Smallholder Fertilizer Project
Malawi agricultural sector is dualistic. A modern plantation (estate) sub-sector under private management produces export crops (tobacco, sugar and tea) and had registered a growth rate of 10% between 1973 and 1982. The other sub-sector is the smallholder traditional sub-sector, accounting for 80% of all agricultural production and providing the country with food staples (maize, rice, beans, cassava, sweet potatoes, groundnuts, sorghum and millets) and some surpluses for export (tobacco, groundnuts, tea, coffee and guar beans). The smallholder sub-sector was expanding at about 3% per annum in real terms, which was a little less than the annual population growth of 3.2%.
Project objectives and design
The average GDP (1982) of the smallholder agriculture was estimated at USD357. However, cash incomes of a typical smallholder were in the range of USD50 - USD100 qualifying small farmers as IFAD target group. The total number of smallholder households with an average of 4.5people and average holdings of 2.5ha were estimated at 1.5million. About 400000 households would benefit directly.
Objectives and components
Objectives. The Project would cover a four-year period from the 1983/84 crop season through 1986/87 and is designed to increase the productivity of the smallholder sub-sector through improvements in policy decisions, the restoration of sufficient and timely financing for fertilizer procurement and technical support to the sub-sector.
Components. These objectives would be met through the following components:
(a) improving Agricultural Development and Marketing Corporation (ADMARC) procedures for procuring and distributing fertilizer;
(b) establishing a fertilizer revolving fund (SFRF) in the Reserve Bank of Malawi;
(c) strengthening the institutional capacity of Ministry of Agriculture (MOA) and ADMARC; and
(d) ensuring that the pricing of fertilizer, other farm inputs and farm products provide the appropriate incentive for smallholders.
The project would be implemented by MOA and ADMARC with the support of other concerned institutions. The Ministry of Finance (MOF) would be responsible for the establishment of the SFRF, for the annual GOM'S contribution to the SFRF and its annual audit.
Expected effects and assumptions
The project would contribute towards the achievement of food self-sufficiency and expanding agricultural exports through greater maize production as well as increased tobacco and other exportable cash crops. The project would benefit smallholders, consumers and the national economy.
It is assumed that: (a)total cropped area and individual crop areas would remain the same; and (b)tea areas which could not be fertilized would go out of production. Therefore, all benefits would be generated by maintaining/improving yields. Regarding the project implementation, a major assumption would be the development and installation of a procurement system that assures a more timely arrival of fertilizers. Increased productivity resulting from use of fertilizer increases the demand for farm labour generating employment opportunities in excess of household.
A joint evaluation/review was undertaken by IFAD and IDA in June/July 1987. Two IFAD consultants, a M&E specialist and an agriculturalist/marketing specialist visited the country for three weeks, during which the mission spent a week in field visits. The evaluation mission met and discussed with the IDA supervision mission and the government officials.
The project was implemented in a landlocked country where delays in arrival were often experienced and the farm sector could not obtain adequate and timely agricultural inputs, particularly fertilizers. The project was a programme loan, the proceeds of which would be used to establish SFRF to alleviate the liquidity problems of ADMARC and, ensure sustainability of a future supply of inputs. Besides IFAD, contributors would be IDA, GOM and ADMARC.
The project would be under the supervision of a joint management committee (JMC) consisting of MOF, MOA, Department of Statutory Bodies (DSB) and ADMARC. The daily operations of the SFRF would be the responsibility of ADMARC. The Fertilizer Section of MOA would ensure continuity of fertilizer supply to the smallholder sub-sector.
The Project's implementation has been basically according to plan and disbursement has been on schedule (the loan funds are virtually finished but over U.S.$ 500 000 remains in the IFAD Grant account). However, late recruitment of all but one of the four internationally recruited experts and delays in attachment of some counterparts has caused delays in several components. The influence of several external factors (closure of the Mozambique import route, the Fertilizer Subsidy Removal Programme and emphasis on High Analysis Fertilizers - HAF) have also altered the scope and scale of some project components.
Throughout the life of the project, timeliness of fertilizer demand forecasting has improved steadily. By the 1985/86 season, the 18 month forecasting lead time was well established. Procurement procedures, based on international competitive bidding, including external transportation into Malawi, have been implemented since the 1984/85 season. This has ensured the timely arrival of all fertilizer ordered by the SFRF.
ADMARC established the 'Fertilizer Fund Unit' at its Headquarters and seconded staff and provided the necessary facilities. The management accountant established a system of accounting and bookkeeping to provide comprehensive details of SFRF activities. Regular statements of reconciliation of purchases and sales with deposits into the SFRF bank accounts are prepared. Quarterly and annual financial statements are produced with balance sheets and statements. The accounts of the SFRF have been audited annually by independent auditors acceptable to IDA and IFAD.
Internal distribution of fertilizer both to 'parent' (main) and 'seasonal' markets has been poorly monitored with the consequences that distribution problems, if reported at all, cannot be dealt with in a timely manner. The impact of the project transport specialist on internal distribution is considered to have been negligible.
The process to initiate policy analysis and reform was through the JMC. Although representatives of most of the organizations forming the JMC met regularly from the project inception, it was not formally established until March 1985 (i.e., two years after loan effectiveness). Representation on the committee has not been regular neither in terms of institutions nor specific participants. Although the relevant topics have been raised, the JMC itself has had little or no role in the nature of, or actual, follow up. Supervision missions have played a major role in ensuring that the Government support the continued financial viability of the SFRF. However, the missions did not fully address the issues of fertilizer distribution or use.
