Coupon redemption

As with input and coupon distribution, we consider coupon redemption with an overview of systems and then consider achievements and performance over the life of the programme.

5.5.1. Redemption systems

Redemption of coupons for subsidized inputs essentially involves the pres-entation of a valid coupon and any necessary payment to an authorized retailer who, after checking the validity of the coupon, issues the specifi ed input. Three main systems have been used over the life of the programme:

redemption of fertilizer coupons by parastatals (SFFRFM and ADMARC), redemption of fertilizer coupons by approved private retailers in the 2006/7 and 2007/8 seasons, and redemption of seed coupons by parastatals or pri-vate retailers from 2006/7. ⁶ We describe core features of each of these sys-tems: a description of more detailed changes between years is provided in Section 5.5.3.

Under the parastatal system for fertilizer redemption, fertilizer stocks are distributed to ADMARC and SFFRFM markets (some of which are specially opened during the input supply season) as described earlier. Benefi ciaries then present their coupons with the required farmer payment and the parastatal issues the fertilizer. ADMARC and SFFRFM were then supposed to return to the government both the money and coupons received from farmers. The

Table 5.5. Scoring on different programme elements by year

2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 Timing of

distribution

2.73 2.73 2.56 2.01 2.20 1.93 Methods of

coupon distribution

2.89 2.94 2.97 2.81 2.69 2.74

Criteria for coupon allocation

2.95 2.92 2.83 2.79 2.83

Number of coupons

2.96 3.02 3.07 3.16 3.20 3.36

Scores: 1 = very good; 2 = good; 3 = not good not bad; 4 = bad; 5 = very bad.

6 Some subsidized OPV maize seed was supplied through ADMARC and SFFRFM under the 2005/6 programme without coupons with a 70% subsidy, but there is no further documentation of this.

extent to which coupons have been returned has varied between years, while information on reimbursement of farmer payments is not available. From 2006/7 onwards fertilizer subsidy sales information has been reported by the Logistics Unit on the basis of stock reconciliations and, from 2006/7 to 2010/11 on the basis of weekly market reports.

Redemption of fertilizer coupons by approved private retailers in the 2006/7 and 2007/8 seasons was identical to redemption of coupons by parastatals as regards transactions with farmers. However, reimbursement for sales (of the retailer’s own stocks) was obtained by submission of invoices to the MoAFS supported by redeemed coupons, with reimbursement per coupon at a previ-ously contracted price covering subsidy costs (with retailers keeping farmer payments as the unsubsidized part of the overall payment).

The seed coupon system has been based on annual agreements between the MoAFS and seed supply companies in the Seed Traders Association of Malawi (STAM). Under these agreements individual companies contract with different retailers to supply them with seed approved for subsidized sale, and then to receive from these retailers the details of subsidized sales, with supporting coupons. The seed companies subsequently invoice the MoAFS for each seed coupon returned to them as a result of its use in pur-chasing their seed. The distribution between retailers and seed supply com-panies of MoAFS payments and of any farmer payments are a matter for negotiation between retailers and seed supply companies and are not a mat-ter for MoAFS.

An important issue in coupon redemption is the setting of redemption fees to be paid by farmers. As indicated earlier in Table 5.1 , while fertilizer prices have risen over the life of the programme, farmer contributions through the redemption price have fallen by almost 50% in nominal terms (more in real terms), from 950MK per bag to 500MK/bag for ‘maize fertilizers’, and the sub-sidy has therefore increased from around 65% to over 90%. Fertilizer redemp-tion prices have been politically determined, generally announced by the president in political statements or at rallies. There is little evidence of any technocratic involvement in the setting of these prices, which are very low:

when a price of 500MK/bag was announced for the 2012/13 season it was widely criticized as a contributor to high and unsustainable and distortionary programme costs undermining budgets for other MoAFS activities. Politics has generally played a smaller role in the setting of seed prices, which have been negotiated by seed companies and the MoAFS. However in 2007/8 agree-ment that farmer redemption payagree-ments (‘top ups’) of up to 100MK could be charged per 2 kg pack of hybrid seed had to be abandoned following a politi-cal statement that all subsidized maize seed was free. Seed redemption prices are less important than fertilizer prices, both politically and in their impact on the programme budget.

5.5.2. Total redemption

Figure 5.8 shows the total volumes of fertilizer and seed redemptions by year.

Subsidized fertilizer sales increased from 2005/6 to 2007/8, and were con-siderably over budget from 2006/7 to 2008/9 (with budgeted fertilizer sales of 150,000 MT in 2006/7 and 170,000MT in 2007/8 and 2008/9). The lower sales from 2009/10 were almost exactly on budget. Maize seed sales increased from 2006/7 to 2010/11 but fell back in 2011/12. Hybrid maize seed sales increased dramatically from 2007/8 to 2009/10, with reduced sales of OPV seed, but OPV sales then grew again in 2010/11 and 2011/12—with hybrid seed sales hardly growing in 2010/11 and then declining in 2011/12. There were also dramatic increases in legume seed sales in 2009/10 and 2010/11, with 2011/12 sales a little lower than in 2010/11.

