On 28 August, the Alliance for a Green Revolution in Africa (AGRA) and the German Agency for International Cooperation (GIZ) co-sponsored a seminar, “Strengthening Structured Markets in Malawi: Securing Sustainable Markets for Farmers.” The seminar aimed to jumpstart a broader conversation about how to make structured markets work in Malawi, and discussed Malawi’s unique commodity exchange landscape, its warehouse receipt systems, and broader structured trade alternatives including contract farming and the vertical integration of supply chains. The conversation necessarily touched on the challenges currently facing Malawi’s commodity exchanges, the Warehouse Receipt Act approved at the end of 2017, and the Commodity Exchange Directive coming into effect in April 2019.
Bob Baulch, IFPRI Malawi’s Country Program Leader, gave the seminar’s keynote speech, which highlighted findings from IFPRI’s ongoing Commodity Exchange Landscape study. This study conducted semi-structured interviews with a range of key stakeholders – farmers associations and groups, small and large traders, processors and feed manufacturers, financial institutions, and food agencies to understand how to best to maximize the performance of the commodity exchanges and collateral financing back by warehouse receipts. The presentation underscored that commodity exchanges and warehouse receipts are only one component of a structured market, and that there is still considerable confusion among key stakeholders about what functions commodity exchanges can and cannot fulfill. Baulch also highlighted quick wins, medium-term policy recommendations, and some more controversial proposals for improving the functioning of the commodity exchanges and warehouse receipt system in Malawi (see slides 20 and 21 of presentation).
The panel that followed, with representatives from Malawi’s two commodity exchanges─ the Agricultural Commodity Exchange (ACE) and Auction Holdings Commodity Exchange (AHCX)─ along with the National Smallholder Farmers Association, Rab Processors, the Alliance for a Green Revolution in Africa, and First Merchant Bank, highlighted a broader view of structured markets. Kristian Moller opened the panel with perspectives from ACE, in which he highlighted issues ACE has faced in becoming commercially viable.
The panel was followed by group discussions which focused on four key challenges:
- How to sustainably engage smallholder farmers in structured markets?
- Exchange sustainability and commercial viability
- Private sector and bank engagement
- Alternatives to commodity exchanges and the warehouse receipt system
The key takeaways from these groups included:
- The need to help smallholder farmers understand commodity exchanges, warehouse receipts systems, and structured markets more generally, and present them with a menu of viable options from which to choose.
- Quick wins for the commodity exchange included the harmonization of grading standards, delinking the promotion of warehouse receipts and haircut financing, and the removal of withholding tax on food commodity transactions.
- Longer-term options include the establishment of an independent body to oversee the operations of the exchanges while representing the interests of key stakeholders in the industry, the use of Zambia’s recently established maize and soya future contracts for hedging in Malawi, and a single warehouse receipt system for the entire country.
In closing the seminar, the regional head of AGRA, Dyborn Chibonga, stated that the outputs from this seminar would be feed into a side event organized by the commodity exchanges in Malawi, Nigeria and Rwanda at next month’s African Green Revolution Forum, which takes place in Kigali from 5th to 8th September.
Update: The GIZ and AGRA teams within Malawi have summarized the main conclusions and recommendations of the seminar in the Strengthening Structured Markets Workshop Final Report.
Other resources:
Policy Note 29: The Case for Structured Markets in Malawi
"Commodity Markets and agricultural development: what have we learned?" by Shahid Rashid
