SUPPLY RESPONSE OF MALAWI’S MAIN EXPORT CROPS TO PRICE AND NON-PRICE STRUCTURES

Abstract

The agricultural sector in Malawi provides livelihood to about 90 percent of the population, accounting for about 38 percent of GDP, employing over 80 percent of the workforce, and contributing over 90 percent of the foreign exchange earnings. Performance of agricultural exports is of critical importance to poverty alleviation, economic growth and development. Government efforts to improve export performance include price and marketing liberalization, exchange rate decontrol, subsidies, and international trade agreements. With these policy initiatives response of smallholder farmers is of critical importance to supply of agricultural exports to attain national economic goals. This study analyzes the impact of price and non-price incentives on supply of the nation’s main export crops. This study attempts to fill a farmer’s response research gap identified in several studies on farmer responses of analyzing agricultural response at two decision levels; crop output, and aggregate export. This study adds a level before these two levels, farmer’s hectarage allocation. This implies in addition to output, and aggregate export responses, this study estimates hectarage responses. To achieve this, the study applies the unrestricted Nerlovean supply response model to three export crops; tobacco, tea, and cotton. Results of the study show that farmers are responsive to crop’s own price and non-price incentives. Despite being responsive to price and non-price incentives, hectarage results indicate that farmers allocate land to export crops mainly basing on their previous allocation pattern rather than relative crop prices and foreign income. The study also confirmed that an influx of cheap imports is depressing domestic production for the local market and re-orienting local produce towards the export market. Major policy implications drawn are that government efforts of diversifying the export base should be complimented with low cost value-adding technologies to enable farmers attract better prices and attain higher income. To reap benefits of international trade viii agreements like SADC, COMESSA, and bilateral agreements, supply-side constraints, especially communication and marketing infrastructure need to be efficiently operative. To compliment this policy, the institutional capacity of respective crop farmer associations, Ministry of Trade and Private Sector Development, and private sector stakeholders needs to be enhanced.