• TABLE OF CONTENTS
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 Title Page
 Table of Contents
 List of acronyms
 Preface
 Executive summary
 Introduction
 The market and household food security...
 National food situation and food...
 Public intervention for food...
 Alternatives to deal with chronic...
 Annexes
 Annex A: List of persons conta...
 Annex B: Bibliography
 Annex C: Household typology of...
 Annex D: Model of maize price instability...
 Annex E: Targeting the food insecure...
 Annex F: Safety nets in Malawi
 Annex G: Public works / food for...














Group Title: Malawi : food security in a market-oriented economy
Title: Malawi
ALL VOLUMES CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00072240/00002
 Material Information
Title: Malawi food security in a market-oriented economy
Physical Description: v. (various leaves) : ; 28 cm.
Language: English
Creator: Brown, Donald G
Reutlinger, Shlomo
Thomson, Anne M
Publisher: Agricultural Experiment Station, Dept. of Animal Husbandry and Nutrition,
Agricultural Experiment Station, Dept. of Animal Husbandry and Nutrition
Place of Publication: Gainesville Fla
Publication Date: 1955
 Subjects
Subject: Food supply -- Malawi   ( lcsh )
Agriculture -- Economic aspects -- Malawi   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: Malawi
 Notes
Bibliography: Includes bibliographical references.
Statement of Responsibility: authors: Donald G. Brown, Shlomo Reutlinger, and Anne M. Thomson.
General Note: "Agricultural Policy Analysis Project, Research Report no. 1011."
General Note: "June, 1996."
General Note: "Prepared for Agricultural Policy Analysis Project, Phase III (APAP III), USAID Contract no. LAG-4201-Q-16-3061-00."
 Record Information
Bibliographic ID: UF00072240
Volume ID: VID00002
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 76882317

Table of Contents
    Title Page
        Title page
    Table of Contents
        Table of Contents
    List of acronyms
        Page i
    Preface
        Page ii
    Executive summary
        Page iii
        Page iv
        Page v
    Introduction
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
    The market and household food security in Malawi
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 14a
        Page 15
        Page 16
    National food situation and food security
        Page 17
        Page 18
        Page 19
        Page 20
    Public intervention for food security
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
    Alternatives to deal with chronic food insecurity
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
    Annexes
        Page 37
    Annex A: List of persons contacted
        Page A-1
        Page A-2
        Page A-3
        Page A-4
    Annex B: Bibliography
        Page B-1
        Page B-2
        Page B-3
        Page B-4
        Page B-5
        Page B-6
        Page B-7
        Page B-8
        Page B-9
        Page B-10
    Annex C: Household typology of food security in Malawi
        Page C-1
        Page C-2
        Page C-3
        Page C-4
        Page C-5
        Page C-6
        Page C-7
        Page C-8
        Page C-9
        Page C-10
        Page C-11
        Page C-12
        Page C-13
        Page C-14
        Page C-15
        Page C-16
        Page C-17
    Annex D: Model of maize price instability in Malawi
        Page D-1
        Page D-2
        Page D-3
    Annex E: Targeting the food insecure in Malawi
        Page E-1
        Page E-2
        Page E-3
        Page E-4
        Page E-5
    Annex F: Safety nets in Malawi
        Page F-1
        Page F-2
        Page F-3
        Page F-4
    Annex G: Public works / food for work programs
        Page G-1
        Page G-2
        Page G-3
        Page G-4
        Page G-5
Full Text
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MALAWI: FOOD SECURITY WITHIN
A MARKET ORIENTED ECONOMY


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June 10, 1996

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Prepared for

Agricultural Policy Analysis Project, Phase III (APAP I)


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USAID/Malawi


USAID Contract No.




Authors:
Donald G. Brown, Abt Associates Inc.
Shlomo Reutlinger, Abt Associates Inc.
Anne M. Thomson, ISTI







TABLE OF CONTENTS
LIST OF ACRONYM S .............................................. i
PREFA CE .................................................... iii
EXECUTIVE SUMMARY ......................................... iv

1. INTRODUCTION ...........................................1
1.1 Recent Changes in Malawi's Political and Economic Situation .......... 2
1.2 Food Security in a Market Economy ........................... 2
1.2.1 Food Security Terminology ........................... 4
1.2.2 Elements of Food Security ............................ 5
1.2.3 Structural Transformation for Food Security ................. 6
1.2.4 The Role of Government in Food Security .................. 7

2. THE MARKET AND HOUSEHOLD FOOD SECURITY IN MALAWI ........ 8
2.1 A Typology of Household Food Security in Malawi ................. 8
2.1.1 Sm allholders ..................................... 8
2.1.2 The Estate Sector ................................. 10
2.1.3 TheUrbanPoor .................................. 11
2.1.4 Current Trends ................................... 11
2.2 Market Liberalization and Household Food Security ................ 12
2.3 Sm allholder Profile ..................................... 13

3. NATIONAL FOOD SITUATION AND FOOD SECURITY ............... 17
3.1 Assessing Food Insecurity: The Food Gap Calculation .............. 17
3.1.1 Evaluation of the Food Gap Calculations .................. 18
3.1.2 Relevance of Food Gap to Food Security .................. 19
3.2 Assessing Food Security: A Market Based Approach ............... 20

4. PUBLIC INTERVENTION FOR FOOD SECURITY ................... 21
4.1 Transitory and Chronic Food Insecurity Linkage .................. 21
4.2 Public Programs to Deal with Transitory Food Insecurity ............ 22
4.3 Price Stability and Food Security ............................ 23
4.4 Transitory Food Insecurity and Safety Nets ..................... 25

5. ALTERNATIVES TO DEAL WITH CHRONIC FOOD INSECURITY ........ 27
5.1 Direct or Indirect Market Intervention ......................... 27
5.2 Encourage Market Development ............................ 28
5.3 Market Development and Income Redistribution .................. 36

ANNEX A: LIST OF PERSONS CONTACTED .......................... A-1
ANNEX B: BIBLIOGRAPHY ...................................... B-1
ANNEX C: HOUSEHOLD TYPOLOGY OF FOOD SECURITY IN MALAWI ..... C-1
ANNEX D: MODEL OF MAIZE PRICE INSTABILITY IN MALAWI ........... D-1
ANNEX E: TARGETING THE FOOD INSECURE IN MALAWI .............. E-1
ANNEX F: SAFETY NETS IN MALAWI .............................. F-1






ANNEX G: PUBLIC WORKS / FOOD FOR WORK PROGRAMS .............. G-1


LIST OF ACRONYMS

ADD Agriculture Development Division
ADMARC Agricultural Development and Marketing Corporation
AES Agro-economic Survey
APAP Agricultural Policy Analysis Project
CPI Consumer Price Index
CRS Centre for Social Research
EMOP Emergency Operation (WFP)
EP&D Economic Planning and Development
EPA Extension Planning Area
EU European Union
FAO Food and Agriculture Organization
FBS Fertilizer Buffer Stock
FEWS Famine Early Warning System
FFW Food for Work
GDP Gross Domestic Product
GoM Government of Malawi
ha Hectares
IDA International Development Agency
kg Kilograms
M4E Monitoring for Empowerment
MASAF Malawi Social Action Fund
MK Malawian Kwacha
MoALD Ministry of Agriculture and Livestock Development
MRFC Malawi Rural Finance Corporation
mt Metric Tons
NEWS National Early Warning System
NGO Non-governmental Organization
NSO National Statistic Office
NSSA National Sample Survey of Agriculture
PWP Public Works Program
SCF Save the Children Fund (U.K.)
SFFRFM Smallholder Farmer's Fertilizer Revolving Fund of Malawi
SGR Strategic Grain Reserve
UNDP United Nations Development Program
UNICEF United Nation's Children Fund
USAID United States Agency for International Development
WFP World Food Program








PREFACE


This report was prepared during a five and a half week stay in Malawi between April
17, 1996 and May 24, 1996. Paul Siegel of the World Bank worked closely with the team for
four weeks, providing useful suggestions and comments. In addition, Renard Mapemba of
EP&D and Ian Kumwenda of MoALD provided generous amounts of their time in spite of
very busy schedules to exchange views and perceptions on food security in Malawi.

The team would like to thank Gale Rozell, USAID Agricultural Officer, for his strong
guidance of the team's effort. Scott Simons, advisor to MoALD, spent many hours with the
team providing critical guidance and invaluable suggestions on revision of the final draft.
Charles Mann, advisor to MoALD, Anne Conroy, Rockefeller, and Lezlie Moriniere, FEWS,
also were generous with their time and energy in support of the team's effort.

The team also gives special thanks to Charles Clark of WFP for setting up a useful
field trip and to Scott Green and Mr. Weng for accompanying the team on the trip. Miss A.
Haule, FAO expert on women in development, also was very generous in setting up a field
visit for Anne Thomson to see rural women's groups. In addition, we would like to thank
Zissimos Vergos and Roy Kavinya of the EU for arranging and accompanying Shlomo
Reutlinger on his visit to ADMARC in Blantyre.

Finally, the team would like to thank all the donors and governmental staff for so
generously providing data and information to the team. The team used these data for most of
its analysis. Any errors or misinterpretation of these data is our responsibility.


Donald Brown
Shlomo Reutlinger
Anne Thomson








EXECUTIVE SUMMARY


Over the past ten years there have been fundamental changes in Malawi's political
and economic structures. These changes provide opportunity to use the market as part of
a food security strategy for the country.

Food security is an issue of household income andjoverty, not of food production.
Food security is defined as sufficient food consumption by all people at all times for a healthy
and productive life. Chronic food insecurity is a long-term problem caused by lack at, the
household level, of income or assets to produce or buy food adequate for the household.
Transitory food insecurity is a short-term food security problem caused by a shock to the food
production or economic system, where income or resources necessary to adjust to the shock
are not available.

The food security strategy in Malawi should reflect the country's newly developed
market economy. A market economy provides the best opportunity for growth and
development in Malawi. Food security policy needs to be directed to facilitating development
of this market economy. A market-oriented approach to food security is based on competitive
markets which increase productivity in the economy and foster increased household income.
Government and donors must avoid interventions which, in the name of food security, \ 9
undermine the market and serve to delay the long-run objectives of eliminating food
insecurity. /

In addition to markets, government can also play a critical role to assure food security
in the country. While markets are the main distributor of benefits in an economy, government
establishes the rules by which the market operates, assures a level playing field in the
marketplace, provides essential public goods and services, and deals with underlying issues of
resource distribution.

There are many poor households in Malawi that suffer food insecurity. The food")
insecure in Malawi can be divided into three categories: smallholders, estate workers/tenants
and the urban poor. The basis of much of their food insecurity is the 30 years of previous
government economic policy that has skewed income distribution in the economy and limite-
opportunities.

Market liberalization has provided short-term benefits to food insecure
smallholders who have some access to resources. A profile of five smallholder households
shows that those households who have access to resources to purchase inputs, and hence can
.plant tobacco and hybrid maize, have benefitted from liberalization. Those households without
resources have initially gained much less benefit and are increasingly marginalized. For some
smallholders, there is inadequate asset accumulation within the household to assure production
increases within the near term. As markets and income opportunities expand, this situation








may change. Some resource-poor households will need to use markets to seek food security
through non-farm activities.

For transitory food insecurity, the issue is not the national food gap but loss of
income for poor households. The traditional way of looking at food security in Malawi is
through "food gap" calculations. There are many problems with using a food gap approach to
defining food security. Production and consumption decisions are made in a market economy
in relationship to price signals in the market. Food gap analysis does not capture this idea.
An assumption in food gap analysis is that food goes to those who need it. This assumption is
- not not valid. Food is distributed according to market forces. Food gap analysis also assumes
S---'-Constant consumption patterns, which are also not to be found. Consumption varies,
Depending on relative prices. The fundamental error in using a food gap model to deal with
\ food security is to think that if food is available, people can consume it according to need.

A market-based approach to looking at food security, on the other hand, takes
production and food availability as only one component of the problem. More important are
relative prices, income and income distribution, and a series of elasticities reflecting the
demand, supply, and price responses in the market to changes in the food sector. The focus is
on price movements, not changes in quantities of food.

There is a strong link between transitory food insecurity and chronic food
insecurity. Without a chronic food insecure situation already existing in the country,
transitory food insecurity would be a much less serious problem. Both transitory and chronic
food insecurities require a focus on household income. Ideally, efforts to respond to transitory
problems should enhance efforts to deal with the chronic problem.

Households that are not chronically food insecure and have resources can save in good
years and liquidate assets and savings in poor years. The key to poor households' ability to
survive harvest shortfalls is the diversity of income sources available to them. Better off
households are diversifying both food and cash crop production and are increasingly moving
into cash cropping. Effective commodity and labor markets increase and improve coping
mechanisms and survival systems.

Malawi's response to drought has been reactive e.g., release of food, rather than
proactive, e.g., crop diversification, encouragement of small scale irrigation, and effective use
of early warning systems. Public works projects have a role in providing income (cash or
kind) in response to transitory food insecurity. To be effective, these projects need to be
available on-the-shelf for rapid response. Free food distribution programs provide a resource
transfer to the poor but can be inefficient. If there is an effective safety net program in the
country, then transitory food insecurity can be addressed by stepping up saftey net coverage in
response to drought.








Traditional public sector market level interventions, i.e., price bands, Strategic
Grain Reserve, etc., mostly benefit a small number of food insecure households and
generally exclude the poorest households. In an agricultural economy, production instability
not only affects supply of food on the market but also has an impact on household income and
effective demand. Price stabilization may be an element for dealing with transitory food
insecurity, but it does not assure food security at the household level. Many poor households
are outside the market. Market stabilization is useful to the extent that it compensates for
losses of income resulting from production shortfalls. The Strategic Grain Reserve (SGR) is
one of several means for stabilizing the market. Other means are imports and exports. The
relative size and composition of the SGR should be based on the cost of operating the SGR and
import and export parity prices of relevant food staples. Food aid should be principally
regarded as a source of foreign exchange and should be encouraged in that capacity as a
substitute for commercial imports. In a liberalized market, food aid should be released, to the
extent possible, through private channels at free market prices.

The report looks at three possible actions government can take to support food
security: direct or indirect market interventions, encouragement of market development, and
market development with income redistribution.

Direct or indirect market intervention to support food security is usually a
mistake. Market interventions by the state are not sustainable, create increased donor
dependence, and perpetuate an inefficient economic structure with distorted allocation of
resources. Interventions that distort the market make the goal of reaching food security in
Malawi more difficult to attain.

Encouraging competitive market development is the best short-term answer to food
security in Malawi. Food insecurity in Malawi is related to income and poverty. Solving the
problem of food insecurity requires increasing household income through greater productivity
i the economy. This productivity can come from transforming the economy from one based
on subsistence to one based on exchange. Such a shift requires lowering the risk inherent in
market exchange, particularly in te food market. The most urgent priority for action to
achieve these objectives is development of competitive markets. Important areas to support in
this regard are: broadening the food market and lowering transaction costs, enhancing greater
differentiation of food products in the market, increasing viable investment opportunities for
smallholders, establishing a viable land market, expanding the trucking fleet, especially with
small capacity trucks, and improving market price information.

Long-term solutions for food security in Malawi are market development coupled
with more equitable distribution of income. Food security is related to household income.
Ultimately, more equitable distribution of wealth is required before Malawi's people can be
food secure. Income redistribution, however, is a difficult problem that can only be solved
through political will.










MALAWI: FOOD SECURITY IN A MARKET-ORIENTED ECONOMY


1. INTRODUCTION

As late as the mid-1980s, questions about food security in Malawi were not officially
allowed. The official posture at the time was that Malawi was an agricultural success story with
a dynamic estate sector that was producing an enviable rate of growth for the economy. At times
the country could even export food. The fact that, even with this high level of agricultural
production, a large segment of the population had stunted growth because of chronic malnutrition
was not considered a politically appropriate subject to raise.

Today, however, there are numbers of studies and assessments related to food security in
Malawi. Beginning in 1989, for example, the World Bank prepared a food security assessment
for Malawi, and as late as several weeks ago, the Ministry of Agriculture (MoALD) with the
assistance of the FAO finished the final draft of an up-dated food security assessment. The
present report builds on these studies and many other related reports (see Annex B). The intention
of this report is to examine the food security situation in Malawi considering the many changes
that have occurred as the country has moved from a centrally controlled to a market-oriented
economy. Many approaches to food security created in the past are no longer appropriate. This
examination should help provide guidance to policy makers on how better to deal with the food
security question.

This report was undertaken to develop aN understanding of Malawi's food security
situation among the Government of Malawi (GoM) and its donor partners. The report establishes
concepts that can serve as a basis for additional efforts to develop specific plans of actions to carry
out these concepts. The report itself does not present a specific action plan. The final product
of this and follow-on efforts should be a more effective, market-oriented program to assure food
security for Malawi's population.

The report is structured in the following manner: After an introduction, Chapter 1
continues with a brief review of the changes that have taken place in Malawi's economic and
political institutions that necessitate consideration of a market-oriented approach to the food
security situation. After some comments on terminology, the Chapter provides a brief review of
a market-oriented approach to food security. This background material is followed in Chapter
2 by an analysis of the impact of markets on household food security in Malawi. Chapter 3
presents an analysis of the national food situation, contrasting a market view with a more
traditional "food gap" analysis. Next in Chapter 4, the report looks at current public interventions
supporting food security. Finally, in Chapter 5, the report examines three possible approaches
that could be taken by government and donors to address food security, and it evaluates their
appropriateness within a market economy.









1.1 Recent Changes in Malawi's Political and Economic Situation


Table 1 provides an overview of some political and economic changes that have occurred
in Malawi in the last ten years. As can be seen, the extent of change is profound. These changes
provide the foundation for the establishment of an effective market-based economy within which
to deal with food security in the country. New options and possibilities for both the household
and the national economy are now available.

Besides changes in the political and economic situation in Malawi, other events in Malawi
also influence achievement of a market-oriented food security strategy. In a rain-fed agricultural
economy, drought is an ever present danger. Two of the last four years have seen droughts or
significant drops in rainfall in Malawi, with resultant drops in food production. While slowly
being improved, transportation links to international commodity markets from Malawi are still
very expensive. The Beira and the N'cala rail links through Mozambique represent the best long-\
term possibility for affordable linkages to international markets. These rail lines and port facilities/
are only just beginning to operate after repairs to the damage caused by the civil war in
Mozambique.

1.2 Food Security in a Market Economy

Since the fall of the Soviet Union and its command and control economic structure,
market-oriented paths to economic development and planning have become almost universally
accepted by both government officials and academics. In the agriculture sector in Malawi, for
example, a recent government statement noted that "the role of government has been transformed
from that of the main actor in the centrally regulated economy to that of the facilitator of
development in the market-oriented economy" (MoALD 1995). The reasons for this shift to the
market as the source of growth are well documented. A properly functioning market is the most
efficient way of allocating resources in an economy. The market oriented economies have also
had the strongest economic growth and have been best able to provide the greatest well being to
their people. In addition, markets are the economic equivalent to liberal political democracy, an
ideal that is also gaining widespread acceptance.

While there is general acceptance of a market-oriented approach to development, how this
approach is actually carried out in a daily manner varies. Markets are not perfect. While moving
from a centrally regulated to a market economy, many "dislocations" occur. This is an economicK
euphemism for unemployment or lack of access by a household to resources necessary for its basic
livelihood. How to mitigate these problems, while not hindering the basic move toward a market'
economy is difficult and programs attempting it have to be well conceived.









Table 1. Political and Economic Changes In Malawi


Situation in 1985


One party, autocratic rule with limited political
freedom


Situation in 1995


Freely elected multi-party democracy


Centrally regulated smallholder sector with direct
state intervention, market based activity in estate
export sector only


Market-based economy for all crops except
maize, which has indirect state intervention to
stabilize its price


Development Policy


Smallholder sector used to subsidize investments
directed toward estate sector. Estate sector
expanding to capture lucrative export tobacco
market.


Movement toward redressing policy imbalance
between estate and smallholder sector while not
limiting overall economic growth


Economic Policy


All prices fixed and controlled by the state


Ethnic restrictions on areas of economic activity


All crop prices, except those for maize, fully
liberalized

Removal of all ethnic barriers on economic
activity


Agricultural Policy


Focus on maize as the primary food. Restrictions
on markets of all food and cash crops

Direct marketing of burley tobacco by estates
only. ADMARC cross subsidizes urban food
sales from smallholder tobacco monopsony and
other cash crops

State credit program dictates crop patterns for
smallholder


Growing focus on smallholder diversification
including drought resistant crops

Burley auction market opened to smallholder
clubs and intermediate buyers. ADMARC loses
tobacco monopsony for smallholders


Dynamic response of smallholders results in
flexible and diverse cropping patterns


Political


Economy







Official market of inputs and outputs of Alternative market supply channels for inputs and
smallholder sector goes through ADMARC at for markets is creating new opportunities
low fixed prices


1.2.1 Food Security Terminology

Although the term "food security" is freely used in Malawi, there is some confusion about
what the term actually means. The widely accepted definition of food security is: enough food
consumption by all people at all times for a healthy and productive life. At its most basic, food
security concerns individuals. Individuals consume food and, if their bodies are healthy, this food
provides them with energy and nutrients to live, grow and contribute to the well being of society.
When individuals cannot obtain an appropriate amount of the right type of food or if their bodies
cannot adequately absorb this food because of disease or other causes, then the individual becomes
malnourished and may starve.

