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FEATS ProjectAGRICULTURAL PRODUCTIVITY, TRADE AND TRADE FACILITATION
By Lawrence Mapemba
University of Malawi
Bunda College
21st February, 2011
GENEVA, SWITZERLAND
Overall objective is to examine the linkages among agricultural productivity, trade and rural livelihoods
Field survey was conducted - farms, companies and organizations that are involved with production, processing and exporting of tradable crops were visited to collect information about their operations and constraints and policy issues that affect their operations.
Objectives and Methodology
AGRICULTURAL PRODUCTIVITY
There has been an increase in productivity of major agricultural tradable crops in the past decade although in some years, yield was affected by unfavourable rainfall
The increased productivity has been due to government’s effort through the introduction of different interventions that aimed at increasing land productivity by smallholder farmers such as farm input subsidy program, promotion of organic manure, intensive extension methods and promotion of high yielding varieties
The availability of policies and strategies that targeted smallholder farmers and the agricultural sector as a whole, have influenced the increase in crop productivity
AGRICULTURAL PRODUCTIVITYMaize yield
0.00
0.50
1.00
1.50
2.00
2.50
199819992000 200120022003 200420052006 200720082009
Year
MT/
ha Maize
Linear (Maize)
AGRICULTURAL PRODUCTIVITYTobacco Yield
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
MT/
ha Tobacco
Linear(Tobacco)
AGRICULTURAL PRODUCTIVITY
Cotton Yield
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
MT/
ha Cotton
Linear(Cotton)
AGRICULTURAL PRODUCTIVITY
Tea Yield
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
Mt/HaTea
Linear(Tea)
AGRICULTURAL PRODUCTIVITY
Sugar Yield
98.0100.0102.0104.0106.0108.0110.0112.0114.0116.0118.0120.0
2004 2005 2006 2007 2008 2009 2010
Year
Mt/
Ha
Sugar
Linear(Sugar)
CONSTRAINTS TO AGRICULTURAL PRODUCTIVITY Malawi considered high-cost crop producing country, due to
◦ landlockedness◦ Government policies (especially tax policy)◦ low rates of adoption of good crop husbandry practices
Low input usage◦ Most farmers not applying recommended rates - yields and
quality highly compromised Difficult to access agricultural inputs e.g. fertilizer, remote
farmers Poor soils due to over cultivation on same piece of land Lack of small-scale mechanization – over reliance on hand
hoe
AGRICULTURAL TRADELandlockedness and Trade Facilitation
Govt efforts to integrate the country into the global economy through trade
Undermined by structural weaknesses in the economy including the country’s landlocked position◦ Malawi’s exports less competitive on the international market ◦ High transaction costs ◦ depends on road and railway transport for its international trade ◦ exports have to travel a minimum of 948 Km to the nearest sea
port ◦ high transport cost associated with the long distance to the ports
and the administrative requirements that the cargo is subjected to while in transit makes Malawi one of the high cost producer
◦ Malawi railway system is unreliable making road transport to be the preferred mode of transportation
◦ private sector in Malawi use longer trade routes which are easily accessible by road
Landlockedness and Trade Facilitation
Aggravated by the country’s lack of diversification of exports and imbalances between imports and exports◦ seasonality of the country’s exports, it is difficult for
transporters to arrange return load which would help to reduce the transport cost
◦ For example, it costs $35 per tonne to transport sugar to Beira with backhaul as compared to $60 without back haul
Shortages of vehicles during some periods of the year particularly during tobacco marketing period ◦ vehicles are committed to transporting tobacco ◦ Industries like cotton have complained of lack of vehicles
as the industry cannot offer competitive rates as those offered by the tobacco industry
Landlockedness and Trade Facilitation
Estimated by TERA International Group Inc. that in 2003 Malawi paid US$60.7 million for transportation of exports ◦ Time costs add about 3% - total transaction cost to be US$
78.9 million ◦ transport cost for imports was estimated at US$129.3
million For these reasons, government has put trade facilitation as a
major element of its economic policy ◦ Under the World Trade Organisation (WTO) negotiations –
Doha Round ◦ Under the regional trade agreements (RTAs) that Malawi is
a party to
On-going/planned corridor development projects
Government has also identified other new corridors which are considered to be more efficient than the existing ones ◦ Mtwara Corridor and the Shire - Zambezi waterway ◦ Mtwara corridor is a multi-modal transport corridor
which seeks to link Malawi to the Indian ocean by rail from the port of Mbamba bay on Tanzanian side of Lake Malawi to the port of Mtwara
◦ The plans are that goods destined for Malawi will be offloaded at Mtwara port and transported to Mbamba Bay by rail then ferried by ship to various destinations along Lake Malawi
◦ there has not been much policy talk about the project
On-going/planned corridor development projects
