Thursday, February 17, 2011

Subsidizing agriculture in Malawi

Aid Thoughts has a series of interesting posts about Malawi's
agricultural input subsidy program (aisp) inspired by some recent
papers written by Dorward and Chirwa who credit the program with
dramatic increases in agricultural output in Malawi over the last 6-7
years. The posts acknowledge the real achievements of the aisp but are
worried about the economic theory that underpins it and the political
hazards that are inherent to it. They are all worth reading.
Here is my take. First, in a perfect world agricultural subsidies
should not exist. In the real world, however, they do exist everywhere
and I'm not optimistic that anyone has a good plan on how to
reduce/eliminate them globally. Until that plan exists and is
implementable I'm not going to give any country too much guff about
subsidizing their agricultural industries, Malawi included.
Next the Aid Thoughts posts talk about the opportunity costs of the
program and its cost/benefit balance. When we talk about opportunity
costs we are often really talking about values. In this case the
Malawian government has decided that it values domestic food security
very highly, higher perhaps than even some health and education
programs. There is certainly room for debate here but the government's
position is hardly indefensible even if we think they could spread
around the resources a bit more effeciently. As to the cost/benefit
balance of the program, even if we assume it is negative ( which is
not a given), this only reinforces our earlier judgement that in a
perfect world agricultural subsidies shouldn't exist in the first
place. Few such programs whether in Malawi or the U.S. would withstand
most cost/benefit analyses.
And so I think we should muddle through with the aisp, acknowledge
that it is far from perfect but also that it provides some real
benefits, and be hopeful that it can be tweaked to be more efficient
and protected from becoming a purely political pork project.

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