Economists, donors and national policy makers, however, usually do not focus on
individuals in considering food security policy. Focus on individuals requires so many variables
that it is impossible to formulate viable policy options. The household is usually the smallest unit
considered in issues of food security. It must be remembered, nevertheless, that the household
'is an abstraction from actual individuals. Assumptions about health, intra-household distribution
of food and other considerations need to be continually reviewed and reassessed.

Households can be aggregated into communities, communities agregated into societies,
and societies aggregated into nation-states. For planning and policy purposes, the larger this
aggregation becomes the more distant policy makers are from the needs and behaviors of
individuals. This distance and abstraction from the problem may be required to develop coherent
and achievable objectives in a given society and economy. Such abstraction, however, can also
lead to a fixation on specific elements of the food security situation that, while analytically useful,
may be only marginally relevant to the actual food security situation faced by the country's
population. To a certain extent this has been the case in Malawi.

is not unusual in studies of food security to make a distinction between two kinds of
food security: household food security and national food security. Under the first category,
'io-usehold food security, analysts examine the prevalence of inadequate food consumption and
malnutrition in the population and examine remedies aimed at increasing household productivity
and income.

Within the second category, national food security, studies focus on food market issues,
trends and stability in nationwide demand and supply, the extent of self-sufficiency in food
production, the adequacy of inventories held in storage, and other variables, to examine ways to
increase food availability and/or supplement household income. National food security should not
focus too heavily on food production (see Chapter 3). Food production is an important variable








in regard to food availability in the market. Food security, on the other hand, refers to the
household's ability to access and use food. To food security is an income issue, not a
production issue.

A second distinction in defining food security relates to whether the food security problem
is transitory or chronic. Transitory food insecurity usually refers to short-term food supply
problems caused by shocks to the food production system. Chronic food insecurity, on the other
hand, refers to long-term lack of adequate income or assets at the household level to produce or
buy adequate food for the household.

1.2.2 Elements of Food Security

Current economic literature on food security points out three basic elements needed to
assure food security within a population. The first element is the existence in the country of a
viable marketplace, for both food and non-food items, linked to the world economy. Usually this
marketplace is assumed to be in place. In Malawi, assumptions about the marketplace need to be
fully examined.

The second element concerns the economic situation at the household level. This element
relates to the question of poverty and the ability of the household to gow or purchase appropriate
food required to satisfy the household's nutritional needs. Household income, or income
equivalent from other household resources, is central to the analysis and solution of the food
security problem. .

The third element required for food security is increasing the productivity of the economy.
Increased productivity in the economy ultimately solves household income issues. To achieve
sustained productivity growth in the Malawian economy will require a structural transformation
from an economy that is to a large extent based on subsistence-oriented, household-level
production to an integrated economy based on specialization and exchange. For many Malawians,
specialization and exchange will entail deriving their livelihood from off-farm sources. Some of
this shift has taken place in the estate sector but it still remains a distant prospect for much of the
smallholder sector.

In the interim, specific measures need to be taken to address the income issues of the
chronically malnourished household. It is critical that these measures not hinder the long-term
objectives of increased productivity in the economy and free function of the marketplace. Ideally,
poverty alleviation measures and safety nets should enhance and expand these long term
objectives.

The dynamics of these three elements a viable marketplace, growth of a productive
economy, and fostering of hncphnld income form a market-oriented paradigm that can be used
to analyze and evaluate specific food security programs and policies in Malawi. This paradigm
is neither new nor revolutionary. It is the result of over twenty years of economic research and








discussion. Nevertheless, using this paradigm may provide new and possibly startling approaches
on how to develop and implement policies and programs to enhance food security in the country.
This paradigm shifts policy from a focus on specific quantity of food available (a food gap
approach) to a broader focus on issues of supply demand and responsiveness of the market to
satisfy food security needs The implementation mechanism is not government institutions but
the marketplace. The approach is indirect rather than direct. The cost-effectiveness of any given
action proposed to achieve a policy objective becomes increasingly important. In addition, as the
market adjusts to new conditions effective safety nets of programs and policies are required to
protect the most vulnerable part of the population from the more adverse effects of shifts in the
marketplace.

1.2.3 Structural Transformation for Food Security

/ As mentioned above, a market-oriented response to increasing productivity in the economy
requires a structural transformation of the economy. Malawi cannot remain a country whose
economy is dominated by subsistence smallholder farmers. With the country's ever increasing
population, a continuation of the present economic structure will lead to a Malthusian disaster.
The economy must move, over the next several decades, from being largely based on subsistence-
oriented household production centered around local markets to an integrated economy based on
specialization and exchange within a world-wide market.

Today, Malawi has a dualistic economy. On one side is an estate sector a few
corporations and a bureaucratic structure that concentrates most of the wealth of the country in
a few hands. Most of these structures are linked to the elite of the previous government. The
estate sector is dominated by tobacco, sugar and tea produced under labor-intensive conditions.
On the other side of the economy is a large smallholder sector whose primary production is maize,
tubers and, to a more limited extent, vegetables and pulses. Wages are low in the country, as is
the productivity of labor. More than half the country lives in poverty, and over fifty percent nf
the children are stunted frnm malnutrition. The characteristics of the smallholder sector and the
urban poor are seen in Section 2.1.

Except for the sale and production of export crops, markets in Malawi are extremely thin
and unreliable. Until recently, all legal transactions related to the sale of products from and inputs
to smallholders had to go through ADMARC. While this situation is changing, ADMARC still
has a dominant presence in the market and, though legal restrictions for trade have been lifted,
ADMARC's legacy still prevails in the minds of smallholders, traders, producers and
Government. Because of this, rural food markets are dependent on either extremely thin and
unreliable local markets or ADMARC. For most poor people, acquiring food and household -.
goods is done primarily through personalized systems of exchange based on local neighbors,
villages and kinship groups. It hasbeen pointed out that dependence on personalized systems ofL. -
exchange "perpetuates chronic vulnerability to food insecurity" (Jayne et al., 1994T y limiting
the range of opportunities open to exchange goods and services. This limited opportunity reduces
the ability of the poor to seek out the best possible source of goods and markets for selling or








trading their goods and services. In addition, personalized systems of exchange are also limited
in geographic dispersion. Thus, a personalized system increases vulnerability to local natural
disasters such as disease and drought.

How do farmers shift from subsistence-oriented production to specialized production? The
answer to this question largely relates to risk-management of food at the household level. To
undergo this shift, fundamental to the structural transformation of the economy, requires lowering
the risk inherent in market exchange. This means that policy makers must work with markets and
various exchange possibilities to make them more efficient and reliable. For example, only to the\ /
Extent that there is an assured food market will farmers commit themselves to cash crops and other
forms of income generating commercial-oriented production. The weaker the food market, the
less likely that specialization will occur. /

1.2.4 The Role of Government in Food Security

In addition to markets, government also plays an appropriate role in assuring food security.
The view is often expressed that government should stay out of the direct selling and buying of
commodities and concern itself with traditional public goods, e.g., building roads or establishing
rules to govern contracts. While this idea may be true to a certain extent, the more fundamental
issue is how to establish an effective governance system in the country that can not only build
roads, but maintain them, not only govern contracts, but establish the optimal set of rules for
regulating and facilitating markets and contracts. Effective governance systems are needed to
identify and then put into effect collective action to solve problems in the food system that are
beyond the scope of individual private action. Market forces alone will not guarantee increasing
productivity and ultimate food security. Not only does one have to get the prices right, one also
has to get the rules right. Getting the rules right occurs through a political process within a
society in which costs and benefits are allocated. Government has to play a pro-active role in this
process.

In addition, it needs to be noted that private firms do not like competitive markets. The
principal strategy of most enterprises is to distort the market in their favor to gain a monopolistic
surplus. Paradoxically, it is the public sector that can be the best friend of the market.
Maintaining a level playing field in the marketplace is a central role of the state.

Finally, it needs to be recognized that even in the best of economic conditions some people
will still not be able to take care of themselves and their family. For those who are unable to
achieve a minimum flow of resources and benefits from the market or to compete in a level
playing field, there is a role for government or non-governmental organization (NGO)
intervention.







2. THE MARKET AND HOUSEHOLD FOOD SECURITY IN MALAWI


2.1 A Typology of Household Food Security in Malawi

Chronic food insecurity in Malawi is primarily a problem of poverty. Households are food
insecure because they do not have access to enough food to meet their requirements. In Malawi,
over 85 percent of the population lives in the rural sector and depends for their income on
agriculture, either directly, through production, or indirectly, through providing labor, goods or
Services to farmers. The link between access to food and agricultural production is very strong A
because agricultural reduction is th hn hnld' in

Thus, to assess household food security, the starting point is me assessment of household
income and resources. Households are vulnerable to food insecurity primarily because their
income sources are inadequate (chronic food inserrity) and/or because their coim are
v rable to exogenous shocks (transitory food insecurity). In Malawi, income distribution is
very unequal, largely because of policies in effect during the past thirty years. Unequal income
distribution, combined with low level of average income, or GDP per capital, means that many
households in Malawi are food insecure.

Nutrition indicators are often used in food security assessments. These have to be
interpreted with caution. Nutritional status is an outcome of the interaction of household food
security, intra-household food distribution, maternal and child care practices and health status.
Child care practices and health status are linked to household income, but they are also strongly
influenced by public or collective provision of health and education services. The high incidence
of malnutrition suggests the depth of the problem, but not all the malnutrition is directly food -
related. While acknowledging the importance of child care and health factors, this report will
focus on factors affecting household food security.

Broadly speaking, the food insecure in Malawi can be divided into three categories:
smallholders, estate workers / tenants and the urhan pnnr There has been a significant amount
of work undertaken on the characteristics of food insecure rural farmers, but there has been much
less analysis of the other two categories (Petef1992,1994,1995, UNDP 1993, World Bank 1995, ) (Q
SCF 1996). Almost all the quantitative analysis of food insecure households is based on data
collected before 1993. This analysis reflects outcomes of the previous heavily regulated economic
system. Since the early 1990s, the liberalization process has changed the opportunities available
to all households, including the food insecure, particularly in the rural areas. Little of this process
is, as yet, documented, and it will take time before it can result in major changes in the numbers
of food insecure. However, the liberalization changes should be kept in mind when considering
the implications of the following assessment.

2.1.1 Smallholders







The most recent analysis of poverty among rural smallholders in Malawi is based on data
from the 1992/93 National Sample Survey f Agriculture (NSSA), as analyzed in the World
Bank's Poverty Profile (World Bank 19Q95VThis study focused on those households in the bottom
40 percent of the income distribution. In broad terms, this corresponds to the chronically food
insecure in Malawi.'

Poverty is relatively more prevalent among smallholders than among urban dwellers.
There is also a strong geographical bias in the distribution of poorer households. The South
contains over half of the country's population but two-thirds of the poorer households. Assuming
the same income distribution as 1992/93, there are about 400.00 very poor/smallholder
households (the bottom 20 percent) and an additional 400 O oor ma holder households for
a total of 800,000 poor and very poor household& that are foo secure.

Poorer households have distinct demographic profiles. They are likely to be female-
headed. The poorer the household, the larger the household size and the higher the dependency
ratio. In other words, poor households have more people and fewer able-bodied workers to
support them. Female-headed households have a smaller average household size than do male-
headed households, but they have a higher dependency ratio.

There is a close relationship between the area of land cultivated by a household and its
poverty level. Three quarters of poor households cultivate less than 0.5 of a hectare, and almost
all cultivate less than one hetare. Cultivating a small area of land, however, cannot be equated
with being poor. Some households who cultivate less than 0.5 hectares are effectively part-time F [)
farmers. Their major source of income is off-farm employment.

Most(pi allholders have few assets, use low levels of purchased inputs, and have low
access to credit. Coohouseholds grow relatively less hybrid maize and more local maize than
the average while planting more of their land to maize than better-off farmers. -off farmers
grow more hieh value craon. Poohouseholds often own little livestock.

Nearly al ohous ha difficult meeting their food remen from their own
production. On average they produce about 6~ercn f the;r fppd rPni rerment. The poorest l
may produce less tha 40 percent of their reguirementc=.\ The land available to them for cultivation- /N
is insufficient to produce enough local maize for their needs; they cannot afford to purchase the
inputs necessary to put all their land under hybrid maize; and they grow virtually no cash crops.
Such households rely on off-farm employment, and in particular gnyu (part-time agricultural
labor) to provide the rest of their food needs. Many households have to reduce their consumption
levels in the pre-harvest period.




'This section is abstracted from the various studies referred to in Annex C.








Female-headed households face particular problems. They have limited labor available
for off-farm employment, in part due to their higher dependency ratios, but also because of the
considerable time required for domestic activities such as collecting water and wood and pounding
maize. Off-farm income is an even smaller share of total income for these households than for
poor households.

In drought years, the number of food insecure rises, depending on the incidence and
severity of the production shortfall. In a major drought, the number of the food insecure could
rise by up to an additional 30 percent of the smallholder population.

A recent study (SF 1996 shows that the poorest households employ a variety of coping
mechanisms in response to drought. The degree of diversity in income sources is important the
more diversity, the more effective the household's coping ability. The survey appears to show
that oe main effects of drought is to increase the scale of market activities, particularly for the
purchase of food. Households which would normally not purchase maize, certainly not from
crop sales, have to usewhat income they can generate to supplement their own production. The
main source for this income is eanvu, but there is usually less ganyu available in drought years,
as better-off farmers are also affected. Household food security for the poorest is very much )
dependent on the functioning of the rural labor market. For the poorest households, there is also
a rise in the amount of barter and the percentage of ganyu paid in food rather than cash increases.

The main problem for poor smallholders is their lack of resources. They have (ew assets,
and it is very risky for them to borrow for agricultural production, even if they have access to
credit. The outlook for these households is bleak unless their resource base is increased. To do
so, they must produce a surplus, through switching to higher value crops, or finding more
lucrative off-farm employment opportunities. This is particularly true for poor female-headed
households, about 10 percent of the rural population, who are caught in a particularly vicious
poverty trap. Their labor is barely sufficient to fulfill domestic demands and to cultivate their
inadequate landholdings, but they are forced into ganyu to find food in the peak cultivation period,
thereby reducing still further their ability to grow food for their family. To break out of this trap,
these households have to be given the means to diversify away from the agricultural sector. Jte.

2.1.2 The Estate Sector

There are fewer sources of information on the estate sector, which has been excluded in
the past from most of the major surveys carried out in Malawi. Most of the information comes
from a few surveys undertaken in the late 1980s and updated from field observations (Mkandwire
et al., 1989, GoM 1993).

In 1989, the number of tenant farm households was estimated at 105,000. At that time,
the total number of people dependent on the estates as tenants, permanent workers and their
families was around a million. There has been rapid expansion of the estate sector in recent years,
with aroportionate increase of people dependent on estates.









Data on income levels are less reliable for the estate sector than for the smallholder
sector. The figures reported, however, suggest that estate income levels may be similar to those
for rural smallholders. Whereas some tenant farmers may do very well, others have difficulty
making enough income to feed their family These are most likely to work on small estates.
Where tenants have access to land fo subsistence farming, this land provides an important
additional source incon). What data existindicate that this access to land is more likely to
occur on larger estates, and therefore is unlikely to benefit poorer estate tenants. The situation
for poor tenants may have improved somewhat with the introduction of the intermediate buyer
system, which has provided competition for the estates as tobacco outlets. This could force estates
to offer better terms to their tenants.

Permanent estate workers are frequently paid less than other wage earners. Where this
is the case, they are likely to suffer from food insecurity.

Children of estate tenants and workers show high levels of malnutrition. Data from 1995
showed that estate children had slightly higher levels of stunting than average, and almost 50
percent higher rates of wasting. These high levels of child malnutrition are a concern. These may
result from poor environmental conditions and lack of health services, combined with low
household income. High labor demands on tenant spouses may also negatively affect child care.

2.1.3 The Urban Poor

Major cities in Malawi have the lowest prevalence of poverty, and an urban honmehnld is
half as likely as a rural household to be poor. The main exception to this is Lilongwe, where
there is twice the number of very poor households as in any other Malawian city. This large
number of poor households is reflected in higher rates of malnutrition in Lilongwe than in other
urban areas.

Studies of low income urban households carried out between 1989 and 1991 show a high
percentage of income spent on food and income levels not much above those in the smallholder
* sector (Roe 1992, Chilowa and Shively 1989). It is difficult, however, to quantify what overall
percentage of urban households this would represent.
I
There is some evidence that low income urban households may have stronger links with
the rural economy than have been previously acknowledged, and that they may therefore, be
vulnerable to drought. As with rural households, however, their main problem is simply lack of
resources.

2.1.4 Current Trends

The discussion above focuses on the characteristics of poverty in Malawi in the late 1980s
and early 1990s. The situation, however, is not static. Policy changes in the early 1990s are








opening up new opportunities to smallholders in particular, but also in the area of agricultural
wage labor. Offsetting these opportunities are a number of factors which need to be addressed if
the already low living standards of the poor are not to fall further.

Population growth is high, at 3.3 percent per annum. This growth has resulted in a
decreasing resource base per head of population. In 1968/69 the average area of land cultivated
per household was 1.54 ha. This had declined to 1.1 ha by 1984/85 and to 0.75 ha by 1994. This /
small amount per household makes it even more important that the land available be used
efficiently.

As will be discussed below, maize production is not keeping pace with population growth.
'To the extent that maize is being replaced by higher value crops or by more drought resistant I
crops this drop in maize production is not necessarily a poble. Except for root crops however,
agricultural yields are static, depressing growth in the smallholder sector. I s

Environmental degradation is reducing soil fertility. Deforestation an o husband
are resulting in soil erosion. To maintain crop yields, less fertile soils require icreasn amounts t "
of fertilizer which poor smallholders can barely afford.

At present there are estimated to be 225,000 cases of AIDS in Malawi. The World Bank
estimates that by the year 2000, 2 million people will be HIV positive, and there will be about
35,000 children orphaned. AIDS will inevitably increase dependency rates in the rural area, and,
in particular, will probably increase the number of very poor female-headed households as they s@.k 5
lose adult members and take in orphans from the extended family. "2L t a

Decisive action should be taken to address issues of food security. Ways must be found
to increase household productivity and hence income, both on and off-farm, to offset these
negative trends and to set the scene for self-sustaining growth. The policy changes already
undertaken are important elements in a market-led response to these trends (see below), but the
impetus must be maintained.

2.2 Market Liberalization and Household Food Security

Beginning ten years ago and increasing rapidly over the last three years, there have been
many changes in the economic environment which could be classed together under the general
heading of market liberalization. These have had major implications for household food security.


There has been a move away from administered prices for almost all commodities,
including agricultural inputs, cash crops and maize.

Restrictions on cropping patterns have been removed, allowing smallholders to grow a
wider variety of cash crops, in particular, the highly profitable burley tobacco.








* The intermediate buyer program has increased the options for smallholder tobacco sales
and has led to an increase in prices for both smallholders and tenants.

* There has been a major increase in the extent of private sector trade and a reduction in the
importance of ADMARC.

These changes have greatly affected the income earning opportunities for households,
particularly in the rural sector. They have also affected the relative prices households face for the
commodities they sell and purchase. Price changes in turn affect cropping patterns and
consumption choices. Seasonal price changes in the private sector should create greater incentives
both for intra-seasonal storage in the private sector and for on-farm storage.

With the increasing withdrawal of ADMARC from remote rural markets, concern has been
expressed about the availability of commodities in these market and how fast private traders will
move to fill the void left by ADMARC. In the short run the withdrawal may increase transaction &Adt
costs, in particular for maize. On the other hand, it is difficult to estimate the extent to which thin
markets are currently a problem, as conditions in the market are changing quite rapidly.

In some parts of the country other changes can be seen in increased smallholder reduction
of burley tobacco. This production has increased the demand for casual agricultural labor. In
time, this demand may cause some upward pressure on rural wage rates, though as yet there is
little evidence of such a development.

As with all major changes, there are likely to be winners and losers, though market
liberalization is by no means a zero-sum game. In the medium term, most households should gain
from increased opportunities. Other households, however, are likely to bear some short-term
costs as they adjust to changing market conditions.