Shire Zambezi waterway which is expected to link Malawi to the India Ocean through the rivers of Shire and Zambezi to the port of Chindi in Mozambique ◦ used to be the communication and trade route for the
white settlers during the colonial era ◦ Goods destined to and from Malawi will be transported
from the ports of Beira and Nacala by bulges all the way to Nsanje from where goods will be transported by rail to various destinations including Zambia, Democratic Republic of Congo, and Zimbabwe
◦ It is expected that the route will reduce Malawi’s cost of production by over 50%
◦ The success of this project largely depends on the cooperation of the Mozambican government
Effect of landlockedness on export decision
Favourable agronomic conditions for production of a range of tradable agricultural commodities
Realizing the high risk associated with the dependence on a narrow export base ◦ potential for production and export include cotton, coffee,
ground nuts, pigeon peas, beans, macadamia nuts, cashew nuts, soya beans and paprika
◦ Although maize food security also a crop with export potential
their production volumes still remain low ◦ productivity problems◦ problem of competitiveness at regional and international
markets
Effect of landlockedness on export decision
Agricultural exports from Malawi compete for the same buyers Being a small producer of these commodities, Malawi is a price
taker on international market ◦ the high transaction costs which the country faces due to its
landlockedness cannot be factored into the price of its exports ◦ These costs are transferred to the producers by the intermediaries ◦ the low returns, the producers are less motivated to produce these
crops The estate subsector not cultivate maize, beans, soya beans,
and ground nuts significantly Therefore important to address the problem of high transport
cost ◦ through improvement in transport efficiency ◦ exploration of cheap transport routes ◦ would increase the returns to the farmers and therefore motivate
them to produce and export more
Agricultural Trade and Trade Facilitation
Agricultural commodities are by their nature highly perishable ◦ requires a good handling system including efficient
transport system to markets ◦ long distance to seaports as outlets to international market
puts Malawi at a big disadvantage ◦ In transit the cargo is subjected to checks and inspection
which further contribute to long delivery period of the cargo
◦ only export products which are less time sensitive Malawi’s nuts have been denied entry into the
European Union market allegedly due to high aflotoxin levels
According to Illovo Sugar Company, the costs of sending sugar consignment to Beira and Nacala averaged US$60/ton in 2006/7 and the cost has since increased to US$70/ton
Agricultural Trade and Trade Facilitation
There are plans to rehabilitate the rail way system including the 77 Km section of the rail to Nacala
The customs documentation has been streamlined such that currently importers/exporters use a single customs document
The Malawi Revenue Authority (MRA) computerised some of its border posts - speed up clearance of goods - plans to computerise all key border posts
SADC and COMESA are implementing trade facilitation schemes as part of their regional integration programmes
CONCLUSIONS Improved agricultural productivity has improved
agricultural trade performance For crops that have direct benefits to rural livelihoods,
the trade has improved the livelihoods of smallholder farmers
For some cash crops no improvements in incomes of smallholder farmers - poor market systems and no value addition
Research exploitation of smallholder farmers Deliberate policies by government - improve farmers
livelihoods
Recommendations-productivity
Identify financing agency to loan tea farmers to uproot old tea and establish plantations of hybrid tea
Extension-Research-Farmer linkages should be strengthened at a platform level
Promote irrigation in tea farming to improve land productivity on both commercial and smallholder farmers
Recommendations-Trade Facilitation
Government to work on improving the railway between Malawi and Mozambique
Shire-Zambezi waterway Malawi should continue dialogue with Mozambican counterpart
Government put in place mechanisms to ensure no siltation of the waterway
Recommendations-Trade Facilitation
The government to work with countries in COMESA and SADC regions - port and rail related problems delay shipping
Coming up with efficient and effective means of clearing goods
Malawi’s trade should invest in research and development - competitive advantage e.g. Kilombero rice which is a speciality of Malawi
Recommendations-General There is need for a sample survey of large scale and
smallholder farmers cultivate of tradable crops Study their levels of production, extent of
involvement in trade, livelihoods and general constraints
Study domestic market The threat of burley tobacco necessitates extensive
policy research in feasible alternatives NOW◦ Biofuel crops like jatropha◦ Other tradable crops that have an expanding market
Institute studies on exploitation of farmers Value-addition necessary for some tradable crops
Questions?