Malawi Agricultural Risk Assessment
With more than three-quarters of its workforce employed in agriculture, Malawi is highly vulnerable to any adverse events affecting the agriculture sector, and agricultural risks are ever present in the country. Agricultural risks can obstruct development and enforce poverty traps, particularly for a country as reliant on agriculture as Malawi. Because of the size of the sector in the economy and the importance of agricultural products for export, agricultural growth correlates closely with gross domestic product (GDP) growth.
To better understand the dynamics of agricultural risks and identify appropriate responses, incorporate an agricultural risk perspective into decision making, and build the capacity of local stakeholders in risk assessment and management, the agricultural risk management team (ARMT) of the agriculture and environment services department of the World Bank conducted an agriculture sector risk assessment. The purpose of this report is to assess existing agricultural risks, prioritize them according to their frequency and impacts on the sector, and identify areas of risk-management solutions that need deeper specialized attention.
Three levels of risks were assessed: production risks, market risks, and enabling environment risks to selected supply chains. The report takes a quantitative and qualitative approach to assessing risk. This report is structured as follows: chapter one gives introduction and context. Chapter two provides an overview of the agriculture sector and the selected crops. Chapter three maps the production, market, and enabling environment risks to food crops and export crops. Chapter four looks at the adverse impacts of agricultural risks in terms of losses, both at the national level and for different regions. Chapter five prioritizes the risks in terms of their frequency and the severity of their impacts, and discusses solutions based on this prioritization, ongoing risk-management activities, and the feedback from the consultative workshop.
The purpose of this report is to assess existing risks to Malawi's agriculture sector, prioritize them according to their frequency and impacts on the sector, and identify areas of risk management solutions that need deeper specialized attention. Download the Malawi: Agricultural Sector Risk Assessment (PDF).
Key findings of the report are summarized in the Malawi Agricultural Sector Risk Assessment Policy Note (Download PDF).
Summary of the Report
In order to close the gap in resources devoted to risk mitigation, interventions in three broad solutions areas are recommended. The solutions areas were selected together with the Government of Malawi based on feedback from a broad group of agricultural sector stakeholders.
1. Address the root causes behind low farmer adoption of better practices and technologies, particularly practices that would improve water and pest & disease management.
Given the impacts of production risk events, especially drought, increasing producers’ capacity to mitigate risks at the farm-level is crucial to reducing losses and increasing resilience in the sector. The Government of Malawi and donors have made substantial investments in risk mitigation activities, such as, irrigation, conservation agriculture, research and extension services. Despite this, on-farm uptake of improved agricultural practices for drought and disease mitigation is low, and losses in the sector from production shocks remain high. To date, efforts to promote use of improved practices and technologies have failed to produce broad, sustained results. Adoption of new technologies and practices ultimately depends on appropriate knowledge transfer, individual preferences, and farmers’ ability to profit from increased investments. In Malawi, many of the obstacles to sustained adoption arise from policy and structural factors that distort farmer investment incentives.
Farmers’ inability to market crops is one of the root causes behind the obstacles to risk mitigation in Malawi. While some farmers have benefited from investments in risk mitigation technology, many poor households struggle to transition from subsistence-level production to treating farming as a business. Limited access to organized markets decreases their ability to earn a profit and leaves them vulnerable to vendor exploitation. Poor coordination between relief programs and development programs can also distort the market for improved inputs for risk mitigation. For instance, when emergency inputs are distributed for free in communities with ongoing seed multiplication schemes, farmer incentives to participate in the schemes decrease. This reduces the viability of an independent market for improved seed varieties, and lowers the effectiveness of development aid.
Analysis of farm budgets reveals some of these challenges. Since 2008, nominal prices for beans and groundnuts increased significantly, tripling for both crops. While maize prices also increased, they did not keep up with the increased nominal price of inputs and, hence, gross income declined in this period. This equation changes significantly when taking into account the Government’s Farm Input Subsidy Program (FISP): Gross income from maize production increases for farms receiving the subsidy for fertilizer and improved seed varieities.
The results of the on-farm budgets are problematic for the Government’s national food security targets. Farmers with a marketable maize production surplus are not the target group for FISP, but gross income calculations show that without subsidies, farmers have no incentives to invest in maize production for the market. Other crops are more profitable to invest in. However, given the priority of maize production for smallholders to cover household needs, especially in an environment of unpredictable markets and prices, maize productivity likely determines the allocation of land for other crops and thus the diversification of the sector and incomes of farmers.
Inadequate extension services exacerbates many of the obstacles to sustained adoption. Many smallholders in Malawi are introduced to new technologies and practices, begin implementing the new technology, and discontinue adoption after the project closes. There are various reasons for disadoption—cessation of direct incentives, lack of access to inputs, mechanical breakdowns, dissatisfaction with yield results, gender disparities in financial decisionmaking—however, limited farmer access to reliable extension services and advice exacerbates these issues. Focus group discussions with farmers revealed systemwide deficits in knowledge, resources, and intra-agency communication. One example is the inadequate response to pest and disease threats. In many cases, initial early detection practices appeared to function as planned, but follow-through steps to manage outbreaks and prevent full-blown epidemics were not carried out, due to inappropriate advice from extension officers, delays in obtaining needed inputs, and communication breakdowns.
