purchases which would otherwise have taken place --- Once farmers understand the value of a new variety or fertilizer, and can use these inputs well, they should find then profitable, and pay for them on their own

Conclusions NAIVS has contributed to improving adoption of improved seed and fertilizer – based on continuing purchases after graduation Commercial seed and fertilizer companies are optimistic about further commercial market growth

Conclusions Fertilizer is not financially profitable unless fertilizer use efficiency is high – e.g. for better farm managers – Need more extension support – Better targeting of nutrients Investments in speeding the adoption of improved seed offer much higher rates of return than investments in speeding fertilizer adoption

Conclusions Graduation can also be facilitated with improvements in marketing efficiency E.g. – bulk purchase of inputs to reduce cost; – sell inputs when crop sold; – strengthen credit supply; – improved product market efficiency leading to improved prices: warehousing, auctions, etc

One of many input subsidy investments 86%

Footnote: Returns to Seed 290,000 households given 2.5 kg sorghum seed Cost of delivery Tsh 402 million Average yield gain 10% Value of yield gain Tsh 870 million Benefit cost ratio 216% in year one [but benefit cost ratio for same OPV variety in year two is negative] new Returns to public investment in getting new varieties to farmers are very high