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Informal Income Opportunities: Seed – Fertilizer Voucher Program

Afgh-DistOne of the common and unfortunate aspects of developing country governance with their Financially Stalled Civil Services and poorly paid civil servants is the financial necessity of the civil servants to seek informal income opportunities from within their jobs and the development projects associated with their jobs. In doing so, a considerable amount of organizational and managerial skill can be diverted to this pursuit. A Seed – Fertilizer Voucher Program is an example that provided opportunities for civil servants to earn informal income and the extent various sections of the civil services pursued such opportunities even at the potential disadvantage of the intended beneficiaries.

The seed – fertilizer voucher program was designed to provide improved wheat, onion, and seed potatoes plus fertilizer to smallholder farmers throughout all provinces under the basic premise, promoted by the government, that the producers had either consumed their seed or sold it to buy basic subsistence needs, and there was a shortage of useable seed in the smallholder communities. The program was part of the alternative livelihood project aimed at reducing poppy production. It distributed some 500,000 vouchers of mostly wheat seed, but included small amounts seed potato and onion seed. Each voucher contained enough seed for 0.2 ha along with sufficient Urea and DAP fertilizer for the 0.2 ha. The total amount of material purchased and delivered to the districts was some 12,000 MT of wheat seed, 26,000 MT of Urea, 13,000 MT of DAP with lesser amount of onion and seed potato. It had a delivered value exceeding $24,000,000. The program was funded by a consortium of donors and implemented through well established and well known development contractors, on behalf of the government of Ministry of Agriculture, Animal Husbandry, and Food. The national average for a voucher was approximately $40, with a requested repayment value into a development fund of $30. The distribution of the seed and fertilizer was contracted though private wholesale dealers who operated via local private shops as depicted.

While it is impossible to determine how much of the government’s imposed adjustments to the program were in pursuit of informal income as compared assuring an appropriate distribution of beneficiaries, or protecting the smallholders from poor quality inputs as proclaimed, the way the adjustments unfolded gave many reasons for concern. This even more a concern considering the time and effort as well as managerial skill that had to be exerted in making the adjustments instead of simply allowing the implementing contractors to proceed with what was a reasonable well conceived distribution plan. Most of the imposed adjustments were done at the provisional and district level. Some of the imposed adjustments were:

  • The reallocation of vouchers: Usually the vouchers were planned to be distributed according to the proportion of the smallholder producers in the districts of the different provinces. However, the ministry would often simply insist that they be equally distributed to all districts regardless of the proportion of agriculture production in the districts. If they were informally charging the farmers for the vouchers, this would assure all district extension personnel had an equal opportunity. Other times, the reallocations seemed mostly arbitrary or concentrating around the provincial center leaving the impression it could have been designed to include more family members or friends of the ministry’s staff who would most likely be concentrated near provincial centers. It was accepted that first names on all the beneficiary lists represented family and friends of extension personnel.
  • Ordered Vouchers: Vouchers were redeemed in perfect numeric order the probability of which would be virtually impossible if the farmers were distributed the vouchers by extension personnel and redeemed them at the dealer. The implication being they may never have been distributed and simple processed and cashed in.
  • A suggestion of repayment in-kind: As mentioned elsewhere in the website in-kind payments are the most common means of repayment for Informal Credit. However, when the voucher in-kind repayment was computed the logic became severely distorted from most deductive reasoning and resulted in a recommended repayment rate of only 1/5th the cash repayment value. Very strange and left one wondering if vouchers were being informally sold and the repayment discounted to cover the informal selling price.
  • Quality Complaints on Materials: On several occasions’ complaints about the quality of the seed and fertilizer were filed, even though there were no testing facilities to check the fertilizer content, nor germination facilities for checking seed quality. The implication was the officials needed a substantial gratuity to allow the program to continue. In all cases the seed had come from established seed companies, many of whom were assisted by ICARDA and FAO in getting established in the seed business. The seed quality was also checked by a seed lab operated by FAO. The fertilizer was imported by major fertilizer dealers and represented only 6% of the total fertilizer imports for that growing season. The importers were known to have paid 2.5% the value of the fertilizer in informal customs duties, plus additional informal taxes depending on destination and number of road checkpoints that could encountered. The total informal costs could be as much as 13% of the fertilizer’s value.
  • Material Confiscated: On several occasions various government organizations simply confiscated the distribution material. These included a provincial governor, security services and even customs, regardless that the shipments were completely internal or previously cleared imports. All of these appear simply motivated by gratuity opportunities, but in all cases the material was eventually released without payments after considerable effort on the part of the implementing contractors, and at times evoking the presidents office.

The item listed above represent only those activities that required some administrative action on the part of implementing contractors. It did not include others informal income opportunities such as the dealers being obliged to pay gratuities to the senior government officials just for the right to accept the distribution contract in what eventually became a government contract. It was noted that those dealers recommended by the different governors were happy to offer gratuities to the contractor’s staff for the right to the contract. These were turned down and the contract given to other dealers. Also, in some informal discussion some dealers acknowledged that they had to pad their contract to allow sufficient informal payments so the government would not interfere with the distribution.

The net result of all these imposed adjustments to the orderly distribution and redemption of the seed – fertilizer voucher program was the implementing contractors were continuously having to facilitate and adjust the movement of material and accounting of the vouchers. While, as mentioned earlier, it is impossible to accurately determine how much of the above activity was aimed at informal income opportunities it does show the extent to which organizational and administrative skills could be diverted to promoting informal income opportunities. There is ample ground to suspect that much of it is. Also, the diversion of organizational skill to informal income opportunities can be expected to continue as long as civil servant salary scales are such that the hassle to obtain informal income and potential for getting disciplined for doing such is less than the financial need for it.

In the meantime pushing, development projects through government agencies can only result in considerable diversion into informal income opportunities. While nobody wishes to begrudge well educated but poorly paid civil servants a living standard consistent with developed country colleagues, in places where the designated beneficiaries of development assistance clearly see their benefit being diverted or partly diverted to the civil servants, there are several highly undesirable organizations ready to make use of these diversions as recruiting incentives.

In many countries, which experimented with socialism and the government attempting to run the economy, instead of simply facilitating it, deriving informal income from the private sector became highly institutionalized. Frequently, when the government ran the economy and denounced the private sector for exploiting the population, they also quietly relied on the private dealer to overcome the government’s management inefficiencies, and started collecting informal taxes to allow them to operate. The private sector just accepted this as the cost of doing business, and passed it on to the consumers. They were still able to maintain a competitive advantage over most government business entities.

The problem for the donor community is that much of these informal activities are done sufficiently discretely that the donor facilitating team of advisors could be nearly oblivious of their occurrence. However, the intended beneficiaries, who are also the victims, could easily relate the informal activities to the donor funded project with an implied acceptance or even endorsement by the donor or his facilitating team that represents the donor. This could result in projects doing more to inspire anti-donor resentment eventually leading to hostile acts of terrorism, than enhancing the donors national security. Other examples could be Madibira where the irrigation scheme management was emphasizing payments share capital that was independent of the finances of the scheme or even informal payments to obtain a plot of land.

Last Revised: 25 March 2010

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