Surveys in Zomba in the initial period of market liberalization, 1986 1993, show that
smallholders who had switched into tobacco growing had made substantial gains over the period
(Peters 1992, 1993). The gains, in turn, were increasing demand for local goods and services.
However, households in the bottom 25 percent of the sample appeared to have had to work harder
to maintain their average supply of maize.

2.3 Smallholder Profile

Since 1993, relative prices have changed dramatically, due to devaluation and input market
liberalization. Profiles of five smallholder households have been developed to show the impact
that changes in relative prices have had on different household types. These profiles are not
statistically representative, but they have been developed to illustrate the main combinations of








land area and cropping pattern. The basis for the profiles is simplified farm budget data2, and the
models are static, not behavioral; i.e., they do not allow farmers to change production and
consumption patterns in response to price changes. Only five crops are included, and maize is
the only staple food crop. In reality, cropping patterns would be more complex. In spite of the
simplification, the profiles allow us to identify short-term losers and gainers.

Table 2.1 shows characteristics of the five households, the relative importance of these
household types in the rural economy, their cropping patterns and how they fared over the
five-year period from 1990/91 to 1994/95.

Overall, families who have access to purchased inputs and hence can plant tobacco and '
hybrid maize have done well with liberalization. Their income has increased, both in current and '
in real terms, to such an extent that they can acquire enough savings to withstand a drought year.
These families often have above average farm size. The household which grows cotton is an
intermediate case. Until 1994/95, nominal income was stagnant. In the last year, however, the
cotton market was opened up to competition and prices rose substantially. This household would
normally be food secure, but, until last year, it would not have sufficient reserves for a bad year.
However, if cotton prices stay high, this situation may change.

.Households which are maize deficient and have no resources to invest in improved maize
varieties have lost out due to rising market prices, although, as they have very little marketed
output, the size of this loss is limited. These households tend to have below average size. One
type of household which is not represented in the models above is the ery or family who has
virtually no interaction with the market. There are indications that the poorest rural households
S )) in Malawi, whose number is difficult to estimate, exist in a world of their own production and
bartL They perform ganyu largely for maize, and they barter any spare vegetables or pulses for
food. Market liberalization has almost certainly had very little impact on them.

If these findings are representative, they raise important issues about how(j-oruira 4 at
households can be given some ability to participate in markets on better terms than they are doing V. Pa 7
now. Unless they can develop the ability to buy inputsr aise cash crops, and otherwise improve
their productivity, they are fated to a life of increased marginalisation if they continue to depend
on agriculture for their major income source.

The main hope for these households to break away from poverty and become food secure
is through employment or other income generating activities. The principal form of employment
in the rural area is ganyu. Other income generating activities will primarily come through off-
farm activities such as petty trading, food processing and catering. Poor households' ability to
find employment or engage in inconrenerating activities depends on two factors: general growth



2 Details on methodology and data sources are given in Annex C.






51679
IS
, I


land area and cropping pattern. The basis for the profile
models are static, not behavioral; i.e., they do not a
consumption patterns in response to price changes. Or
the only staple food crop. In reality, cropping patterns
simplification, the profiles allow us to identify short-ter

Table 2.1 shows characteristics of the five house
household types in the rural economy, their cropping
five-year period from 1990/91 to 1994/95.

Overall,_families who have access to purchased
hybrid maize have done well with liberalization. Their in
in real terms, to such an extent that they can acquire enoi
These families often have above average farm size. I
intermediate case. Until 1994/95, nominal income was s
cotton market was opened up to competition and prices r
normally be food secure, but, until last year, it would nol


However, if cotton prices stay high, this situation may change.


a / V
q";~e6;Zp~~


Households which are maize deficient and have no resources to invest in improved maize
varieties have lost out due to rising market prices, although, as they have very little marketed
output, the size of this loss is limited. These households tend to have below average size. One
type of household which is not represented in the models above is the very poor family who has
virtually no interaction with the market. There are indications that the poorest rural households
in Malawi, whose number is difficult to estimate, exist in a world of their own production and
bart=L They perform ganyu largely for maize, and they barter any spare vegetables or pulses for
food. Market liberalization has almost certainly had very little impact on them.

If these findings are representative, they raise important issues about how poor rural
households can be given some ability to participate in markets on better terms than they are doing
now. Unless they can develop the ability to buy inputs, raise cash crops, and otherwise improve
their productivity, they are fated to a life of increased marginalisation if they continue to depend
on agriculture for their major income source.

The main hope for these households to break away from poverty and become food secure
is through employment or other income generating activities. The principal form of employment
in the rural area is ganyu. Other income generating activities will primarily come through off-
farm activities such as petty trading, food processing and catering. Poor households' ability to
find employment or engage in incon egnerating activities depends on two factors: general growth



2 Details on methodology and data sources are given in Annex C.


BI








of the rural economy and resources available at the household level for investment in off-farm
activities.

Table 2.1 Results of Household Simulation

Household 1 Household 2 Household 3 Household 4 Household 5
(28 percent) (13 percent) (15-20 percent) (15-20 percent) (6 percent)

Characteristics

Male-headed Female-headed Male-headed Male-headed Male-headed

4 adult equiv. 3.5 adult equiv. 4.4 adult equiv. 4.4 adult equiv. 5 adult equiv.

2 working adults I working adult 2 working adults 2 working adults 3 working adults

Cropping
Pattern

0.4 ha. land 0.29 ha. land 1.0 ha.land 1.0 ha. land 2.0 ha. land

0.35 ha. local 0.25 ha. local 0.6 ha. local maize 0.5 ha. local maize 0.7 ha. local maize
maize maize

0.05 ha. ,4 ha. groundnuts 0.25 ha. hybrid 0.2 ha. hybrid 0.7 ha. hybrid
groundnuts 9.(9" maize maize maize

0.15 ha. tobacco 0.3 ha. cotton 0.4 ha. tobacco

0.2 ha. groundnuts

purchased inputs purchased inputs purchased inputs

Food Security

produces 304 kg produces 217 kg surplus maize self-sufficient in surplus maize
maize, 35 percent maize, 28 percent producer maize producer
of requirement, 4 of requirement,
months worth. 3.5 months worth I

produces 19 kg produces 15 kg Income (current) Income (current) Income (current)
groundnuts groundnuts 174 MK in 90/91 110 MK in 90/91 639 MK in 90/91
= 50 kg maize, = 40 kg maize, 1803 MK in 94/95 431 MK in 94/95 5619 MK in 94/95
90/91 90/91 (1468 MK (361 MK cotton) (3915 MK
= 14 kg maize, = 11.5 kg maize, tobacco) tobacco)
94/95 94/95

Chronic food Chronic food Normally food Normally food Normally food
insecurity insecurity secure secure secure

Transitory food Transitory food Can cope with Insufficient Can cope with
insecurity insecurity poor years reserves for poor poor years
years









Outcome
Loser Loser Winner OK Big winner

Source: see Annex C
If no intervention is made into the rural economy, the process of off-farm diversification
will be slow. There are some hopeful signs in the ejections coming from growth in tobacco
income. There are indications that this growth is having some multiplier effects in terms of
increased demand for labor, goods, and services (Peters 1995). Increased diversification into
other cash crops may have similar effects. A transfer program to poor smallholder

households, whether in cash, voucher, or kind, would provide a stimulus to the process. This -
situation would be particularly effective if it were implemented in such a way as to avoid market
distortions and disincentives to private trade.

It is unlikely that poor female-headed households can take advantage of any rural growth
without some assistancebecause of the position in which they are trapped. Some kind of transfer
program could undoubtedly assist them, but these households are extremely vulnerable and would
benefit from additional support. An additional or alternate option would be to increase the
coverage of some of the targeted schemes which already exist in Malawi. Run by NGOs and
donors, these provide combinations of resource transfers, access to credit and technical support
and training. These programs undoubtedly cost considerably more than a straight transfer
program but some of them at least appear to have been successful in providing female-headed
households with profitable off-farm alternatives. These programs are discussed in more detail in
Annex F, on safety nets.








3. NATIONAL FOOD SITUATION AND FOOD SECURITY


3.1 Assessing Food Insecurity: The Food Gap Calculation

Current practice in promoting food security in Malawi has put much emphasis on actions
which influence the national market supply of food, particularly of maize. The tendency has been
to act on the basis of observed trends in the national "food gap" a measure of the discrepancy
between national food production and what is believed to be the total nutritional requirement of
Malawi's growing population.

Food gap calculations are mostly used for estimating short term import requirements or
desired changes in food stocks held by or on behalf of the Government. They are also used for
identifying policies which could best diminish food insecurity, for instance policies which could
lead to the expansion of production of one crop or another.

The FAO (Johnson 1996) has recently completed a detailed analysis and projection of food
gap in Malawi to the year 2005 for the Ministry of Agriculture and Livestock Development
(MoALD). The methodology in this analysis used a standard nutritional food gap approach (see
below). Food demand was calculated using age and sex distribution of the population with
associated food needs based on an estimated per capital per day energy requirement of 2,325
ilocalies. Supply was calculated using a maize equivalent value based on caloric value for all
food crops now being produced in the country. Estimates of production in both smallholder and
estate sectors were included. Projections of demand and supply were based on a series of
assumptions noted in the footnote below.3 The results of these calculations are seen in Table 3.1.

This analysis indicates the possibility of a continual food gap ranging from about 250.000
to 630,000 metric tons nver the nePt ten years. Before donors or government make decisions
based on these estimates of the present and projected estimates of the food gap, it is essential to
clarify the underlying assumptions driving these estimates and their limitations.

There are two problems with this food gap analysis. First, the assumptions of the analysis
determine its onicome, and these assumptions can lead to a wide range of results. Secondly, the



3 Projections of demand were based on estimated population growth of 3.3 percent per annum to the year
2000 and 3.0 percent to the year 2005. Projections of supply are based on two scenarios, one optimistic, the other
less optimistic. The less optimistic scenario projects no change in the area planted in maize but an increase of 2.5
percent a year in the amount of area wanted in hybrids and 5 percent a year increase in rpa pilantpi in
comsites- It is also assumed that area under rice cultivation will increase by 3 percent a year. Area under
other crops is assumed to increase annually as follows: sorghum by 2 percent, wheat by 3 percent, millet by 1
percent, pulses by 5 percent, groundnuts by 2 percent, soyabeans by 15 percent to the year 2000, then by 10
percent, cassava by 2 percent and potatoes by 3 percent. Yields are calculated on higher averages in either the
1991-1995 or 1989-1993 cropping period. The more optimistic scenario uses the same yield and hectarage figures
as the less optimistic scenario but assumes area under hybrid maize will increase at 5 percent per annum.








food gap analysis is peripheral to the basic food security issue. Emphasis on a food gap often
distort policy away from theentra issue, wic i

Table 3.1 Projected Food Gap in Malawi 1995/6 to 2004/5

'000 Metric Tons Maize Equivalent

Crop Year
95/6 96/7 97/8 98/9 99/0 00/1 01/2 02/3 03/4 04/5
Scenario Est.

Optimistic (23) (245) (307) (333) (367) (377) (394) (411) (435) (442)
Less Optimistic (24) (302) (344) (388) (440) (470) (509) (549) (595) (631)

Source: An Analysis of the Extent, Cause and Effects of Food Insecurity in Malawi with an Approach to Improving
Food Security, March 1996.


3.1.1 Evaluation of the Food Gap Calculations

As seen in Table 3.1, the projected food gap jumps from 24,000 to 302,000 mt between
1995/6 to 1996/7. The former figure is based on actual estimates of production while the latter
figure is based on the assumptions used for the projections. The estimates of "gap" are driven by
a host of assumptions of demand and supply. Changes in these assumptions can shift the size of
the gap by hundreds of thousands of metric ton maize equivalent. Present calculations of the food
gap, for example, are based on growth in food production that barely exceeds one percent per
annum. A growth rate of 2.5 percent, which is certainly within reach, could reduce the food gap
by about 300 thousand tons by the end of the projection period. It is estimated that in maize alone
the untapped potential for improved efficiency in the use of fertilizer recommendations is on the
order of 20 percent (World Bank 1995).

Both the less and the more optimistic projections in food production do not capture the
actual changes that are already occurring which affect agricultural growth. The food gap
calculations do not incorporate the impact of relative price changes and the related supply and
demand changes in response to these price changes. These responses are the basis of a higher rate
of growth. As liberalization proceeds, growth in production is likely to occur, both because of
the greater efficiency with which farmers can use resources and also because government, freed
from some of its former obligations to manipulate the market, can now turn its attention and
resources to the development of infrastructure and the encouragement of technological change.

The estimated size of the food gap is also biased on the upward side. No account is taken,
for example, of dimba cultivation. Dimba are gardens on small tracts of cultivated land situated
in valley bottoms, usually along river beds. In a recent FEWS Food Security Report, it is


~17~
3
~Ec*"








estimated that at minimum 105,000 tons of maize produced on dimba land are missed in the
smallholder crop estimates (FEW February 1996). The production of maize and other food crops
on estates has also not been measured. Estimates of this production have been consistently low.
In addition, while there is evidence of considerable production on public lands, no estimate of
this amount is available. Finally, with the traditional focus on maize, past and potential expansion
of other food groups has been underestimated. This is particularly true of rootcrops. It is
estimated that a shift from local maize to cassava could increase caloric-based food production per
hectare by 316 percent with little change in inputs or cash requirements (Simmons 1995). In
addition, present estimates of cassava production is collected in tonnage on a dry weight bases.
Calculation of maize equivalents of this tonnage in the food gap, on the other hand, has been
done on a fresh weight bases. The maize equivalent of fresh weight cassava is only a third of dry
weight. All of these biases seriously call into question the validity of the food gap estimate.

3.1.2 Relevance of Food Gap to Food Security


An analysis of a food gap is not very relevant to food security. Among the problems of
using a food gap as a guide for food security is that the estimated food requirementsgenerated
by a food gap analysis are based on an assumption that everybody in the population gets his or
her due share as determined by nutritional criteria. Reality is hardly like this. In fact, the
distribution of food in the population is more likely to be governed by market forces, including
the distribution of income, assets and prices, than by nutritional considerations. There are some
who can afford to, and actually do, consume more than their nutritional needs, and certainly in
Malawi there are many others who are unable to produce or to acquire enough food to meet their
nutritional needs. In so far that people have to depend on public distribution, it is equally unlikely
that government and donors can either afford or fine-tune the distribution of food in line with each
person's nutritional needs.

Secondly, the food gap calculations of food requirements are also based on the assumption
that the share of total dietary energy obtained from particular food or groups of food remains
constant over the years. In fact, these shares are likely to vary a great deal as people make their
choices on the basis of changes in relative prices and relative abundance. More likely than not,
in a year with poor grain harvests, the share of total energy people obtain from grains is likely
to be lower than usual while the share of other food groups is higher than usual.
Thirdly, apart from year to year fluctuations, the use of data from earlier years about the
sources of dietary energy from different sources misses the currently observed tendency for the
relative importance of cereals in the diets to decline as increasing population pressure on limited
land resources makes the traditionally consumed foods unaffordable.

It must be clearly understood that policies which make use of such national food gap
calculations can be seriously biased in at least two ways. In Malawi there are indications that both
biases have actually occurred. For one, the observation that a national food gap does not exist,
for example, in a good production year, can easily create the illusion that food security has been
achieved when it has not been; thereby reducing resolve to address the special needs of people


~"~i IchJ-

"j"~"j"








whose nutritional needs remain unmet. And, perhaps much worse, if anyone really attempted to
fill the "food gap" with imported food supplies without actually seeing to it that these are used to
fill the calculated "nutrition gap", the excess food could play havoc with the functioning of an
orderly market, throwing traders into confusion, depressing the price to producers, reducing
incentive for domestic food production, and possibly causing increased undernutrition among the
rural population.

There is some evidence that market supplies have been at times excessive in Malawi so that
prices were lower than needed to cover costs of production, while malnutrition has remained
widespread. Full silos and acutely undernourished children is not what policy makers intended.
The lesson, of course, is that food security policy might be more effective if the focus of attention
is not so much on filling a national "food gap", but on filling the "income gap" of the food
insecure population.

3.2 Assessing Food Security: A Market Based Approach

A market based approach to assessing food security is concerned with the economic
indicators that lead to change in demand and supply for food in the economy. The focus is on
how market conditions affect household food security. As supply fluctuates, prices rise and fall
accordingly, assuming fairly fixed short-term demand for food. Over time, people adjust demand
in accordance to relative prices among food goods and shift consumption to lower priced foods.
By following price and quantity movements, a fairly clear picture of overall food availability can
be determined. This food availability is the equivalent to the so-called food gap.

In much of policy analysis, the question asked determines to a great extent the type of
answer received. If the questions related to food security ask about a food gap, the response will
concern need to fill a production short-fall with imports or food aid, i.e., a quantity of food. If,
however, the question asked is how a production short-fall affects food security, a much different
response occurs. Now the focus is on food security and not on some given quantity of food. In
this case, the response deals with questions of effective demand, food prices, and income levels.
The analysis looks at the responses elasticitiess) of prices, income and supply to the changing
market situation resulting from the production short-fall. This is a market-based approach to
assessing questions of food security.

For government to address transitory food insecurity issues, it needs much more than
information of impending changes in the national food gap. Information by regions on production
and prices not only of maize but of other foods is required. Much of this information is already
collected. The primary improvement needed is for the information to be interpreted for
appropriate action. An analysis might be organized along the lines of segmented markets
described in Annex D. For illustration, the analysis presented in that annex is based on
segmenting the maize market into two largely independent arts. One segment is maize-deficit
[fh in-gihouseholds and the other segment is maize-surplus arming/households.







4. PUBLIC INTERVENTION FOR FOOD SECURITY


In a modern democracy, food security is an essential public good. People expect the
government to establish appropriate policies and programs to assure that the population has
adequate food. Because of this expectation, public intervention to help assure food security is a
high priority for all governments. How such intervention takes place varies by country. The
following are observations on public intervention for food security in Malawi.

4.1 Transitory and Chronic Food Insecurity Linkage

As mentioned earlier, transitory food insecurity and chronic food insecurity have different
causes. Transitory food insecurity is caused by an exogenous shock to the production system,
whereas chronic food insecurity results from lack of assets and income at the household level.
In a more developed exchange-based economy, a drought may cause a temporary drop in food
supply. Such a drop can easily be filled by imports, and it has limited impact on effective demand
for food. In Malawi, a country with a large part of its population engaged in rainfed subsistence
agriculture, a drought causes not only a fall in production and a deficit in food supply in the
economy, bit also a drop in effective demand, as rural income is linked to agricultural production.
Without a chronic food-insecure situation already existing in the country, transitory food
insecurity would be much less a problem.

Transitory and chronic food insecurity in Malawi are linked. Both require focus on
household income. Supplying food to the poor in a drought, either through a food for work
program or directly, is a de facto income transfer as much as it is an increase in food supply.
Because of the linkage between transitory and chronic food insecurity, it is critically important
that any activity related to a transitory problem not damage or curtail efforts of the longer-term
market-led approach to deal with chronic food insecurity issue. Ideally, efforts to respond to the
transitory problem would enhance efforts to dealing with the chronic problem. Unfortunately,
donor and government responses to the recent droughts may have unintentionally hindered or
interrupted the development of markets in the country. Results just now coming in from an
analysis of the impact of the free inputs provided under the Drought Recovery Program should
indicate the extent to which these disruptions have occurred.

Donors and government have a selection of options for dealing with both transitory and
chronic food insecurity. The level and type of interventions undertaken depend on the resources
available and on the will of both donors and government to deal with a sometimes massive
problem. Under the best circumstances, response to transitory food insecurity could be done
through the expansion of resources provided to existing on-the-ground programs that deal with
aspects of chronic food insecurity. An approach of this type would provide a quicker response
to the transitory situation with lower overhead costs for project planning, preparation and start-up
than a new and separate program would require. This approach could also help assure that
response to the transitory problem also address the longer-term chronic problem. Programs that








could fall into this category include food-for-work projects and possible direct income transfer
activities.

4.2 Public Programs to Deal with Transitory Food Insecurity

The performance of markets and public interventions can either mitigate or aggravate
transitory food insecurity and its ill effects. In a well functioning market, prices reflect the
relative scarcities in markets. Consumers make adjustments according to these prices to mitigate
the potentially harmful effects of food scarcity on their diet. A rise in prices reflecting scarcities
also signals supply incentives. During a drought, for example, there would be incentive to grow
drought resistant crops.

