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Maize Marketing Policies and Export Bans in Malawi: Implications for Food Security
1. Maize Marketing Policies and Export
Bans in Malawi: Implications for
Food Security
Brent Edelman & Karl Pauw, IFPRI
4 June 2015
2. Overview
• Why intervene in staple food markets?
• Malawi’s maize market
• Ways governments intervene
• Export bans
• What’s next for Malawi?
3. Why intervene in the maize market
•The average Malawian household obtains two-
thirds of its calories from maize
•The average farm household allocates 60
percent of farm land to maize
•Government assumes responsibility to ensure
adequate domestic food supply at reasonable
prices
•Result: food security concerns potentially
trump poverty reduction goals
4. Interventions and challenges
• Types of interventions:
– Provide farm input subsidies at planting time
– Announce recommended price floors
– Support a parastatal grain marketing board designed to stabilize
market prices
– Control maize trade, e.g., maize export bans
– Maintain a national reserve of maize to serve as a buffer when
domestic supplies run low
• Challenges:
– Persistent food insecurity: from 2009-14, more than one million
people per year on average required emergency food assistance
– Thin supply side
– Volatile prices: maize prices in Lilongwe and Blantyre more volatile
than any other in the region
10. How government intervenes matters
• Rules-based interventions
– Engage only when certain criteria are met
– Example: set price band, buy/sell only if price goes
outside band
– Result: actions are predictable
• Discretionary engagements in markets
– Intervene in markets without rules or criteria
governing intervention
– Examples: impose import/export ban with little
notice, changing trade tariffs, procuring/selling
above/below market prices
– Result?
11. Discretionary policy: evidence
• Drives the unpredictable component of price
volatility
– Staple prices more predictable where intervention is
predictable (Uganda, RSA, Mozambique)
– Unpredictable prices where intervention is
discretionary (Zambia, Ethiopia, Tanzania, Malawi)
– Why? Ad hoc policy limits private sector’s ability to
plan
• Recent experience in Zambia:
– Predictable policy can increase production
– Commitment can improve payoffs
12. Export bans in Malawi
• Cotton: permanent
• Soya: ad hoc
• Maize: somewhere in between
16. Conclusions and recommendations
• State of Malawi’s maize market
– Thin market, susceptible to government interventions
– Most volatile prices in region, very difficult to predict
– Volatility does not benefit farmers
– Current season difficult to explain, outside of expected behavior
• Need to reverse cycle of uncertainty and unpredictability
– Continue to invest in infrastructure to support private sector
activity
– Rules-based approach to government intervention
• Transparent criteria for export bans
• Enable government to intervene when necessary
• Just as important, encourage farmers and traders to engage more in
the market
• Create conditions for private sector to plan and invest
17. Selected references
Chapoto, A., & Jayne, T. S. 2009. The Impact of
Trade Barriers and Market Interventions on
Maize Price Predictability: Evidence from Eastern
and Southern Africa.
Jayne, T.S., N. Sitko, J. Ricker-Gilbert, and J.
Mangisoni. 2010. Malawi’s maize marketing
system.
Kaminski, J., Christiaensen, L., & Gilbert, C. L. 2014.
The End of Seasonality? New Insights from Sub-
Saharan Africa.
Editor's Notes
With half of the population living in poverty and with maize consumption taking up large share of households’ budgets, small movements in maize price can have a big impact on food security.
Implication for Malawi, where staple food is maize: (1) maize price and (2) access to maize are arguably the country’s two most important political, social, and economic variables
Transition: it’s understandable that government intervenes to stimulate production and stabilize prices
MVAC: 7% of population
Thin supply side (which we’ll discuss more next)
Out of 2.5 million farmers, only 5% produce more than 3 MT (IHS3)
10% of maize is marketed (Jayne et al. 2010, GTPA)
Implication: supply side is thin (few sellers relative to the number of producers), meaning small shifts in supply and demand can lead to disproportionately larger changes in price
Volatile prices: 2006-15: unconditional CV (US$ prices) for Malawi is 0.38; for SAFEX, 0.21
Transition: what are the effects of volatility? How does price volatility affect the typical farmer?
While price volatility can enable some to benefit through arbitrage (buying low early in the season, selling high later in the season), it more likely has negative effects on Malawi’s farmers.
Only 8.5 percent of farmers are outright sellers of maize, i.e., they only sell maize and do not buy any maize (these are all maize farmers)
55 percent only purchase maize to supplement own stocks
9 percent operate as both buyers and sellers of maize
27 percent are autarkic, i.e. they neither buy nor sell maize
Implication: with few farmers selling maize, supply side is thin and few are benefiting from price volatility
Transition: another factor that is important to understand the extent to which farmers are benefitting from price volatility is timing of sales
Transition: for the farmers who do sell maize (17 percent), this price volatility generally does not work to their advantage.
Selling begins in May, peaks in August
Around two-thirds of farmers sell their crop in the months immediately following harvest, when maize prices are lowest; in other words, they are not able to benefit from positive price movements resulting from volatility that take place later in the marketing season.
Transition: sellers do not appear to be benefitting, what about the farmers purchasing maize?
Transition: not helping farmers who sell, farmers who buy, so what is driving this price volatility?
