Since the implementation of the agricultural subsidy programme in 2005/06
season, the agricultural sector in Malawi has grown at 10.7 percent per annum and gross
domestic product has been increasing at more than 6 percent per annum. Poverty has also
declined from 52 percent in 2004/05 to 39 percent in 2009. This study explores the
relationship between initial poverty conditions and agricultural growth and the role of the
agricultural input subsidy programme in Malawi using panel data between 2005 and 2008.
The study uses matched panel data from 1227 households and controls for possible
endogeniety between access to subsidy and agricultural growth. However, the results are
sensitive to the indicator of poverty used in the analysis. On one hand, using income
quintiles, the results show that households in lower income quintiles tend to have lower
agricultural growth rates compared to the richest 20 percent of households; hence poverty
is constraining agricultural growth. On the other hand, using initial poverty status in terms
of classification of households into poor and non-poor groups based on the national
survey, we do not find evidence that poverty is a binding constraint on agricultural
growth. Importantly, the study shows that access to subsidy by the poorest 20 percent does
not lead to higher agricultural growth rates amongst the poorest households, suggesting
that such productivity enhancing interventions are inappropriate in addressing the
fertilizer affordability problem among poor smallholder farmers. We also find a positive
relationship between agricultural growth and purchase of commercial fertilizers, land size
and access to extension advice. The policy implications of the study are two-fold. First,
agricultural subsidies may not be the best instrument for unlocking the growth potential of
the poorest; hence this group may require other social protection instruments such as
direct cash transfers. Secondly, revitalisation of extension services in the agricultural sector
is important for agricultural growth.