The price of maize has been more volatile in Malawi than in any other country in the region over the last decade. Measures to address this volatility and related food shortages can have unintended negative effects on the sector, keeping farmers in subsistence agriculture and stagnating commercial growth and agricultural transformation. However, relatively simple measures such as increasing the transparency and predictability of maize market policies and improving information on prices and production can go a long way to promoting greater resilience and investment in Malawi.
Weak and volatile staple food markets have prompted many African governments to assume the responsibility of ensuring adequate domestic food supply at reasonable prices. These interventions are justified, as there are significant humanitarian risks associated with relying on markets alone to correct imbalances or stabilize prices, especially during periods of acute food shortages or price spikes. Considering that Malawi is still in the early stages of its transition to a more open, market-based economy, it is understandable that government uses public policy to encourage staple food production and stabilize prices for consumers. However, evidence shows that Malawi’s staple food prices remain the most volatile in the region, suggesting that these policies are failing to achieve their objectives.
Few will disagree that government’s role in staple food markets should always include: 1) investing in physical infrastructure, 2) providing regulatory oversight and market information, 3) providing extension services, and 4) promoting or supporting the development of market institutions such as commodity exchanges, all of which Malawi does. But, government also intervenes more directly in staple food markets, and it is these interventions that could be doing more harm than good. When a government decides to play a more active role in markets, it can take one of two approaches: it can either engage in an unregulated manner and with broad discretion; or it can follow a rules-based approach to its market interventions. Under the discretionary approach, interventions are often unanticipated by producers, consumers, and traders, thus limiting the extent to which the private sector is willing to engage in the market. These types of interventions tend to undermine the very rationale for their implementation in the first place, namely stabilizing prices. International evidence published by Michigan State University shows that prices are less stable and market outcomes less certain in countries where government intervention has been highly discretionary. In contrast, when governments use rules to determine when and how it engages in markets it allows the private sector to fully anticipate government behavior when devising its own strategies. This policy model is associated with more stable food prices, attesting to the important role the private sector can play in regulating supply and demand.
Government interventions in Malawi’s maize market tend to be discretionary. Apart from the Farm Input Subsidy Program (FISP), which has been delivered more or less consistently since its inception, many of the Malawi government’s market interventions have been highly discretionary and inconsistently implemented, leading to major market uncertainty. A policy note by the International Food Policy Research Institute (IFPRI) in Malawi argues that NFRA’s operations are characterized by a lack of transparency in price setting and inconsistency in the timing of grain purchases from one year to the next. ADMARC’s price stabilization efforts also lack clearly articulated rules governing procurement and marketing activities, and little information is available on timing, location or magnitudes of ADMARC transactions. Finally, the use of export bans, intended to shield Malawi from regional price spikes and ensure domestic supplies, are put in place and lifted without publicly-available criteria on which these decisions are made, meaning that producers and traders have little advance notice as to when the international market might be available to them.
Perhaps not surprisingly, therefore, research conducted by the Indaba Agricultural Policy Research Institute (IAPRI) in Zambia shows that the price of maize has been more volatile in Malawi than in any other country in the region over the last decade. Such market uncertainty drives smallholder farmers to become subsistence-oriented, discourages commercial farmer production—leading to even less supply in the market—and moves traders to charge a high risk premium for aggregating, storing, and releasing stock later in the marketing season.
Although Malawi’s maize marketing policies are designed to reduce food insecurity and price instability, they are ultimately self-defeating, discouraging production and engagement by the private sector. To eliminate this uncertainty and unpredictability, Malawi should adopt a rules-based approach to intervening in its staple food markets. Increased transparency in government interventions will create the conditions to stimulate production, while still enabling government to intervene in times of poor harvest or regional shortages and price spikes. It will require open dialogue between government, private sector, and development partners to develop the rules of engagement that will apply to all. Another fundamental requirement of a rules-based approach is reliable, timely and publically available information on prices and production, including on privately held stocks. Without this shift, many Malawian citizens will remain vulnerable as a result of market instability, and the farming sector will struggle to transform itself from subsistence-oriented to more market-oriented characterized by greater resilience and investment.
To read more on this topic, see this related policy note: Is Malawi’s mix of maize market policies ultimately harming food security?
