still practice subsistence agriculture: the rates of market participation among farming households in general and maize-producing households in particular are 42 and 15 percent, respectively.<sup>16</sup> The inconsistent agricultural performance has direct implications for living standards, given the predominantly rural nature of the country and its heavy reliance on agriculture.

Poverty remains widespread and persistent, particularly among female headed households. Based on the data from the Second Integrated Household Survey (IHS2) 2004/05 and the Third Integrated Household Survey (IHS3) 2010/11, the national absolute poverty rate of 52.4 percent in 2004/05 declined only marginally to 50.7 percent in 2010/11. The trends in rural poverty followed a similar pattern: a rate of 55.9 percent in 2004/05 vs. 56.6 percent in 2010/11.<sup>17</sup> Focusing on the gender dimensions of poverty, while the absolute poverty rate among male-headed households was estimated at 49 percent in 2010/11, the comparable figure among female-headed households was 57 percent. In an effort to combat poverty and boost national food security, the Malawian Government has embarked on an ambitious annual fertilizer and seed subsidy program known as the Farm Input Subsidy Program (FISP), starting with the 2005/06 agricultural season. During the 2009/10 agricultural season (the reference agricultural season for over 75 percent of our sample), close to 50 percent of the farming household population is estimated to have participated in the program.<sup>18</sup> Stagnant poverty levels raise questions on the effectiveness of the FISP in alleviating poverty and food insecurity in a sustainable fashion, which should be subject to further empirical investigation.<sup>19</sup>

# 3.2.  DATA

This study uses data from the Third Integrated Household Survey (IHS3), collected from March 2010 to March 2011 by the Malawi National Statistical Office, with support from the World Bank Living Standards Measurement Study - Integrated Surveys on Agriculture (LSMS16 The estimate is based on the IHS3 data.

17 The difference between the IHS2 and the IHS3 national absolute poverty rates is not statistically significant. The IHS3 rural poverty rate is also statistically indistinguishable from its IHS2 counterpart.

18 The exchange rate for the IHS3 period is MK150 = US$1. During the 2009/10 agricultural season, each FISP beneficiary was entitled to vouchers that allowed them to purchase (i) two 50 kilogram bags of maize fertilizer at 500 Malawi Kwacha (MK) per bag, (ii) either 3 kilograms of hybrid maize seed or 10 kilograms of open-pollinated variety maize seed for the commercial market value net of the 1500 MK subsidy from the Government, (iii) 200 grams of storage pesticide for 100 MK, and (iv) 1 kilogram of legume seed (groundnuts, soybeans, beans and pigeon peas) for free. Upon the allocation of vouchers across the districts and the villages within each district, the program relies on community-based targeting to identify beneficiaries at the local-level, and is supposed to target households that are (i) resource poor, (ii) permanent village residents, and (iii) own and cultivate land, with preference given to heads of households that may be female, orphan, elderly, physically-challenged, or HIV-positive or individuals that look after the elderly and physically-challenged (MoAFS, 2009).

19 Concerns regarding the effectiveness of FISP in reducing poverty and achieving sustainable gains in maize production have been raised (Ricker-Gilbert and Jayne, 2011; Holden and Lunduka, 2010). More recently, RickerGilbert and Jayne (2012) focus on the question of whether FISP can simultaneously boost maize production and reduce poverty, and document that major returns from subsidized fertilizer accrue almost exclusively to households at the top of the maize production and value of total crop output distributions.

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