MALAWI: Misguided policy exacerbates food insecurity, claims report

[ This report does not necessarily reflect the views of the United Nations]

JOHANNESBURG, 3 May 2005 (IRIN) - Government interventions aimed at boosting food security in Malawi have had the opposite effect, according to a recent report.

The report argues that the government's attempt to provide fertiliser to farmers helped create a shortage in 2004. In 2001/02 the state's attempt to fix the maize price to make it more accessible to the poor led to the price of the staple skyrocketing.

'Do no harm? How well intentioned (but misguided) government actions exacerbate food insecurity: Two case studies from Malawi', produced by researcher Lawrence Rubey argues that poor weather and the sale of the country's strategic grain reserves were not the only factors behind widespread food shortages in 2001/02.

Rubey concluded that the spike "in maize prices in late 2001 ... coupled with the long-term deterioration in rural incomes, triggered the crisis".

Malawi's maize markets were liberalised in the mid-1990s, allowing private traders to buy and sell maize at market prices.

"However, to this day, the government of Malawi continues to play a role in maize markets alongside private sector traders, mostly by selling maize through ADMARC, the agricultural marketing ... parastatal. During the 2001/02 period ADMARC attempted to subsidise maize, ostensibly to help consumers gain access to low-priced maize," the report noted.

"However, ... these attempts by ADMARC to stabilise maize prices for the poor had the unfortunate effect of making maize prices more volatile." This "actually exacerbated the crisis", the study found.

In September 2001 ADMARC set a fixed price of Kwacha 17 (about US $0.15) per kilogram for maize sold through its depots.

"This price remained unaltered for the next 18 months. But, in comparison to prevailing market prices in 2001, this ADMARC price was 'too low': that is, the ADMARC price was below the prevailing market price in both Malawi and neighbouring countries. Private sector traders, including those that engaged in cross-border trade, saw no opportunities to sell at a profitable price in Malawi," the report pointed out.

Conversely, "there were clear incentives to export Malawian maize to other countries in the region, where consumer prices were not being kept artificially low".

As a result, few private traders regarded importing maize as a profitable venture, but as the 2001/02 "hungry [lean] season progressed, ADMARC was not able to keep up with demand and many ADMARC depots ran out of maize".

With no subsidised ADMARC maize available, "consumers had to turn to private markets ... given the limited private sector supply, maize was scarce and prices for maize in local markets skyrocketed, quadrupling in some cases in just a few months", Rubey noted.

The above case study, "offers a cautionary tale of how government's good intentions can backfire and actually harm consumers. While consumer maize subsidies are seen as 'beneficial' to consumers, the 'benefit' can be short-lived. The experience of 2001/02 suggests that when ADMARC-subsidised maize stocks ran out, maize prices shot up much more than they otherwise would have", greatly limiting access to the staple.

The ADMARC subsidies created a disincentive for private sector imports, which normally had a moderating effect on prices.

The second case study focused on the fertiliser shortage of 2004.

"As the planting season began in November, almost two-thirds of fertiliser imports had not arrived in Malawi," the report observed.

The government of Malawi had announced a fertiliser subsidy, causing farmers to delay purchasing fertiliser and "restricting the ability of fertiliser dealers to import planned levels ... in a timely manner".

In June 2004 "government officials revealed plans for a new fertiliser subsidy scheme that would bring down the price of fertiliser, and continued to advise farmers to hold off in buying fertiliser. Farmers apparently listened to the government recommendations and waited for the planned subsidy to be put in place".

This was evidenced by slow fertiliser sales from August to October, generally a brisk period for dealers.

"Since most importers order fertiliser in multiple orders, using the proceeds of the first orders to fund later orders, less cash flow had a chilling effect on follow-up orders. Fertiliser stocks were not moving, and there was no reason for importers to order more stocks (all inorganic fertiliser in Malawi is imported)," the report explained.

At the same time the planned fertiliser subsidy scheme "hit some snags".

By September reports emerged that the subsidy scheme could be dropped in favour of free farm input packs for two million households.

"But the subsidy scheme resurfaced later that month in a presidential speech. Finally, in late October, the government reached agreement with a key donor for the distribution of free farm inputs to two million households through the targeted input programme (TIP). The fertiliser subsidy scheme that had been announced in June 2004 was quietly forgotten," Rubey commented.

As a result of the slow pace of follow-up orders, stemming from low sales during the July-October period when farmers were holding out for the proposed subsidy, just over a third of the necessary fertiliser was in Malawi by the end of October.

"In November 2004, the main planting rains arrived. A large, but ultimately unknown, percentage of farmers planted maize and tobacco without initial fertiliser applications. There are now fears that Malawi will face a reduced harvest in 2005 ... triggering another hike in maize prices, and a possible food crisis," the report concluded.

Malawi is one of several southern African countries that experienced extended dry spells during January and February - a critical point in the crop development cycle - and now faces widespread cereal deficits.

View the report at: www.sarpn.org.za

[ENDS]