VZCZCXRO2534
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHLG #0454/01 2261121
ZNR UUUUU ZZH
R 141121Z AUG 09
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 0685
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC
RUEHLO/AMEMBASSY LONDON 0387

UNCLAS SECTION 01 OF 05 LILONGWE 000454 
 
SIPDIS 
 
LONDON FOR AF WATCHER PETER LORD 
 
E.O. 12958: N/A 
TAGS: EAGR EAID KHIV MI
SUBJECT:  MALAWI:  PROGRESSING TOWARD FOOD SECURITY 
 
LILONGWE 00000454  001.2 OF 005 
 
 
¶1. Summary:  Increasing food security in Malawi has been the 
Government of Malawi's (GOM) highest strategic priority since 
President Bingu wa Mutharika took office in 2004.  The GOM has 
demonstrated a strong commitment to reducing poverty through 
agriculturally-led economic growth.  The GOM is investing 13 percent 
of its 2009/2010 national budget to address agriculture and food 
security related issues, compared to the Comprehensive Africa 
Agriculture Development Program (CAADP) target of 10 percent. 
President Mutharika's first major initiative, the Agricultural Input 
Subsidy Program (AISP) contributed to four years of consecutive crop 
surpluses and one of the highest GDP growth rates in the world - 9.8 
percent in 2008.  The number of Malawians in need of food aid has 
decreased dramatically, from nearly half the population (over 4.5 
million Malawians) following the 2004/2005 drought to less 5 percent 
today. 
 
¶2. Despite these positive developments, the AISP and some other 
agricultural policy decisions have raised legitimate concerns about 
the long-term sustainability of the GOM's efforts.  Malawi is still 
heavily dependent on rain-fed agricultural practices; a significant 
portion of the population is malnourished and continues to be food 
insecure during the "hungry season."  The country remains only one 
or two bad rainy seasons away from a drought related humanitarian 
crisis.  The GOM at the highest levels appreciates the need to 
address these issues and to shift resources to more sustainable and 
market-friendly approaches.  In recent speeches, President Mutharika 
has made it clear that the AISP will not be his only tool for 
addressing food insecurity.  Stressing the importance of irrigation 
and environmental management, the President has announced his 
intention to launch a national "Greenbelt" Initiative which will 
promote irrigation and better soil management as part of his push to 
improve agricultural productivity.  The USG, through President 
Obama's upcoming Presidential Food Security Initiative, is well 
placed to play a leadership role in supporting this strong GOM 
commitment to reducing poverty and promoting food security and 
sustained broad-based economic growth.  End summary. 
 
FOOD SECURITY IN MALAWI - CHRONICALLY ON THE BRINK 
 
¶3. Despite recent strong economic growth, Malawi, a landlocked 
nation of 13 million people, is still one of the poorest, most 
food-insecure and densely populated economies in the world.  This is 
an overwhelmingly agricultural nation of small farmers dependent on 
unreliable rainfall, which is why both food security and economic 
growth are vulnerable to climatic fluctuations.  Even in a year of 
good rainfall, a significant percentage of Malawi's farmers cannot 
produce enough to last until the next harvest.  Malnutrition, 
particularly among vulnerable groups including women and children, 
remains at unacceptably high levels. 
 
¶4. Malawi's current agricultural and food security policy has 
evolved over the last several decades.  As in most of Southern 
Africa, maize is the dominant staple.  In the aggregate, Malawi was 
food self-sufficient in maize production in the 1970s.  Agriculture 
was relatively concentrated on larger farms and estates, and 
population pressure was considerably less than in recent decades. 
Even during those years, however, food distribution was uneven. 
Poverty, malnutrition and food insecurity were severe.  In the 1980s 
and 1990s, as population growth accelerated, the government 
decreased expensive blanket fertilizer and seed subsidies under 
liberalization and structural adjustment programs.  Malawi 
subsequently experienced growing fluctuations in maize availability 
and domestic prices, culminating in 1996/7, when the supply of 
marketed maize fell precipitously and the price of maize quadrupled, 
causing widespread hardship among the poor. 
 