Until now, the response of the Malawian government and donors to drought has largely
been reactive. The first indication of potential problems comes with the experience of a poor
rainy season. Crop estimates are made, and on this basis, the size of the production gap is
identified. This "gap" is divided into the amount required to stabilize the commercial market -
commercial imports and the amount required to distribute directly to the affected sections of
the population. Stocks in country and the amount of grain available in the Strategic Grain Reserve
(SGR) are calculated, and an appeal is made for the food aid required. Commercial food aid has
been distributed through ADMARC and emergency food aid has, until last year, been distributed
free to targeted beneficiaries4. In 1995/96 a Food for Work (FFW) component was introduced.

These programs are clearly costly and involve considerable non-food resources.
Both the release of food through ADMARC and the free distribution programs are likely to have
an unpredictable effect on the developing private maize market. Although there are limits to what
can be done to "drought-proof" the Malawian economy in the short run the most effective
drought-proofing is development and growth, with concomitant diversification and reduced
reliance on the agricultural sector there are actions that government can take to reduce the
impact of drought on both the household and the economy.

As has already been stated, vulnerability to drought is increased by dependence on
agriculture, and, within the food sector, dependence on a relatively drought-susceptible crop such
as maize. As at the national level, the more diversified the household's sources of food and
income, the less vulnerable it is to drought. Over the last few years, smallholder farmers are
taking action themselves to diversify cropping patterns away from such a heavy reliance on maize
as there was in the 1980s. More land is being planted to drought resistant crops such as cassava.

The government can support this trend toward diversification by ensuring that agricultural
extension messages not focus on maize alone. In addition, improved husbandry techniques, 4 -
including elements of soil and water conservation and better use of organic material can be


4 A discussion of the targeting procedures used is contained in Annex E.








promoted by extension staff. However, in a market economy, on-farm husbandry and cropping
patterns will be determined by the smallholder's own perception of risk and profit. The main
role that government can play is to ensure that state and market institutions are not biased in favor
of maize and that information on appropriate technologies is disseminated and the technologies
are available.

Malawi already has a well-established network of information systems, in particular the
Famine Early Warning System (FEWS) and the National Early Warning System (NEWS). These
systems have already adapted in response to the changing economic environment, in particular to
increased private sector activity, and will doubtlessly continue to do so. The main need in Malawi
at present is not for more data collection but for a quicker and more effective response to
information already collected. This response should have two elements: a mechanism whereby
government and concerned donors can come quickly to a common view on the magnitude of any
impending problem; and a set of contingency plans drawn up in advance which outline possible
appropriate actions.

Thought should also be given to ways in which early warning information can be
disseminated to the private sector, including both farmers and traders. The private sector can
often respond more quickly than government can to impending market shortages, and it can often
do so in a more cost-effective fashion.

As meteorological forecasts improve over time, more options will become available to
offset the costs of drought. Better use can be made of international commodity markets.
Information may even come in time to affect planting intentions. However, even now, in the
areas discussed above, government can take action to assist smallholders to reduce their own
vulnerability to drought.

4.3 Price Stability and Food Security

During Malawi's centrally planned interventionist era, fixed maize prices and stabilization
mechanisms such as the Strategic Grain Reserve (SGR) had a prominent role in the economy.
These mechanisms have limited value for food security, particularly for the very poor. In a
market economy the role of price stabilization and the mechanisms to support it need to be
reevaluated.

Subsistence farms are little affected by price changes because they do little trading in the
market. For a large share of the population, maize production constitutes not only a main source
of food bualso eir main source of income. Consumption in these households is in direct
proportion tohe level of production. The priceof maize has little sificance for them. A
maize-deficit farming household which in a drought year loses half of its normal production is
likely to suffer with an equivalent loss in its ability to purchase or consume maize, irrespective
of what happens in the market for maize. Income of such a household to purchase maize has been








cut in the same proportion as has its supply of maize. Other sources of income, such as sale of
other crops or of labor, are also likely to be equally adversely affected by the drought.

Enforcement of a completely stable price would be entirely inconsistent with the
functioning of a free market in which the primary decisions are made by free agents on the basis
of relative price changes. In addition, public interventions to increase price stability can be
effective only to the extent that there are enough resources to implement them. Given the very
limited resources that can be devoted to this end in Malawi, it is probably correct to say that only
extreme price instability should be cause for intervention.

The other important thing to note in this context is that itevery useful to maintain a clear
distinction between: 1) stability over the seasons of any particular year and over different locations
in the country and 2) stability between one year and the next. For the former, it seems that the
present arrangement of ADMARC's operating side by side with private traders provides adequate
assurance that prices will be relatively stable within the limits of price differentials imposed by
the cost of interseasonal storage and spatial transfer costs. ADMARC plans to maintain a price
structure which is consistent with full recovery of these costs. The role of government here is
primarily to provide for adequate road infrastructure and support for the development of improved
storage technology. It is particularly important in the interim period, until there is more
competition in the marketing of agricultural commodities, for the GoM to play the important role
of collecting and disseminating effectively information on prices prevailing in markets.

The Strategic Grain Reserve, as well as interventions in foreign trade in the context of a
liberalized market, are meant to be used exclusively for making a contribution to inter-year price
stability. The only way to raise or reduce the market price of maize in a liberalized market is to
remove from the market excessive supplies or to inject into the market additional supplies. There
are only two ways of accomplishing these interventions: storage operations or intervening in
exports and imports.

To decide which is more economical, storage or foreign trade transactions, it is necessary
to evaluate the cost of storage against the cost of stabilizing through trade. In order to estimate
the cost of storing, besides having to know the annual storage costs, it is necessary to know the
probabilities of how far apart in time extreme shortfalls or excesses are likely to occur. The
probability of a shortfall in production such as has occurred, for instance, in Malawi in 1991/92
is not only low, but the probability for such a shortfall to be preceded by a year with a similarly
large surplus to store is even much lower. The long time spans for which supplies need to be
stored for effective protection against extreme events, coupled with hih interest rates, make
storing quite cst effective compared with selling surpluses into other markets and buying them
back when needed. This principle is true even if such trading transactions also involve high costs.


It should be noted in passing that no model used for evaluating stabilization through
storage interventions would suggest that year end stocks should be held after a year of short








supplies. The question is only whether to accumulate stocks after a year of surplus production.
Similarly, to keep a buffer stock for imported grain or fertilizer is a luxury that is entirely
unjustified, except in times of international emergencies.

Food aid can be an additional resource, as a substitute for commercial imports, in price
stabilization policy. To the extent that donors can give foreign exchange directly rather than
donate commodities, foreign exchange is preferable. It allows for a much more coherent
management of government resources and makes for greater transparency in food markets. If
foreign exchange cannot be donated, then it is important that the full commercial value of food
be deposited in a government account. This deposit again serves the purpose of market
transparency. Government can choose to distribute food aid at a subsidized price, for example
at the ceiling price, if a price band is in place. However, the full cost of this choice should be
reflected in the government budget. If there is no government intervention, then the possibility
of auctioning food aid to the highest bidder should be examined. Auctioning would have the
advantage of distributing the food at least in part through the private sector. The funds realized
from the monetization of food aid could then be used to fund other food security related programs.

There has been much discussion recently on the use of a price band to stabilize maize
prices. As noted earlier, a price band, or any other price stabilization mechanism, has limited
value in support of food security. A realistic price band should closely dovetail export and import
parity prices, as they are likely to prevail. Fortunately, the "isolation" of Malawi's food market
is no longer what it used to be. The gap between export and import parity is at most on the order
of $120 per ton (1.80 MK per kg). The most important concern about the price band and food
security relates to the price band's impact on allowing sufficient trading margins to encourage
expansion of traders into the food market (see Section 5.1).

4.4 Transitory Food Insecurity and Safety Nets

Appropriate response to transitory food insecurity depends, to some extent, on the severity
of the production shock. When faced by a drought of the magnitude of 1991/92, some form of
distribution program is inevitable. Such a program does not have involve a direct distribution of
food, however. As food markets develop and deepen, the possibility of using some type of food
voucher or food stamp program should be considered. This type of program can actively develop
markets, as opposed to having a disruptive influence.

It may be possible to address lesser income and production shocks by increasing the scope
and level of resources provided to existing safety net programs. Increasing resources would have
the advantage of reducing start-up costs and enabling timely response. Often free food distribution
programs are introduced because there does not seem to be time for a more considered response.







At present there is only one national safety net program5 in Malawi, WFP's supplementary
feeding program, targeting malnourished children in Nutrition Rehabilitation Units. While this
is a well-targeted program which provides important support to children and families, it is not
sufficiently broad in scope to form a basis for a response to drought. However, the recent
introduction of public works programs, including FFW programs, by WFP and MASAF, could
form a basis for a more general safety net.6 Income transfer programs also fall into this category.

To be suitable as a basis for a response to transitory food insecurity, a safety net program
should be capable of national coverage, should be capable of being stepped up and down in scale
as conditions require and should not disrupt the development of markets. It should be appropriate
for as wide a section of the affected population as possible and be cost-effective in delivering
resources to the target group.































5 A more full discussion of safety nets is contained in Annex F.

6 Public works programs are discussed in Annex G.








5. ALTERNATIVES TO DEAL WITH CHRONIC FOOD INSECURITY

There are many ways government can support and enhance food security within their
countries. Of these, three possible alternatives should be noted in terms of their appropriateness
and effectiveness for increasing the food security of Malawi's population. These three alternatives
are direct or indirect market intervention, encouragement of market development, and market
development with income redistribution.

5.1 Direct or Indirect Market Intervention

Intervention into the market by government, either directly or indirectly, has been for the
past 30 years the standard response to food security problems in Malawi. Even today, Malawi's
politicians continue to promise to protect the population from hunger through subsidies, free hand
outs, and manipulation of prices in the market. There is a common fear and distrust of the market
among many in government and a belief that if there is a problem, the state must solve it. In
many government agencies and organizations there is an institutional culture that seeks to protect
and control the population through government action. Governmental concern for the well being
of its population is laudable and highly desirable. When this concern is translated into
undermining the ability of the population to provide for its own well being in accordance with
basic social justice, then this laudable concern becomes a liability and detriment to the society.

Examples of market intervention by the state are abundant. The most obvious example is
the tendency of government policy makers to look to ADMARC first whenever there is any threat
related to food or food production. Reliance on ADMARC as the operational arm for food
security policy has been, and to a certain extent still is, the standard approach of government.
Such reliance is often justified on the grounds that private markets are too thin and too unreliable
to support food security policy. Ironically, exclusive reliance on ADMARC, makes this opinion
about private markets a self-fulfilling prophecy. Those who do not think the market will work
put into place actions and policies which assure that the market will not work.

The implementation of a price band is a significant step forward from the previous fixed
administrative prices. If, however, the band is set too narrowly in the belief that this will protect
producers and consumers, there is not enough margin for private traders to operate in the market,
given the risk and cost involved. Curtailing incentives for traders to enter into the market, causes
trade in maize to be done by a small number of traders who can effectively dictate price level
through monopsonistic and oligopsonistic behavior. The government is then faced with two
unpalatable options. Either the government must allow prices to be artificially low for producers
or high for consumers as traders take their monopolistic profits, or government must try to
intervene to support the price band and face ever increasing burdens on the treasury. Thus, while
government tries to do something good, i.e., protect people, a bad situation occurs.

There are numerous other examples of market distortion though government intervention
into the market. Panterritorial pricing attempts to deny the existence of transportation costs to get









goods to markets thus limiting entry into the market by traders and transporters. Regulated
transportation rates limit entry into the sector resulting in monopolistic behavior and excessive
transportation costs. Restriction on export of maize results in revenue loss to government
through illegal border trade and both lower, prices to producers and higher prices to consumers
than would be the case with more open cross-border markets.

The manner in which the so called free inputs part of the Drought Recovery Program was
implemented is another example of how programs intervene in markets rather than use them. By
giving out predetermined packages of fertilizer and seed primarily through ADMARC, the input
program retarded the development of the private input market. The extent of this distortion is
now being studied, but preliminary data indicate that the program was a significant blow to the
private seed market and was non-supportive of the fertilizer market. To be fair, it should be noted
that this free input program was created at the last minute in response to what was perceived as
an emergency situation. In situations of urgency the governmental response is to fall back onto
traditional methods of implementation and intervene directly into the market. As long as this sort
of reaction occurs, market development is going to be delayed.

This does not mean that there is not a legitimate role for government in the food security
area. A laissez faire approach to markets is not the answer to Malawi's food security problems.
As seen in Section 1.2.4, there is an essential role for government in facilitating the market. In
addition, government has to protect those in society who cannot protect themselves.

Market intervention by government is a role that for many policy makers is a traditional
and comfortable one that satisfies a perceived duty of government. Such intervention also can be
pointed to as helping, in the short term, vulnerable sections of the society. In the past markets
could play only a very limited role in the society and that only for a selected segment. Today,
markets and market mechanisms are a viable and important tool for government in achieving
policy objectives. The old approach, which never was valid, is no longer necessary. Market
intervention by the state is not sustainable and is dependent, ultimately, on donor financial
support. This donor support, in turn, bolsters donor dependence. Even worse, continual
government intervention into the market perpetuates an inefficient economic structure with
distorted allocation of resources.

5.2 Encourage Market Development

Within the context of solving chronic food insecurity within a market economy, three
priorities stand out markets, exchange mechanisms, and technology. Markets are the
foundation of this approach. Exchange mechanisms both facilitate market development and allow
specialization in the economy which, in turn, leads to productivity growth. Technology is the
fuel that makes this whole system work.

The basic premise of this report is that chronic food insecurity can be solved only through
increasing productivity and through growth of the national economy. The answer to food








insecurity is reduction of poverty through development. Within the scope and resources of this
report the whole of Malawi's development cannot be considered. There are many basic
development issues the report cannot and should not address. Nevertheless, aspects of programs
in priority areas to support food security within a market context can be briefly examined to see
possible future directions these programs should take.

The following comments on how to deal with chronic food security issues should be
viewed as a framework for future actions, not necessarily as specific actions to be taken
immediately. This presentation attempts to describe where government and donors should be
heading in each of the concerned areas to fully implement a market-oriented approach to
establishing food security in Malawi. The report also notes possible pitfalls to be avoided by
policy makers. This framework can serve as a guide for additional study to develop action plans
and policy directions.

Markets

There are two basic types of markets that are important to food security in Malawi. First
and most basic is the food market in the country. Second is a group of markets related to the
factors of production, namely capital markets, land markets, labor markets and inputs markets.

Food Markets

The concept of a food market entails a wide range of activities from the purchase of food
from the producer, processing, storage, distribution and differentiation of the product until it is
finally sold and consumed. From a food security perspective, important elements needed in the
food market include low transaction costs within the marketing system, expanded differentiation
of food available to consumers, particularly the poor, and assured availability of food on the
market. As mentioned earlier, traditionally the food market in Malawi has been very thin and
unreliable. The situation, however, is now changing.

Even with all the studies done in Malawi on food security issues (Annex B), the concept
of a competitive food market is relatively new in Malawi and has undergone limited
analysis. Much basic information about the food market is not well understood. For
example, ADMARC's rule of thumb is that about 20 percent of the maize crop is marketed
through their branches. Yet, this level of purchases has only occurred once in the last five
years during the bumper crop of 1993. In other years, ADMARC's purchases were less
than half of that percentage. Little is known about food marketed or traded in the private
sector outside of ADMARC. In 1995, it was estimated that the private sector bought
about three percent of the maize crop, less than half of ADMARC's seven percent (EP&D
1996). For food crops other than maize, even less is known of private sector trade. From
studies reported in the Poverty Profile, it is known that food crop sales, trade, and
exchange are critical to the poor for cash income. Such food crop sales include not only
maize but beans, cassava and a host of other locally grown crops. Important issues which







need to be examined in future research are the flow, timing and volume of these
transactions. This research should include questions related to the flow of food from the
rural to urban area, the movement of food among regions, ADDs, EPAs, and local
markets; cross-border flow of food; and the shift in food consumed or marketed over the
calendar year.

ADMARC historically has been the dominant player in the food (primarily maize) market.
To decrease this dominance, broadening and deepening the food market by increasing the
number of traders competing in the market is critical. Widening the maize price band to
reflect import and export parity price will allow greater spread of marketing margins to
attract more traders into the maize market (Gray 1995). Expanding the number of traders
will lower transaction costs and provide better prices to both producers and consumers.
Once the maize market becomes more efficient, with larger numbers of buyers and seller,
a price band may no longer be necessary.

Other means of broadening the food market include the following: 1) Expanding
availability of storage facilities in the countryside possibly through renting or selling of
some of ADMARC's warehouses. On-farm storage should also be expanded. A recent
study indicates that losses in on-farm storage are low, at five to seven percent. 2)
Maintaining and expanding removal of artificial restrictions on trading. A great deal has
already been done in this area but vigilance is needed to maintain these advances. The
only remaining significant trading restriction is on export of maize. This restriction should
be examined closely for removal as soon as possible. Liberalization of food trade on a
regional basis could provide higher producer prices, greater price stability, lower
marketing margins and greater variety of food on the market to benefit consumers. 3)
Markets run on expectations of future events. The action of government plays a
significant role in sending to the market signals that create these expectations. An
announcement of a maize price band, for example, sends signals that establish one type
of expectation in the market. Subsequent government actions that do not support this
announcement, send different and possibly conflicting signals to the market. Conflicting
signals create uncertainty in the market. Uncertainty retards market expansion and
development. Government policy announcements need to be realistic in terms of resources
required and available for implementing the policies announced.

Appropriate food processing at both intermediate and final stages is needed, particularly
in the rural areas. Evidence from neighboring countries (Jayne and Rubey 1993), for
example, indicates that widespread use of small scale hammer-mills can make available a
differentiated variety of food products tailored to low income consumers. In Malawi,
consumers indicated a cost-related preference among differentiated food in a study on ufa
woyera and mgaiwa (Mkandawire 1993). In Mozambique, differentiation of food products
resulted in a greater number of varieties of affordable food on the market thorough use of
local processing and introduction of yellow maize. This variety had a direct and positive
impact on the food security of the poor (Jayne et al., 1995).








In Malawi, at the moment, food markets are generally not working as well as they should.
A goal for Malawi policy makers should be free, active and highly competitive food
markets.

Factor Markets

Factor markets are central to increasing agricultural and non-agricultural productivity and
incomes of rural households. How well these markets function will determine how fast and how
equitably economic growth will occur. These factor markets include markets for capital, land,
labor and inputs.

Capital Markets

Most of the larger estates have always had access to commercial credit. But for the
smallholder sector, even before the failure of the SACA, only about 20 percent of
smallholders had access to formal credit (Msukwa et al., 1994). Estimates of formal credit
coverage under the reorganized MRFC range from eight to twenty percent. For most
smallholders, traders and even smaller estates, credit is viewed as a problem. Current
interest rates are about 50 percent. Rural inflation is estimated at between 60 and 80
percent in 1995 (EP&D 1996). At these levels o matlaion, a 5t rres
actually negative. For small farmers, however, nomia interest rates are still a problem.
Official inflation figures do not accurately reflect many small farmers' actual consumption
behavior and are not relevant in the pricing structure they face.

More importantly, a focus on credit problems and financial market weakness may hide a
more fundamental problem related to capital markets: a lack of viable investment
opportunities for smallholders and small traders. True investment opportunities are needed
to create demand for widespread credit, not vice versa. Investment opportunities for full
input maize production, for example, are marginal at present price ratio of inputs to farm
gate prices. Not surprisingly, credit is hard to find for maize production and marketing.
Investment opportunities in tobacco, on the other hand, are very good, and the credit
system is working better with this crop.

As markets improve, investment opportunities both on and off-farm should also improve.
It is likely that the capital market will come forward to serve this improving investment
climate. It is extremely important for donors and government to avoid the temptation,
under these circumstances, to shift price ratios artificially or administratively to achieve
what may be seen as a positive economic or social outcome. Efforts to raise producer
prices for maize administratively to increase production, for example, will only lead to
market distortion and misallocation of resources.

From a market-oriented point of view, a particularly cost effective form of credit is dealer
credit. To a limited extent this form of credit is now being seen at the distributor/dealer







level where hybrid maize seed is distributed through use of delayed payments. The use
of dealer credit should be encouraged in other Malawian contexts, particularly at the
smallholder level.

Land Markets

It is generally held that land is a scare commodity in Malawi, with more than 40 percent
of smallholders having less than 0.5 ha of land. At the same time, rough estimates are that
over 100,000 ha of arable estate land is unutilized (Mkandawire et al., 1990). A viable
market is the most effective way of allocating a scarce resource such as land to its highest
economic use. Land issues, however, are always political and difficult to deal with.
Nevertheless, at this juncture in Malawi's history, this may be an opportune time to begin
addressing the critical issue of creation of a viable land market in the country. The
recently created Presidential Commission of Inquiry on Land Policy could be a useful tool
for beginning this process.

