SACHS AND SACKS OF FERTILIZER FOR MALAWI

C O N F I D E N T I A L SECTION 01 OF 02 LILONGWE 000049

SIPDIS

SIPDIS

STATE FOR AF/S GABRIELLE MALLORY
STATE FOR EB/IFD/ODF LINDA SPECHT AND ELAINE JONES
TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA/BEN CUSHMAN
PARIS FOR D'ELIA

E.O. 12958: DECL: 01/18/2016
TAGS: EAGR EFIN EAID ECON MI
SUBJECT: SACHS AND SACKS OF FERTILIZER FOR MALAWI

REF: 05 LILONGWE 750

Classified By: Ambassador Alan W. Eastham, for reasons 1.4 b/d


1. (U) UN Millennium Advisor Jeffrey Sachs, returning to
Malawi last week to organize the founding of three Millennium
Villages, used the occasion to press his proposal for massive
free farm inputs. As was the case during his last visit
(reftel),his proposal was met with a distinct lack of
enthusiasm among resident agriculture experts and development
partners. This time, however, the GOM appeared to be more
receptive--a predictable reaction to a $1 billion per year
proposal for free stuff.


2. (U) Sachs came to Malawi to discuss the relationship of
Malawi's ongoing economic planning to the millennium
development goals. He was accompanied by a sizeable private
sector group committed to supporting "millennium villages" in
Malawi; three have been identified, one in each of the
northern, central, and southern regions of the country.
These projects are intended to demonstrate that the
Millennium Development Goals are achievable with focused
outside support. The plan is to spend roughly
$70/person/year on inputs (two bags of fertilizer and one can
of improved seeds for every farmer in Malawi),a free
mosquito net for every bedstead, and heavy spending on health
and education in the target areas. Sachs maintains that at
the end of several years, the healthy, educated populations
of these villages will have established agricultural
surpluses, diversified into cash crops, and be on the road to
prosperity.


3. (C) The troubling adjunct to this happy scheme was that
Sachs waved before the revenue-starved GOM officials the
prospect of a nationwide donor-funded scheme for a green
revolution through massive free farm inputs. (At the
advertised Millennium Village demonstration price of
$70/person, this would cost about $850 million per year.)
Reftel outlined some of the obvious objections to this
proposal, chief among them being the perversity of
incentivizing both the GOM and Malawi's farmers to continue
planting maize with someone else's fertilizer and seeds.
Doing this at the very moment when the administration of
President Bingu wa Mutharika starts serious focus on
achieving self-reliance through institutional reform, control
of corruption, and building a conducive business environment
seems a particularly bad idea. Even finance minister Goodall
Gondwe, who some months ago had privately expressed his
personal dislike for Sachs's project, seems to be coming
around to the smell of money.


4. (U) Sachs's meetings with GOM officials was not all about
his input scheme, however, and he did offer a mixture of
useful and pernicious advice on other topics. At a meeting
between Sachs, UNDP, and several ministers, Sachs made the
following points:

-- Malawi must address population growth as part of its
growth and development strategy.

-- GOM must establish quantitative targets to link the
national development strategy with the budget process.

-- Sachs applauded the GOM's current fertilizer subsidy
program (which, though originally conceived as a limited
subsidy, was expanded as a political sop to opposition leader
and inveterate free-fertilizer addict John Tembo, mainly to
get his grudging cooperation on the 2005/06 budget bill).
Malawi should prepare to defend its farm subsidies against
criticism from development partners by arguing that even
developed countries subsidize their farmers.

-- The large input subsidies should be executed in
cooperation with the private sector in a way that minimizes
disruption of private marketplaces.


5. (U) In a separate meeting with donors and the U.N.
"country team," Sachs repeated the points he made to
government, making the case that Malawi is "not viable" as a

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country. Markets alone, he said, would not meet the
country's needs. He argued that what he called "supply-side
subsidies" were much to be preferred over "output" subsidies
in the form of subsidized or donated foodstuffs. He said he
had told the Malawi government that he thought with his plan
Malawi could meet the MDG goals by 2015. He said he thought
the Shire-Zambezi transportation corridor proposal had merit
and should be examined, and proposed that Malawi meet its
basic health needs by training health care workers for a year
in treating eight basic health areas. He emphasized the need
for population control, lectured the group on the benefits of
treated bednets, reported on his visit to the Zomba hospital
to illustrate the deficiencies of the Malawi health system,
and described the desired outcome of his input scheme as a
"green revolu
tion."


6. (U) The Ambassador made several points to Sachs in
responding to his presentation. He told Sachs that it is a
highly experimental notion to expect that massive food and
fertilizer inputs would lead in out-years to a decrease in
maize planting and an increase in cultivation of cash crops.
There was no individual incentive in his program to encourage
this to occur; indeed, the incentive in his proposal was
toward continuing the maize trap Malawi inhabits at present.
And even if crop diversification did somehow take place, as
Sachs seemed to believe was axiomatic (citing the millennium
village in western Kenya),no purpose would be served if
those crops had to be sold by the smallholders sitting under
a tree by the side of the road. Citing USAID's Land-o-Lakes
project as a success story, market development was essential,
and this was wholly missing from Sachs proposal. More
importantly, however, if the government continued to sell
imported maize at MK 17 (13 US cents) per kilo, less than the
cost of production, there would be no incentive to produce
even surplus maize for sale.


7. (U) The Ambassador's second point was that Sachs' proposal
did not seem to take into account the reality of Malawian
politics, which is largely about subsidies. Citing the
budget debate last year about "universal" subsidies, the
Ambassador wondered why donors would wish to subsidize
tobacco farmers, who benefit from a well-developed market
system that feeds an export market and in which the costs of
production, including fertilizer inputs, are included in the
price of the commodity. Sachs' reply was "the US subsidizes
tobacco!" thereby essentially dismissing the argument. He
also argued that the fault of the previous input programs in
Malawi (the "starter packs") failed because donors,
frightened at the prospect of success which would mean the
inputs would have to continue, had terminated their support.



8. (SBU) COMMENT: We are very happy to see the
privately-funded "millennium villages" come to Malawi and we
expect that the spending Sachs has arranged through private
philanthropy will make a significant difference in the lives
of those who inhabit them. But we can't help objecting to
the perpetuation of the notion that developed countries, who
are very, very generous to this country, bear the primary
responsibility for lifting Africa out of poverty, that they
must do so through massive spending, and that concerns about
African institutions and policies are mere nay-saying by
flint-hearted ideologues of the free market (which is where
we suspect Sachs puts us). That Sachs
is peddling this message just as the rest of the development
community finally begins to insist on responsible governance
is doubly ironic. We have reason to hope that the present
administration in Malawi will continue trying to move ahead
with its own vision. But the ultimate downside of the UN
Advisor's visits is that they may induce the GOM to take its
eye off the ball and fall back into the old way of doing
business.
EASTHAM