Transmission of Global Price Shocks to Local Commodity Markets in Malawi

1. The Russia-Ukraine Conflict: Impacts on Commodity Markets in Malawi
Dr. Greenwell Matchaya
Senior Researcher, IWMI, ReSAKSS-ESA Regional
Coordinator,
Email: g.matchaya@cgiar.org
14 February 2023

2. • Introduction
• Objectives
• Methodology
• Results
• Key Messages
Outline

3. • Whereas many international conflicts and crises are a cause for concern, they are often not equal in effect
beyond their geographical confines. Some of them have effects that spill across distant places and time.
• Previous crises, including the ongoing COVID-19 pandemic, provide evidence that countries geographically
distant from the epicenters of crises can still experience their effects through
• international trade disruptions, as well as from
• the protective measures undertaken by countries to limit the negative impact of the crisis
• Russia and Ukraine are key exporters of many agricultural products, including sunflower oil and seed, wheat,
barley, and maize.
• Jointly, the two countries account for 27% of global wheat trade, and 23%, and 14% of barley and maize
trade respectively
Introduction

4. • Table 1: Changes in World Market prices of selected commodities
• Source: Authors with World Bank 2022 data; bbl stands for barrel of oil; mmbtu stands for Metric Million British Thermal Unit, MT stands for Metric ton
• Sun flower oil, wheat, respectively, and crude oil rose the most (>30%),
• Followed by maize and liquefied natural gas (>12%)
Crude oil,
average
Liquefied
natural gas,
Japan
Maize Rice, Thai
A.1
Wheat,
US
Beef Sugar,
world
Sunflower
oil
($/bbl) ($/mmbtu) ($/mt) ($/mt) ($/mt) ($/kg) ($/kg) ($/mt)
%changes
(t- t_1)
% % % % % % % %
2022Jan
2022Feb 11,5 1,7 5,8 0,7 4,3 4,0 -2,0 6,2
2022March 20,2 1,1 14,7 0,3 24,5 0,6 6,7 57,5
2022April -8,0 7,8 3,8 0,5 1,8 -1,9 3,2 -3,6
2022May 6,5 1,5 -1,0 8,3 5,5 -0,8 -1,1 -8,6
Total
change
30,1 12,1 23,3 9,7 36,2 1,9 6,8 51,4

5. • It is therefore no surprise that the effects of the Russia-Ukraine conflict are being felt beyond the borders
of the warring countries.
• These impacts are felt in the following ways:
• Firstly, countries that trade directly with Russia and Ukraine in food and other commodities that must be
transported through ports near the epicenter of the conflict experience the effects quickly and directly as trade
volumes from the warring countries decline.
• Secondly, countries that do not trade directly with Russia and Ukraine but trade with others that buy commodities
from the two countries would also be affected indirectly through that linkage.
•
• Thirdly, due to concerns about immediate food shortages, countries often resort to hoarding their food stocks
instead of making them available to the market.
• The Russia-Ukraine war has therefore destabilized global food and other agricultural value chains.
• This may worsen the longer and more intensely the war is fought.
• Timely studies on possible effects can be very useful in directing interventions

6. Objectives and Methods
The objectives of this brief were:
• Analyse price trends for selected commodities
• Draw insights that may be useful for limiting impacts of Russia-Ukraine war on
livelihoods
• The Uses
• Data from Malawi’s market information system, the World Bank
• And other online sources
• Perform analysis of changes over time and compare same to changes on world markets.
• Confirm results with DID and ARIMA techniques

7. • Figure 1: Domestic and International Wheat Prices
(Jan-May 2022)
Results
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Malawi
kwacha
Per
KG
Lunzu World Wheat Price (Malawi Kwacha)
• Prices rising dramatically after week 2 of Feb
2022
• Wheat prices quickly increased in Malawi
following the onset of the Russia-Ukraine war.
• This is perhaps not surprising as Russia and
Ukraine jointly accounted for 72% of Malawi’s
wheat imports prior to the conflict, and the
war led to a reduction in wheat supply from
the two countries.
• The increase in prices from February to May
2022 was around 39%