At present there is an informal market in leases for land in the estate sector. Creation of
a more formal market for buying and selling leases should be undertaken. Once a land
lease market is in place, a market-determined value of leases could be established. This
value, in turn, could serve as a basis for rent payments.

In the smallholder sector, thought should be given to how conversion of customary land
holdings to a smallholder leasehold arrangement could be undertaken. Experience in other
African countries suggest that a gradual approach to this issue should be taken. In
addition, full participation in, and use of, the political process is essential (Bruce and
Migot-Adholla 1993). With restrictions being lifted on smallholder production of burley
tobacco, the pressure to convert customary land into leasehold estates has lessened.
Nevertheless, establishment of a transaction market for land would, over time, still shift
real resources i'o allholders. SmalIholders, for example, could use their lease as
collateral for loans at commercial banks. Aiae land market for smallholders could also
provide a rational and equitable way o onsolidatin mallholder plots into economically
viable sizes.

Labor Markets

The market for labor in Malawi, like many of the other markets in the country, is thin and
fragmentary. In the rural area the most common labor market is ganyu. It is estimated that
about 70 percent of the active rural population engage in ganyu at least part of the year.
About 14 percent of the rural population work as permanent laborers or as tent. While
concerns have been raised about the social value of ganyu, it needs to e-recognized that
ganyu, defined as casual farm labor paid in cash or kind, is essential to increasing rural
Troduc-iii anh-d income. An expansion of demand for casual farm labor is very desirable.
On me other hand, there are a number of examples of exploitation, particularly of the very








poor, in some use of ganyu. The issue is to deal with the abuses under ganyu, not to
condemn ganyu itself. For the very poor, ganyu may be their only safety net (see Annex
F). Piece work ganyu paid in kind is difficult to compare with other income generating
activities. Increasing transparency in this type of activity would allow the rural population
to make better choices in the use of their labor (Weber).

Over time, questions of the labor market will not be solved until there is increasing
demand for labor. Caution is needed on establishing legislation to "protect" labor before
an active labor market exists. Such legislation, while socially desirable, is likely to retard
growth in the labor market and to distort labor/capital ratio in investments. As demand
increases for labor, labor's ability to seek more rights and protection from abuse in the
market should grow.

Inputs Markets

Since 1994 private traders have been allowed, with numerous restrictions, to import and
distribute inputs to smallholders. The estate sector, on the other hand, could always get
inputs from whoever provided the best prices and service. It was not until January 1996
that a series of licensing and compulsory approvals required for private trading of inputs
to smallholders was removed. Even though liberalization of regulations on the input
market has occurred, vigilance is still needed to assure that backsliding does not happen.
The changes in the input market have occurred too recently to be sure that they are
permanent and that reintroduction of unnecessary regulation does not occur.

A number of questionable policy decisions have cooled expansion of the input market.
Foremost among these has been the free input program for drought relief that has been
established in the last two years. Another potential damper on full expansion of the
fertilizer market is the continual existence of a large buffer stock of fertilizer (FBS
managed by SFFRFM). With full liberalization of the fertilizer market for smallholder,
the continual justification of the existence of the FBS should be examined. Traders are
rightfully wary of taking the risk necessary to enter a market if there is a threat that a large
supply of a commodity related to that market could be dumped on the market. The input
market also suffers the same problems of credit, transportation and storage that face other
commodity markets in the country.

Exchange Mechanisms

Exchange mechanisms refer to the means by which goods and services are exchanged
within the economy. In a simple subsistence economy, exchange often is done locally at a
personal level or through kinship or ethnic linkages. In a modern economy, exchange usually
takes place through impersonal exchanges regulated by law, sometime over great distance and
time.









Transportation


Without efficient and inexpensive linkages of goods and services between buyers and
sellers throughout the country, exchange is minimal. Poor state of the road network is
often blamed for the high cost of transportation in Malawi. Yet the road network among
major cities is relatively good. Even in rural areas, roads are usually passable in dry
weather. While there are some remote areas that badly need improved roads, the biggest
problem in the transportation sector is that for a number of years the sector has been
unduly protected from competition. The consequence of this protection is that
transportation costs in Malawi are twice as expensive as those in neighboring countries
(World Bank 1996). Fortunately, the level of this protection is now changing. In 1995,
a ban on second-hand trucks and spare parts was removed. In January 1996, statutory
domestic freight rates were removed. Additional efforts to expand the size of the fleet,
especially for small capacity trucks and various forms of local transportation, need to be
made in order to have a more competitive market.

Contracts and Law

Exchange is ultimately based on law. Buyers and sellers need to be able to make and
enforce legal contracts. Critical to expanded use of contracts is the need for quick and
inexpensive dispute resolution. In addition, appropriate grades and standard are also
essential for uniform contracts and for clear understanding of what is being purchased or
sold.

Information

Accurate and current information on market prices is critical for a well functioning
market. Present data collection and dissemination efforts in Malawi include: MoALD's
Agro-economic Surveys(AES), statistics and indices prepared by the National Statistic
Office (NSO), and price data collected under the FEWS Vulnerability Survey. Criticism
has been made of the present system for collection and dissemination of market price
information. Much of this criticism relates to limited coverage of price collection
activities and to how effectively price information is being disseminated. In general, the
AES system appears to be a good base on which to build a more comprehensive price
information structure.

Technology

Technology is basic to efforts to increase productivity and to advance the structural
transformation needed in Malawi's economy. Technology does not exist in a vacuum but needs
the necessary support facilities and education of the population to assure its wide-spread adoption
and utilization.









Education


Both basic and continuing education are essential for the structural transformation of the
economy. There is a need to expand educational opportunities and choices to include not
just public programs but various private programs as well. The recent expansion of
primary education will be an important contribution to future market development and
food security. An educated work force with educated consumers and producers is
extremely important to a well functioning market. With the rapid expansion of primary
education, however, resources for other education activities will be limited. Efforts will
need to be made to find cost-effective alternatives to standard educational activities. The
market may play a limited role in education through dealer/supplier education of their
customers through advertisement, field days and demonstrations. Closer links between the
extension service and private input dealers may be advantageous to both in their efforts to
educate smallholders on the choosing and using of technology.

Sources of Technology

As previously indicated, agricultural production is not only the main source of food for
the population, it is also its main source of income. Technology is a critical part of
increasing agricultural productivity, which, in turn, increases both food production and
income. Adoption of technology will depend on the return that technology provides the
household versus its cost. By having access to the widest varieties of technology, farmers
and non-farm business can obtain the best and least expensive technology appropriate to
their needs.

Technology should come from both public and private sources, ideally with competition
between both. An example of this competition has already taken place in the hybrid maize
market. An introduction of a triple cross semi-flint hybrid maize (NSCM41) in 1983 was
made by National Seed Corporation through a licensing arrangement. This release helped
motivate new research from the Agricultural Research System that led to the release of
flint hybrid varieties MH17 and MH18 in 1990. In addition to formal research programs,
efforts should be made to encourage petty patents and other technology-generating
procedures for local processing and manufacturing within the informal sector. This use
of technology could have a significant impact on increasing labor demand.

As seen in Chapter 2, even with strong market development in the economy, some
households will not be able to provide adequate means to sustain their families. As economic
growth expands through market-led development, fewer of these households should need
assistance. To keep popular support for market development and to protect those household that
are slipping through the system, an effective safety net should accompany and support market
development. Annex F provides details of present safety net structures in the country and
suggests ways to improve them.








5.3 Market Development and Income Redistribution


The ultimate solution to the food security problems of Malawi's population is through
market development, as described above, and through more equitable distribution of income and
resources in the country. While development of markets is relatively easy in terms of existing
governmental structures and resources, income redistribution is, politically and economically,
extremely difficult. Nevertheless, if the income distribution issue is not ultimately dealt with,
Malawi's population will never be food secure. The central message of this report is that food
security is a question of income. Thirty years of government policy that supported the
development of a small privileged elite at the expense of the majority of the population has created
an income distribution situation in the country that is among the most inequitable in the world
(World Bank 1995). Without adequate income, a significant number of households in Malawi
cannot hope ever to become food-secure.

Inequitable distribution of income in the country not only affects food security, it also has
an impact on the speed and efficiency at which markets which support food security can develop.
As mentioned in Section 2.2, a number of household have such limited assets that they are unable
to participate in and benefit from the liberalization of the markets that has occurred in the past few
years. In addition, with such a highly skewed distribution of assets and income in the country,
development of a competitive, open marketplace is threatened. Malawi could find itself shifting
from the tyranny of government policy supporting the economic elite minority to the tyranny of
an oligopolistic market supporting that same economic minority. There is a need to empower the
poor majority to become active participants in the market.

How a more equitable transfer of income and assets can be made from one segment of the
society to another is politically and technically difficult. Experience underlines the need to focus
on economically-based approaches rather than those based on issues of social justice. Increased
economic growth in the country will make the transfer of resources easier, as taxation and other
income transfer policy instruments that presently do not exist become available to government.
The development of a land market seems an obvious necessity for more equitable and rational
distribution of the most essential factor of agricultural production. It will take some time before
a viable land market can be established. In the interim, government may want to look at more
direct income transfer mechanisms to target select elements of the economy that could most
effectively use additional resources to expand entry into the market, thus creating a basis for
increased household productivity and income. Any mechanism to redistribute income should, to
the extent possible, support and expand market development. At the very least, these mechanisms
should not distort or curtail markets and prices.

In the final analysis, income redistribution is a question of political will and resources.
Of these two, political will is by far the most important. The distribution of assets in a society
is one of the most contentious of any public policy issues a government faces. Thirty years of
history cannot be corrected in a single stroke. Vested interest are well entrenched and powerful.


-7

LIVDA~/D








But if the government and people of Malawi want food security for the population, then the
difficult issue of income redistribution has to be addressed.












ANNEXES


Annex A: List of Contacts

Annex B: Bibliography

Annex C: Household Typology of Food Security in Malawi

Annex D: Model of Maize Price Instability in Malawi

Annex E: Targeting the Food Insecure

Annex F: Safety Nets in Malawi

Annex G: Public Works / Food for Works Programs








ANNEX A: LIST OF PERSONS CONTACTED


U. S. GOVERNMENT


USAID/Malawi


Cynthia Rozell
D. Gale Rozell
Stephen E.C. Shumba
Kurt Rockeman


Mission Director
Agricultural Officer
Program Officer
Agriculture Officer


GOVERNMENT OF MALAWI


Ministry of Agriculture

Dr. Mapopa Chipeta
C. K. Tony Mita
Evance Chapasuka
lan N. Kumwenda
Patrick C. Kamwendo
Scott Simons
Charles Mann
Lezlie Caro Moriniere
Sam Chimwaza
John Kumwenda

Victor Lungu

Minstry of Finance


Aleke Banda
Anne Conroy


Minister
Principal Secretary
Principal Economist
Principal Economist
Agriculture Chief, Planning Unit
Advisor
Food Security Advisor
FEWS Country Representative
Assistant FEWS Field Representative
Maize Research Team Leader, Chitedze Agricultural
Research Station
Pricing Economist


Minister
Advisor


Economic Planning and Development


A. C. Gomani
Joseph C. K. Mhango
K. K. Banda
P. Mapemba
Mr. Lodh


Principal Secretary
Assistant Chief Economist
Economist
Principal Economist
Poverty Monitoring








Bunda College of Agriculture, University of Malawi


Davies H. Ng'ong'ola
Kenneth Neils
Aliou Diagne


Program Manager, Agriculture Policy Research Unit
Chief of Party, ARPU
Rockefeller Fellow


Malawi Social Action Fund


Sam Kakhobwe
Susan Banda


Project Manager
Information, Education and Communication Officer


Centre for Social Research, University of Malawi

Dr W. Chilowa
Dr B. Kaluwa

Malawi Rural Finance Company


Saadat Siddiqi
Geoffrey Kumwenda


Chief Executive Officer
Manager, Mudzi Programmes


DONOR COMMUNITY

United Nations Development Program


Terry Jones
Joseph D. Ndengu


World Bank

Arif Zulgifa
James Smith
Stanley Hiwa
James Coates
Paul Siegel


Country Representative
Program Officer


Resident Representative
Deputy Resident Representative
Policy Staff
Economist
Economist


Food and Agriculture Organization


Heimo Mikkola
Joseph S. Johnson
Chimimba D. Phiri
A. Pik. Haule


FAO Representative
Program Advisor
Economist
Women in Development Expert


A2








World Food Program

Else M. M. Larsen
Charles Clark
Colin Relf
Scott Green
Mr. Weng

European Union

Peter Christainsen
Paul Schildkamp
Zissimos Vergos
Roy Kavinga


Country Director
Emergency Aid Officer
Consultant
Program Officer
Program Officer


Head of Delegation
Agricultural Advisor
Food Security Program
Food Security Program


British High Commission

Ted Bousfeld

Save The Children Fund (UK)


Austin Ngwira
George Chimseu
Patrick O'Sullivan


Programme Officer
Field Supervisor
Health Advisor


UNICEF


Ms Hahn
Detlef Palm


Resident Representative
Deputy Resident Representative


PRIVATE SECTOR / PARASTATALS


ADMARC


Eunice Kazenbe
H. M. Chimwele


General Manager
Maize Controller


Press Agriculture Limited


General Manager, Private Bag, Kasungu


John Spowson








National Seed Company

Kevin Whisler




Richard Goldman


General Manager


OTHERS

Harvard Institute for International Development


A4








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9CT








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B 10









ANNEX C: HOUSEHOLD TYPOLOGY OF FOOD SECURITY IN MALAWI


1. A Typology of Household Food Security in Malawi

Chronic food insecurity in Malawi is primarily a problem of poverty. Households are food
insecure because they do not have access to enough food to meet their requirements. Their
income is insufficient. In a country like Malawi, where 85 percent of the population lives in the
rural sector and depends on agriculture either directly, through production, or indirectly, through
providing labour, goods or services to farmers, for their income, the link between access to food
and agricultural production is very strong. This is because agricultural production is the basis
of most households' source of income.

To assess household food security, the starting point is the assessment of household income
and resources. Households are vulnerable to food insecurity primarily because their income
sources are inadequate (chronic food insecurity) and/or because their incomes are vulnerable to
exogenous shocks (transitory food insecurity). In Malawi, income distribution is very unequal,
largely as a result of bad policy in the past thirty years. This, combined with the low level of
average income or GDP per capital, means that many households in Malawi are food insecure.

It is difficult to estimate precisely the number of food insecure households in Malawi. The
generally accepted definition of food security is "access to enough food at all times for a healthy
active life". This covers three elements: physical access, production and availability on the
market; economic access, enough resources to grow or purchase food; and stability, a combination
of market stability and sufficient income, whether in cash or kind, that savings in good years can
cover shortfalls in poor years. Household food production is only one indicator of food security
and has to be interpreted in conjunction with household cash income, the prices faced by
households and the size of the household.

Nutrition indicators are often used in food security assessments. These have to be
interpreted with caution. Nutritional status is the outcome of the interaction of household food
security, intra-household food distribution, maternal and childcare practices and health status.
Childcare practices and health status are linked to household income, but they are also strongly
influenced by public or collective provision of health and education services. The high incidence
of malnutrition (48 percent of children under five were moderately or severely stunted and 7
percent were moderately or severely wasted in 1995) indicates the depth of the problem, but not
all of this will be directly food -related. While acknowledging the importance of the childcare
and health factors, the focus of this report will be on factors affecting household food security.

Broadly speaking, the food insecure can be divided into three categories: smallholders,
estate workers/ tenants and the urban poor. There has been a significant amount of work
undertaken on the characteristics of food insecure farmers (Peters 1992,1994, 1995, UNDP,
1993, World Bank, 1995, SCF, 1996) but much less analysis of the other two categories. Almost









all the quantitative analysis of food insecure households is based on data collected prior to 1993.
This reflects the outcome of the previous heavily regulated economic system. Since the early
1990s, the liberalisation process has changed the opportunities available to all households,
including the food insecure, particularly in the rural areas. Little of this process is, as yet,
documented, and it will take time before it results in major changes in the numbers of food
insecure. However, these trends should be kept in mind when considering the implications of the
following assessment.

1.1 Smallholders

The most recent analysis of poverty amongst rural smallholders in Malawi was undertaken
by the World Bank (1995) based primarily on data from the 1992/93 National Sample Survey of
Agriculture (NSSA). The study focused on those households below the 40th percentile of per
capital annual incomes, the poorer, and those falling below the 20th percentile, the poorest. The
estimates of income include the value of subsistence production and off-farm earnings, including
income in kind.

In 1992/93 MK, the income cut-off points are MK117 for the 40th percentile and MK54
for the 20th percentile. To illustrate where this falls in terms of absolute poverty, the per capital
annual income per adult equivalent necessary to purchase 200 kg of maize in 1992 prices is MK
98 (the calorie needs line), and to buy a minimum level of basic needs, including clothing and
shelter, is MK 158. 43 percent of the rural smallholder population fall below the basic needs line
and 30 percent below the calorie needs line. Income distribution is highly skewed in rural
Malawi, and 80 percent of the population have per capital incomes below MK241. The estimates
of the number of poor or food insecure are relatively insensitive to the definition used and usually
identify between 40 percent and 50 percent of the population.

Poverty is relatively more prevalent amongst rural smallholders than urban dwellers. 85
percent of the population lives in the rural areas7 but their share of the poorest is higher at 95
percent. There is a strong geographical bias in the distribution of poorer households. The South
contains 51 percent of the population but 66 percent of the poorer households. Table C1 shows
the distribution of households by ADD.

Poorer households have distinct demographic profiles. They are more likely to be female-
headed. There is a one in three chance of a male-headed household being amongst the poorest
40 percent but a one in two chance for a female headed-household. The poorer the household,
the larger the household size and the higher the dependency ratio. For households below the 20th



7 The analysis above excludes the estate sector, which is not covered by the NSSA.
Estate tenants and permanent workers are estimated to make up 14.5% of the rural population.








percentile, average household size is 5.07 persons and the dependency ratio8 is 1.36. For
households above the 40th percentile the average household size is 4.12 and the dependency ratio
is 0.92. In other words, poor households have more people and fewer economically active
household members to support them. Female-headed households have a smaller average
household size, but a higher dependency ratio.

Table C1. Distribution of Households below Poverty Percentiles by ADD, 1995

ADD percent percent No. of No. of
Households Households Households Households
below 20th below 40th below 20th below 40th
percentile percentile percentile percentile
Karonga 12.0 29.6 5611 13841

Mzuzu 20.7 40.3 31846 61999
Kasungu 2.5 8.5 6456 21949

Salima 14.4 32.6 21369 48378

Lilongwe 21.3 43.0 83719 169011

Machinga 23.2 43.7 95025 178990

Blantyre 26.3 51.3 125510 244815

Shire Valley 22.5 41.7 31818 58969
Total 401353 797953

Source: World Bank, 1995 and FEWS

There is a close relationship between the area of land cultivated by a household and its
poverty level. 74 percent of households below the 40th percentile cultivate less than 0.5 of a
hectare and 95 percent cultivate less than one hectare. However, cultivating a small area of land
cannot be equated with being poor. Some households who cultivate less than 0.5 hectares are
effectively part-time farmers, whose major source of income comes from off-farm employment.
In this respect they differ from poor smallholders who may also be dependent on off-farm income
to make ends meet, but who would see crop cultivation as their main activity and whose off-farm


8 The ratio between household members aged 15 to 64 and household members under
15 and over 65 years of age. The higher the dependency ratio the fewer economically active
members of the family relative to the rest.







income generating activities have, in general, very poor returns. Table C2 shows the numbers
of farm households by area of land cultivated by ADD.

Poor smallholders tend to have few assets, to use lower levels of purchased inputs than the
average and, unsurprisingly, have low access to credit. They grow relatively less hybrid maize
and more local maize than average, but in total they plant a higher percentage of their land to
maize than better-off farmers, who grow more high value crops. They own relatively little
livestock.

Virtually all poor households have difficulty meeting their food requirements from own
production. On average they produce about 64 percent of their food requirements and the poorest
may produce less than 40 percent of their requirements. The land available to them for cultivation
is insufficient to produce enough local maize for their needs, they cannot afford to purchase the
inputs necessary to put all their land under hybrid maize, and they grow virtually no cash crops.
Households rely on off-farm employment, and in particular ganyu (casual agricultural labour) to
provide the rest of their food needs, but many households have to reduce their consumption levels
in the pre-harvest period.

Table C2. Distribution of Households by Cultivated Area and ADD, 1995

ADD <0.5 Ha 0.5-1.0 Ha 1.0-2.0 Ha > 2.0 Ha Total

Karonga 21977 14028 9352 1403 46760

Mzuzu 48461 44615 41538 19231 153844
Kasungu 30987 69720 105871 51644 258221

Salima 69748 44520 25228 8904 148399

Lilongwe 125775 145428 94332 27513 393048

Machinga 167931 147452 81918 12288 409589
Blantyre 288720 128850 50108 9544 477223

Shire Valley 69292 36767 26868 8485 141413

Total 822891 631380 435215 139012 2028497


Source: World Bank, 1995 and FEWS


Female-headed households face particular problems.


