Impacts of modifying Malawi’s farm input subsidy programme targeting

The Farm Input Subsidy Programme (FISP) in Malawi was introduced in the 2005/2006 season against a background of bad weather affecting production and resulting in prolonged food shortages. Vouchers are distributed, empowering eligible farmers to exchange them for fixed quantities of inputs at subsidized prices, with the primary purpose of increasing food self-sufficiency of resource-poor smallholder farmers and income through enhanced maize production. Since its inception, there has been a debate at national level about whether the FISP’s potential has been fully exploited with policy makers exploring options to improve the effectiveness of the programme. Proposals, among others, include enhancing productivity by targeting efficient and productive farmers. In this paper, we evaluate the impact of this proposed change to the existing FISP design and implementation mechanisms by utilizing two waves of the Living Standards Measurement Survey - Integrated Surveys on Agriculture (LSMS-ISA) survey merged with historical climate data. We estimate how the demand for agricultural inputs varies according to a variation in the targeting criteria and identify more efficient farmers that should be eligible for the FISP. We observe a significant mismatch between voucher recipients and efficiency; at the district level, for example, most vouchers go to districts characterized by less efficient production. Better targeting criteria result in a modest increase in food expenditure ranging from 0.27% to 0.8% and maize production from 0.2% to 1.3%. The concerns emerging on the equity of the programme are discussed together with some suggestions for spatially diversifying the structuring of the policy and incentivizing crop diversification strategy.