farmers below market rates are currently receiving a great deal of support as a sustainable
strategy to foster an African Green Revolution. In recent years numerous countries in Sub-
Saharan Africa (SSA) including Ghana, Kenya, Malawi, Mali, Senegal, Tanzania, and
Zambia have implemented such programs at substantial cost to government and donor
budgets. For example, in 2008 Malawi spent roughly 70% of the Ministry of Agriculture’s
budget or just over 16% of the government’s total budget subsidizing fertilizer and seed. In
Zambia between 2004 and 2011, an average of 40% of the government’s agricultural sector
budget was devoted to fertilizer and maize seed subsidies each year.
Unlike the universal input subsidies that were common prior to the agricultural market
reforms of the 1980s and 1990s, many of the current input subsidy programs in SSA target
the subsidies towards households that meet certain criteria. By selecting people who would
not otherwise participate in input markets, in principle these targeted input subsidies should
not disrupt purchases of inputs at commercial prices in the way that universal input subsidies
did in the past. The extent to which input subsidies disrupt commercial purchases of inputs is
an important determinant of the impact of the subsidy program on total input use. If an input
subsidy has a positive effect on purchases of inputs at commercial prices, then the subsidy
can be said to crowd in commercial purchases. On the other hand, if an input subsidy has a
negative effect on commercial purchases, then the subsidy can be said to crowd out or
displace commercial purchases.
In this study, we use nationally representative household panel survey data from Malawi and
Zambia to estimate the extent to which subsidized improved maize seed and subsidized
fertilizer crowd out smallholders’ commercial purchases of improved maize seed. (Improved
maize seeds are defined in the study as hybrid varieties and open pollinated varieties (OPV).)
Past efforts have quantified the effects of fertilizer subsidies on commercial purchases of
fertilizer but this paper is the first to quantify the effects of subsidies for both improved maize
seed and fertilizer on commercial maize seed purchases. Recent evidence from Malawi
suggests that nearly half the maize yield gains from the input subsidy program come from
uptake of improved maize seed. This makes it essential to understand the extent to which
seed subsidies contributed to increasing improved seed use. In addition to estimating the
crowding out effects of input subsidies, the study also examines the factors affecting the
quantities of subsidized inputs received by smallholder households in Malawi and Zambia.
The study highlights four key findings. First, the distribution of subsidized inputs across
smallholder households appears to be politically motivated in both Malawi and Zambia. In
Malawi, other factors constant, households in districts won by the ruling party in the last
presidential election receive 1.7 kilograms (kg) more subsidized maize seed and 11.4 kg more
subsidized fertilizer than households in districts lost by the ruling party. In Zambia,
households in constituencies won by the ruling party receive 10.8 kg more subsidized
fertilizer, and that quantity increases by 0.5 kg for each percentage point increase in the
ruling party’s margin of victory. Both the Malawian and Zambian governments appear to be
using subsidized inputs to reward patronage.