They face considerable labour


constraints in off-farm labour supply, in part due to their higher dependency ratios, but also
because of the considerable time spent in domestic activities such as collecting water and wood
and pounding maize. Off-farm income is an even smaller share of total income for these








households than for poor households in general. As ganyu is often paid on a piece rate basis, it
is likely that women get an overall lower income from ganyu than male ganyu workers.

It is almost a tautology to say that the main problem for poor smallholders is a lack of
resources. They have few assets and it is very risky for them to borrow for agricultural
production, even if they had access to credit. Unless they can produce a surplus, through
switching to higher value crops, or finding more lucrative off-farm employment opportunities,
or their resource base is increased, the outlook for these households is bleak. This is particularly
true for poor female-headed households, about 13 percent of the rural population, who appear to
be caught in a particularly vicious poverty trap. Their labour is barely enough to fulfill domestic
demands and cultivate their inadequate landholdings, but they are forced into ganyu to find food
in the peak cultivation period, thereby reducing still further their ability to grow food for their
family. To break away from this trap, these households have to be given the means to diversify
away from the agricultural sector.

1.2 The estate sector

There are fewer sources of information on the estate sector which is not yet included in
most of the major surveys carried out in Malawi. Most of the information comes from a few
surveys undertaken in the late 1980s, updated from field work. (Mkandwire et. al., 1990, GoM
1993). This predominantly refers to tenants on tobacco estates.

There has been rapid expansion of the estate sector in the last decade. Employment on
estates grew at 8 percent per annum during the 1980s. The number of tenant farm households was
estimated at 105,000 in 1989. When dependents are taken into account, the total number of
people dependent on the estates as tenants, permanent workers and their families in 1989 was
around a million.

Surveys indicate that tenant farmers get paid in cash once a year, but many households get
food rations provided by the estate, the value of which is deducted from their cash payments. The
average food ration is 384kg of maize per household as opposed to the average requirement of 945
kg. There is considerable variation in the level of cash payments tenant farmers earn. In general
smaller estates tend to pay tenants less. In the 1989 survey carried out by Mkandwire et al. the
average cash payment to tenant farmers was MK621 (roughly MK120 per adult equivalent),
though for tenants on estates of less than 15 hectares, that fell to MK 373 (MK80 per adult
equivalent). A 1994 estimate of tenant farmer income gave the figure of MK704, or 140 per adult
equivalent (HIID 1994).

There is less information on the income of permanent estate workers. The 1989 survey
shows that almost 50 percent of permanent workers were paid less than the rural minimum wage,
and that smaller estates paid less than large estates. This was confirmed by a mission in 1992/3.
The annual income of these workers may be even less, as many are employed for seven months
or less in the year.


C5








Children of estate tenants and workers show high levels of malnutrition. UNICEF's MIS
study, in 1995, showed that estate children had slightly higher levels of stunting than average, and
almost 50 percent higher rates of wasting.

Estates are quite geographically concentrated, particularly in the Central region. Almost
40 percent of the total are located in Kasungu, Mchinji and Lilongwe. In fact nearly half the
population of Kasungu is made up of tenant households, which is undoubtedly a factor in Kasungu
having the highest malnutrition rates in the country, in spite of having a low vulnerability index
in the FEWS indicators.9

The data available on income are less reliable for the estate sector than for smallholders.
However the figures reported indicate that income levels in the two sectors may be similar.
Whereas some tenant farmers may do very well, others have difficulty making enough income to
feed their families. These are most likely to work on small estates. Where tenants have access
to land for subsistence farming this provides an important additional source of income. What data
exist indicate that this is more likely to occur on larger estates, and therefore is unlikely to benefit
poorer estate tenants. The situation for poor tenants may have improved somewhat with the
introduction of the intermediate buyer system, which has provided competition for the estates as
tobacco outlets. This could force estates to offer better terms to their tenants. The high levels
of child malnutrition are a concern. These may result from poor environmental conditions and
lack of health services, combined with low household income. High labour demands on tenant
spouses may also affect childcare practices.

1.3 The Urban Poor

Major cities in Malawi have the lowest prevalence of poverty, and an urban household is
half as likely as a rural household to be poor. The main exception to this is Lilongwe, where
there is twice the level of households below the 20th percentile as in any other Malawian city.
The main information on urban poverty comes from work done by the Centre for Social Research
in Zomba in the late 1980s and early 1990s.

The urban population was estimated at 11 percent of the total in the 1987 census. Most
work on poverty estimation has put the size of the urban population at about 9 percent, but UNDP
estimates that by 1993 urban population growth rates were such that the urban population
comprised 15 percent of the total.



9 FEWS have developed a composite vulnerability index, for use in targeting social
programs. However, since the estate sector has been largely excluded from monitoring
systems up until now, because of lack of an appropriate data collection structure, in areas like
Kasungu where estates are important, the information included in the vulnerability index is
inevitably very partial.


C6









A 1989 study (Chilowa and Shively 1989) surveyed 200 poor urban households, measured
their income and expenditure and nutrition levels in children. Household expenditure was
estimated at MK124 monthly, or MK24 per capital. This is equivalent to MK288 per annum. 68
percent of the budget was spent on food. A 1991 study of low income urban households shows
an average monthly household income of MK136. It is difficult to compare these figures to the
ones given by the World Bank in its poverty profiles, not only because the years are different, but
because poverty lines for urban households are generally estimated to be higher than for rural
areas. Certainly these households are not wealthy, and those at the bottom of the distribution
would be on a level with poorer rural households, but it is difficult to quantify what percentage
overall of urban households would be in that position.

The nutritional data indicated a lower level of stunting than the national average, but a
higher level of wasting, or acute malnutrition. This is consistent with the results from the 1995
MIS survey, which show 8.7 percent wasting, as opposed to a national average of 7 percent. This
rises to 13.2 percent when the figures for urban Lilongwe are taken separately.

A 1991 survey (Roe 1992) highlights the importance of food as a source of income in the
urban informal sector, both in terms of selling and processing and through food production. 70
percent of low income households either had a garden in the immediate area or at home in the
rural sector. Links were maintained with the extended family. Those households that consumed
food from their garden usually had enough to last for eight months. A quarter of them had sold
food in the previous year. This means that low income urban households may be more vulnerable
to drought than has previously been acknowledged. However, as with rural households, the main
problem is simple lack of resources.

2 Transitory Food Insecurity

Transitory food insecurity, i.e. food insecurity resulting from an exogenous shock, which
is anticipated to be temporary, can result from climatic shocks, drought or flooding, from political
shocks, civil war or trade blockades, and from economic shocks such as unanticipated devaluation.
In Malawi the major cause of transitory food insecurity, and the one most commonly discussed,
is drought, which has been more frequent in the last decade.

As with chronic food insecurity, transitory food insecurity basically reduces to an issue
of poverty. If there were no poverty, there would be minimal transitory food insecurity. For
example, in general, smallholders farming more than 2 hectares do not suffer from transitory food
insecurity. Their income may be reduced when there is a production shortfall, but they have
sufficient income reserves to ensure access to food. As discussed above, landholding size is a
rather crude and overly simplistic indicator of rural food insecurity. Nonetheless, as an initial
attempt to quantify the extent of the problem, it could be argued that smallholders farming less
than 0.5 ha suffer from chronic food insecurity and make up 41 percent of rural households. In
a major drought, however, the number of food insecure could be increased by the 31 percent of
households who farm between 0.5 and 1 hectare.









In recent years a literature has grown up around the issue of how people, the chronically
food insecure and those who are vulnerable to food insecurity, respond to stress in the food
system. The strategies employed are generally referred to as coping mechanisms. There are a
number of sources of information about coping mechanisms in Malawi. Peters has examined the
responses of households in Zomba to drought, and how this has affected decision-making over
time (Peters 1994, 1995). Save the Children Fund UK has recently undertaken an in depth study
of response to the 1993/94 drought in Salima and Mchinji (SCF 1996) and the Famine Early
Warning System reports on information collected by the new M4E system on income generating
activities and coping mechanisms.

The SCF study has most detail about the relative importance of different coping
mechanisms. The two areas in which the study was undertaken, Salima and Mchinji, have
somewhat different characteristics, largely for agroclimatic reasons. Mchinji is usually self-
sufficient in maize, whereas Salima normally imports maize. Salima produces maize, cotton, rice,
groundnuts and cassava. Tobacco has been produced there only very recently. The main crops
in Mchinji are maize, tobacco and groundnuts. In Salima, almost 50 percent of households in the
survey areas were identified as poor (the division of households in to poor, intermediate and
better-off was done in conjunction with the community, on the basis of those households generally
considered to be poor ) whereas in Mchinji the incidence of poverty was only 30 percent.

Nonetheless, the poor in the two districts had much in common, both in normal years and
in the immediate post-drought year of 1993/94. Even in normal years many of the poorest
households did not farm all the land they had available, either because of an absolute labour
shortage or because they had to divert labour to ganyu. Better-off households failed to farm all
their land because they had insufficient cash to hire labour. In normal years, households with a
grain shortage fill the gap by going for ganyu. They also eat green maize. Better-off households
support poorer households by providing employment opportunities and sometimes making gifts
of maize. In normal years income from crop sales goes almost entirely for non-food purchases

In 1993/94, a drought year, the poorest households got, on average, 6 8 weeks of grain
from ganyu and 3 weeks each from government hand-outs and relatives. The coping mechanisms
that poor households employ in normal years, ganyu and food transfers, were eroded to the extent
that better-off households were also affected by drought. The key to poor households' ability to
survive significant harvest shortfalls is the degree of diversity in income sources the more
diversity, the more effective the household's coping mechanisms. Most poor households
employed between six and eight different coping mechanisms. In both districts there was an
increase in ganyu and other income generating activities. Unlike normal years, crop sales were
used mainly to buy maize in Salima and even in Mchinji a third of poor households used their
crop income for maize purchases. In both districts poor households stretched maize stocks by
reducing consumption and diluting the maizemeal with maize bran. More meals were eaten
without nsima. More green maize was eaten in the pre-harvest period. There was an increase in
theft and prostitution, and in Mchinji, which is near the border, smuggling.


C8








Nonetheless, in both districts, the previous year's harvest was still the most important
source of maize, on average, in spite of the effect of drought. This was undoubtedly severe. In
Mchinji, two thirds of poorest households are normally self sufficient, but in the drought year this
fell to 5 percent. The range of harvest fell from 4 65 bags down to 0 20 bags. In Salima,
almost a third of households had no maize crop at all. The range of harvest for poor households
is normally 4 32 bags, but in 1993/94 the highest harvest was 12 bags. The majority of all
households had run out of maize by December.

Intermediate and better-off households were also affected by drought. They had less maize
and fewer crops to sell. Some of them had to resort to ganyu. However, for most they could use
their crop sales to purchase maize. They were also more likely to sell livestock to purchase maize
and inputs. In Salima, better-off households did not use crop income for maize, only livestock
sales. Intermediate households were more likely to be able to afford to engage in petty trade,
which was generally a profitable income generating activity.

The survey appears to show that one of the main effects of drought is to increase the scale
of market activities, particularly for the purchase of food. Households which would normally not
purchase maize, certainly not from crop sales, have to use what income they can generate to
supplement their own production. The main source for this is engagement in ganyu, but there is
usually less ganyu available in drought years, as better-off farmers are also affected. Household
food security for the poorest is very dependent on the functioning of the rural labour market.

Intermediate and better-off households also have to make adjustments, but they are very
much less likely to become food insecure as they have a greater range of assets and income
generating opportunities they can call on. There is a concern, however, about the effect of
successive droughts on livestock holdings, which may, over time erode the level of assets in the
rural economy.

Peters' work emphasises rather more the strategies households are employing to reduce
their vulnerability to drought (Peters 1995) and is based on surveys undertaken in Zomba and
Machinga. She identifies three major strategies: diversification of cropping patterns, husbandry
techniques and the introduction of new crops. Diversification takes place particularly into drought
resistant crops such as cassava, sweet potato and sorghum, which move from being secondary
crops to being equal to or even surpassing maize in response to a drought year. Dimba gardening
becomes more important in drought years are used for horticultural crops in the dry season,
particularly for sale. These two strategies have been affected by the recurrent drought and short
rains experienced in the 1990s. The third strategy is the introduction of new crops, such as hybrid
maize and tobacco, chillies and chick peas. Hybrid maize is earlier maturing and therefore deals
better with drought. Cash crops such as burley tobacco produce income which can be saved to
cover maize purchases in a bad season. Tobacco is also less adversely affected by a short rainy
season.


C9








Basically smallholders are both protecting the level of their income and moving into cash
cropping to shift dependence from own production to greater dependence on the market. They
are to some extent diversifying out of subsistence production to increase the options open to them
in bad years.

FEWS is just beginning to monitor the prevalence of different "survival systems" in
Malawi. Initial work, based on the November 1995 RaFSA survey, divides survival systems into
three categories: self-sufficiency methods; income generating activities; and coping strategies,
which involve social transactions, borrowing, selling of assets and consumption reduction. 18
EPAs primarily use self-sufficiency methods, 44 EPAs use income generating methods and 14 use
coping mechanisms. There is no obvious relationship between dominant survival system and
vulnerability to poverty, as even EPAs who depend on coping mechanisms have often coped for
decades and have well adapted lifestyles. The monitoring of survival strategies is ongoing and
may, in future, provide useful information about vulnerability to drought.

The information on transitory household food insecurity is quite diverse, but two elements
stand out. Firstly, there is a strong link between transitory food insecurity and chronic food
insecurity. Households with resources can save in good years and liquidate assets and savings in
poor years. Secondly, for both better-off households and poor households the variety of coping
mechanisms and survival systems available are vastly increased and improved by effective
commodity and labour markets.

3 Market Liberalisation and Household Food Security

Over the last ten years there have been a number of changes in the economic environment
which could be classed together under the general heading of market liberalisation. These have
had major implications for household food security.

* There has been a move away from administered prices for almost all commodities,
including agricultural inputs, cash crops and maize prices.

* Restrictions on cropping patterns have been removed, allowing smallholders to grow a
wider variety of cash crops, and i particular the highly profitable burley tobacco.

* There has been a major increase in the extent of private sector trade and a reduction in the
importance of ADMARC.

This has had a direct effect on the income earning opportunities for households,
particularly in the rural sector. It has also affected the relative prices households face for the
commodities they sell and purchase. This in turn affects cropping patterns and consumption
choices. Seasonal price changes in the private sector should create greater incentives both for
intra-seasonal storage in the private sector and on-farm storage.


C 10








Concern has been expressed about the availability of commodities on the private market,
particularly with increasing withdrawal of ADMARC. In the short run this may increase
transactions costs in particular for maize purchasers. It is difficult to estimate the extent to which
thin markets are currently a problem, as conditions are changing quite rapidly.

In some parts of the country, increased smallholder production of burley tobacco has
increased the demand for casual agricultural labour. In time, this may bring about some upward
pressure on rural wage rates, though as yet there is little evidence of this.

As with all major changes, there are likely to be winners and losers, though market
liberalisation is by no means a zero-sum game. In the medium term, most households should gain
from increased opportunities, but some households are likely to bear short-term costs.

The only survey work which sheds direct light on this process is Peters' work in Zomba
(Peters 1992, 1993). The first study looked at changes in the study area between 1986/87 and
1990/91, during the initial period of market liberalisation.

There had been an average real increase in household income of 26 percent over the
period, but the average masked substantial gains for the top income households and losses for low
income groups. There had been an increase in maize harvests of 48 percent on average. All
households except those cultivating under 0.5 hectares had made maize production gains through
increased use of fertilizer and hybrid maize. Tobacco growers had, on average, over 50 percent
higher income than non-tobacco households, though they also cultivated more land. Peters
describes the overall picture as one of increased income specialisation and differentiation.
However, households in the bottom 25 percent appeared to have had to increase their effort in
order to maintain their average supply of maize.

A follow-up survey in 1993 showed there had been an explosion in burley tobacco
growing. Income from burley tobacco was increasing demand for local goods and services and
some households were using their tobacco savings to fund entry into petty trading. Some growers
were paying a quasi-rent to use a part of the dimba for the establishment of tobacco nurseries.
Thus the process of specialisation and differentiation was continuing.

Care must be taken not to extrapolate too much from these studies to the present situation.
The sample of households studied were better-off than average for the area, because of the need
to have representation of tobacco-growing households. More importantly, relative prices have
changed dramatically since 1993, due to devaluation and input market liberalisation.

Profiles of five smallholder households have been developed to show the impact that
changes in relative prices have had on different household types. These profiles are not
statistically representative, but have been developed to illustrate the main combinations of land
area and cropping pattern.


Cl 1








The basis for the profiles is simplified farm budget data, and the models are static, not
behavioral, i.e. they do not allow farmers to change production and consumption patterns in
response to price changes. In effect, a number of typical cropping patterns were identified, and
their changing profitability was traced over a five year period. Only five crops are included and
maize is the only staple food crop. In reality, cropping patterns would be more complex. Data
came from gross margin calculations made by MoALD, the AES data sets put together by FEWS
and information contained in Alwang and Siegel (1996). No allowance was made for the cost of
credit. Producer prices were treated as though they were farmgate prices, whereas there would,
in reality, be transport costs to take into account. To this extent the net cash incomes given for
households 3-5 are overestimates. In spite of the simplification, however, the profiles allow us to
identify losers and gainers.

The models were run twice, once using actual average smallholder yields over the period
1982/83 1994/95, to give some idea of whether or not households were chronically food
insecure, and once using actual yield variation, to give some insight in to transitory food
insecurity. The other main factor driving the results is variation in prices faced by smallholders,
which can be directly related to the process of market liberalisation.

Household 1 is a male-headed household, comprising four people in total, with two
working adults. It cultivates 0.4ha of land, 0.35 to local maize and 0.05 to groundnuts. (28
percent of rural smallholder households are male-headed cultivating less than 0.5 has of land). The
family food requirement is equivalent to 800kg of maize a year. In a normal year, the household
will produce 305kg of maize, just under 40 percent of its requirements, and 19kg of groundnuts.
After just over five months, or longer if they stretch consumption, the family will run out of food.
The rest of the year's food supplies has to be made up from off-farm income opportunities, most
probably ganyu. Table C3 shows how the amount of maize this household has access to from its
own production, both directly and through sales, has changed over time. This household almost
certainly does not have access to anything like an adequate food intake. Market liberalisation has
eroded what little purchasing power it had, and unless there has been dramatic improvement in
off-farm employment opportunities, which seems unlikely, this family has definitely been
negatively affected. In years of poor harvest, the situation gets even worse. This is comparable
to the situation of a number of poor families identified in the SCF study on coping mechanisms.

Household 2 is a female-headed household, comprising 3.5 consumption units. In addition
to the female head of household, there is one elderly person with limited labour capacity. This
household cultivates 0.29 has, with 0.25 under local maize and 0.04 under
groundnuts (13 percent of rural households are female headed, farming less than 0.5ha). The
family food requirement is equivalent to 700 kg of maize a year. In a normal year this family will
produce 217kg of maize, about 20 percent of its requirements, and 15kg of groundnuts.


C 12















Table C3. Household 1 Farm Budget


1990/91 1991/92 1992/93 1993/94 1994/95

Production Using Average Yields

Local Maize (kg) 304.15 304.15 304.15 304.15 304.15
Groundnut (kg) 19.3 19.3 19.3 19.3 19.3
Groundnut Sales (MK) 15.99 14.83 21.89 25.71 39.90
Maize Purchases (kg) 49.97 34.25 33.78 34.56 14.35
Maize from farming (kg) 354.12 338.40 337.93 338.71 318.50

Production Using Actual Yield Variations
Local Maize (kg) 305.2 113.4 328.3 206.15 268.45
Groundnut (kg) 23.35 8.5 24.75 16.65 17.35
Groundnut Sales (MK) 20.24 2.73 30.06 20.47 34.05
Maize Purchases (kg) 63.26 6.31 46.40 27.51 12.25
Maize from farming (kg) 371.46 119.71 374.7 223.66 280.7


This family will run out of maize after three and a half months. Its options are even more limited
than the previous household as it has less labour power. Table C4 shows how its situation has
changed over time.





