MALAWI — In Malawi, after a very poor harvest in the year 2005, was teetering on the brink of disaster, with almost half of its citizens in need of emergency aid. Later in that year, however, the country had drastically turned itself around, even to the point where it was turning away emergency food aid and sending food to other at risk countries by the year 2007. The country was a prime example of Africa’s “Green Revolution”. Now, the country is in somewhat of a crisis again, but largely due to corruption within the government. According to the United Nations website, “in 2009 the President of Malawi spent more than $20 million on a long-range presidential jet.” Donors began to abandon the regime due to nepotism and misuse of funds, leading to more problems with the state of affairs in Malawi.
However, for a period of several years Malawi had brought itself back from high levels of hunger and malnutrition. The country’s success in agriculture during that time can be attributed to a government program enacted following the dreadful harvest of 2005. The program subsidized fertilizer, so that Malawian farmers can buy it at cheaper prices. Against the recommendations of the World Bank and rich donor nations, the Malawian government followed Western examples and subsidized their farmworkers, enabling them to produce much more on their soil.
Subsidies are something that developed nations use often to stimulate and protect their agricultural industry. The reason being is that agriculture production is subject to different market rules than other products, and so free market principles don’t always work quite as well. Demand for food isn’t elastic; people won’t necessarily eat more food just because it’s cheaper, and vice versa, people need a certain amount of food to survive, unlikee many other market goods. Subsidies often help stabilize the agricultural sector. The presence of enough food, and maintaining proper prices for food (since most of the developing world makes their living from agriculture) is too important to be left up to market shocks.
Although subsidies worked well for Malawi to provide better food security, subsidies have to be appropriate to work properly. In Thailand the government’s approval rating is at its lowest level yet, according to an article in the Economist, and most damaging to its reputation is its flagship scheme to subsidize rice. The government’s plan was to buy unmilled rice directly from farmers at about twice the market rate, or 15,000 baht (about $500) per ton. This would put money into poor farmers’ pockets and stimulate domestic demand. The plan was bound to be incredibly expensive, but government advisors said that withdrawing rice from world markets in this way would force up the price. Since Thailand was the world’s biggest exporter, the government would be able to cash in later by selling its stockpiles of grain at a profit.
Rather than the supply shock driving prices up, other countries have undercut Thailand, whose exports have decreased. India and Vietnam have overtaken Thailand as the largest rice exporters. Now the Thai government has been unable to find buyers for their rice, and has been forced to stockpile 18 million tons of rice. This amounts to nearly half the annual global trade in rice. The rice-buying plan costed the Thai government $12.5 billion in the first year of operation.
The main difference between the Thai and Malawian subsidy plans boils down to the scale at which the plan works. The Malawian plan is based on fundamentals: the soil in Malawi is depleted; therefore Malawian farmers need fertilizer to grow enough crops. Most producers in Malawi can’t afford fertilizer, so the government provided a way to make fertilizer affordable. This can work using only one basic agricultural unit in Malawi—a single family farm. The Malawian government took a process that would work for one farm, and applied it to the country as a whole. This structure of taking an idea that works on a small scale and applying it to a large scale endeavor is known in the development community as “scaling up”, and is a hip term in development these days.
The Thai government’s plan, however, was something that could never work when applied to one farm. The entire premise of the Thai program was relying on Thailand being able to influence the entire world market for rice. In reality, all Thailand did was remove itself as the world’s largest exporter. The Thai program also had less than subtle political goals, and was designed in large part to please a large constituency—the rural farmers who make up roughly two-fifths of the country’s population.
This is a classic lesson in the difference between having managed expectations, realistic objectives with the means to achieve them, and operating within sustainable constraints when operating any initiative or program. The Malawian plan ultimately identified a specific, fixable, small scale problem and remedied it, applying the remedy to the whole country.
– Martin Drake
Sources: United Nations, NY Times, The Economist