Although geographically distant, there are multiple channels through which Russia’s invasion of Ukraine can affect the lives of Malawians. Before the invasion, Russia’s and Ukraine’s exports accounted for about 12% of total calories (Glauber and Laborde, 2022) traded in the world, and the two countries were among the top five global exporters for many important cereals and oilseeds, including wheat, barley, sunflowers and maize (Figure 1). Ukraine is also an important source of sunflower seed oil, supplying about 50% of the global market. These exports have now largely seized as a result of war-related disruptions to production and logistics as well as economic sanctions on Russia and Belarus, its ally. This shock reduction of supply is driving up food commodity prices worldwide and will continue to do so while the current situation persists. The ongoing fighting has already disrupted the planting of barley and will soon disrupt the planting of maize, wheat, and oilseeds. The choke on global supply will thus continue for months (if not years) to come.

This is the fourth in a series of Key Facts sheets that IFPRI is producing based on the Integrated Household Surveys (IHS). The purpose of the series is to present data relevant to key policy issues on agriculture, food systems, and development topics in Malawi. Other Key Facts Sheets are available on our website at massp.ifpri.info.

Malawi’s Affordable Inputs Program (AIP) currently combines an economic and a social objective, respectively: (i) increasing agricultural production; and (ii) assisting poor farming households.

The market price of fertilizer in Malawi has, in nominal terms, more than tripled compared to two years ago. The price hikes were both unexpected and beyond the control of the government, linked to global events, such as the COVID-19 pandemic and Russia’s invasion of Ukraine. This changed global reality reinforces the need to rethink the way in which Malawi approaches its agricultural input subsidies. A number of options for reforming the AIP have been outlined in recent policy work, but all have medium to long term implementation horizons. We will not repeat these here and instead refer the interested reader to Chadza and Duchoslav (2022), De Weerdt and Duchoslav (2022), and Nyondo et al. (2022). This policy note discusses a strategy that can be implemented readily and immediately, potentially still this year, to ensure that the budget allocated to fertilizer subsidies has the highest possible effect on food security in the country. It also discusses how the strategy, once adopted, can be used to phase out the AIP, while ensuring allocative efficiency within the program. This can be achieved by, each year, fixing the budget at a lower point and conducting the same optimization exercise.

Agriculture holds special significance in Malawi, because most Malawian households depend primarily on this sector for income and food security. Therefore, legislation surrounding the agricultural sector, and the foundation it lays for the sector’s governance, are fundamental to the development prospects of the country. At their best, agricultural laws encourage farmers, traders (both domestic and international), and processors of agricultural commodities to fully engage and further invest in the agricultural sector. At their worst, they undermine confidence to do so

It is easy enough to calculate how much the Government of Malawi spends on subsidizing chemical fertilizer. Last year, for example, this was MWK 120 billion (about US$ 150 million) taking up over 50% of the agricultural budget. It is much harder, however, to calculate the benefits that these subsidies bring about and how they stack up against the costs. In this policy note, we combine multiple methods and sources of data to narrow down the range of possible benefit estimates, compare it to the cost of subsidies, and propose changes to current policies to make fertilizer subsidies more efficient and affordable.

Malawi has been at the center of the debate on agricultural input subsidies in Africa ever since it significantly expanded its fertilizer subsidy program about two decades ago. When it did so, Malawi was a trailblazer, receiving international attention for seemingly leveraging the subsidy program to move the country from a situation characterized by food deficits and widespread hunger to crop production surpluses. In this paper we trace the history of Malawi’s subsidy program over the past 70 years, describing how the country arrived at that watershed moment earlier this century and how the subsidy program has developed since. We show how donor support for the program has wavered and how external pressure to remove the subsidy has repeatedly been unsuccessful. We also demonstrate how over the years the program’s total fiscal burden has fluctuated significantly. However, we find that since the expansion of the subsidy program in 2004, the fiscal costs of the program have shown little correlation with the maize harvest that same agricultural season. We show that the subsidy program has succeeded in raising awareness about the value of the fertilizer for increased crop productivity. However, despite its continued prominence in the country’s agricultural policy, most Malawian smallholder do not manage to grow sufficient maize to feed their households throughout the year, and every year millions depend on food assistance during the worst months of the lean season.

El Niño is a phase in an irregular periodic variation in winds and sea surface temperatures over the Pacific Ocean. It occurs on average every 2 to 7 years and typically lasts between 9 months and 2 years. El Niño affects the global weather patterns, resulting in above-average precipitation in some places and droughts in others. Malawi and its neighbors typically experience drier than usual weather during El Niño, which often leads to poor growing conditions and below-average harvests.

Malawi experienced modest growth from 2009 to 2019, with average annual GDP growth of 4.7 percent. The global COVID-19 pandemic caused a significant slowdown in 2020 and 2021, and the economy has not yet rebounded to pre-pandemic levels (World Bank 2023). At the time of writing, GDP is projected to grow at 2.4 percent in 2023, which in combination with population growth of 2.7 percent would result in a 0.3 percent contraction of GDP per capita (IMF 2023). At the core of the failure to resume pre-pandemic economic growth rates are a worsening debt crisis, a balance of payment crisis, an acute shortage of foreign exchange reserves, and several external shocks (World Bank 2022). The latter include the effects of the Russia-Ukraine conflict and the devastation caused by cyclone Freddy in 2023 (De Weerdt and Duchoslav 2022; Diao et al. 2022).

Global food, fuel, and fertilizer prices have risen rapidly in recent months, driven in large part by the fallout from the ongoing war in Ukraine and the sanctions imposed on Russia. Other factors, such as export bans, have also contributed to rising prices. Palm oil and wheat prices increased by 56 and 100 percent in real terms, respectively, between June 2021 and April 2022, with most of the in-crease occurring since February (Figure 1).