¶5. The government and development partners responded to those crises 
in 1999 and 2000 with fertilizer and seed subsidies, including a 
free "starter pack," and targeted input credit facilities.  The 
government drew a significant lesson from that experience and 
developed a firm belief that unless Malawian farmers have access to 
improved inputs for food production, unacceptably large numbers of 
the poor will be exposed to hunger or worse.  Another major drought 
struck Malawi in 2004/2005, and maize production suffered a 48 
percent decline in output from 1.98 million metric tons (MMT) - 
already below the national requirement of 2.3 MMT - to only 1.2 MMT. 
 This shock reverberated throughout the economy, as GDP growth 
slowed significantly from 5.4 percent in 2004 to 3.2 percent in 
2005, and led to a massive rescue program, including imported food 
aid. 
 
NEW ECONOMIC POLICIES SPUR STEADY IMPROVEMENT 
 
¶6. Under the administration of President Mutharika, Malawi has 
pursued economic policies that have brought steady progress on food 
security and poverty reduction.  The GOM's current agriculture and 
food security strategy, the Agricultural Development Program (ADP), 
emerged from the drought Malawi experienced in 2004/2005 and makes 
 
LILONGWE 00000454  002.2 OF 005 
 
 
sustaining maize production levels its top priority.  The GOM 
responded to these events with the introduction of an aggressive, 
nation-wide, smallholder fertilizer and seed subsidy initiative (the 
Agricultural Inputs Subsidy Program - AISP) that targeted mostly 
maize.  The GOM also took a series of controversial agricultural 
policy decisions, including the temporary and partial exclusion of 
private sector participation in the AISP, export and trade 
restrictions on maize, and pricing interventions for several key 
commodities (maize, tobacco and cotton) that may have limited the 
overall impact and long-term sustainability of this key-stone 
initiative.  The GOM justified these policy decisions as a response 
to concerns about price collusion on the part of large, 
private-sector buyers, and the need to ensure delivery to 
underserved rural areas. 
 
¶7. Notwithstanding these significant challenges, Malawi's 
development track record since the last major drought has been 
impressive.  Favorable weather since 2005, combined with aggressive 
government spending to distribute fertilizer, maize, and other seed 
to small farmers nationwide for the last four years, have combined 
to produce the desired effect.  Maize production has nearly tripled 
since 2005, rising from a low of 1.2 MMT to 2.8 MMT in 2008, and 
crop estimates released on June 23, 2009 indicate another 
significant production increase to 3.7 MMT.  While Malawi's 
agricultural production statistics should be used with caution and 
their accuracy is sometimes questioned, there is no doubt there have 
been major increases.  Rapidly rising agricultural output and strong 
macroeconomic policies have pushed Malawi's GDP growth rate to an 
estimated 9.7 percent in 2008 and at least 6.9 percent for 2009 - 
the world's eighth-highest and the second-highest in Africa.  More 
significantly, production has nearly doubled from the ten-year 
pre-drought average. 
 
¶8. This impressive economic growth is a powerful affirmation of the 
GOM's strict fiscal discipline and public expenditure control. 
Malawi has reduced fiscal deficits to manageable proportions.  It 
also brought inflation down from a high of over 90 percent in 1995 
to below 10 percent since 2007.  Lower interest rates have also 
resulted in a more dynamic financial services sector with increased 
commercial lending and innovative insurance mechanisms.  At the same 
time, Malawi has also significantly increased its investment in 
agriculture.  As of the 2009/10 budget, it accounts for 13 percent 
of total projected government spending, compared to the CAADP target 
of 10 percent. 
 
