AWS Data Engineer Associate (DEA-C01) Exam Dumps 2024.pdf
Assessing the Policy Environment for cash crops in Malawi
1. Assessing the policy environment
for cash crops in Malawi
What could hinder the achievement of the National Export
Strategy objectives?
Hélène Gourichon, Alethia Cameron, Valentina Pernechele
FAO Monitoring and Analyzing Food and Agricultural Policies (MAFAP)
Lilongwe, Malawi
June 4 2015
2. Outline
• Analytical framework
• Method
• Policy environment for export crops in Malawi
• Results
• Policy implications for achieving National
Export Strategy objectives
3. National Export Strategy 2013-2018
• Coherent and integrated
policy framework for the
export sector with the
following objectives:
– Enhance export
competitiveness
– Develop agriculture and
agribusiness towards
diversification and value
addition
• Clusters:
– Oil seed products
including from
groundnuts and cotton;
– Sugar cane products
– Manufactures
– Support to tobacco, tea,
mining, tourism and
services
4. Analytical background
• Analysis of the effects of policies and market
dynamics on price incentives for production of:
– Cotton; Groundnuts; Sugar; Tea; Tobacco
• Period prior to the formulation of the NES (2005-
2013)
• Based on the results from the FAO programme
Monitoring and Analysing Food and Agricultural
Policies (MAFAP)
5. How to measure the effects of the policy and market
environment on price incentives to producers?
• Effect of domestic policy
and market performance
Nominal Rate of
Protection
Nominal Rate of
Assistance
Market
Development Gap
• Effect of policy and market
performance + budgetary
transfers (public expenditure)
• Reflect excessive and
inefficient access costs
exchange rate misalignments
6. In Malawi, producers of export crops faced
price disincentives, why?
REGULATORY POLICIES?
BUDGETARYPOLICIES?
MONETARY POLICIES?
Is it because of inefficient, weak or inadequate
7. Budgetary policies:
bulk of support to maize
MAFAP Public Expenditure Analysis, FAO, 2014
0
10,000
20,000
30,000
40,000
50,000
60,000
2006 2007 2008 2009 2010 2011 2012 2013
maize cotton sugar tobacco Other
Public expenditures allocated to single commodities (Million MWK)
Maize accounted for about 50% of agricultural-specific PE
8. Budgetary policies:
low support to cash crops
500
1,000
1,500
2,000
2,500
3,000
3,500
2006 2007 2008 2009 2010 2011 2012 2013
cassava cotton macadamia poultry sugar tobacco wheat
Public expenditures allocated to single commodities except maize (Million MWK)
Tobacco, sugar and cotton: 5% of
agricultural specific PE
MAFAP Public Expenditure Analysis, FAO, 2014
14. Results:
Overall disincentives to export commodities production
-2
-31
-28
-40
11
-6
-31
-29
-40
8
-45 -35 -25 -15 -5 5 15
Cotton
Groundnuts
Sugar
Tea
Tobacco
Nominal Rate of Protection Nominal Rate of Assistance
Nominal Rate of Protection and Nominal Rate of Assistance at farm gate
level for export commodities, average 2005-2013
15. Cotton: atomistic market environment transmits
international price to farmers
• Precarious but reasonable price transmission
• Improved sector regulation by the government
• Exceptional circumstances interfered with the
price transmission
• Budget support through two national
programmes that targeted both the upstream
and downstream segments of the value chain
Incentives to production
o 2008-2009: implementation of the minimum price
policy, but not systematically applied or respected in
the following years.
Disincentives to production
o 2011: international price skyrocketed while producer
prices remained steady
NRP -6%
NRA -2%
16. Sugar: monopsony in the value chain led to
disincentives at farm gate
• Poor price transmission due to the
monopsony of sugar cane purchase
• High share of processing costs
transferred to farmer
• Budgetary transfer could not offset
the price taxation
NRP -29%
NRA -28%
17. Tea: low base price of green leaf and high
processing costs penalize farmers
• Low base price of green leaf as fixed
by the price model
• Bonus mechanism did not ensure
fair returns to farmers as it
rapresented a minor component of
the final price due to high processing
costs incurred by the estates.
• No direct budget support to tea
production
NRP -40%
NRA -40%
18. Additional disincentives due to market
inefficiencies along the value chain
• Cost of inefficiencies for the five
export crops analysed reached 6
percent of the producer prices
MDG -6%
Effects of the exchange rate misalignment
• Fixed exchange rate depressed farm gate prices by
23 percent on average between 2005 and 2011
19. Priority actions to achieve NES objectives
• Farmers bear the costs of value
chain inefficiencies and poor
access to markets (high access
costs)
Investments in post-
production infrastructure
Trade facilitation and
promotion measures
(certification, export services
etc.)
Affordable access to
market
Fair competition
Access to information
Macroeconomic
stability
Policy coherence
20. Priority actions to achieve NES objectives
• Uncompetitive value chains at
the auction level but also in
transport services
Reinforcement of the role of the
Fair Trading & Competition
Commission and promotion of
fair, transparent competitive
markets and contractual
relationships
Affordable access to
market
Fair competition
Access to information
Macroeconomic
stability
Policy coherence
21. Priority actions to achieve NES objectives
• Lack of market information
system that:
o Affects farmers bargaining power
o Creates uncertainty for all agents
in the value chain
o Leads to misinformed policy
decisions
Reinforcement of the
Agricultural Market Information
System
Affordable access to
market
Fair competition
Access to information
Macroeconomic
stability
Policy coherence
22. Priority actions to achieve NES objectives
• Exchange rate policy prior 2012
heavily penalized producers
Maintain a exchange rate policy
that averts exchange rate
misalignments
Affordable access to
market
Fair competition
Access to information
Macroeconomic
stability
Policy coherence
23. Priority actions to achieve NES objectives
• Low budget support and weak
regulatory policies
Increase public funding to export
crops sector and hard
infrastructures (physical
infrastructure and information and
communication technology)
Develop soft infrastructures for
better border and transport
efficiency and business and
regulatory environment
Affordable access to
market
Fair competition
Access to information
Macroeconomic
stability
Policy coherence
25. Annex 1. Methodology
• Observed Nominal Rates of Protection (NRP) at farm gate :
𝑁𝑅𝑃𝑜𝑓𝑔 =
𝑃𝐺 𝑜𝑓𝑔
𝑅𝑃𝑜𝑓𝑔
where 𝑃𝐺 𝑜𝑓𝑔 is the observed price gap at farm gate, 𝑅𝑃𝑜𝑓𝑔 is the observed reference price at
the farm gate.