Considering food markets, and staple food markets in particular, there are essentially two sources of price volatility: a seasonal component and an unanticipated or unpredictable component.
Malawi maize prices exhibit strong seasonality. This is not surprising considering maize is the dominant crop in Malawi and there is a single growing season. Real maize prices can thus be expected to be about 69 percent higher during the hunger season (week 10) compared to the preceding harvest season
In addition to a high seasonal price spread, there is also a large degree of uncertainty in the way prices move during the course of a year.
<bring in individual years>
For Malawi, 60 percent of the overall price volatility in maize prices is due to unpredictable factors (Kaminski et al 2014)
Transition: how does the 2014/15 marketing season fit in?
Prices were well below the expected price range for most of the season; abnormally low post-harvest prices: in nominal terms, the April-Aug 2014 price was 18.4% less than in the previous year; in real terms, 33.7% less
2014/15 is only season in last 7 in which prices increased from week 11 (2nd week of Mar) to week 16 (2nd week of Apr), a 28% increase in real terms. Recall that in March, farmers purchase 45% of maize consumed by the HH and just 0.6% of farmers who do sell maize sell a most of their crop in March (What happened in week 11? CISANET announces production down 40-50%; shows how sensitive market is to sudden announcements)
Implications?
Deterrent to production for the current season? APES 2nd round 28% decrease in production, in part due to flooding and drought, but can some of these decrease in production be explained by low prices? Area planted of maize by SHF rainfed unchanged (down 0.0045%), SHF irrigated decreased 6%, estate decreased 17%
Medium term: this season’s prices will increase the unpredictable component of price movements, unlikely to encourage surplus production in the future
Transition: what’s the cause? In part due to nature of maize market (thin market), but possibly could policy also play a role?
When you have thin markets susceptible to sudden shifts in supply and demand, it’s understandable that government acts to ensure food supply and minimize price unpredictability. But the manner in which government intervenes is important.
(1) Rules-based interventions: government engages in the market only when certain criteria are met; criteria are transparent, made publically available
Example: government sets a predetermined price band; if price goes outside this band, government commits to sell/buy staple food until price returns within band
Result: actions are entirely predictable, market agents can factor these criteria into decision-making: short-term market engagements and medium-term investments
(2) Discretionary interventions: government engages in market in an ad hoc manner, i.e., without rules or criteria governing its intervention
Examples: imposing export or import bans without notice, changing trade tariffs, procuring grain high, disposing of grain low, or setting prices directly
Transition: what is the impact of discretionary interventions?
Growing body of research suggests that unpredictable government interventions drive this unpredictable component of price volatility. According to a cross-country analysis of eight countries in Eastern and Southern Africa from 1994-2009 (Chapoto and Jayne 2009), unpredictable prices can be attributed to highly discretionary or ad hoc government interventions in staple food markets:
In countries where government intervention is generally limited to regulation, investment in infrastructure, encouragement of crop diversification, and improvement of financial markets and policy is predictable (Uganda, South Africa, and Mozambique), staple food prices follow more consistent and regular seasonal price patterns.
Where governments continue to engage actively in food markets through marketing board activities, discretionary trade policy tools such as export bans, and domestic stock releases (Zambia, Ethiopia, Tanzania, and Malawi), prices are more unpredictable. Of all seven countries studied, Malawi and Zambia exhibit most unpredictability. (Kenya 2005-08: stable trade policy => more predictable prices)
Why? Ad hoc government inventions, while usually well intentioned, limit the private sector’s capacity to contribute to national food security through increased production; this is because discretionary, unpredictable policy decisions that impact maize market prices in a way that cannot be planned for complicate exporters’ market projections and producers’ planting and investment decisions.
Zambia experience: commitment before 2013/14 marketing season to not subsidize mill prices led to increased trader activity in that season => higher farm gate prices, which encouraged increased production the following season
Source: Aberman and Edelman (2013), based on ITC, AMIS, SAFEX
Export bans June-July 2010, June-October 2011, March-October 2012 (approximately, no source for exact dates)
Policy process undefined, discretionary
Based on inception report for MoIT study
Exports cut off at 50,000 MT for display purposes; full figures available upon request
Source: ITC, AMIS, SAFEX
Ban dates based on media search, FEWSNET, no official announcements
No defined policy processs
Enforcement? Official exports during bans
Source: FEWSNET, AMIS
Main conclusions:
Malawi’s staple food market is thin, which makes it susceptible to sudden shifts in supply and demand and prone to price volatility
Malawi has the most volatile maize prices in the region, volatility does not benefit farmers; 60% of this volatility is unpredictable, i.e., not seasonal
2014/15 season: prices were abnormally low, difficult to explain, will these low prices affect future production?
If government intervenes in a discretionary, ad hoc manner, it can introduce even more price unpredictability into the maize market
What’s next for Malawi?
Continue to invest in infrastructure that enhances productivity and makes markets function better
When possible, avoid intervening in the market discretionarily; determine criteria in which government will intervene in market and make criteria transparent
Government can then respond quickly and appropriately when extreme market conditions arise
Just as important, however, this predictability will encourage farmers and traders to engage more in the market, making the market more functional
In the medium term, this predictability should lead to increased private investment in the agricultural sector, increased production, and a more food secure Malawi.
