POLICY ISSUES ON THE EFFECTS OF MAIZE PRICE CONTROLS

Maize_grainaries

Recently Centre For Free Market Enterprise (CFME) conducted a research on the effects of Maize price controls in Malawi. Then CFME prepared a policy brief document which was submitted to policy makers. According to the study, CFME found that Maize is by far the most important staple food in Malawi. It is the dominant crop covering over 60% of arable land and is predominantly under smallholder farming. Smallholder farmers account for over 90% of the maize production, while the estate sector accounts for less than 10%. It should be noted that food security in Malawi is closely tied to the harvest of maize and depends on improving the performance of maize markets. Ensuring that grain is consistently available at tolerable prices is crucial for consumers’ food security.

Malawi’s maize market is characterized by a high degree of discrepancy at the level of the producer. Smallholder farmers who produce marketed maize vary dramatically in productive capacity. Since most smallholder farmers produce maize for their own subsistence, surplus producing farmers need to receive farm-gate prices consistently above production costs to intensify the use of fertilizer and other productivity enhancing technologies in a sustainable manner. These concerns give rise to the classic food price dilemma for policy makers in Malawi: how to keep prices low enough to ensure low income consumers’ access to food while keeping prices high enough to promote farm production incentives.
The research we recently carried revealed that maize supply responds directly to price controls. Since a higher percentage of maize is produced by smallholder farmers, price controls by Government have not made it conducive for surplus producing farmers to participate well in the market. Moreover, Malawi faces major political and economic problems associated with food price instability especially given its dependence on rain-fed agriculture in a region prone to drought. These issues show that improving the performance of maize markets is at the core of achieving sustainable food security and poverty reduction in Malawi.

Malawi’s agricultural system, being heavily dependent on rain-fed agriculture, is highly prone to adverse weather conditions such as drought and floods. Our research further revealed that frequent unfavorable weather conditions leads to some of the maize price increase observed in Malawi. If ADMARC had sufficient quantities to sell to meet demand, it is unlikely that market prices would exceed the ADMARC price, as people needing grain would simply acquire their grain from ADMARC. However, climate change has affected maize production in the country which has resulted into low production and increase in maize prices on the market which are far much higher as compared to ADMARC prices.

POLICY RECOMMENDATIONS

The maize market has been the primary target of food and agricultural policy interventions in Malawi. Therefore, government policy needs to consider providing attractive incentives to producers and keeping cereals prices low enough to guarantee access to maize for consumers. A well-functioning maize market is a key condition for reducing food insecurity in Malawi. The recently adopted National Agricultural Policy strives to improve agricultural marketing, processing and value addition through several ways including ADMARC reforms to improve market efficiency and profitability to the benefit of farmers. In light of the above constraints, we recommend the following to ensure that implementation of the National Agricultural Policy improves food security in Malawi.

Maize in the field

The study revealed that price control affects availability of maize on the market and private traders sell at a higher price than ADMARC. If Government continues to place such controls, maize prices are likely to increase thereby affecting food security in the country. The study recommends that price controls be removed and follow the laws of demand and supply. Maize being a staple food, will likely increase the demand which will in turn increase the supply as large scale farmers would be willing to produce maize thereby improving food security in Malawi. Any surplus maize will mean increase in maize exports and improving the economy of the country.

Malawi being one of the countries facing adverse effects of climate change, there is need to diversify agricultural production and encourage private sector participation in maize production. The Farm Input Subsidy program has not only negatively affected agricultural productivity in light of climate change, but has also contributed heavily to environmental degradation due to increased use of fertilizers and pesticides thereby increasing food insecurity in the country. Removal of government taxes on irrigation equipment and providing a conducive environment for private sector involvement in large scale farming will improve maize production thereby contribute to food security in Malawi.

The study has also revealed that if maize prices are fixed for a long time, there is a high probability that maize supply will fall by 85% regardless of whether maize production is high or low. Government therefore needs to consider removal of price controls to ensure food availability in the country. Already, the newly adopted National Agricultural Policy proposes reviewing ADMARC’s mandate to improve market efficiency. This study provides the evidence base for informed decision making in as much as ADMARC reforms are concerned.

Leave A Comment