MALAWI'S AGRICULTURAL POLICY FRAMEWORK 
 
¶9. The Agricultural Development Program (ADP), the GOM's main 
strategy document guiding current and future investments in the 
agriculture sector in Malawi, was developed in 2008 in concert with 
the leading economic growth, agriculture and humanitarian assistance 
donors.  The ADP is in line with the principles of the Comprehensive 
Africa Agriculture Development Program (CAADP) and lays out a 
framework to coordinate development efforts through 2012 by:  1) 
improving food security and nutrition; 2) strengthening commercial 
agriculture, agro-processing and market development; and, 3) 
promoting sustainable agricultural land and water management. 
 
¶10. The agricultural sector in Malawi already enjoys close donor 
coordination and monitoring through the Donor Committee on 
Agriculture and Food Security (DCAFS).  USAID is an active 
participant in this forum on behalf of the USG.  Through DCAFS the 
donor community engages in a concerted dialogue with the GOM on 
technical matters and policy issues.  For example, DCAFS meetings 
have seen donors express concerns about the private sector's 
participation in the AISP, and the need for accurate, annual, 
survey-based agricultural data collection.  Any issues that cannot 
be resolved at the DCAFS level are taken up to the comparable 
heads-of-cooperating partners and heads-of-mission level oversight 
groups for higher policy level discussions and any appropriate 
action. 
 
¶11. The DCAFS also provides a forum for donors to discuss and plan 
their investments in the agriculture sector to avoid duplication of 
efforts.  Many of the major donors active in the agriculture sector 
in Malawi provide their funding directly to the GOM through the 
Common Approach to Budget Support (CABS) grouping which includes 
DfID, EU, World Bank, Norway, and Irish AID.  Through direct budget 
support, these CABS donors support the AISP and other government 
funded food security activities such as a pilot cash transfer 
program and a targeted food for assets program.  USAID complements 
these investments by helping smallholder farmers to increase their 
agricultural productivity, and to access local, regional and 
international markets for their products. 
 
MALAWI'S AGRICULTURAL INPUT SUBSIDY PROGRAM - THE GOOD THE BAD AND 
THE UGLY 
 
 
LILONGWE 00000454  003.2 OF 005 
 
 
¶12. The year 2015, the target date the world's governments have set 
to cut poverty and malnutrition in half from its 2000 levels, is 
just around the corner.  The African Union's member states have 
committed to attaining this goal through concerted commitment to 
aggressive, agriculturally-led economic growth and poverty reduction 
strategies known as the Comprehensive Africa Agriculture Development 
Program (CAADP).  According to recent International Food Policy 
Research Institute (IFPRI) data, Malawi has achieved CAADP goals for 
four years running, with some of the highest investment in the 
agriculture sector on the continent, and is situated in the second 
highest category in terms of its progress in establishing a CAADP 
Compact.  Malawi's Agriculture Inputs Subsidy Program (AISP) has 
been central to achieving these results. 
 
¶13. Introduced in 2005, AISP is a bold nation-wide, voucher-based, 
smallholder fertilizer and seed subsidy program that allows over 1.5 
million farmers to buy fertilizer and seeds at about one-fifth of 
the market price.  The AISP is one of the largest and most often 
cited success stories in Africa, and has dramatically increased both 
the quantity of fertilizer available to farmers and the fiscal cost 
of the subsidy.  The combination of increased fertilizer use, 
improved seeds, and good rainfall has resulted in substantially 
increased maize production over the past four years leading to 
improved food security and even some maize exports. 
 
¶14. Despite these positive results, critics have expressed a number 
of legitimate concerns about the program, its high opportunity 
costs, the potential crowding-out effects on the private sector in 
some years, and the inefficiencies of the program.  In 2006-2007, 
the total cost of the AISP was USD 91 million, representing 45 
percent of the budget of the Ministry of Agriculture and Food 
Security, and 5.2 percent of the national budget.  Successive 
evaluations of the AISP have shown varying rates of return depending 
primarily on the price of fertilizer, leaving it unclear whether the 
program can be justified on efficiency grounds.  The cost of the 
most recent AISP rose to more than USD 200 million, largely due to 
the rise in international fertilizer prices, but should be reduced 
in the upcoming year.  The recent World Bank County Economic 
Memorandum for Malawi noted that even with the higher fertilizer 
prices, the cost-benefit of the AISP was still greater than 1. 
 
