Monday, December 3, 2007

Fertilizer in Malawi

Developing countries like Malawi are beginning to turn away US aid, (previously discussed here). In part because much of it comes in the form of free food that makes it harder for farmers within the country to make enough to live, since they compete with free food.
To address mass hunger issues Malawi has gone against the advice of the World Bank and other economists and reinstated a fertilizer subsidy program. The program seems to have been a success (according to this NY Times article). The $70 million investment yielded an extra $120 million in corn production, although the returns may have been helped by good weather conditions.

I think the article might be a bit hard on the World Bank here. I tried to find places where the World Bank recommended ending the subsidy program, but all I found is a positive review of the program (here) and a report (here) that suggests some success, but problems with distribution to the poorest farmers.

Are subsidies a long term solution to development? Perhaps not if development require moving away from agriculture. But the described impact against hunger makes it hard to argue with the results.

1 comment:

rjgitter said...

I read the article and wondered if perhaps the writer missed something in terms of market failures. The farmers could more than make up for the cost of the fertilizer in increased yield and revenue. So why the need for government intervention? Perhaps the idea is incomplete markets. There may not be an effective (or even ineffective) credit market in Malawi. Hence, if farmers cannot borrow to purchase the fertilizer, then either the government lends the funds or subsidizes.

But being critical of the World Bank certainly makes the front page of the Sunday NYT>