Presented by Karl Pauw Presented at Maize Markets Symposium Bingu International Conference Centre - 1st October, 2015

1. Is Malawi’s Mix of Maize Market Policies
Ultimately Harming Food Security?
Karl Pauw & Brent Edelman
Malawi Strategy Support Program, IFPRI
1 October 2015

2. Objectives
• Consider features of Malawi’s maize markets
• Evaluate effectiveness of policies in achieving
objectives of food security & price stability
• Review international experience; form
guidelines for domestic policy that improves
functioning of the market
• Reflect on responsibilities of other players,
e.g., private sector and aid agencies

3. Why do governments intervene?
• Maize is strategically important, both in terms of economic
activity and food security
• Government has a mandate to ensure adequate availability
of food at reasonable prices, especially when markets fail to
do so
• At a minimum government should:
– Invest in infrastructure
– Provide regulatory oversight & market information; and
– Promote institutions such as commodity exchanges
• But more direct interventions also common in developing
countries; for example in Malawi:
– Producer support (input subsidies & minimum farm gate prices)
– Price stabilization activities (ADMARC & NFRA)
– Restrictions on trade (export bans on maize & other crops)

4. A balancing act…
• From a food supply perspective prices should be high
enough to serve as an incentive to producers (FAO
2015)
• But food consumption inversely tracks food prices
(Kaminski et al. 2014), so from food security point of
view we prefer low prices
• We also need some degree of seasonal price variation
to encourage storage, as this helps regulate food
supply over the course of the marketing season
• But most importantly, we want price stability—or more
correctly, prices that follow predictable trends

5. Yearly price indexes, 2011–2015
Source: Agricultural Market Information System (AMIS) 20072015
Expected price
2012/13
2013/14
2014/15
50
100
150
200
250

6. Why are unpredictable prices so undesirable?
• Risk averse, resource-poor farmers become
subsistence-oriented when markets or prices are
uncertain (Fafchamps 1992; Alwang & Siegel 1999)
• Unexpected price shocks have adverse welfare
implications; consumers cannot effectively plan for the
lean season
• Unpredictability imparts major risks to seasonal
storage (Chapoto & Jayne 2009); seasonal price gaps
could widen if fewer traders are willing to engage in
temporal arbitrage
• Credit institutions become unwilling to provide finance
when crop is offered as collateral; major challenge to
warehouse receipt systems

7. Price stabilization policy approaches
• Complete reliance on markets; state role
limited to public goods investment,
regulation, institutional support, etc.
• Primary reliance on markets, but rules-based
interventions permitted in response to
undesirable market outcomes (i.e.,
predictable, transparent)
• Complete discretion to engage in markets in
an unconstrained manner, based on the
premise that private sector cannot
adequately correct market failures

8. Features of Malawi’s policy interventions [1]
• National Food Reserve Agency (NFRA)
– Price setting strategy unclear; timing of strategic grain
reserve purchases change from year to year, causing
prices to deviate from expected seasonal trend
– Contracts awarded in a non-transparent manner;
recent use of commodity exchange trade platform
commended
• ADMARC
– No publicized strategy for pricing, timing, magnitudes,
or location of transactions
– Claim to operate in remote locations not reached by
private sector; or is it a case of private sector being
discouraged?

9. Features of Malawi’s policy interventions [2]
• Export bans
– Rationale unclear:
• “Fend off perceptions of food insecurity” (Chirwa &
Chinsinga 2013)
• “Bans reflect mistrust in crop production estimates” (Jayne
& Rashid 2013)
• Protect the “huge investment in FISP” (Face of Malawi 2013)
– Decision-making process unclear and undocumented
– Maize export bans may be redundant (considering
export parity prices) or ineffective (considering porous
borders), but likely contribute to lack of commercial
cultivation of maize
– Bans on non-maize crops create disincentives to crop
diversification and directly oppose the ideals of the
national export strategy

10. Where does Malawi fit?
• Malawi’s maize market policy is more discretionary than rules-
based
• In general, price stabilization policies in Africa “only
occasionally contributed to price stability, and in many cases
has exacerbated” it (Jayne 2012)
• Policy unpredictability contributes to this country having the
most volatile maize price in the region (Chapoto & Jayne
2009)
• Discretionary policy drives the unpredictable component of
price volatility; up to 60% of overall maize price volatility in
Malawi is unpredictable (Kaminski et al. 2014)
• Rather than offering clarity, coherence and transparency to
markets, interventions in Malawi create uncertainty

11. Madagascar
• Liberalized market, but high import
tariffs to protect domestic rice
producers
• Rice production shortfall in 2004
coincided with rising world prices
and sharp currency depreciation
• Private sector slow to respond 
put out tenders for commercial
imports, with possibility of tariff
rebates
• However, also set official
government sales price at below
tariff-inclusive import parity price
• Private sector imports discouraged
 resulting shortfalls led to sales
rationing and parallel market at
above import parity price
Bangladesh
• Price crisis averted during
“massive” 1998 flood through
private sector importation of 2.4m
tons of rice
• Information systems: continuous
monitoring of domestic and
international prices; analysis of
traders’ letters of credit; open
dialogue with traders
Examples: Dealing with food crises
By destroying incentives for private
trade government may unintentionally
exacerbated price instability; more
transparency and openness to private
sector participation can help stabilize
prices at import parity levels (Dorosh
2008)

12. Recommendations [1]
1. Continue to invest in infrastructure, provide
regulatory oversight, and develop market
institutions
2. Adopt a rules-based approach to government
intervention
– Enable government intervention when necessary, but
only when necessary
– Buffer stock release to defend a stated ceiling price
– Marketing board purchases at stated floor price,
announced in advance
– Transparent rules for initiating state imports, or
restricting trade only under special circumstances

13. Recommendations [2]
3. Utilize markets and engage private sector trade in
price stabilization efforts, not just public sector
stocks or government trade
– Import when prices are high and vice versa
– Promote private sector participation in trade; more
cost effective and efficient
– “Thicker” markets contribute to price stability
– Public stocks can discourage private trade and are
costly
4. Strengthen statistical systems to inform rules-based
interventions
– Better and more timely production estimates and
domestic/international price information are
fundamental to transparent policymaking