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Price Incentives for maize in Malawi and the Region
1. Price incentives for maize in Malawi
and the Region
Results from FAO’s Monitoring and Analyzing Food
and Agricultural Policies (MAFAP) programme
Christian Derlagen, FAO
Maize Market Symposium, Lilongwe, 1 October 2015
4. • A programme of FAO to support developing countries
strengthen monitoring and analysis of agricultural policies
and their effects on producers and consumers in a
systematic way
• Implemented by FAO in collaboration with national
teams to develop institutional capacity and ensure
sustainability
• Provide evidence to support more effective policy-
making and investment decisions at national, regional
and global level
5. 1. Effects of policy and market structure on prices for
producers and other actors in ag value chains
2. Level and composition of public expenditure on
agriculture and rural development
3. Coherence between national objectives, expenditure,
policies and the effects they generate
* Database of indicators and reports available on our website *
What do we measure?
6. How price incentives are
calculated
Border price
international
reference
Adjust for market
access costs
Reference
price at producer
and consumer
levels
Compare with
real observed
retail and farm-
gate prices
Observed higher than Reference? Price incentives.
Observed lower than Reference? Price disincentives.
8. 1. In the southern region, price
incentives vary across years
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2005 2006 2007 2008 2009 2010 2011 2012 2013
NRP at farm gate
Nominal rate of protection at farm gate
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
MWK/tonne
Domestic and reference price at farm gate
Domestic price at farm gate Reference price at farm gate
9. 2. Support is generally positive if FISP
support is taken into account.
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Nominal rate of assistance at farm gate
Nominal rate of assistance at farm gate
10. 3. However, preliminary central region figures
show mostly disincentives, even taking into
account FISP support
-40
-30
-20
-10
0
10
20
30
2005 2006 2007 2008 2009 2010 2011 2012 2013
Percentage
Nominal rate of assistance at farm gate Nominal rate of protection at farm gate
11. 4. Measures to protect consumers do
not have long-term effects
-30%
-20%
-10%
0%
10%
20%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Nominal rate for consumers
Nominal rate for consumers
12. Nominal Rate of Protection at Farm-Gate in selected MAFAP countries
5. Price incentives are volatile across
the region.
-60%
-40%
-20%
0%
20%
40%
60%
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Tanzania Kenya Mozambique Uganda Malawi
13. Nominal Rate of Protection at Farm-Gate in selected MAFAP countries
-60%
-40%
-20%
0%
20%
40%
60%
80%
Tanzania Kenya Mozambique Uganda Malawi
2005 2006 2007 2008 2009 2010 2011 2012 2013
15. Conclusions
• On average, maize policy and market structure are providing
slightly positive price incentives to farmers in the southern
region. However, many constraints to production growth
exist.
• Fluctuations of incentives levels are high, caused by
vulnerable (rain-fed) production systems, thin market and ad-
hoc policies. Eventually, this volatility negatively affects
farmers’ supply response.
• It is recommended to reduce ad-hoc policy measures with
short-term effects, and develop a more long-term policy plan
for the maize market. More predictable policies would
mitigate maize market volatility and incentivize farmers
towards commercial oriented production
16. • The limited share of maize marketed increases the
vulnerability of consumers to price increases. Potential to
move farmers from autarkic to net sellers exists but will
require increased public investment in market access
(storage, credit, rural infrastructure).
• Analysis indicates that the export ban has resulted in price
support to consumers only in 2012.
• Government intervention in the maize market should be
rules-based and grounded on evidence about the effects of
interventions on producers, consumers and taxpayers for
sustainable development of the maize market and a food
secure future.
17. Zikomo kwambiri
For all indicators, reports and policy briefs, visit:
www.fao.org/in-action/mafap
Hinweis der Redaktion
The maize market symposium’s comes at a highly opportune moment, with soaring maize prices, the highest production deficit in years and the recent announcement of intervention by ADMARC to stabilize maize prices for consumers.
Presentation of today builds on various years of work that FAO has been doing under the MAFAP programme in Malawi and various other African countries. In 10 minutes, will not go into much of the technical details of our work, but will give you an overview of some of the main results related to maize production in Malawi and other countries in the region.
FAO State of Food and Agriculture 2012 confirmed the obvious: farmers are the main investors in agriculture.
In low- and middle income countries, farmers’ own investment is four times that of government and over 20x that of ODA.
