Farm input subsidy program in Malawi: the rationale behind the policy

There is a general agreement that agricultural growth in developing countries is needed in order to increase income and guarantee food security. Many authors agree that to achieve these goals, an increase in agricultural yield and production is necessary. However, the literature has shown a diverging discussion about which policy governments should apply for pro-poor agricultural growth. While some authors state that input subsidy policies (ISPs) are the principal tool to increase agricultural productivity for smallholders, many others say that these policies are highly costly and have not yet improved the development of rural areas. This article aims to show, from a theoretical perspective, that input subsidy policies can impact economic growth and food security. The method explores the welfare effects of a fertilizer subsidy policy on producers, consumers, government and society as a whole. The paper also examines, based on empirical data, the outcomes of the well-known Malawi farm input subsidy program (FISP). The results indicate that, as expected from theory, the FISP has raised productivity, households ’income and rural wages. However, it has not improved access to food at national level. The high cost and targeting inefficiency are also a constraint for maintaining the input subsidy program.