1. Economywide effects of FISP
Karl Pauw
Malawi Strategy Support Program
IFPRI
Prepared for the National FISP Symposium
14-15 July
Lilongwe, Malawi

2. Background
• Several evaluations of “direct” farm-level effects
against set objectives: maize production, food
security & rural incomes (Lunduka et al. 2013)
• Growing interest also in the “indirect”, “spillover”
or “economywide” effects
– “The ability of fertilizer subsidy programs to lower
maize prices and increase agricultural wage rates
could have a more pronounced effect on the welfare
of the poor than does receiving the subsidy directly”
(Dorward et al. 2008)
• Two narratives have emerged…

3. The “not-so-positive” story
• Farm-level surveys show modest yield increases (in
contrast to official crop estimates) and small income
gains for FISP beneficiaries (see Lunduka et al. 2013)
• Maize price behavior “not as expected” (Dorward &
Chirwa 2013): increased volatility and higher real prices
during FISP period (esp. 2007/08 & 2008/09)
– But price spikes linked to other factors; FISP still exerted
some downward pressure when these factors were absent
(e.g. 2006/07)
• Ricker-Gilbert et al. (2013) econometrically estimate
that removal of FISP would cause maize prices to
increase 1.22.5%

4. The “not-so-positive” story [continued]
• Ricker-Gilbert (2014) also find very limited ganyu
supply/demand effects; virtually no wage effect:
– Additional 10kg fertilizer per household raises ganyu
wage by 1.4%
– Translates to $1.86 increase in annual income for
ganyu-supplying households
• NSO (2012) poverty estimates further endorses
this narrative of FISP’s inability to have a
meaningful impact (2004/052010/11)
– National poverty declined 52.4 to 50.7%
– Rural poverty increased from 55.9 to 56.6%

5. The more optimistic version
• Fertilizer use efficiency is reasonably high and has led to significant
production gains at farm-level (Dorward et al. 2013)
• Strong GDP growth (7.1% during 2005-2011); over one-third
accounted for by agricultural growth (Pauw and Thurlow 2014)
0
20
40
60
80
100
Mar/03
Jan/04
Nov/04
Sep/05
Jul/06
May/…
Mar/08
Jan/09
Nov/09
Sep/10
Jul/11
May/…
Nationalavg.price(MK/kg)
AMIS nominal maize prices
IHS2
IHS3
• Real maize prices
declined: nominal maize
prices doubled during
2004/052010/11
(AMIS and IHS2/3)
• “Official” inflation
77.3% vs. “revised”
inflation 128.9% (NSO
2012); consistent with
125.8% Beck at al.
(2014)

6. The more optimistic version [continued]
• Wages have increased: increased bargaining power for ganyu suppliers;
ganyu wages measured in terms of maize purchasing power have
increased (Dorward & Chirwa 2013)
• Other evidence: multidimensional poverty declined, also in rural areas
(Mazunda et al. 2012); subjective measures of well-being (IHS2/3)
improved dramatically (fig.)
• Ultimately, the rise in NSO’s rural poverty “…is very difficult to reconcile
with estimates of wider changes … in wages, crop incomes,… subjective
well-being, asset ownership…” (Dorward & Chirwa 2013)
-30
-20
-10
0
Food Housing Clothing Health
%-pointreductionin
"inadequacyrate"
Change in perception of well-being 2004/05 to
2010/11
Urban Rural

7. An alternative view of poverty
• review consumption conversion
factors (Ecker & Qaim 2011);
• reintroduce regional poverty
lines of IHS1 tradition
(Mukherjee & Benson 2003);
Beck et al. (2014) NSO (2012)
2004/05 2010/11 Change Change
Poverty
National 55.5 48.7 -6.7± 2.7 -1.8± 2.6
Urban 36.2 31.6 -4.6± 9.3 -8.1± 7.5
Rural 57.9 51.8 -6.1± 2.8 0.8± 2.8
Ultra-poverty
National 25.5 26.8 1.2± 2.3 2.1± 2.2
Urban 7.7 7.8 0.1± 3.9 -3.2± 3.4
Rural 27.8 30.2 2.4± 2.6 3.9± 2.4
• cost of basic needs in both periods; new
consumption bundles with flexible
food/non-food shares;
• entropy method ensures utility-
consistency (Arndt & Simler 2010).
Beck et al. (2014): several refinements over NSO method

8. Inflation experience and consumption
• Dietary shifts towards more expensive sources of calories; e.g.
– Apart from more maize (14%), also more rice (23%), poultry (59%),
cooking oil (46%); but
– Less tomatoes (-26%), green leafy vegetables (-55%), and dairy (-12%)
(Verduzco et al. 2014)
• Calorie deficiency rate declines, but increases in micronutrient
deficiencies (iron, zinc, vitamin A, folate); mixed results from child
nutrition indicators (Verduzco et al. 2014)
• Rural inflation
lower than urban
inflation
• Rural food inflation
high: relative price
changes but also
compositional shift
in consumption
Inflation rates faced by the poor
Beck et al. (2014) NSO
(2012)Food Nonfood Total
National 137.8 106.5 125.8 128.9
Urban 152.3 151.4 151.9
Rural 136.0 90.3 119.0

9. How do we attribute changes to FISP?
• Ex post econometric analysis
– Difficult to control for all exogenous and endogenous
factors, especially for large-scale programs with spillover
effects
• An alternative is ex ante “simulation” analysis
– Could be partial or general equilibrium
– Sensitive to various elasticities and model assumptions
• Arndt et al. (2014) develop CGE model with 2003/04
baseline (pre-FISP)
– New and negligibly small “FISP” maize and fertilizer sectors
– Loosely replicate 2006/07 program in terms of volume of
fertilizer imports and application
– Varying assumptions about fertilizer use efficiency

10. General equilibrium analysis
Imports, exports
Rest of World
Foreign aid
Taxes
Government
Spending
Taxes
Taxes
Product markets
Production
Payments
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Factor markets
Producers Households
Subsidies
Transfers

11. Significant indirect benefits
Base value
(2003)
Deviation from base
Fertilizer use efficiency
(kg grain per kg N)
11.8 13.4 16.8 18.5
Maize production (1000mt) 1,982.8 84.6 152.6 289.2 357.7
Maize land (1000ha) 1,501.9 -119.5 -161.9 -248.9 -293.3
Real maize price index (%) -0.2 -1.2 -3.2 -4.1
Average farm wage (%) -0.2 1.4 4.6 5.9
Real exchange rate index (%) 1.4 1.1 0.6 0.3
GDP market prices 199.9 -1.7 -0.5 1.9 3.1
Exports 51.2 3.2 3.7 4.6 5.1
Rural poverty 55.9 -0.3 -0.7 -1.8 -2.4
Urban poverty 25.4 0.3 -0.3 -1.4 -2.4
Production-based benefit-cost ratio ~ 0.5 0.6 0.9 1.1
Economywide benefit-cost ratio ~ 0.8 1.1 1.6 1.9

12. Conclusions
• Both narratives on FISP impact are compelling; illustrates
the complex nature of large-scale interventions with
economywide implications
• Recent IFPRI research shows rural poverty did fall sharply;
FISP’s role in this may have been significant; and FISP has
the potential to generate substantial indirect benefits
– Indirect benefits are around two-fifths of FISP’s total benefits
– Prices, wages are important sources of indirect benefits, but so
too opportunity for land reallocation towards higher-value crops
(e.g. exports or legumes)
– Economywide approach complements survey-based methods
• BCRs depend strongly on marginal return to fertilizer use
– Drops below one with response rates from some survey studies
– Crucial area of intervention