Table C4. Household 2 Farm Budget


1990/91 1991/92 1992/93 1993/94 1994/95

Production Using Average Yields
Local Maize (kg) 217.25 217.25 217.25 217.25 217.25


C 13











Groundnut (kg) 15.44 15.44

Groundnut Sales (MK) 12.79 11.86

Maize Purchases (kg) 39.98 27.40

Maize from farming (kg) 257.23 244.65

Production Using Actual Yield Variations

Local Maize (kg) 218.0 81.0

Groundnut (kg) 18.68 6.8

Groundnut Sales (MK) 16.19 2.19

Maize Purchases (kg) 50.61 5.05

Maize from farming (kg) 268.61 86.05


15.44

17.51

27.02

234.27


234.5

19.8

24.05

37.12

271.62


15.44

20.57

27.65

234.90


147.25

13.32

16.37

22.01

169.26


15.44

31.92

11.48

228.73


191.75

13.88

27.24

9.80

201.55


Household 3 is male-headed, comprising 4.4 consumption units which include two adults.
It farms 1.0 has. (similar to approximately 15-20 percent of the rural population), with 0.6 has
under local maize, 0.25 has under hybrid maize and 0.15 ha under tobacco. Tobacco was only
introduced in 1991/92. Previous to that 0.4 has were under hybrid maize. Household 3 uses
purchased inputs. Table C5 shows how this family has fared since 1990/91.

Table C5. Household 3 Farm Budget


1990/91 1991/92 1992/93 1993/94 1994/95

Income Using Average Yields

Local Maize (kg) 521.4 521.4 521.4 521.4 521.4

Hybrid Maize (kg) 1002.8 626.75 626.75 626.75 626.75

Maize sales (kg) 644.2 268.15 268.15 268.15 268.15

Net Value of Tobacco 348.32 508.93 310.35 1468.11
Sales (MK)

Cash Income (MK) 173.93 427.96 624.24 436.38 1803.30

Income Using Actual Yield Variations

Local Maize (kg) 523.2 194.4 562.8 353.4 460.2

Hybrid Maize (kg) 1163.2 326.75 769.5 342.25 457.25

Maize Sales (kg) 806.40 -358.85 452.30 -184.35 37.45


C 14









Net Value of Tobacco
Sales (MK)


246.31 347.08


60.42 753.66


Cash Income (MK) 217.73 90.93 541.57 -76.74 800.47

Household 3 is a surplus maize producer, but once crop liberalisation introduced the
possibility of growing burley tobacco, some land was switched from hybrid maize to tobacco.
Nominal cash income has grown substantially, though income dipped in 1993/94 due to an
increase in input costs. Even when actual year to year yield variations are taken into account, this
household has enough income to save in good years and dissave in bad years. It should be
regarded as food secure in both chronic and transitory terms.

Household 4 is similar to household 3 in all respects, except in its cropping pattern. This
household is probably located in an ADD such as Salima or Shire Valley and grows cotton as a
cash crop. Cotton was never proscribed for smallholder farmers, so there is no change in
cropping pattern throughout the period. Table C6 gives an abbreviated family budget.

Table C6. Household 4 Farm Budget


1990/91 1991/92 1992/93 1993/94 1994/95

Income Using Average Yields

Local Maize (kg) 434.5 434.5 434.5 434.5 434.5
Hybrid Maize (kg) 501.4 501.4 501.4 501.4 501.4
Maize Sales (kg) 55.9 55.9 55.9 55.9 55.9
Net Value of Cotton Sales 94.60 96.72 101.18 110.74 361.29
(MK)
Cash Income (MK) 109.69 113.32 125.22 137.01 431.17

Income Using Actual Yield Variations

Local Maize (kg) 436.0 162.0 469.0 294.5 383.5
Hybrid Maize (kg) 581.6 261.4 615.6 273.8 365.8
Maize Sales (kg) 137.6 -456.6 204.6 -311.7 -130.7
Net Value of Cotton Sales 127.94 6.85 100.15 70.66 280.29
(MK)
Cash Income (MK) 165.10 -190.86 188.13 -161.24 -83.05

Household 4 is self-sufficient in maize and sells cotton. The returns to cotton have been
quite low nominal income has been stagnant until last year. However, in 1994/95, the cotton


C 15









market was liberalised. A new player, ES Marketing, entered the market, which had an immediate
effect on the seed cotton price. This is shown in a tripling of the cash income from cotton for this
family. By all accounts, the high prices are continuing this year. Over the past five years, this
households has not had sufficient gains from market liberalisation to tide it through bad years,
without major consumption adjustments. If the high prices for cotton continue, this could change.

Household 5 is male-headed, comprising five consumption units of whom three are adults.
Thus their food requirements are equivalent to 1000kg of maize a year. The family farms 2 has,
which puts it in a class with 6 percent of rural households. The family grows 0.7 ha of local
maize, 0.7 ha of hybrid maize, 0.4 ha of tobacco and 0.2 ha of groundnuts. Fertiliser and
pesticide are used. Their budget is shown in Table C7.


Table C7. Household 5 Farm Budget


1990/91 1991/92 1992/93 1993/94 1994/95

Income Using Average Yields
Local Maize (kg) 608.3 608.3 608.3 608.3 608.3
Hybrid Maize (kg) 2757.7 1754.9 1754.9 1754.9 1754.9
Maize Sales (kg) 2366 1363.2 1363.2 1363.2 1363.2
Net Value of Tobacco 928.86 1357.16 827.61 3914.96
Sales (MK)
Cash Income (MK) 638.82 1333.73 1943.34 1468.32 5618.96

Income Using Actual Yield Variations
Local Maize 610.4 226.8 656.6 412.3 536.9
Hybrid Maize (kg) 3198.8 914.9 2154.6 958.3 1280.3
Maize Sales (kg) 2809.20 141.70 1811.20 370.60 817.20
Net Value of Tobacco 656.84 925.55 161.11 2009.76
Sales
Cash Income 758.48 698.92 1704.37 335.29 3031.26

Household 5 is a surplus maize producer, though the amount of maize sold has fallen since
tobacco has been introduced as a crop. It is assumed that the family keeps the groundnut for
consumption (In fact, the 0.2 has could be planted with any additional food crop without affecting
the overall picture). As with household 3, there is a dip in income in 1993/94 with the increase
in cost of inputs. This family probably hires in labour, which has not been included in the model,
but this is unlikely to reduce cash income by more than 10 percent. Again, this household may


C 16








suffer an income loss in poor years, but cannot be regarded as suffering from transitory food
insecurity.

Overall, families who have access to purchased inputs, and hence canplant tobacc
hybrid maize have dune well out o liberalisation. These families tend to have above average farm
size. Households which are maize deficit, and have no resources to invest in improved maize
varieties have lost out. These households tend to have below average size. One type of household
which is not represented in the models above is the fgy fpoofamily who has virtually no
interaction with the market. There are indications that the very poorest rural households in
Malawi, it is difficult to estimate their precise number, exist in a world of own production and
barter. Theyperform ganyu largely for maize and they barter any spare vegetables or pulses for
food. Market liberalisation has almost certain had very little impact on them. Households 1
and 2 are only negatively affected insofaras ey sell groundnuts. If they bartered, their position
might not have changed.

The results form this very simple model are in line with the findings from an recent LP)
model which looks at the same issue, though the LP model allows changes in cropping patterns
in response to price changes (Alwang and Siegel 1996)

If these findings are representative, then this raises important issues about how poor rural
households can be given some ability to participate in markets on better terms than they are doing
at present. Unless they can develop the ability to buy inputs, raise cash crops and otherwise
improve their productivity, then they are fated to a life of increased marginalisation if they
continue to depend on agriculture for their major income source. For some of these households,
the only viable option will be a movement to increased involvement in off-farm income generating
activities.


C 17









ANNEX D: MODEL OF MAIZE PRICE INSTABILITY IN MALAWI


It is often appropriate to assume a close link between production instability and price
instability. Contrariwise, in Malawi, high instability in maize production is not likely to translate
into high price instability. With some reflection, the reason seems obvious. In a country where
a high share of the population is engaged in the production of maize or related activities, a change
in production is likely to cause a simultaneous change in the demand and supply in the same
direction.

The implications are that 1) food security of many rural households that live at the margin
of sufficiency is likely to be threatened primarily by loss of income (for maize producing farmers
in the form of maize), not by price instability in the market and 2) that the usual price stabilizing
interventions (e.g., publicly operated storage operations or compensatory foreign trade
interventions) might easily overshoot their mark, unless much caution is used. Moreover, some
of the money that it spend on price stabilization might be better used for income stabilization
measures.



Figure El. Maize Markets in Malawi

'Si S1 'S2 S2 'DT DT 'ST ST ST

P ----


^--- \ P ----------
IL 'L -l-Y ------------ ---------- -- .-- _----- ---------- L-%---J
P -----
'\ \ a \

'S\ S1 'S2 S2 'ST ST ST'
Market 1 Market 2 Total Market
Market 1 Market 2 Total Market
...-I----------------------------------------------L ..









Market 1 Market 2 Total Market








Figure E.1 illustrates quantity and price relations in the maize market in Malawi. But,
it is only an illustration, because the exact form and parameters of the demand functions of
different groups in the population are not known. A more precise analysis of the extent to which
production instability translates into price instability in Malawi maize can be made only with
better empirical estimates of the correlations between maize production, income and demand.

The right panel in Figure E. 1 represents the supply of and demand for maize in Malawi.
The Demand in a normal year is shown as line DT and normal production is shown by the vertical
line ST. Price in a normal year is given by the intersection of ST and DT at price P. In a country
where the production of the commodity would not affect its demand, production instability would
be traced along the demand line DT. For instance, if production drops to 'ST, the price would
rise to "P and and an equal rise in production would drop the price to P'. The extent to which
instability in production translates into instability in price depends only on the shape of the
demand curve, particularly its slope. Expressed more generally, the translation of instability in
production into instability of price is a function of the demand elasticity of the commodity. The
more inelastic the demand, the higher the price instability for a given instability in production.

To illustrate the more realistic structure of the maize market in Malawi, the market for
total maize, represented in the right panel of Figure E.1 is segmented into two component
markets: Market 1, the market for maize of the maize deficit rural population, and Market 2, the
market for maize of the maize surplus, rural and urban population. The total supply in a normal
year is the sum of production (horizontal summation)in the first and second market, ST= S1 +S2.
Total demand DT, in a normal year is similarly the sum of D1 and D2.

Consumption in market 1 consists mostly of the maize produced in Market 1, the
production by maize deficit farming households, but also comes in part from purchases. Market
2 produces in excess of its demand. For the illustration, production in Markets 1 and 2 equals
consumption in Markets 1 an 2 (self-sufficiency).

The purpose of segmenting market is to note what happens in the two markets when
production declines (or increases) and the implications for the total market.

In Market 1, demand of maize deficit households (without relief aid) is assumed to decline
to the full extent of the change in their own production, i.e. from D1 to 'D1 as production
declines in a drought year from S1-'S1. Actually this is an optimistic assumption, because the
demand for purchased maize by the households of this market is likely to decline too, as
opportunities for earning cash income (from the sale of other crops and/or their labor) also decline
for the same reason that maize production has declined.

In Market 2 demand is assumed to remain unchanged as production decreases from S2 to
'S2. While many of the urban households and certainly some of the maize surplus producers may
also realize a decline in income when maize production declines, it is assumed that their demand
for maize will not decline significantly.


D2








To observe the full impact of the changes in production on the price, note (in the right
panel) that total supply declines from ST to 'ST and that the corresponding total demand shifts to
the left from DT to 'DT. The price is now 'P, the intersection of 'ST and 'DT. Given price
instability in the range of 'ST and ST', the price fluctuates between P" and "P, if demand would
stay constant, as it would in a country in which maize is not so dominant a source of income and
effective demand for maize.

Note that a substitution of imports or releases from an SGR to the full extent of the loss
in production would have resulted in ST intersecting with 'DT at a price P* which is far less than
the price in a normal production year. In this case, intervention would have resulted in an
increase rather than a decrease in price instability, with particularly undesirable consequences for
maize producers. If this were to happen, maize producers may receive a lower price when
production declines and a higher price when production is higher. The consequence of such price
intervention would cause farm income to become more unstable.


D3









ANNEX E: TARGETING THE FOOD INSECURE IN MALAWI


1. Principles of Targeting

The ideal targeting mechanism would have the following characteristics: it would identify
all those who should be included in a program while excluding those who should not be eligible;
it should be administratively simple and inexpensive to implement; it should not identify more
participants than there are resources to cover; it should be politically acceptable to government;
and it should fit in with the notions of equity prevalent in the communities concerned. There is
nowhere in the world that such a mechanism has been implemented. All targeting mechanisms
are compromises between the various characteristics listed above. Mechanisms which are simple
and cheap to implement tend to either include too many recipients or exclude some of the most
needy of the target group. Mechanisms which have high levels of precision tend to be demanding
on information and expensive to administer.

There is an extensive literature on targeting which puts considerable emphasis on trying
to find "self-targeting" mechanisms, i.e. programs and projects which will, by their very nature,
primarily attract only the intended beneficiaries. These have the advantage of reducing
administrative costs for targeting. Examples are the delivery or subsidisation of commodities
which are almost entirely consumed by low income groups of the population, and FFW programs
where the combination of providing a food wage, and the level of that wage, mean that the
program is not attractive to better-off households.

There is no obvious self-targeting mechanism available in Malawi for either chronic or
transitory food insecurity programs. This is in part because of the relatively high percentage of
the population who are food insecure. It is very difficult to find a project which would only be
attractive to a subset of that population. As discussed in Annex G, FFW programs tend to be
oversubscribed, and the work is rationed out in an ad hoc way which may or may not promote the
objectives of the program. There is relatively little information on consumption patterns of the
food insecure, but they seem to differ from the food secure principally in terms of amount. In
any case, it would be undesirable to introduce an explicit food subsidy. Commodity targeting
would only be relevant in terms of using a less attractive commodity to make a food transfer
program less attractive to the better-off.

This means that targeted programs to improve food security in Malawi will have to use
some kind of information based process as a targeting mechanism, with the administrative
complexity this implies.

2. Experience of Targeting in Malawi

The main experience with systematic targeting in Malawi has been in connection with relief
programs. Up until the development of FEWS starting in 1993, the onus was on the 24 District








Commissioners to identify the needs of smallholders in their area. For example, in 1992/93,
national criteria were established, to register smallholders whose crops were severely affected,
female headed-households without sources of income, elderly or handicapped heads of household
and chronically sick or destitute households. The registration process was carried out in advance
and districts were phased in according to perception of need. The overall amount of relief food
necessary was identified at the national level, and DCs had to distribute the amount of food they
were allocated as best they could. It should be noted that the national criteria used would identify
not only those affected directly by the drought but also some of the chronically food insecure
whether or not they were directly drought affected. This illustrates one of the difficulties, both
politically and practically, of targeting in response to a specific shock when there is a high level
of chronic food insecurity in normal years.

Once FEWS got underway, efforts were made, in conjunction with WFP, to develop a
more objective, statistical basis for relief targeting. The first step was to disaggregate crop
estimates to the lowest possible level, the Extension Planning Area (EPA). Then all crops were
translated in terms of per capital daily kilocalories produced. This was then compared to the
historical average for the EPA, to give a measure of dislocation. In 1994/95, following the
previous year's poor harvest, donors and NGOs put together a monitoring system which collected
information on child nutrition (Middle Upper Arm Circumference measures), consumption and
grain and livestock prices. These were combined to give a ranking of the most vulnerable EPAs
in the country. Tonnages of food required were compiled using EPA population figures, on the
assumption that not more than 85percent of an EPA would qualify for relief. The food available
was then allocated according EPA ranking and the logistic ability of an EPA to receive the
tonnage allocated. The system operated fairly smoothly, but there was a tendency for DCs to
redirect some of the food to EPAs which had not been included in the distribution. It is often
politically difficult to exclude areas from relief operations, particularly if some of the excluded
population have clearly been affected.

In 1995/96, there was a more modest relief operation. This was targeted by EPA, initially
using the Kilocalorie analysis from FEWS, which was replaced by a targeting system based on
the results of a Rapid Food Security Assessment carried out by the Malawi Red Cross. This
appraised the situation of the 78 most frequently targeted EPAs in 1994/95. The targeting
indicator was developed from information on remaining on-farm stocks and the availability of food
from income generating activities and coping strategies. EPAs were then identified as either food
surplus or deficit. Deficit EPAs were targeted for relief food. This exercise was carried out on
a monthly basis. Unlike previous relief programs, three channels were used to distribute food:
distribution through schools; vulnerable group feeding where rations were distributed to people
registered at MCHs (mother-child health clinics); and FFW programs.

An evaluation of the effectiveness of these channels indicated that VGF distribution was
more effective in targeting the most vulnerable households, whereas school distribution reached
more households, often from a wider socio-economic range of households. Sometimes the poorest
children were excluded because they did not attend school on a regular basis and therefore were








not registered in the school records. Complaints were also raised in the community that families
without school age children were excluded. These observations illustrate the more general point
that it is often very difficult to reach the most vulnerable in a community. Simple distribution
mechanisms, which have administrative and cost advantages, often exclude the poorest, because
they do not fully participate in community life.

As of January 1996, a sustainable monitoring system, Monitoring for Empowerment
(M4E), has been put in place. This is not linked specifically to relief food but is aimed at
assisting in targeting any kind of intervention. Data are collected through the Ministries of Health
and Agriculture and can be used to develop appropriate targeting indicators at the EPA level. The
MASAF project is currently using three variables to prioritise EPAs for involvement in their
community-based projects.

3. Appropriate Targeting Strategies

The appropriate indicators to use for targeting depend on the objective of the project or
program, its proposed coverage, its design and
what it is delivering. For a few programs,
this will be very straightforward. For
example, WFP's program of supplementary
feeding through Nutrition Rehabilitation Units
is nationwide, and targets severely 1 1994/95 DROUGHT
malnourished

children and their families. Food is delivered
to a target clearly identified by medical staff,
and there are adequate resources to cover all
who fall into this category. No additional
targeting mechanism is needed.

However, most programmes do not
have the resources for nationwide
implementation. Geographical targeting based
on the FEWS monitoring system is a good
starting point, particularly for programs which ..
depend to some extent on local administrative -""
structures for program support and *
administration. The FEWS system can rank
EPAs according to combinations of
appropriate indicators. This will enable the
identification of the most appropriate EPAs in
which to start program implementation.
Figure 1








It is very important to specify carefully the exact target for the program. Is it drought-
affected households? Is it poor households? Or is it chronically food deficit households? The
commodity or service being delivered by the program may also be relevant to he choice of
targeting indicator. This is likely to be different if a program is delivering food as opposed to
health services.

The ranking of EPAs in Malawi is very
sensitive to the choice of indicators, as
examination of the following maps shows.
Figure 1 shows the impact of the short rainfall RURAL HOUSEHOLD
FOOD SECURITY INDEX
in 1994/95, in terms of the percentage FOOD SECURITY
variation of actual production of crops, j
measured in kilocalories, from the historical
average kilocalorie production, by EPA. The
dark areas showed significant production
shortfalls of up to 150 percent reductions.
The light areas were less affected, and some
had significant production increases. The
worst-affected areas are spread fairly evenly
throughout the country. In fact, a variation on
this was used to target the 1994/95 drought
relief programme. EPAs whose production
was less than 1800 kilocalories per person per --
day, and had suffered a fall in production over
the historical average, were targeted for '""" -
emergency relief. This identified areas where
the production shortfall took the EPA below
a minimum coping level.

FEWS has been developing an
indicator of overall vulnerability, which is F e
based on a principal component analysis of
data series on food availability, cropping
patterns, health, education, infrastructure and demographic variables. This has not yet been
finalised, but Figure 2 shows its current status. This shows clusters of vulnerable EPAs along the
borders with Mozambique and Zambia, with better-off EPAs along the lakeshore and in the North
of the country. This gives a very different picture from the drought map, partly because the aim
is to identify chronic, rather transitory status, and also because of the inclusion of data on health
and education variables. This type of indicator would be useful for programs where there was a
strong community element, such as the MASAF program.

If, however, the program under consideration provided some kind of resource transfer to
the household, such as food, then it might be more appropriate to rank EPAs on the basis of








chronic food deficiency, rather than including indicators which reflect the provision of public
services to communities. A rural household food security index was developed from data on
acreage, production, income, expenditure on food, cropping patterns, demographic variables and
coping strategies. The variation in this composite index is shown in Figure 3. The results here
are very different from those shown in Figure 2. There is a high concentration of food insecure
EPAs in the south of the country.

The degree of variation between these maps, all of which reflect some aspect of food
security, indicate the complexity of the causal factors influencing food security in Malawi, and
the importance of clear program design, in terms of objectives, what the intended impact of the
program is and who precisely are the intended beneficiaries and why. This will give better
guidance as to the appropriate indicators to use for targeting.