5.5.3. Coupon redemption performance

Apart from the introduction of private sector seed and fertilizer sales in 2006/7 and the withdrawal of private sector fertilizer sales in 2009/10, the only major changes in redemption processes between years have been vari-ation in redemption payments required from farmers. These are set out in Table 5.6 . Variation in pack sizes for hybrid and OPV seed packs and in farmer top up payments required for different varieties led to some competition and farmer choice, where different seed stockists accessible to benefi ciaries carried different or a range of stocks.

Performance in coupon redemption can be considered in terms of avail-ability of inputs for redemption, and timing and costs of redemption. These are all related.

2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12

Fertilisersales ('000 MT)TT

Source : Calculations from Logistics Unit (2011) and earlier reports.

Lack or limited availability of inputs when needed has been a major dif-fi culty that has frequently delayed purchase and use of subsidized inputs. We have discussed in earlier sections how for fertilizers this has been caused by late opening of seasonal markets, late distribution of inputs to markets, and late distribution of coupons to benefi ciaries—and how these three factors interact—as late market opening and coupon distribution makes timely input distribution to markets more diffi cult, and hence fertilizer stock-outs more likely. Farmers and sellers have no fl exibility in substituting between types of fertilizer since coupons are specifi c to each type of fertilizer. With seeds, how-ever, there has been more fl exibility, with opportunities to exchange maize seed coupons for different varieties of hybrid and OPV seed, if different stocks are available.

* 950MK per bag for 23:21:0 and urea, 1450MK per bag for Compound D and CAN.

** Farmer top ups agreed initially but subsequent political announcements led to confusion and inconsistent payments.

Stock-outs have been relatively common in all years of the programme, have affected all inputs, and in 2006/7 were experienced by both private and parastatal retailers. ⁷ However when they manage to get their inputs farmers are generally pleased with the fertilizers they get, but are sometimes disap-pointed by lack of availability of hybrid maize seed and specifi c types of leg-ume seed. We discuss access to maize seed further in Chapter 8.

Stock-outs lead to increased time and cost for farmers travelling to and from and waiting at markets, and while it appears that hours travelling and waiting have increased over the life of the programme there is no clear evidence of changes in transport and other costs or in distances to markets (see Table 5.7 ).

Stock-outs also provide sales clerks with opportunities to demand extra pay-ments for access to limited stocks. This is a problem that is widely reported in the media and in focus group discussions and key informant interviews. Table 5.8 provides survey estimates of the extent and nature of these extra demands.

Table 5.8 shows no clear trend in the frequency or size of extra payments.

In 2006/7 the percentage of coupons requiring tips and mean redemption price were lower at ADMARC/SFFRFM than at all other distributors, but this masks considerable variation between different distributors, with some hav-ing a slightly lower reported incidence of tipphav-ing than ADMARC/SFFRFM.

In 2008/9 and 2010/11 community survey respondents, focus group dis-cussions, and key informant interviews all suggested that the payment of bribes to redeem inputs was more widespread than is suggested by the survey results, with focus groups suggesting that this was closely related to prob-lems of queuing. Chinsinga (2009) also reported extra payments of 200MK to 800MK per bag of fertilizer being demanded by some ADMARC staff (with

7 Holden and Lunduka (2010b) fi nd that only 7% of respondents in 2008/9 reported ‘insuffi -cient inputs’ as the main problem with the programme. However data from the same survey indi-cate that 19% of households considered fertilizer to arrive too late, 6% considered it was on time but insuffi cient, and 8% considered it both late and insuffi cient (equivalent fi gures for 2007/8 were 37%, 6%, and 6%, respectively) (Holden and Lunduka, 2010a).

Table 5.7. Reported distances to buy inputs, time spent buying inputs, and costs for transport and miscellaneous expenses

Hours travel & waiting Transport and misc expenses (MK)

Distance to nearest ADMARC (km)

Distance to nearest private selling point (km)

Mean Median Mean median Mean Median Mean Median 2006/7 13 7 247 150 7 5 7 5 2008/9 17 9 304 200 9 5 14 8 2010/11 23 12 270 200 5 4 8 6

those unable to pay being required to wait two or three days before they were served); extortion of cash from benefi ciaries by criminal elements to

‘facilitate’ input acquisition; and organized theft through tricking farmers.

The Farmers Union of Malawi (2011) report that 5% of their sample of regis-tered benefi ciaries reported being asked to pay bribes for input redemption although 42% considered it common or very common to be asked for such a bribe. ⁸ However, only 20% of those asked for a bribe reported that they had paid it. The Farmers Union of Malawi (2011) FGDs also reported that women were particularly vulnerable to these demands

It is diffi cult to determine if extra payments made for hybrid seed are cor-rupt, as extra payments have been supposed to be made for some hybrid varieties in some years. However, no payments should have been required for OPV or legume seed, but 12% and 11% of respondents reported making some payment for OPV and legume seed in 2010/11, respectively.