We may not think of the majority of Malawi’s maize farmers as investors, but Malawi’s objectives of self-sufficiency in maize depend on their investment and production decisions (Will I sow more than last season? Will I use some area for other crops? Will I apply my fertilizer or sell it?)
In the end, lifting people out of poverty and food insecurity through agricultural development depends primarily on farmers investing in their production themselves.
Price is a key driver of these decisions. Are farmers getting the price they should get compared to the prices in the international market? Are producer prices higher or lower than that reference?
Naturally, prices are strongly influenced by government policy. In the case of Malawi, this includes the FISP, but also other more discretionary policy instruments such as trade policy (export bans), price policy (minimum farm gate price) or the price setting mechanism of the National Food Reserve Agency.
But overall, does Government policy result in higher or lower prices, or in other words support or taxation of farmers or consumers? And do these effects change between years, crops and countries? Or between exports and staples?
Answering those questions is one of the key components of the work of FAO’s MAFAP programme.
We work with governments in 15 African countries, including Malawi,
Is government policy pushing prices up or not?
How is public expenditure composed? Targeted to public goods, such as research, extension or infrastrucutre, or to private goods that benefit individual farmers such as subsidies?
Coherence: increase market access but all public investment is primarily spent on private goods, not public goods.
Maize market operates in different ways across different regions.
South: small plot sizes and lack of credit, land degradation and other physical constraints to production, deficit region, imports (mainly informal) from Mozambique
Centre: surplus region, larger plots
Maize market very thin and our methodology has problems with non-traded commodities.
Our analysis focuses on the south, where some trade flows exist and market where the imported commodity competes with the domestic production.
South produces 30% of national production, and data availability. Food security dimension is highly imported.
Maize market operates in different ways across different regions.
South: small plot sizes and lack of credit, land degradation and other physical constraints to production, deficit region, imports (mainly informal) from Mozambique
Centre: surplus region, larger plots
Maize market very thin and our methodology has problems with non-traded commodities.
Our analysis focuses on the south, where some trade flows exist and market where the imported commodity competes with the domestic production.
South produces 30% of national production, and data availability. Food security dimension is highly imported.
Reference price used is based on the price in Milange, Mozambique
Relatively high farm gate prices in the south, higher than in the surplus region of the centre
Overall Maize farmers in Malawi on average received price incentives in some years, and disincentives in others.
However, support to farmers is highly volatile between years, due to vulnerable (rain-fed) production systems, thin market and ad-hoc policies by Govt which sometimes have restrained price transmission.
In the southern region, the effects of price incentives are limited. Given the constraints to expand production and small plot sizes, farmers have limited possibilities to expand production.
While producers already receive relatively high prices, they are further supported through government spending that reduces their input costs. If we include FISP expenditure as part of the support to maize farmers (FISP subsidy expenditures per ton of maize) we obtain the Nominal Rates of Assistance.
Would the picture be very different if we calculate the indicators for the central region, using the farm gate price of the centre.
Though I just calculated this for this symposium, so please do not hold me to the exact numbers of this slide, the trend is clear, namely that price incentives for farmers in the central region are lower. And that is more problematic as the farmers that will be able to give a supply response are here.
In an efficient value chain with explicit policy interference, a price incentive (“support”) for farmers should lead to a disincentive (“taxation”) for consumers. But the maize market is highly complex, with large numbers of small traders and middlemen, limited market information by farmers and weak bargaining power.
In some years, prices for consumers were below reference, while in other years they were above.
The strong protection of consumers appears in 2012 as a result of the maize export ban. However this effect disappeared in 2013 and that trend seems to continue in 2014 with retail prices strongly increasing, with official prices now at 140 kwacha per kg and a food security crisis looming
In regional perspective, Malawian farmers do not receive higher price incentives than in other countries of the region, and the incentive on average is slightly positive (4%), slightly positive in Mozambique too, more negative in Tanzania and Kenya.
If there is only lesson to draw from the regional comparison, it is the high volatility of price incentives across the region. This is the result of the fact that governments across the region do not trust the market to ensure sufficient maize supply at affordable prices. The markets are subject to a large number of discretionary interventions by government, and research indicates that countries with less interventions (such as Uganda) have more price stability. But across there is no example of a high intervention environment with low fluctuations in price incentives.
both in countries with more liberalized maize markets, such as Mozambique and Uganda and in more regulated markets with regular government or parastatal intervention, such as Kenya.
