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ZAMBIA: Diminishing Returns on Agriculture Subsidy

Kelvin Kachingwe

LUSAKA, Apr 2 2009 (IPS) - Responding to years of complaints over the management of the Fertiliser Support Programme (FSP), the Zambian government has now proposed that the private sector takes over its running to reduce cases of corruption.

Permanent Secretary in the Ministry of Agriculture and Co-operatives, Isaac Phiri, told the Parliamentary Public Accounts Committee that the government should concentrate on the payment of suppliers while distribution be left to the private sector.

He says this is line with Zambia's broad policy of encouraging private sector participation and competition as well as having the private sector driving the agricultural marketing and input supply system.

"It’s not easy to run the FSP. We want the private sector to play an active role and not the ministry, but we are trying to review the programme," Phiri said.

The FSP was launched in 2002 to enable about 150,000 small-scale farmers to access fertiliser at half price. The number of beneficiaries was later raised to 200,000 and the subsidy increased to cover 75 percent of the cost of fertiliser.

Small-scale farmers play an important role in both Zambia’s agricultural output and the nation’s food security. Although there are no official figures of the number of small-scale farmers, they are estimated at about one million. Even those who have only a small piece of land are expected to provide sustenance not just to their immediate families, but also extended ones.

Dickson Bwaanga, a small-scale farmer in Chongwe district, says if his crop fails, his entire family’s main food source is threatened.

"However, erratic weather, poor soil and faulty seed can all jeopardise a small farmer’s chance of a good yield. To overcome this, fertiliser and good seed are crucial, but these are expensive and only a few small-scale farmers can access the money or credit to buy it," he says.

Against that background, FSP remains a popular initiative in Zambia. By subsidising inputs, the government provides farmers with the opportunity to grow crops. From the government's point of view, it helps to stabilise production and maintain a steady maize price thereby keeping political unrest at bay.

Increasing costs, but production flat

Despite having an immediate impact in the 2002/2003 farming season, with maize production improving so much that some stock was exported, the programme has attracted criticism in recent times.

Yields have barely risen since the jump recorded in the first year of the FSP, in spite of a steady increase in budget allocation. In fact in the 2007/2008 farming season, Zambia's total output dropped to about 1.2 million tonnes of maize, 100,000 less than it had recorded in any of the last six farming seasons.

The government attributed this to floods but observers point out that the country faced the same scenario in the first, bumper, year of the FSP.

The biggest problem with the FSP seems to be not in the concept but the execution. Even its critics agree that small scale farmers need financial support but add that the way the FSP is administered means that the system is open to abuse and inputs often do not reach the intended beneficiaries or are delivered late, thereby delaying planting.

Many small-scale farmers say the system is corrupt. Farmer Organisation Support Programme (FOSP) executive director, Michael Muleba, says the distribution of fertiliser and seed by the Ministry of Agriculture through co-operatives has led to mushrooming of new co-operatives solely to secure inputs.

Muleba says these bogus co-operatives then sell the inputs on at full price to commercial farmers and sometimes export them outside the country. "The best way forward is for government to change the programme operational framework and policy without completely disrupting this support to small scale farmers," he says.

In a recent policy debate, several Members of Parliament challenged the government to devise a better mechanism for distribution of agro inputs under the FSP so that it reaches its intended beneficiaries.

"We have to revisit the FSP because at the rate we’re moving, everyone is politicising it," Katuba MP Jonas Shakafuswa said.

However, other than proposing that the private sector take up the running of the programme, the Agriculture Permanent Secretary did not give any other details of the proposed reforms nor did he give an over-view of the performance of the programme.

Hyde Hantuba, co-ordinator of the Agriculture Consultative Forum, [ID], says one consequence of the government’s direct involvement in the distribution of inputs is that it is, to an extent, stifling private sector development, which in itself is against government policy.

And although there is demand for fertiliser outside of the programme from medium and commercial farmers, which as a group use about 25 percent more fertiliser than the small farmers each year, critics argue that the FSP makes it difficult for small companies to compete.

"The FSP has not promoted private dealer networks. Small dealer networks have to wait until the government has exhausted the year’s inputs because it can’t sell at market rates. It (FSP) depresses the efforts of local dealers and small shops to sell seed and fertiliser inputs at full costs," Hantuba says.

Agriculture researcher Coillad Hamusimbi says there is a need to stimulate market competitiveness and in turn encourage the development of a private sector-led agro-dealer input supply network in agricultural areas, something the current FSP has not done.

"Private sector participation in agricultural input importation, manufacturing and in-country distribution are among the other attendant benefits of a well-planned programme," he says.

This, he says, is in line with the government's long-term policy of encouraging the private sector to take a leading role in the overall development of the agricultural sector in the country.

In a study of fertiliser subsidies and sustainable growth in Malawi, Zambia and Kenya, Isaac Minde and his fellow researchers assert that if subsidy programmes are implemented they should be designed in ways that involve the full range of private importers, wholesalers and retailers.

"Providing tenders to two or three firms can entrench their position in the market, cause other firms to cease making investments in the system or drop [out] altogether," they write, "leading to a more concentrated input marketing system and restricted competition when the input subsidy programme comes to an end."

Fertiliser just part of boosting production

Beyond settling on a role for the private sector, it has been argued that while the government has increased the amount of money allocated to FSP, it continues to hold back funding for other programmes supporting agriculture such as research and development and extension services.

Extension services in particular are important because they teach farmers techniques needed to maximize yields. Methods such as conservation farming have been shown to have a significant impact on production but there are not enough extension officers in the field.

In fact, many blame a lack of investment in extension services for Zambia’s failure to significantly increase maize yields despite the fertiliser subsidy.

However, one option that has proven successful in other Southern African countries such as Malawi is an input voucher system which has improved food security. Rather than government distributing inputs directly, vouchers are given to farmers to obtain subsidised fertiliser from the companies or dealers themselves.

This option was discussed by the Zambian government at the start of the FSP but it was rejected in favour of co-operatives buying the fertiliser from government appointed agents at 50 (now raised to 75 ) percent of the market price.

However, it is clear that the FSP is creating frustration within the agriculture sector. Dropping the programme altogether is not an option. Support to small farmers is vital if poverty-reducing goals outlined in the Fifth National Development Plan are to be met.

Without it, few poor farmers would have access to fertiliser while Zambia’s overall maize output could drop significantly because small farmers are a major contributor to national maize production.

But the question is how to ensure more benefit from the programme. Looking at less corruptible alternatives like a voucher system is one option. However, if the government sees the current system as a useful political instrument, it will be difficult for it to make any meaningful changes to the programmes.


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