C O N F I D E N T I A L SECTION 01 OF 02 LILONGWE 000750

SIPDIS

STATE FOR AF/S KENDRA GAITHER

E.O. 12958: DECL: 08/31/2015
TAGS: EAGR ECON EAID MI
SUBJECT: SACHS AND FERTILIZER IN MALAWI

REF: LILONGWE 693

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SUMMARY
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1. (C) The UNDP's recently issued Flash Alert on Malawi's
food crisis contains a plan for providing free fertilizer and
seed for 2 million farmers this growing season. The plan has
received practically no support among local agriculture and
food experts in Malawi, for reasons that Embassy views as
reasonable. Embassy recommends USG not support the
fertilizer/seed plan as is but push for something closer to
the GOM's more modest plan. End summary.


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GENESIS OF THE UNDP ALERT
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2. (U) The UNDP's "Flash Alert" on Malawi is, in part, the
outgrowth of a recent visit by UN advisor Jeffrey Sachs, in
which he announced a plan to offer free fertilizer and seed
to virtually all smallholder farmers in the country. The
alert contains two "tracks": the first is an appeal for food
aid to fill an identified gap of upwards of 270,000 MT; the
second is an appeal for an additional $36 million to provide
the free inputs (chemical fertilizer and maize seed) for 2
million smallholder farmers.


3. (U) The input scheme is meant to prevent another food
crisis next year, following on this year's disastrous harvest
and accordingly meager resources for the 2005/6 planting
season. The main argument for the plan is simple: it is
cheaper to fund fertilizer this year than food next year.
Sachs argues that more nitrogen in the soil will equate to
higher disposable income and thus higher domestic savings,
which will in turn drive economic growth.


4. (C) The UN advisor's team and the Ministry of Agriculture
arrived at the scheme practically in secret, in advance of
Sachs's visit, with no broader discussion or comment from
experts. After Sachs had briefed the GOM, he then briefed
representatives from diplomatic and development missions (at
the insistence of those missions), ostensibly to discuss the
plan. The discussions were anything but substantive, though,
as it became clear early on that Sachs was not holding the
plan up for open discussion. Sachs portrayed the choice as
one between implementing his plan and letting millions

of
poor farmers starve.


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REASONABLE OBJECTIONS
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5. (C) The UNDP plan has met mostly with resistance from
agricultural and economic experts outside the Ministry of
Agriculture and UNDP. The arguments against the plan stem
from the long and mostly unproductive history of free input
schemes in Malawi. The principal arguments are:

-- Free fertilizer will leak onto the commercial market, both
within and outside Malawi, disrupting commercial importation
and distribution by undercutting prices. This can rapidly
undo hard-won progress in building a free market in
agricultural inputs.

-- Distribution of maize seed and chemical fertilizer will
encourage continued reliance on soil-depleting agricultural
practices and crops. The progress Malawi has made in crop
diversification and other best practices may be undone as the
plan creates incentives to grow chemically fertilized maize.

-- The plan does not address the fundamental problem in
Malawi's food supply, namely the reliance on rain-fed
agriculture using drought-sensitive crops.

-- With limited resources, fertilizer is best targeted to
upper-end smallholders, who are more likely to have the
resources and knowledge to apply fertilizer effectively.

-- Fertilizer subsidies have an involved political history in
Malawi and are addictive to populist politicians looking for
votes, particularly those from the main opposition party
(Malawi Congress Party). Subsidizing fertilizer for one
year--or any limited time--is thus practically impossible.


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WIDESPREAD RESISTANCE, INCLUDING GOM
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6. (C) The GOM's reaction to the UNDP plan has been measured.
The Ministry of Agriculture has always favored heavily
subsidized, state-run importation of inputs, and helped to
write the plan. On the other hand, Finance Minister Goodall
Gondwe has consistently opposed free input schemes on the
grounds that they create a dependency culture and are
fiscally irresponsible. Under his leadership, the GOM
deliberately structured a partial subsidy to sell fertilizer
at MK 950 ($7.85) per 50-kg bag to smallholders. This purely
agricultural subsidy would be supplemented by a cash-for-work
public infrastructure program as a safety net. But since
UNDP has offered a fully funded plan, his philosophical
opposition has softened (still, he has insisted that he
favors the plan only if GOM has no funding role).


7. (C) Other diplomatic and aid missions generally oppose the
UNDP plan. The UK's Department for International Development
director for Malawi, an architect of the partial subsidy, has
vigorously criticized the Sachs plan. Other donors' local
food and agriculture experts, including the World Bank, EC,
Norwegians, and the WFP, have all expressed opposition to the
plan as well. We have heard from a World Bank source that
the local UK and EC envoys have made moves to block funding
from their capitals. In any case, it is probably impossible
to fund and implement the plan effectively at this late date.


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COMMENT: OPEN THE DISCUSSION ON TRACK 2
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8. (C) The urgent need for food aid to Malawi in the current
season is unquestionable, and indeed Embassy has declared a
slow-onset emergency here (see reftel). The "second track"
of the UNDP alert is a different story: it is a controversial
plan, hatched with an apparently deliberate failure to
consult beyond a very small circle of interested parties. We
view the opposition to the plan as reasonable, as evidenced
by its somewhat surprising breadth. Embassy therefore
recommends that the USG not support the UNDP alert's "track
2," but rather open the discussion to reach a more
sustainable course of action. Embassy believes the GOM's
approach, using a modest fertilizer subsidy and a safety net
program, represents a good point of departure.
EASTHAM