Sunday, 10 November 2013

Donating Debt - Farm Input Subsidies to Farm Input Loans

Malawi's Farm Input Subsidy Programme (FISP) has long been controversial. Apart from the usual fiscal conservative knee-jerk reaction ("spending money on poor people is unsustainable"), quite a lot of research (e.g.) has suggested that, for various reasons - targeting, farmer buy-in, output market weakness, implementation problems - the programme has failed to achieve the results of increased productivity and income. In some cases, the programme appears to have encouraged monocropping, thereby increasing the vulnerability of smallholder farming households and affecting soil fertility. So, the poor households are still poor but as long as the subsidy continues they can probably eek out enough to feed their families (mostly).

In this situation, it is perfectly reasonable to think that something should change. Most governments would probably look at how to make the subsidy more effective or consider scrapping it altogether. It's a brave government that looks at a subsidy programme to provide fertilizer and seeds that has not succeeded in increasing productivity and income and launches the Farm Input LOAN Programme (FILP) to provide fertilizer and seeds to increase productivity and income.

I have an ongoing battle with the idea of any micro-loan scheme because all too often they end up funding things that don't increase income and that really just amounts to donating debt. Lack of access to capital for the poorest can limit growth but it's probably not as bad as handing out loans that people won't be able to pay back. When you have fairly strong evidence that in your particular context in your particular market handing out fertilizer doesn't seem to raise income, why, oh why, would you encourage those who don't have capital, income or resilience to take on debt in order to access fertilizer?

It's a relatively simple equation - farmers can't afford to buy fertilizer so they take on debt to buy fertilizer (at the government's urging) but their income doesn't increase so next season they no only can't afford to buy fertilizer, they now also have debt. I hope the people who think it's unsustainable to spend money on poor people have thought through just how unsustainable that debt cycle is.

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