The Malawi Farm Input Subsidy Program (FISP) has been successful in raising maize yields and improving food security. Maize production almost tripled in the first two years of the program. Maize yield increased from an average of 1.06 ton/ha in 2000-05 to 2.27 ton/ha in 2009/10.
The sustainability of the program in terms of meeting the fiscal and foreign exchange resources requirements is uncertain as Malawi is faced with large budget and current account deficits. Thus, there is a need for a feasible plan to sustain the farm input subsidy program.
This brief underlines the importance of focusing on exports to satisfy the foreign exchange requirement of the subsidy program. A simple counterfactual analysis of sustaining exports at the 2007/08 level, i.e., 12%, in 2009/10, shows that more than 87% of the foreign exchange requirement of the program could have been covered through maize export. A conservative estimate falls to around 65%.
Commodity market instruments, coupled with careful stock management, present a viable alternative way of managing exports without compromising domestic food security. Commodity put options and repo agreement can be used to reduce the risks associated with exports and cope up with unexpected conditions such as drought and other climatic shocks.
In terms of the institutional arrangement, the proposed stock management via the use of commodity market instruments can be coordinated by the Malawi Agricultural Commodity Exchange (MACE). Donors’ financial and technical support is, however, critical to put the option market alternative into practice.