¶15. The level of private sector involvement in the AISP has varied 
from year to year.  During the first year of the program, while the 
seed element of the subsidy program was operated through private 
sector seed outlets, the distribution of the subsidized fertilizer 
was managed largely by two state-owned enterprises, effectively 
crowding out private agricultural input dealers.  The reaction from 
the private sector and the development partners was strong, and the 
GOM allowed certified private agricultural input dealers to 
participate in the distribution of the fertilizer during the second 
year of the program.  These gains were short-lived, however as the 
GOM, citing private sector collusion on pricing, decided the 
following year to distribute the subsidized fertilizer through the 
two state-owned enterprises once again.  The GOM justified its 
decision to use the state-owned enterprises as the primary vehicle 
for the distribution of the fertilizer as a means to ensure delivery 
to extreme rural areas that would be unprofitable for the private 
sector. 
 
¶16. The AISP continues to evolve.  High level GOM officials have 
repeatedly indicated to the donor community that future rounds of 
fertilizer and seed subsidies will correct some of the 
inefficiencies of the present program, such as allowing private 
traders to distribute fertilizer, and restricting the subsidy to 
maize and improved legume seeds.  Although imperfect, the bottom 
line is that the AISP is one useful tool to lift agriculture 
production.  Fortunately, the GOM is increasingly focused on other 
complimentary tools. 
 
FUTURE DIRECTIONS OF GOM'S FOOD SECURITY INITIATIVES - THE "MALAWI 
GREENBELT" 
 
¶17. The GOM appreciates the need to shift resources to more 
sustainable and market-friendly approaches to deal with food 
security.  In his recent speech to Parliament highlighting the GOM's 
2009/2010 budget, Finance Minister Ken Kandodo laid out plans for a 
second agricultural initiative - a drive to promote irrigation along 
Malawi's rivers and lakes known as the "Malawi Greenbelt" 
Initiative.  A nation blessed with some of Southern Africa's highest 
rainfall levels, Malawi is nonetheless the second-least-irrigated 
nation in Southern Africa (after Zambia) and remains the most 
vulnerable to drought-induced shocks. 
 
¶18. The rainy season in Malawi, generally from October through 
April, permits most smallholder farmers only a single crop per year 
unless they can irrigate their land.  Malawi presently has fewer 
than 74,000 irrigated hectares out of a potential 400,000 hectares 
nationwide.  To make matters worse, Malawi historically experiences 
 
LILONGWE 00000454  004.2 OF 005 
 
 
roughly two severe droughts per decade.  Arguably the single most 
important way to increase agricultural production, reduce 
vulnerability to drought, and increase rural household income is to 
shift smallholder farmers from rain-fed to irrigated farming.  While 
the operational details of the Malawi Greenbelt are still being 
developed, this clearly demonstrates that the AISP is only one 
component of the GOM's broader strategy for ensuring long-term food 
security. 
 
¶19. The GOM has included funds in its 2009/2010 budget to initiate 
the analysis and strategy development process for the Greenbelt 
Initiative and will seek additional resources from donors to support 
the implementation of the program.  While the details of this 
process are yet to be worked out, additional agricultural funding 
will allow the USG to support the Malawi Greenbelt Initiative by: 
a) Providing technical assistance and input into the analysis and 
strategy development process; b) Greatly expanding existing 
small-scale irrigation and marketing activities to smallholder 
farmers; and, c) Increasing access to financing for 
irrigation-related equipment and other agricultural inputs through 
the USAID Development Credit Authority loan guarantee program. 
 