To overcome the barriers to farmer adoption of better practices and technologies, the following is recommended:
Strengthen the capacity of extension services:
Strengthen pest and disease management capacity for crops and livestock:
Improve market linkages:
2. Strengthen rules-based food security policies and improve coordination between agencies to support long-term sector development.
Some of the existing food security policies are distortive rather than supportive, and lead to disincentives for investments in the sector that could mitigate risk and promote growth. Untimely market interventions lead to price volatilities and unpredictability for actors in the sector, re-enforcing farmers’ dependency on subsidized inputs for profitability.
Trade restrictions on maize exacerbate output variation, leading to high intra-annual price volatility, and price changes in retail markets are transmitted back to farm-gate prices. Low elasticity of demand further perpetuates price instability from supply fluctuations, and even small changes in production generally lead to large price changes. Recent data show that maize prices at the retail level are very volatile, as measured by the coefficient of variation. The coefficient of variation (CV) of average monthly maize prices in Malawi was 62 percent in 2007- 2014, compared to 36 percent in the Sub-Saharan Africa region, and only 24 percent in neighboring Zambia. In spite of the high maize price volatility observed in Malawi, the range of price volatility levels between different regions within the country is small. (The CV ranges from 52 percent in Lilongwe to 64 percent in Liwonde, including both surplus and deficit areas). This may indicate that the marketing system is able to efficiently move stocks from surplus to deficit areas in most months of the year.
Current agricultural policies, particularly input subsidies, export bans, and import taxations on inputs have distorted markets and reduced the private profitability of investing in inputs. Analysis of maize yields and market prices for inputs and outputs show that these policies are decreasing output revenues in the maize sector by 16 percent, and increasing the price of inputs by 34 percent, effectively taxing maize producers even after the FISP subsidy is taken into account.
To ensure sustainable program investments and uptake of improved practices among farmers, food security policies must be less interventionist and more transparent. Less restrictive internal marketing and foreign trade policies, together with appropriate marketing support services and production incentive policies, could make a major contribution to reduce price volatility, increase and stabilize domestic production, and to improve real income among the rural population.
To reduce price distortions and improve coordination between the agencies responsible for both maize marketing and risk coping interventions, the following is recommended:
Promote freer trade:
Redefine the roles of the Agricultural Development and Marketing Corporation (ADMARC), the Department of Disaster Management Affairs (DODMA), and the Malawi Vulnerability Assessment Committee (MVAC):
3. Strengthen agricultural information systems for better policy development, monitoring, and evaluation.
Agricultural policies are critical to incentivizing investment decisions at the farm level and enabling functioning markets. Given the maize price volatilities and the implicit taxation of the sector, there is an urgent need to better align policies and to target public spending in agriculture for risk mitigation and improved growth. However, there is a lack of institutional capacity to formulate and implement responsive agricultural policies.
Gaps and inconsistencies in agricultural policy must be addressed in order to implement an effective risk management strategy. The majority of existing agriculture sub-sector policies are based on outdated policy documents, and outdated regulations contribute to an uncertain investment climate.
Gaps in data collection, agricultural statistics, and information systems result in poor quality agricultural information and lower overall capacity for policy analysis and evaluation. Currently, agricultural information systems are incomplete, and there is no institutionalized process for evaluations and re-assessments of major programs. An M&E system for agricultural policy should be directly related to a clearly defined baseline and measurable program targets built on quantified indicators linked to program budgets.
Better policy formulation requires alignment with a long-term strategic framework and a robust M&E framework. These frameworks facilitate feedback between policy goals, program decisions, and results on the ground, creating an environment for dynamic, evidence-based policymaking.
To overcome gaps in the quality and consistency of agricultural policy, the following is recommended: • Develop a guiding framework that creates a longterm vision for the agricultural sector • Harmonize policies with international agreements and commitments • Strengthen M&E by adopting integrated agricultural information management systems (AIS) • Mainstream gender indicators in project design, monitoring, and evaluation • Strengthen existing mechanisms to coordinate donors to avoid a) duplicating efforts and b) gaps between donors’ plans and those of the MoAIWD • Create a mechanism to capture information from the members of Malawi’s Donor Committee on Agriculture and Food Security for the Joint Sector Review
Addressing these three highly interconnected areas simultaneously is an essential step to improving agricultural risk management in Malawi. Successfully implementing sustainable risk management measures requires providing incentives for the sector, which means implementing food security policies and productivity policies that are consistent and responsive to evidence from the field. Without comprehensive action at the institutional level to improve policy formulation and implementation, private sector stakeholders, particularly small-scale farmers, are unlikely to profit from or invest in the risk management measures necessary to decrease the impacts of production risks such as droughts and pests & diseases. While scaling up such risk management measures at the farm level is likely to also have positive effects on productivity and competitiveness in general, such initiatives will not be successful if an incentivizing environment is not in place. The Government of Malawi has requested continued assistance from the World Bank to develop an agricultural risk management strategy and an action plan. The findings from the risk and solutions assessments will inform this plan and provide insight on how operationalizing risk management within government policies and programs can strengthen productivity and competitiveness.
See full key findings summarized in the Malawi Agricultural Sector Risk Assessment Policy Note (Download PDF).