- May 5, 2005Malawi: Misguided Policy Exacerbates Food Insecurity, Claims Report
UN Integrated Regional Information Networks
May 3, 2005
Posted to the web May 3, 2005
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' [pdf], http://allafrica.com/sustainable/resources/view/00010633.pdf 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.
Malawi: Economic Performance Making No Dent On Poverty - Report
UN Integrated Regional Information Networks
May 4, 2005
Posted to the web May 4, 2005
Malawi's lacklustre economic performance will have to improve dramatically if the lives of its 11 million people are to be bettered, according to a United States Agency for International Development (USAID) report.
'Economic Performance Assessment: Malawi' was compiled by Nathan Associates Inc. for USAID, and based on an examination of key economic and social indicators, including growth, poverty levels (65 percent of Malawians live below the poverty line), and access to healthcare and education.
"Rapid and broad-based growth is the most powerful instrument for poverty reduction. At the same time, measures to invest in human capital, reduce poverty, and lessen inequality help to underpin rapid and sustainable growth. These interactions create the potential for a virtuous cycle of economic transformation and human development," the report pointed out.
However, "the data analysis for Malawi reveals serious problems in numerous areas, and few signs of healthy performance. Overall, Malawi urgently needs to follow through on recent efforts to strengthen macroeconomic management, as a starting point, and to take serious steps toward further improvement of the enabling environment for private sector development," the researchers commented.
"This will entail deeper reforms, control of corruption, infrastructure investment, and better health and education programmes, within the limits sets by very scarce resources," they added.
With an estimated per capita GDP of just $165 in 2004, the country has remained one of the poorest in the world. "The need for rapid and sustained economic growth is acute. Yet, over the past five years, growth has averaged just 1.2 percent per year, never exceeding 4.0 percent," the researchers pointed out.
This meant that "in absolute terms, growth is far too low to deliver improved standards of living or adequate income opportunities for a population that is growing by 2.1 percent per year".
To progress towards prosperity, the country had to achieve a sustained and "broad-based growth of no less than five percent".
This was the central economic challenge facing the government and the donor community.
"One vital question that must be asked ... is whether the political foundation exists in Malawi for achieving rapid growth. Is there the political will for sound economic policies and institutions? Is there an effective constituency for effective pro-growth policies? How can these be strengthened?" the authors asked.
Rafiq Hajat, director of the Blantyre-based Institute for Policy Interaction, believes the political will does exist.
"In the previous session's budget, 90 percent of the pro-poor expenditure that was in the budget had actually been utilised, and it had probably the highest [budget allocation]. So, there is the [political] will, and it tallies with political survival - if you can improve the lot of poor people at grassroots level, your political survival is assured," Hajat said.
According to the report, since 2002 the government had "demonstrated new resolve to rein in excessive expenditure and bring inflation under control" - a vital requirement for stimulating economic growth.
However, "even with strong revenue mobilisation and improved public expenditure management ... Malawi is too poor to afford vital expenditure programmes without major support from the international community," the report added.
In terms of curbing state expenditure, Hajat said "it will take at least four to five years to do this, as it requires a paradigm shift; a change of culture within ministries and the civil service that cannot be achieved overnight".
With regard to improving the country's economic performance, Hajat noted that the fair trade agenda was an issue that needed to be highlighted.
"Has Malawi ever, historically, received fair terms of trade? When the American farmer is paid $4.15 for a kilogram of tobacco - which is out of favour in America anyway - and that figure is highly subsidised, why do American companies pay Malawi farmers $0.17 cents per kilogram?
"How is a tiny landlocked country like Malawi ever going to sustain itself? So, before we get to macroeconomic policy, we need to talk about fair trade," Hajat stressed.
He pointed out that tobacco sales accounted for 76 percent of Malawi's foreign currency earnings.
"Maybe, instead of aid we should be getting a fair price - if we got $2.50 per kilogram of tobacco, it would give us balance-of-payments surplus. We don't have a cake to share, let alone [the ability] to share it properly," Hajat concluded.
Macroeconomic management problems have prevented Malawi from qualifying for Poverty Reduction and Growth Facility (PRGF) concessional loans from the International Monetary Fund (IMF).
According to a recent IMF statement, the government has made good progress in "demonstrating its commitment to sound macroeconomic policies" and talks regarding a PRGF arrangement were underway.
View the full report at:
Mozambique mansion budget slashed
Mozambique's government has substantially cut the money allocated for a luxury beach-front mansion for the former president, Joaquim Chissano.
Finance Minister Manuel Chang said the $2.5m budget for the mansion would be cut by 60%, as the current government had other priorities to attend to.
Mr Chissano stepped down earlier this year after ruling one of Africa's poorest countries for 18 years.
His cabinet approved the plan for the retirement house when he was in power.
Mr Chang said the former president's mansion project needed to be reconsidered as the current government was in the process of cutting costs.
The BBC's Jose Tembe says people in the capital Maputo, where the house is going to be built, are pleased with the government's decision.
"I don't see the need for the state to spend that much money on a single person. In a country like Mozambique we should be more modest," one resident told the BBC's Network Africa programme.
Mozambique's parliament is set to discuss and approve the government's 2005 budget next week, our correspondent says.
During Mr Chissano's time in power, he oversaw a move away from Marxism and the introduction of a multi-party constitution.
His chosen successor Armando Guebuza, who won last December's presidential elections, promised to fight corruption, bureaucracy and poverty on taking office.
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