This document discusses the groundnut value chain in Malawi and opportunities to improve it. It notes that agriculture contributes significantly to Malawi's economy but it relies heavily on tobacco exports, which have declining demand prospects. Groundnuts provide income for many smallholder farmers but Malawi has lost its share of the global groundnut market due to high aflatoxin levels and other supply challenges. To regain its position, Malawi needs a holistic value chain approach that addresses issues like quality seeds, access to credit, marketing constraints, and enforcement of quality standards to give farmers incentives to improve practices. Strengthening farmers organizations and trade infrastructure can also help professionalize the sector.

1. WHY THE GROUNDNUT VALUE CHAIN
IN MALAWI: Setting the Scene
Presentation at Multi-stakeholder workshop on
Groundnut Value Chains in Malawi and Zambia
At Crossroads Hotel, Lilongwe, Malawi
24-26th
April 2013
Dr Gideon E. Onumah
(Marketing/Finance Economist, Natural Resources Institute, University of Greenwich, United Kingdom)
G.E.Onumah@greenwich.ac.uk
Ms Candida Nakhumwa
(PhD Student, Natural Resources Institute, University of Greenwich, United Kingdom)
C.Nakhumwa@greenwich.ac.uk

2. Agriculture and the Malawi economy
• Contributes around 34% to the GDP
• Accounts for over 80% of Malawi’s export
revenue, 84% of labor force
• Agriculture is closely linked to economic short-
term growth (particularly tobacco, which
accounts for 60% of the country’s exports and
half the Government’s tax base)
• Risk: Heavy reliance on tobacco exports, a crop
with declining global demand prospects
• Therefore Malawi urgently requires to diversify
its export base

3. Groundnut: suited to pro-poor growth
• Groundnut is one of the strategic crops in the
National Export Strategy (NES) and also MGDSII
• Majority of farmers in Malawi, including women,
have long history and experience in the growing
of groundnuts.
• Groundnut requires less inputs compared to
other high valued crops such as tobacco
• It is grown for both food and income generation
• Groundnut provides 25% of smallholder
household income in Malawi (Diop et al., 2003).
• Builds soil fertility and therefore will help
replenish the declining soil fertility

4. Can Malawi return to old heights in
groundnut export?
• Groundnut exports ranked second only to tobacco in
terms of foreign exchange earned by Malawi
• The country lost its share of the world market for
groundnuts in the mid 1980s.
• This is due in part to high incidence of aflatoxin and at
a time when the EU imposed stringent standards on
aflatoxin.
• Other supply side factors also contributed to decline
in groundnut exports
• The evidence is: Malawi has the natural endowment
but is unable to meet domestic and regional demand
as well as regain its foothold in the global market

5. Supply-side challenges: at producer level
• Lack of/inadequate quality seed and extensive use of low-
yielding recycled seed
• Poor access to credit, limiting farmers’ ability to procure yield-
enhancing inputs
• High rural labor cost – due in part to competition for labor
from other high valued crops such as tobacco
• Emerging impact of climate change – particularly increasing
incidence of midseason drought, making farmers more
vulnerable and scaring banks
• Limited access to farm extension – under-funded public
extensions institutions
• Poor pest and disease control
• Poor management of aflatoxin contamination at both
production and post harvest levels
 Science and technology can address some of these challenges
but is it sufficient (enough investment and on its own)??

6. Marketing constraints in groundnut
chains
• Smallholder farmers who dominate groundnut production of have
difficulty accessing markets
• Producer prices are often squeezed as a result of the following:
- Poor rural road infrastructure contributes to high inflate transport costs
- Lack of efficient storage infrastructure leads to high post-harvest losses
- Traders are severely under-capitalized and, therefore, unable to absorb
surplus at harvest. This leads to glut and very low prices at harvest
- Marketing chain is often long with several intermediaries, leading to low
producer margins
• Considerable cheating on weight occurs in the trade
- Reported that nominal price at farmgate is often very close to into-
warehouse price paid by NASFAM
• Quality premium is not paid at farmgate level due to:
- Small size of quality-sensitive market: insignificant volumes export under
Fairtrade; low volumes to SA; domestic formal/regional markets do not
enforce quality standards

7. Going forward: holistic/value chain
approach needed
• Not just science and technology: breeding, inputs
subsidies, inputs credit, enhanced farm extension
and improved post-harvest management:
- Double your yield not always equal to double your farm income
• Holistic VCA can help identify opportunities to be
exploited and intervention areas to improve
competitiveness and chain-wide efficiency.
- Market-based approaches need attention

8. Going forward: market challenges
• Emerging evidence suggests that price incentives matter
in fostering adoption of improved tech and better
husbandry practices but currently:
- Fairtrade market – size too small and margins too low (farmers virtually
taxed to fund community programmes)
- Regional market quality-sensitive market (mainly South Africa) –
growing but sorting and grading occurs at exporter level denying
farmers opportunity to gain from quality premium
- Sizeable domestic formal market does not enforce quality standards,
putting consumers at risk
- Similar situation in other regional markets (predominantly informal)

9. Going forward: some options
• Expand size of quality-sensitive market and create space
for farmers to enjoy quality premium through:
- Enforcing quality standards in formal domestic market
- Fostering more formal regional exports – collaboration between
farmers organisations may be an option e.g. EAFF, SACAU
- Enforcing quality controls at exit ports to regional markets as formal
market expands
- Sensitisation of the population may be helpful
- Need to strengthen domestic quality enforcement capacity

10. Going forward: some options (2)
• Strengthen role of primary-level farmers organisations
in groundnut marketing:
- To lower aggregation cost and improve quality at farmgate level
- Case of Tanzania coffee where primary organisations have been more
effective
• Promote institutional infrastructure and regulatory
framework that encourages investment in trade and
logistics infrastructure:
- Working with the commodity exchange is one option