Effects, assessment and sustainability
Effects on Beneficiaries and their Incomes. Sixteen percent of all farmers are members of farmers credit clubs and these clubs distribute over 50% of all the fertilizer sold by the Fund. The majority of farmers sold fertilizer on credit are above the average farm size. The average loan taken by club members has dropped since the last season as has the sales of hybrid seed, as a consequence of the declining profitability of fertilized hybrid maize.
Although nearly half of the total fertilizer sold is by cash payment, there is little further knowledge of usage. This has meant that the project is unable to monitor changes in the quantity or applications and has led to the conclusion that the leakage of fertilizer to the estate sectors (estimated at 15%) comes largely from the cash sales side of total fertilizer sales.
The declining profitability by maize, reflected in the nutrient/maize price ratios and gross margins has contributed to the decline in maize cultivation (especially hybrid maize). Farmers are growing more local maize but with the reduced yields, this has not balanced the decline in hybrid cultivation. Consequently, Malawi will have to import maize to meet the expected deficit from the 1986/87 season (approximately 131 000 tons).
Continuity and Sustainability of Input Supply. In July 1987, fertilizer is available in several depots in the country ready for the 1987-88 season. This would be the fifth consecutive season that the SFRF had imported Malawi's fertilizer requirement for smallholders. While the long-term objective of increased maize production has not yet been attained, the project has achieved the unstated objective of maintaining maize production by maintaining fertilizer supply following several years of erratic supply which looked likely to continue unless action was taken.
The mission support the extension of the project by one year as essential to facilitate the transition of the SFRF status and to continue the work of developing fertilizer recommendations and use according to farmer category, crop and location within Malawi. However, one year extension is insufficient to attain the objective of a sustainable fund operated effectively by Malawian nationals and regularly distributing various types of fertilizer to different farmers throughout the country. It is recommended, therefore, that the project be extended to September 1989 (i.e., for two more years).
Effects on Local/National Economic Development Trends. The anticipated role of the project in producer prices reform aiming at moving them towards farmgate parity prices, has been superseded both by events and other donors and the JMC has not had an influential role. Since 1984, the World Bank and International Monetary Fund (IMF) conduct annual consultations with GOM on prices within the context of structural adjustment loan (SAL).
Credit and Fertilizer Use. The total number of farmers receiving credit is only 16% (1984/85) of the total farm families. Further, while the majority of farm families are on holdings of less than 1.00 hectare in size, the majority of club members are on holdings of between 1.5 - 3.00 ha. The fertilizer distributed by the credit clubs (approximately 50% of total sales) is therefore delivered to the above average size (1.17ha) farmer.
Monitoring and Evaluation M&E). The M&E of project activities rested with the Central Evaluation Unit (CEU) of MOA. The Agricultural Development Division (ADD) staff would submit reports periodically on the status/availability of fertilizer in the ADMARC markets located in their respective areas. The project agriculturalist would collate and evaluate these reports in addition to monitoring fertilizer recommendations, demand estimate, etc. Subsequently, IFAD dispatched during the period 1983-1985, three M&E consultants to streamline the system. Very little has been achieved because the CEU and ADD had staff shortages which prevented their involvement. The responsibility has been, by default with the project agriculturalist and his counterpart. Furthermore, monthly monitoring of distribution was not possible due to transportation problems.
Main issues and recommendations
Management and Coordination of Project Activities. The JMC should be activated to ensure coordination of project management activities at policy level.
Availability of Fertilizer in all Markets. Some investigations revealed that some local markets in close proximity to main depots were under-stocked whereas distant parent markets were oversupplied. The main reason for this anomaly was the transport rates. However, this illustrates the problem of non-availability of data which would ensure that all parent market receive their scheduled quantities and type.
Device Mechanism to Increase Access of Smaller Farmers to Farm Inputs. Analysis has shown that fertilizer distributed through farm-clubs on credit has been delivered to the above average size farmer. While such recipients are still within eligible IFAD target group, special efforts are needed to reach the low segment of the target group.
Sustainability of the Revolving Fund. The project needs to be extended for two years to: (a)develop fertilizer recommendations; (b)to train local counterpart staff to effectively operate the SFRF; and (c)to ensure smooth transfer of the Fertilizer Section activities to national staff. Furthermore, any changes which the GOM envisaged for efficient operation of SFRF should be reviewed with IFAD.
Macro-economic policies designed to stimulate production for food self-sufficiency and export are important to integrate into the design of rural development projects, whether such projects have been developed in association with or independent of the adjustment programme. The impact of relative prices of inputs and products, pricing mechanisms, input subsidies, and allocation of land for export crops (e.g., tobacco) need to be carefully assessed at the design stage.
Every appraisal report should contain a list of assumptions and an assessment of how the project proposes to influence the assumption and reduce the risks so that its potential damaging effect on the project is limited. Failure at the design stage to identify and propose remedies for all the assumptions affecting the project caused problems during implementation. Such problems could be due to external factors beyond the control of the project, but awareness about their effect on implementation would induce the project management to influence decisions regarding them through analysis and policy dialogue with concerned authorities.
It is necessary to evaluate all the institutions involved in implementation, their roles and inputs to the project. Institutional analysis did not identify the structure or constraints of fertilizer distribution at farm level. The assumption that somehow fertilizer would reach the target group has meant that little is known about how and when fertilizer reaches smallholders or in what quantities.
The project design clearly stated operating procedures and financial reporting requirements which have been instrumental in ensuring the efficient implementation of the SFRF. Regular financial reporting by project personnel ensured conformity to these procedures and identified deviations immediately.
01 December 1986