By Dyson Mthawanji, Contributor:
The normal way of doing business entails the seller dictating the price on the market. It is up to the buyer to pick or leave it.
However, this is not the case with selling of agricultural produce mainly by smallholder farmers in Malawi. Despite the government intervention by setting the minimum prices every year, the vendors still buy the produce from farmers at very low prices.
This year, the government has set K150 per kilogramme (Kg) as minimum price for maize. Conversely, in some parts of the country some vendors have been buying the maize at as low as K110 per kg. Last year, the government set K170 per kg as the minimum price, but many vendors still bought the maize at as low as K90 per kg.
The silent justification of this practice is that the vendors are operating in a liberalised and free market. Free market system refers to an economy where the government imposes few or no restrictions and regulations on buyers and sellers. In a free market, participants determine what products are produced, how, when and where they are made, to whom they are offered and at what price—all based on supply and demand.
Crop marketing and pricing
The control of smallholder produce markets and prices was started in the colonial period through the establishment of “produce boards“. The first to be established was the Native Tobacco Board in 1926.
In 1951, the Cotton Board was set up. Later in 1952, a Produce (i.e. maize, groundnuts and beans) Board was established. In 1956, all the boards were amalgamated into the Agricultural Production and Marketing Board (APMB).
At independence, the APMB was reorganised and became the Farmers Marketing Board. In 1971, following the 1968/69 crop failure and the subsequent change in agricultural policy, FMB was reorganised once again to become the present Agricultural Development and Marketing Corporation (Admarc).
As the name implies, Admarc’s responsibilities still involved marketing of smallholder crops and buying farm produce at guaranteed fixed prices. Admarc provided pan-territorial and pan-seasonal prices for farmers, requiring it to subsidise maize prices with export earnings from tobacco. As the world prices for tobacco deteriorated in the early 1980s, its ability to continue maize subsidies was eroded.
In 1981, Malawi embarked on a series of structural adjustment programmes, which entailed moving slowly towards liberalising its price and marketing policies.
Although the World Bank initially supported Admarc’s activities, it disagreed on the level of food prices relative to export prices. In 1987, a new series of structural adjustment loans were launched, with the conditionality of complete privatisation of maize marketing.
However, although private trading was allowed in this period, producer prices remained fixed by the government until as late as 1995, when a price band was established.
In the first structural adjustment loans agreement approved in 1981, the World Bank recommended policy reforms which included price incentives. Since then a lot has happened and some of these changes include liberalisation of agricultural produce and input pricing and liberalisation of agricultural marketing services that opened up the activities to the private sector. This is when the private traders, including those commonly called ‘vendors’, flooded the agricultural markets in rural areas.
Strength of vendors
Since most vendors have readily available cash, they capitalise on Admarc’s delay to purchase maize by rushing into rural areas to buy maize below the government-set minimum price.
Former member of Parliament for Dowa East, Richard Chimwendo-Banda, once said Admarc’s failure to buy maize in time exposes farmers to unscrupulous vendors. Rural poor farmers continue to be exploited by vendors, thereby worsening their poverty even despite selling their produce. This is due to government’s ‘dilemma’ in as far as controlling vendors in a liberalised market is concerned.
The country is in silent dilemma on managing its commitment on trade liberalisation and ensuring that agriculture is commercialised by maximising smallholder farmers’ profits.
The government’s minimum price on farm produce is meant to protect farmers so that they can make profits out of their sweat. However, the government fails to ‘chase’ the vendors who buy the crop below the minimum price because these vendors are operating in a liberalised economy.
Other commentators have concluded that market policies in Malawi do not result in widening of markets, resulting in the smallholder farmer not reaping what they sowed.
According to a paper by Civil Society Agriculture Network (Cisanet) titled ‘Malawi agriculture at 50: Towards a Common Vision for The Next 50 Years’, many smallholder farmers lack market access, hence they just accept any price from vendors mainly when Admarc delays to purchase the crop or when its depot is far from the farmer’s village.
The paper also says farmers lack bargaining power due to low volumes and lack of organisation. This leads to desperate sales immediately after harvest for the smallholder farmers. These farmers are therefore trapped in a vicious cycle of subsistence that has prevented their transformation to full commercial farming.
Rural areas are annually awash with vendors who are at liberty to impose prices on the farmers who sweated to produce the harvest. The paper by Cisanet also observed that current vendor marketing does not benefit farmers and also promotes poor-quality standards.
The weakness among many smallholder farmers is that they sell their produce individually hence they lack joint negotiation powers on the price that vendors offer. According to a research paper titled Agricultural Markets in Benin and Malawi by Marcel Fafchamps and Eleni Gabre-Madhin, most of the agricultural traders transport their purchased harvest at a median distance of 15 kilometres from where they buy to the place of resale.
This means that most agricultural traders only travel short distances to their supply market. Therefore, if the majority of smallholder farmers work in groups such as clubs and cooperatives to sell their produce, they can beat the middlemen and sell directly to companies, hence maximising their margins. Cooperatives are the pathway to revolutionise marketing.
Some hope for a farmer
The coming in of trading organisations such as AHCX brings hope for farmers. AHCX is a marketplace where buyers and sellers can transact trade of commodities with an assurance on quality, delivery and payment.
The exchange is committed to ensuring that the market is assisted with a modern market institution that brings in the much needed integrity, by providing a guaranteed mechanism, for the quality, quantity and payments.
Further, it makes the market efficient, by introducing standardised contracts and trading systems. AHCX is a fully electronic market, bringing in transparency and empowering the farmers by disseminating market information in real time to all market players; and at a later stage, the exchange will provide the market with options for risk management by offering future trading.
The country should embrace agricultural transformation that focuses on good market development.