Benefit–cost analysis, 2006/7 to 2010/11

This chapter develops benefit–cost estimates for the Malawi Farm Input Subsidy Programme. It argues the need for caution in comparing estimates across different investments as analyses often include and exclude different benefits, and use of the standard partial equilibrium methods for benefit–cost analysis of agricultural input subsidies does not take into account wider benefit to poor consumers and the economy from lower food prices. Demand and supply curve analysis is used to estimate ‘without subsidy’ prices and producer and consumer gains for benefit–cost analysis without and with allowance for further gains from consumer expenditure linkages or growth multipliers. Average benefit–cost ratio (BCR) is likely to be around 1.35, depending on assumptions, with BCR above unity estimated in all years except 2008/9, when there were very high fertilizer prices. The analysis suggests attention to raising yield responses, targeting and a balance of complementary investments to raise programme returns.