USG FOOD SECURITY INITIATIVES IN MALAWI 
 
¶20. In his recent speech in Accra, President Obama underscored the 
commitment of the United States to increase support for a global 
agricultural and food security agenda.  Despite some of the current 
agricultural policy challenges in Malawi, the USG, through the 
upcoming Presidential Food Security Initiative, has a unique window 
of opportunity to support the strong and growing GOM commitment to 
reducing poverty, improving food security and carving out a 
broad-based and equitable growth path.  The Malawi government's 
level of commitment and the country's good prospects argue strongly 
for a concerted USG investment in the agricultural sector. 
 
¶21. USG funding in the agriculture sector is coordinated at the USG 
interagency level through the Mission Strategic Plan and Operational 
Plan processes to increase the overall impact of our investments. 
For example, the Millennium Challenge Corporation (MCC) Compact 
Program, expected to be signed in 2010, will develop the electric 
power sector and parts of the country's road network which will 
support the development of agricultural markets and improve food 
security.  Potential areas of collaboration between USAID and MCC 
include targeted activities to protect selected river basins and 
watersheds to safeguard key power and transportation infrastructure 
investments and to strengthen the financial management systems of 
public institutions active in these two sectors. 
 
¶22. The USG's current agricultural assistance program is targeted at 
Reducing Poverty and Food Insecurity through Agriculturally-led 
Economic Growth.  Although severely underfunded, the program has a 
record of solid achievements.  Smallholder farmers participating in 
a USG-funded dairy project saw their average annual income increase 
to over USD 1,300, compared with Malawi's average per capita income 
level of USD 284.  This impressive change not only improved family 
income, but positively impacted nutrition levels.  Over 73,000 
vulnerable households, many of which were headed by a woman or a 
child, benefited from crop diversification, seed multiplication, 
village savings and loans, and agricultural production and marketing 
programs.  The 5,500 vulnerable households participating in 
USG-supported small-scale irrigation activities were able to 
substantially reduce their food insecurity during the dry season 
when they typically are unsure where their next meal is coming from. 
 The USG has supported the creation of grassroots organizations such 
as the National Association of the Smallholder Farmers (NASFAM) 
which serves over 200,000 smallholder farmers, and assists other 
private sector associations to enhance their capacity to advocate 
for sound agricultural policies on the part of the GOM. 
 
¶23. The USAID Mission to Malawi is finalizing its new Sustainable 
Economic Growth Strategy and its Implementation Plan for the Global 
Food Security Response (GFSR) Initiative.  These documents will make 
a strong case for the additional resources needed to expand these 
successful programs and implement new and innovative activities to 
improve the livelihoods and food security of thousands of poor and 
vulnerable households.  Specifically, the USG Mission to Malawi will 
use additional funding under the new Food Security Initiative to: 
1) Work  through a multi-donor effort to improve the GOM's capacity 
to develop and implement sound agricultural policies; 2) Increase 
agricultural production through small-scale irrigation, improved 
seeds, and environmentally-sound productivity-enhancing techniques; 
3) Improve the overall competitiveness of key agriculturally-linked 
value-chains (dairy, coffee, etc.); 4) Promote inclusive, 
agriculture-led economic growth that generates food security, 
improved nutrition, and "pathways from poverty" for Malawi's ultra 
poor, usually women and children; 5) Improve  access to financial 
services for the poor; and, 6) Promote improved natural resource 
management and biodiversity protection. 
 
LILONGWE 00000454  005.2 OF 005 
 
 
 
CONCLUSION 
 
¶24. The GOM has demonstrated a strong commitment to reducing poverty 
and improving food security through agriculturally-led economic 
growth and significant progress has been made over the past four 
years.  These improvements, however, remain fragile and an 
unacceptably large number of Malawians, including women, children 
and HIV/AIDS affected persons, remain vulnerable.  Given the GOM's 
renewed commitment to tackling food security issues and the 
Mission's proven track record on the ground, the USG, with 
sufficient resources, will be well placed to play a leadership role 
in reducing poverty, improving food security, and promoting 
long-term, sustainable economic growth in Malawi. 
 
BODDE