8. Figure 2. Maize Prices in Urban and Rural
Markets, (Jan-May 2022)
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Malawi
Kwacha
/KG
Maize Lunzu Maize Mzimba Maize Lilongwe Maize Mchinji
Malawi is a net exporter of maize and does not
import the commodity from Russia and Ukraine.
Key maize-producing districts include Lilongwe,
Kasungu, Mzimba, Dowa, and Mchinji,
whereas Blantyre and many of the Southern
region districts are net importers of maize.
Maize prices rose in April (Lunzu), towards May
(Mchinji and Mzimba) but generally remained
stable in Lilongwe
Comparatively, maize prices increased more
in the rural primary markets than in the urban
centers, indicating that the rising domestic and
external demand led to more pressures on rural
supplies
(e.g.ADMARC was planning to sell 100,000 MT to
Zimbabwe),

9. Figure 3: Sugar prices in Malawi’s Urban and
Rural Markets, (Jan-May 2022)
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Malawi
Kacha/KG
Sugar Lunzu Sugar Mzimba Sugar Lilongwe Sugar Mchinji
• Malawi exports sugar
• sugar prices were generally higher in the rural markets
of Mzimba and Mchinji than in the urban markets of
Lilongwe and Lunzu after the fifth week of March
2022.
• In both the rural and urban markets, prices changed
patterns after the 5th week of March 2022, rising from
MK940/KG in Mzimba and Mchinji to above
MK1300/KG between the fifth week of March to the
fifth week of May 2022, representing a 40% increase.
• In contrast, in Lilongwe and Lunzu markets the
increase was around 31% over that same period.
• Panic even among exporters e.g. India, Turkey,
Argentina, reduced sugar supply to smooth
consumption to ensure that those stocks were
reserved for their own populations.
• Rural area supply difficulties may also explain the
differences- its easier to supply urban markets where
good transport systems are.

10. • Figure 4: Rice and Millet Prices across
Urban and Rural Markets, (Jan-May
2022)
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Malawi
Kwacha
/KG
Rice Lilongwe Millet Lilongwe Rice mchinji Millet mchinji
• Neither of the two commodities is imported from
Russia or Ukraine.
• Rice prices increased in both the urban and rural
markets of Lilongwe and Mchinji, after the fifth week
of March 2022.
• Comparatively, millet prices in Mchinji declined
significantly from MK900/KG to MK450/KG (a 50%
decline) after the week of April 5, perhaps as new
harvest set in
• On the world stage, prices for cereals (rice
inclusive)rose by 9.7% during the same period in
focus.
• Some of the observed price dynamics in Lilongwe and
Mchinji for rice may be attributed to international
demand and supply, especially because Malawi is a ne
importer of the commodity.

11. • Figure 5: Cooking Oil Prices across Urban and
Rural Markets, (Jan-May 2022)
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Kwacha/KG
Cooking oil Lunzu Cooking oil Mzimba
• Cooking oil prices were higher in the urban market of
Lunzu, where a litre cost over MK2700/L and lower in the
rural market of Mzimba until the first week of April, after
which cooking oil sold at around MK3500/L in both
markets.
• Cooking oil prices in urban markets increased by 27.9%
after the 4th week of February 2022 until 1st week of April
In contrast, cooking oil prices in Mzimba increased by 26%
over the same period.
• The stability in April was due to VAT removal as an incetive
to keep prices at around MK3500/L
• These changes appear to have followed world patterns.
• On the world stage, world sunflower oil prices increased
the most (51.4%) among the commodities examined
• Due to the the war, other countries banned the export of
vegetable oils, thereby exacerbating the problem and
leading to further price increases internationally.
• The increase in cooking oil prices in both markets
primarily resulted from the Russia-Ukraine conflict.

