US embassy cable - 04LILONGWE1089

UNCLAS SECTION 01 OF 02 LILONGWE 001089 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S A. GALANEK 
STATE FOR EB/IFD/OMA F. CHISHOLM 
STATE FOR EB/IFD/ODF L. SPECHT 
STATE PLEASE PASS TO TREASURY FOR INTL AFFAIRS/AFRICA/L. 
KOHLER 
 
E.O. 12958: N/A 
TAGS: ECON, EAGR, EAID, EFIN, MI, Economic 
SUBJECT: SHIFTING HANDOUTS FOR MALAWI'S FARMERS 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
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SUMMARY 
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1. (SBU) The GOM has changed its approach to providing 
subsidized inputs to subsistence farmers.  The new plan will 
provide seed and fertilizer packages to 2 million 
families--twice the amount planned earlier--and free 
fertilizer to another 500,000, at a total cost of MK3.68 
billion ($34.4 million).  The plan will exceed the budgeted 
amount for agricultural inputs by MK1.2 billion ($10.1 
million), which the GOM hopes to make up for with a larger 
contribution from donors and savings from a smaller purchase 
of commercial maize.  The plan is so late being decided upon 
that it may be overtaken by the onset of Malawi's rainy 
season.  End summary. 
 
 
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WELL-LAID PLANS VS. POPULIST DEMANDS 
------------------------------------ 
 
2. (SBU) Upon coming into office in the dead of winter 
(June-July), the newly elected government had planned a 
modest agricultural input subsidy program: a Targeted Input 
Program (TIP) package for a million farmers.  The TIP package 
would consist of 25 kg of fertilizer, 5 kg of maize seed, and 
2 kg of pulse seed.  As spring approached, though, the demand 
for additional fertilizer subsidies elicited a promise of a 
voucher program for 50 kg of half-price fertilizer targeted 
at 500,000 farmers.  This was the result of rising fertilizer 
prices and demands from opposition politicians who consider 
universally subsidized fertilizer prices to be practically a 
basic human right in Malawi.  (The politicians, largely from 
the opposition Malawi Congress Party, argued that singling 
out poor farmers for subsidies amounts to discrimination; 
everyone should enjoy cheap fertilizer.)  Settling on a 
targeted voucher program for only 500,000 of the neediest 
farmers represented a significant political compromise. 
 
 
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TIME FOR PLAN B 
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3. (U) The voucher program quickly ran into implementation 
problems.  The Ministry of Finance ultimately took the 
program away from the Ministry of Agriculture and combined 
the two programs (TIP for 1 million and fertilizer voucher 
for 500,000) into a single TIP for two million farmers.  The 
popular cry for a pure fertilizer subsidy continued, though, 
and in mid-November the GOM announced that a voucher program 
for 500,000 would happen after all. 
 
4. (U) The voucher program faces several potential problems. 
First is timing: the yearly rains have already begun, and 
farmers have a short (several week long) planting window for 
maize.  Second, because the GOM has not coordinated the 
program with commercial importers, there may not be adequate 
fertilizer supplies in Malawi to implement it over the next 
few weeks.  This supply problem will almost surely make the 
price of the program higher as well.  Finally, there is a 
funding gap. 
 
5. (SBU) Though some of the TIP is directly funded by the UK, 
the expansion of the TIP and the addition of the fertilizer 
voucher program have created a budgetary shortfall of MK1.2 
billion ($10.1 million) beyond the figure agreed to by the 
International Monetary Fund's Staff-Monitored Program. 
Finance Minister Goodall Gondwe has suggested that this 
shortfall might be reduced by with a combination of good 
bargaining on fertilizer purchases and a smaller purchase of 
commercial maize.  It may be that, since Gondwe appears to 
view both the maize purchase and the fertilizer voucher 
program as political sops, he sees some budgetary saving 
potential in delaying implementation until the rains have 
made it impossible. 
 
 
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COMMENT: A BALANCING ACT, WITH COMPLICATIONS 
-------------------------------------------- 
 
6. (SBU) The battle over subsidized agricultural inputs is 
indicative of the pressures on the Mutharika government.  The 
political system is accustomed to providing cheap or free 
inputs for subsistence farmers; practically everyone sees 
limiting subsidies as unreasonable, perhaps inhumane, and 
certainly dangerous politically.  On the other hand, 
containing government spending is the imperative of the day 
for Malawi.  The GOM is struggling to balance fiscal 
credibility with political necessity, and the outcome is 
still uncertain.  The difference between Mutharika's success 
and failure may lie in the next rain cloud, or the next tick 
in world oil prices. 
 
GILMOUR