• Nominal Rate of Assistance at farm gate (NRA):
𝑁𝑅𝐴 =
𝑃𝐺 𝑎𝑓𝑔 + 𝑃𝐸𝑐𝑠𝑝
𝑅𝑃𝑎𝑓𝑔
where PEcsp is commodity-specific public expenditure that has been identified and measured
as monetary units per tonne.
• Market Development Gap (MDG) (Value chain inefficiencies ):
𝑀𝐷𝐺𝑓𝑔 =
(𝐼𝑀𝐺+𝐸𝑅𝑃𝐺+𝐴𝐶𝐺 𝑤ℎ+𝐴𝐶𝐺 𝑓𝑔)
𝑅𝑃 𝑎𝑓𝑔
where IMG is the international market gap, ERPG is the exchange rate gap, ACGwh is the access
cost gap at the point of competition defined as the difference between observed and
adjusted access costs at the point of competition and ACGfg is the access cost gap at the farm
gate defined as the difference between observed and adjusted access costs at the farm gate.
26. Composition of Malawian exports
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2005 2006 2007 2008 2009 2010 2011 2012
Others Tobacco, unmanufactured Tea
Cotton, lint Groundnuts, shelled Sugar, raw
US$ thousands
Source: NSO, 2014 (tobacco, cotton, groundnuts); TAMA, 2014 (tea); Illovo, 2014 (raw and refined sugar);
FAOSTAT, 2014 (others - data for 2012 not available).
27. Annex 2. Results for tobacco
Inconsistent policy and market signals received by
producers
• Protected by the policy environment (av.) but
high variability in yearly indicators
• Incentives due to exceptional circumstances
• Years with limited price transmission because of
the uncompetitive environment
– monopoly of transport services
– oligopsony of buyers at auction
• Budgetary transfer (06-09)
Producers received higher prices than the international
reference price
o 2007: Introduction of a floor price for producers
o 2008: Misleading production forecast
o 2012: Low production combined with the
implementation of the floating exchange rate
NRP 8%
NRA 11%
28. Annex 3. Results for Groundnut
New market structure inhibits price transmission
• Shift in the policy and market
environment
– 2005 to 2011: prices offered by NASFAM
aligned with international prices
– From 2012 reduced price transmission
• Budgetary transfer through the FISP
difficult to capture; no specific projets/
programmes targeting exclusively
groundnuts
NRP -31%
NRA -31%
Editor's Notes
Tobacco is the main export commodity, but cotton and groundnuts the one highest annual growth rate of export value during the reviewed period
Domestic prices are compared to reference prices calculated based on the price of the commodity in the international market considered free from the influence of domestic policies and markets dynamics. The price gaps indicate the extent to which incentives (positive gaps) or disincentives (negative gaps) were present at the farm gate and wholesale level.
Price gaps expressed in relative terms as a percentage of the reference price correspond to the Nominal Rate of Protection (NRP)
Positive NRP = trade and domestic policies and market functioning result in a net protection of producers or traders and therefore incentives to production or marketing; Negative NRP reveals disincentives (taxation)
MDG is the portion of the price gap that can be attributed to “excessive” or inefficient access costs within a given value chain, exchange rate misalignments, and imperfect functioning of international markets. “Excessive” access costs may result from factors such as poor infrastructure, high processing costs due to obsolete technology, government taxes and fees (excluding fees for services), high profit margins captured by various marketing agents, bribes and other non-tariff barriers.
In Malawi, producers of export crops namely tobacco, cotton, groundnuts, sugar and tea producers (although at different extent) received disincentives to production. This means they received prices lower than the international reference price.
Why producers are taxed by the policy and market environment? Is it because of inefficient, inadequate or inexistent regulatory policies, budgetary policies or monetary policies.
This presentation will provide insights on the level of taxation that producers of each commodities faced and aims at identifying the driving factors of price disincentives.
The main budgetary policy implemented during the period under review to support agricultural production was the FISP. FISP accounted for close to 70 percent of public expenditures in support to agriculture –ag spe- (av. 2005-2013).
However the FISP targeted mainly maize production as support to maize represented 69 of public expenditure in support to agriculture leaving little room to support cash crops.
Cotton, sugar and tobacco together received only 5 percent of the total public expenditure in support of agriculture.
Tobacco, cotton and groundnuts production were also supported through the FISP. Specific projects and programme targeted the cotton and sugar production between ‘0 and 13.
Cotton, sugar and tobacco together received only 5 percent of the total public expenditure in support of agriculture. Tobacco, cotton and groundnuts production were also supported through the FISP. Specific projects and programme targeted the cotton and sugar production between 2006 and 13.
hard infrastructure namely (i) physical infrastructures and (ii) information and communication technology; and soft infrastructure (iii) border and transport efficiency and (iv) business and regulatory environment (World Bank, 2010).