12. Figure 6: Energy Price Trends in Malawi
during the Russia-Ukraine Crisis (Jan-May
2022)
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Malawi
Kwacha/L
Gas Petrol Diesel
• Gas prices increased by 35% from MK1,952/L to
MK2,640/L over the study period.
• Similarly, diesel and petrol prices also increased by
31% from around MK1,120/L to around MK1,470/L
between the last week of March and
• the last week of May 2022
• These increases of 30% for diesel, more than 38%
for gas and more than 19% for petrol were in
tandem with the general increase of about 30% on
world markets.
• These correlated movements of the domestic and
international prices suggest that the war had
contagion effects even in markets seemingly
unrelated to those of Russia and Ukraine.

13. • Table 2: Changes in Local and World Market Prices for Selected
Commodities (Jan-May 2022)
Commodity Global price change
(%)
Change in local
rural market
(Mchinji)
Change in local
urban market
(Lunzu)
Maize +23.3% 34,72% -0,61%
Wheat +36.2% +37.5% +37.5%
Sugar +6.8% +38.3% +28.9%
Rice +9.7% + 31,80% + 32,40%
cooking oil +51.4% + 31,69% +26,00%
Beef (red
meat)
+1.9% +10.48% +45.5%
Fuel Crude Oil- +30.1% Diesel- +30%
Petrol- +19.45%
Diesel- + 30,00%
Petrol- +19,45%
Liquefied
natural gas
(Japan)
+12.1% +38.43% +38,43%
• World prices for all commodities rose
significantly between January
• and May 2022.
• Similarly, prices in local markets for many of
these commodities rose over the
• same period.
• Besides maize prices in the urban market of
Lunzu, which declined by roughly
• 0.61% between January and May 2022,
• Prices for the other commodities increased over
the same period in Lunzu market.
• Their increase was similar to the increases
observed in global markets for the same
commodities.

14. • Figure 7: Price Changes in Rural and
Urban Markets (Jan-May 2022)
• Prices of all commodities in the rural markets
also generally increased.
• Overall, prices rose more and faster in rural
markets than in urban markets for the
• commodities under study (Figure 7).
• For example, by February 2022, more than 40%
of the rural markets were experiencing price
increases, but this figure quickly increased to
75% in March and 95% in April.
• In comparison, urban markets
• experienced an increase slightly above 40% in
February and 85% in March, followed by 70% in
• April and May.
• By the end of May, the number of markets with
rising prices declined to under 70% in urban
markets, while close to 92% of the rural
markets were still experiencing price
• increases.
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Rural Markets
Rising prices Declining prices
Urban Markets

15. Predicted vs Observed Prices in Urban vs Rural Markets
• Observed prices for 2022 deviated from what would have been predicted under normal trends
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Maize has become expensive since 2022
Area23 Prediction_Area23
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Mchinji23 prediction_mchinji23

16. Key Messages
• The Russia-Ukraine war presents a challenge to global food security and household resilience
• Through direct and indirect pathways, prices of commodities examined, including wheat, sugar, maize,
cooking oil and crude oils were.
• For wheat and vegetable oils this increase in prices was expected as Malawi imports 75% of its wheat
from Russia and Ukraine, such that the scarcity created by the war pushed prices up.
• These trends were similar to world wheat prices over the same period strengthening the hypothesis that
the scarcity on the world markets led to price increases in local markets.
• Keeping markets open even in these times of uncertainty
• Can facilitate household access to stocks of commodities from within and outside Malawi
• Can limit the negative effects of the conflict on the economy in general, and the poor more specifically.

17. • For the design of appropriate interventions, understanding the heterogeneous nature of
impacts of these crises is important.
• The effects may be different depending on location of households, as well as the type of
commodity in subject
• It would also be crucial to enhance social protection by developing and strengthening
programs that support consumers and vulnerable households /providing safety nets
• Can learn from own and others’ Covid-19 pandemic responses.
• Looking ahead, increasing funding to agriculture, improving investment prioritization within
the sector, and avoiding pilferage of its resources can increase productivity and improve the
dynamic resilience of Malawian households.

18. THANK YOU