Once the EPAs have been ranked, the
next stage is to identify beneficiaries within 44 /'
the EPAs. This will probably involve the COMPOSITE
district authorities in selecting the most
appropriate villages, and then local community EABILIY
structures to reach individual households.
This is the methodology suggested by WFP in
its most recent country strategy outline (WFP,
1994) and is similar to approaches used in
neighboring countries. Although it may
seem cumbersome and time consuming to
explain to communities and involve them in
the targeting process, the more communities
understand the purpose of projects the more
likely it is that they will reach the intended
beneficiaries. If this process is carried out in ,"
regular programs which address chronic food
insecurity, then the ground work will be in -
place for more effective delivery for
emergency programs.


Figure 3


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ANNEX F: SAFETY NETS IN MALAWI


The term, safety net, is commonly used in two different ways. The first, and original use
of the term refers to a program or set of programs introduced in countries which are in the process
of eliminating certain social or economic programs which have universal coverage, but where
there is a desire to assure continued public assistance to the poorest. There is implicit in the term
a process of moving from programs which are open to all, regardless of income level, to programs
where eligibility is related to poverty, and the level of benefits may be related to the level of
poverty. The safety net can be a permanent element of government policy, or it can be linked to
a process of transition, to provide a short-term cushion for the most vulnerable. In developing
countries, this has often been linked to the process of structural adjustment.

The concept of the safety net has also been used to refer to specific government programs
which target either the chronic poor and food insecure, and/or the transitory food insecure. This
can encompass nutrition, poverty alleviation, food security and emergency programs, among
others.

There have been a number of major policy changes in the last decade in Malawi, as
discussed earlier. Most importantly there has been a move from a largely command economy
towards a more market-oriented one. In particular, there have been adjustments in the foreign
Exchange rate, subsidies have been removed from agriculltral inputs and commodity prices, with
the partial exception of maize, are determined by market forces. This has changed the relative
prices faced by smallholders, and to some extent the rural-urban terms of trade. As with all
changes of this nature there have been winners and losers. As indicated in section 2 of the main
report, some of the poorer sections of the rural population have not, as yet, benefited from market
liberalisation and may have lost as a result of changing relative prices.

There has been particular concern about the impact of the changing role of ADMARC on
the poorest sections of the population, particularly in rural areas. Historically ADMARC was the
main source of supply of maize on the market in both rural and urban areas. It bought and sold
at administered prices throughout the country, regardless of transport and storage costs and
whether an area was maize surplus or maize deficit. ADMARC's selling price of maize was both
politically and economically important and it was factored into the level of the minimum rural and s
urban wage. ADMARC was seen as having an important social function, in maintaining both
availability of maize, and, by keeping the price of maize at acceptablee" levels regardless of
underlying market conditions, protecting the purchasing pnwer of nt maizse purchasers. To a
large extent this was financed through cross-subsidisation within ADMARC between maize
transactions and dealings in other commodities. it

Since 1986 there have been steps taken to liberalism agricultural input and output markets
and reduce the dominance of ADMARC. In the maize market this process has been slow and
rather uneven in pace, due in art to the nature f ADMAR' continued presence which reduces
the incentives for private trade to enter the market. It is clear that, with ADMARC's current price








structure there is little incentive for the private sector to move maize around the country or to
tore maize throughout the season. In the last year, this disincentive has been somewhat
diminished by ADMARC's financial inability to enter the market to the extent it would like.
However, although the situation is changing very rapidly, and more and more private traders are
ea entering the market, there is some way to go before Malawi has a competitive and efficient private
0 z .,maize trade.

S There has been concern expressed both by government and some sections of the donor
community about the implications of this transitional state of the market for food security. There
have been suggestions that the pace of reform is too fast, and that ADMARC has still an important
social role to play. In other words, ADMARC should form part of a safety net qpprnach While
not denying the importance of the role ADMARC has played in the past, the mission would put
forward two observations.

Firstly, for the very poorest section of the rural population. ADMARC's role appears to
be marginal. Their main source of maize is own production. When that runs out, maize is .
usually obtained directly through ganyu, i.e. in kind or through the barter of vegetableTffi7r
maize. Cash incomes are very low, and when they are used to buy maize, this is often in very
small amounts on local markets where the ADMARC price is only an indirect influence. Of
course, many more smallholders are net consumers of maize, and will be adversely affected by
higher maize prices and scarce supplies on the market. However, maintenance of the current
ADMARC structure is a very costly way to implement a safety net programme, and is likely to
have little direct effect on the very poorest.

Secondly, as has been stated many times already, the food security problem is one of
household income. Certainly this is affected by the level of maize prices, but if it is felt that this
is a sufficiently important factor to warrant intervention, it should take the form nf a targeted AJ
resource transfer, not a price intervention. If there are serious problems of local food availability
in the transitional state of the market, the resource transfer could be in the form nf fnro e.g. food
for work programs.

The new government has shown strong commitment to poverty reduction, as evidenced
in the launch of the Poverty Alleviation Programme in 1994. In conjunction with this, the World
Bank is funding the Malawi Social Action Fund (MASAF) to the amount of $56 million over a.
five year period. The overall objective of MASAF is to contribute towards poverty reduction
through funding the creation of village level assets which will be directly beneficial to the _por",
particularlyjn primary education, peripheral health services and safe water. The monitoring and
assessment of this will be assisted by a Poverty Monitoring Support Facility. The MASAF
project is long-term in nature. It will take time for community-level benefits to manifest
themselves in increased incomes for poor households. Recognising this, the MASAF project also
contains a public works component, targeted at poor and fnd-deficient areas in the country. This
program, which is discussed at greater length in Annex G, is estimated to cost $19.47 million,
of which $16.8 million is funded from the IDA loan.









There are a number of emergency, nutrition and poverty-oriented programs which could
be regarded as safety net programs under the more general use of the term. Two of these have
had national level coverage in the recent past. The first is the emergency food assistance and
drought relief programmes coordinated by WFP in response to the five national orlocal drnnuht.
since 1987. All drought affected regions in the country have been covered according to need.
WFP has also implemented a vulnerable group feeding program since 1972. This is being phased\
out, and by its close in 1998 will have delivered 120,000 tons of food, valued at $36.672 million
to 1.219 million beneficiaries at a total cost of $62.157 million. This program is being phased
S v-out beca-use evaluation has shown that over twenty years of suplementary feeding has had no
/discernable impact on levels of malnutrition in Malawi Currently it is reaching 150,000
S( beneficiaries, using Nutrition Rehabilitation Units, Community-Based Supplementary Feeding and
St.Mother and Child Health Centres. Neither of these programs have major long-term
aevelopmenta impact. -. .'7

Sitl0' There are a number of small scale developmental programs, run by NGOs, donors or
/' government, many concentrating on a combination of training and credit. The largest of these is
the Mudzi Financial Services Project, part of the Malawi Rural Finance Corpnratin which is --
based on the model of the Grameen Bank of Bangladesh. At present this project is lending\
MK7.3million, to 600 centres of 20-25 women each. in five ADs. Borrowers undergo extensive
training to develop business plans, mainly for off-farm income generating activities. It is targeted
primarily at women with less than one hectare of land, and most of the businesses funded are in
( petty trading, restaurants or food processing. This project is currently being expanded to national 1J .
S,-'coverage, andhas pledge line of millionn in total for credit, net of administrative costs. GTZ ic"
runs a smaller credit scheme, the Promotion of Micro-Enterprises for Rural Women, again
Acl kytargeted at women. NGOs such as VEZA also run targeted resource transfer schemes which
i Q, A encourage off-farm activities. .;i jwL

3 At present there is no nationwide state safety net, though there are a number of programs
which target poor rural households. To understand how poor households cope under economic
and food stress, one has to examine social safety nets i.e. the structures and institutions which
exist in civil society which households can call upon in extremity. These are often complex
systems of obligations which the better-off, or those with traditional positions of authority, carry
towards the poor. In Malawi the major social safety net is hasd nn thp SyVtem nf onnyu or
casual rural labour. For most poor rural households, when their grain stocks run out. they will
sell any non-grain crops to buy maize or cassava. and if they have no crops to sell, then family
members will go looking for ganyu. Ganyu is, in general, not very remunerative, because the
supply of rural labour is far greater than the demand. It is reported that estates will sometimes
employ more people than they need, to give employment opportunities to the poorest (SCF, 1996).
Without this income source, many rural families would be even more food insecure than they are
at present. Ganyu gives very poor returns to labour, particularly if the time spent looking for
ganyu is included. For those households which are labour scarce, as is the case with many female-
headed households, ganyu can lock the family into a vicious circle where labour time is spent on
ganyu rather than on the farm, but it does allow them to survive. In time, the processes of








economic growth will both increase the demand for labour and reduce the supply as more people
find off-farm employment, but at present ganyu is an essential part of the coping mechanisms of)
the poor.

In the present situation in Malawi, a safety net program or combination of programs could
have an important role either in offering alternatives to the ganyu system or in supporting those
who, for whatever reason, are unable to offer their labour in the market. A targeted income
transfer program could provide a stand alone safety net. Alternatively a combination of programs
could address different sections of the population. Public works programs could target households
with able-bodied adults, in combination with some form of vulnerable group feeding.

In particular, the supplementary feeding program targeting malnourished children in
Nutrition Rehabilitation Units, currently run by WFP, is an important safety net for the neediest
families. This program is currently diP tn h' phaed nut in three years time. However, it is a
low resource (currently about 600 MT per annum) program which efficiently targets about 7%
of children under five from very poor households. At present the program provides food to
rehabilitate the child and to feed the family for five weeks, to allow the mother to stay with the
child while he or she is undergoing treatment. Serious consideration should be given to
continuing this program and possibly extending the period during which food is provided to the
household.

It is unlikely that resources could be found to fund a safety net program which could
ensure food security for large proportion of the Malawi population who are at risk. This means
that it is particularly important to ensure that those programs which aim to provide support to
particularly vulnerable sections of the population are well targeted.








ANNEX G: PUBLIC WORKS / FOOD FOR WORK PROGRAMS


At present there is a very limited program of public works, including FFW programs,
operational in Malawi. The Malawi Social Action Fund (MASAF) is operating a pilotpublic
works program in Ntcheu, Mulanje and Machinmga EPAs within these districts were chosen on
the basis of FEWS indicator of food-deficit EPAs. In two of the districts, Ntcheu and Mulanje,
the wage is given part in cash and part in food coupons. In Machinga the wage is cash only.
There is as yet no centrally collated information on the number of beneficiaries reached. The pilot
project started in late 1995 and the main phase of implementation is expected to start in June
1996.

As well as providing the food component of the MASAF public works projects, WFP is
operating a number of FFW projects as part of EMOP 5693, the 1995/96 drought relief program.
A decision was made by government that free food distribution to able-bodied adults should be
replaced by FFW to reduce dependency. FFW projects started in four districts in November 1995
and by March 1996 were operating in 12 of the 24 districts in Malawi. ( All 24 districts in
Malawi could propose FFW projects.) A total of 235,075 participants have been registered,
115,905 men and 119,170 women. WFP is currently developing a proposal for a Quick Actionn
Project with the aim of moving FFW as far as possible along the relief-development continuum./

Both WFP and MASAF have dual objectives in developing the public works and FFW
projects proposed and about to be implemented. The projects are aimed at increasing short-term
food security among the households of participating workers, with particular mention of women
(MASAF indeed describes its PWP as a safety net operation). The projects are also intended to
provide economically productive assets, and hence assist long-term food security. In this context,
three questions should be asked:

(a) Under what circumstances are PWPs an appropriate approach to improving food security
in Malawi?

(b) How cost-effective are they?

(c) Is food a useful supplement or substitute for cash income?

(a) PWPs can be seen as contributing to the mosaic of income generating activities so essential
t o survival for the poorest households in Malawi. This particular form of resource transfer is
( often preferred by government and agencies because it is seen as a way of reducing dependence
and getting away from free hand-outs. The opportunity cost of labour involved in PWPs depends
n when the projects are implemented. MASAF intends to implement its projects between May
and November, the off-peak season for agriculture, when there are few other employment
opportunities. WFP has, up until now, implemented FFW as an emergency program and
therefore has been operating in November through March, the peak agricultural season, but also
the season with lowest household food stocks. However, participants are only required to spend








four hours a day on FFW, which should leave them time for working on their farms. The QAP
FFW project proposal sees FFW as a substitute for ganyu, at least in part, and appears to propose
that FFW be undertaken in the rainy season, as at other times of the year. However, the issue of
FFW squeezing out work on fields is raised as an area for monitoring.

There are significant differences in approach between MASAF and WFP in their programs.
WFP's FFW projects are seen as providing alternative and more attractive sources of income, in
particular to ganyu. People do not have to travel long distances to find work and can continue to
work on their farms. MASAF is more a traditional PWP. where it is intended in the main phase
of the project that participant arPe pai, a r2ch wg equivalent to the minimum rural wage and are
expected to do a full day's wnrk.

The ability to target is an area where PWPs are often said to have advantages. Certainly
it is easy to target PWPs geographically and Malawi has an information system in FEWS which
can provided up to date data on which to base this. It is also claimed that PWPs have a self-
targeting element This is true in theory. Better-off people are unlikely to undertake hard
physical labour for a relatively low wage However, the level of poverty is so high in Malawi and
the availability of off-farm employment so relatively low, that even with careful EPA targeting,
the extent of self-targeting is highly dependent on the wage offered. MASAF offers cash or a
mixture of cash and food equivalent to the minimum rural wage. Even at this low wage, there
is far more demand for participation than employment available Workers are employed on a first
come first served basis. WFP is proposing a cash/food combination equivalent to 130 percent -
160 percent10 of the minimum rural wage. The demand for these is likely to be even greater.
Given that it is politically unacceptable to implement a PWP with a wage below the minimum
rural wage, it is likely that any PWP will attract many more participants than can be employed.
participants are still likely to be poor, but they may not be the poorest. This means that some
form of additional informal targeting or rationing must take place. An evaluation of the
emergency WFP FFW projects has shown that different projects have adopted different
approaches. Some have operated on a first come first served basis, in others physical
productivity criteria have been adopted and in others there has been some attempt to include the
most needy households (Dil, 1996). The problem of community level targeting should be
recognized and tackled head-on (see Annex F).

In their proposed QAP, WFP includes a second type of FFW project, which provides
incentives to workers on community based self-help projects, where the community itself is the
prime beneficiary of the project's output. It is proposed that the incentive offered (WFP do not
call this a wage) would be around 20 percent below the minimum rural wage. This should be



10 It is difficult to state categorically the value of the WFP wage, as the value of the
food component varies according to the time of year and whether the food is an alternative to
ADMARC or free market purchases.


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(b) As PWPs/FFW have joint objectives, there are two elements to measuring cost-
effectiveness: the project's cost-effectiveness as a resource transfer mechanism and its
effectiveness in producing rural community assets. Our interest here is primarily in the first.

It is reasonable to assume that PWP/FFW is no worse, and may possibly be better in
reaching its target beneficiaries than other mechanisms for resource transfer. Therefore the
analysis can concentrate on the amount transferred to beneficiaries as a proportion of total project
cost. For both MASAF and WFP'( P-) the figures have to be taken from the project proposals
and do not reflect actual costs borne. -'-9.

The MASAF proposal gives a total cost of the PWP component as $19.47million. This
should provide 120,960 household years with a total of MK252million over a five year period.
At current exchange rates this would imply that 86 percent of total project costs would be
delivered to the beneficiaries. This appears to be unrealistically high. The project manager of
MASAF gave a verbal estimate that the project aims toadeliver 35 50 percent of total costs to
beneficiaries and the rest will be spent on materials. This seems a more realistic assessment.

In the 1995/96 emergency FFW program, WF delivered 4321 MT of food to
beneficiaries, with an approximate value of $8.7 million. The cost of delivery was approximately
MKO.5million.

WFP's QAP proposal gives a total cost of $4.057, of which 73 percent represents the value
of food transferred to beneficiaries. However the project envisages inputs from NGOs and
various government ministries which are not costed.

It is very difficult to estimate how cost-effective PWP/FFW projects are as a way of
providing rural assets, and it is not directly relevant here. There is a large literature on the
subject. It is worth noting, however, that there may be a conflict between the characteristics of
eligible beneficiaries from a food security perspective and their suitability for participation in a
PWP.

(c) Is there a role for food as a supplement to or substitute for cash in PWP/FFW projects?
A number of issues arise in regard to this question. Firstly, how acceptable is this to participants?
An argument has been put forward in Malawi that a food wage is sometimes preferred by FFW
participants because of the high transactions costs involved in exchanging cash for food. MASAF,
in conjunction with WFP, gave participants in their pilot projects the choice of cash, food or a
combination. In Ntcheu and Mulanie. the community chose a combination of cash and food. This
choice was made in November when food was relatively scarce on local markets and prices ere
likely to rise. By April, when local food was coming on to the market, there were requests for
the wage to be paid entirely in cash. In Machinga. which shares a border with Mozamh"bi.e the
community requested cash which could easily be exchanged for cheap food from over the border.
Thus the preference depends on market conditions, location and time of the year. It is more


G4







more effective in targeting the poorest in the community. No such projects have yet been
implemented. It will be important to monitor the types of households who find this attractive.

PWPs, and particularly FFW, are often seen as a way of targeting poor women. Both
MASAF and WFP specifically mention this. This is certainly possible, but would need careful
program design. MASAF has had difficulty attracting women to its pilot projects.. Initially about
50 percent of applicants were women, but most of these were old and not capable of undertaking
the physical labour involved. Now there are relatively few women participating This may be
in part because the pilot projects all involve rnariwnrk The mission was told that there may be
traditional restrictions on women working on roads along side men. However, this has not been
mentioned as a problem on WFP's emergency FFW projects. The registration figures show
slightly more female than male participants. The recent appraisal (p, 1996 indicates that in
NGO administered FFW projects, supplied by WFP, women made up over 80 percent of
participants, but that in the MASAF projects, where WFP supplied food, the male-female ratio
started off evenly, but female participation fell as the work progressed. This was partly because
- a rule was introduced that only one household member could participate, and this was usually the
man. Also, the foremen preferred to have male participants, and wl lay mo
preference for male workers.

This means that, if female participation is an objective of a FFW program, both the
community and the works supervisors will have to be carefully informed of this and actual
participation, as opposed to initial registration, should be monitored.

In the short-term, PWPs will improve the food security of participating households.
However, the effect is likely to be short-term. They could possibly lead to improvements in
longer-term food security, depending on how the additional income is used within the household.
PWPs will not provide long term employment, nor, unless they improve participants' skills, will
they improve employment prospects for participants.

The long-term developmental impact of PWPs is determined by the size and impact of the
resource transfer to rural areas, and the developmental impact of the assets produced. This is also
true where WFP provides an incentive for community self-help projects. There may be an
increased role for support to these projects particularly where they directly improve the resource
base of communities, e.g. soil conservation and forestry projects.

If PWPs are to be effective as a response to transitory food insecurity, they must be
capable of speedy implementation. It clearly took a few months for some EPAs to respond to the
WFP emergency program this year. This is very common when emergency FFW projects are first
introduced. This implies that projects or blueprints for projects have to be prepared in advance,
and available to be taken down from the shelf when the need arises.


G3








difficult to store food than cash, so when food is plentiful, a food wage is not so appreciated. A
food wage does have the advantage that it is inflation-proofed.

It has also been argued that a food wage is more likely to attract women and a cash wage
men. Undoubtedly if there are high transactions costs in exchanging cash for food, then it is
. women who are likely to bear them, but there is no direct evidence that women prefer a food
Sage.

iJ The logistics costs of providing a food wage can be substantial. MASAF had to bring in
the Malawi Red Cross to assist in distributing food from WFP district depots to beneficiaries.
There are only a limited number of NGOs with the capacity to assist in this way, and it is doubtful
whether they would see this as an appropriate role, unless they were also involved in developing
and running the project.

Although it is argued that FFW projects can have benefits where there are thin and
unreliable food markets, it can also be argued that bringing in substantial amounts f fd a
small area can disnlpt what market there is. It is difficult to assess how many FFW projects are
big enough to have that kind of impact, but it must be considered as a possible negative effect.
Certainly the current situation, where the FFW component is almost exclusively in the form of
maize, reinforces the current dependence on maize as a staple crop in Malawi. WFP is keen to
include other commodities in the food wage, provided they can be purchased in the country or the
region, or can be donated. This should be encouraged. If the wage is paid in cash, households
have the option of buying a wider variety of food on the market, as it is available, some of which
may be lower in price.

Finally, one of the arguments that is always made for the use of food in projects is that,
from the donor perspective it represents additional resources. This is because of the different
ways in which aid programs are funded. This is less and less true nowadays as the supplies of
food aid dry lup and donor structures are more and more flexible as between the provision of
commodities and the provision of money. Food should only be used if it has something positive
to add to a project.


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