Tanzania: High transport costs as a result of infrastructura deficits.
Transport Cost (TCs) in The United Republic of Tanzania exceeds those in other EAC partners (World Bank), especially high costs between the farm gate and the primary market.
Kenya: Kenyan policy makers have relied on two main instruments to influence prices and supplies and these are; (i) the state-run National Cereals and Produce Board (NCPB) which procures maize and then sells it to millers as a lower government subsidized rate; and (ii) tariffs on maize imports and exports. More successful parastatal intervention to keep prices low for consumers, but producer incentives are slowly decreasing. Potential risk to production. The major driving force influencing producers’ incentives is the NCPB’s activities in stabilizing prices for consumers and lowering prices for millers.
Higher price stability in Uganda and fairly high price incentives. However, should take into account that maize is an export here and is mainly targeted at supplying Kenya and South Sudan.
Kenya: fluctuating price incentives for farmers and lot of intervention in the maize market, primarily through purchasing of the National Cereals and Produce Board (25-35 percent of all marketed maize). The NCPB has a clear objective: buying at high prices to support farmers (higher than market) and selling to millers at prices below the cost of procurement to keep prices low for consumers. Though here only the producer dimension, our data shows that unsuccesful on producer side, more succesful on keeping prices low for consumers. Finally: subsidy to medium and large scale farmers who supply the NCPB. If we would include budget support, this turns out to be much higher for large farmers than for smallholders -> anti-poor distributional effects. Smallholders sell 96 percent to private traders and not to NCPB. So instead of following costly purchase & release strategy, there is room for much more investment in storage facilities for smaller farmers to keep prices stable. Producer incentives now decreasing, which is a risk to production growth.
Mozambique has basically two maize markets, a surplus market in the north and deficit market in the south. Deficit is supplied by SA, though prices do not move the same. E.g. Between 2012 and 2013 prices went down in SA by 18% while they climbed in Maputo by about the same. Official maize imports are subject to VAT (in addition to a 2.5% duty) but not levied on omestic production – so de facto trade policy protecting Mozambican farmers, but driving up the price in the south where there is a deficit supplied by imported grain.
Strong variability across the region, market operates in very unpredictable ways separated from the world market. Results in low predictability of prices, which harms farmers and reduces their willingness to invest in maize production themselves. It holds back intra-regional trade and without the trade potential, how will commercial agriculture emerge if I cannot sell my produce in years of national surplus? Overall, this keeps farmers in subsistence farming and limits the development of comercial agricultur, even though it is a stated objective of Malawi Govt and govt across teh region.
There is the capacity to produce a surplus in Malawi (how could it be the contrary with that huge investment in input subsidies?!) and the potential to move a large number of farmers from autarkic to net sellers status. But measures adopted are not actually promoting marketing access for smallholders nor private traders activities; they were not even effective in protecting consumers, because of wrong forecasts, bad timing and poor implementation.
Improving targeted feeder roads would cut transport costs between the farm-gate and central markets – the most costly leg of the value chain.
Enhanced access to storage and credit facilities would enable farmers to sell when prices are more favourable while accessing the necessary liquidity to cover expenses in the short run.
Discretionary use of trade policy instruments reduces incentives of the private sector to investment in agricultural productivity
Main message: interventions are not bad, if rules-based, predictable, and grounded on evidence about the effects of maize market interventions on producers, but also on consumers and taxpayers. For sustainable development of the maize market in Malawi and a food secure future for the Malawian population.
There is the capacity to produce a surplus in Malawi (how could it be the contrary with that huge investment in input subsidies?!) and the potential to move a large number of farmers from autarkic to net sellers status. But measures adopted are not actually promoting marketing access for smallholders nor private traders activities; they were not even effective in protecting consumers, because of wrong forecasts, bad timing and poor implementation.
Improving targeted feeder roads would cut transport costs between the farm-gate and central markets – the most costly leg of the value chain.
Enhanced access to storage and credit facilities would enable farmers to sell when prices are more favourable while accessing the necessary liquidity to cover expenses in the short run.
Main message: interventions are not bad, if rules-based, predictable, and grounded on evidence about the effects of maize market interventions on producers, but also on consumers and taxpayers. For sustainable development of the maize market in Malawi and a food secure future for the Malawian population.
