FEATS ProjectAGRICULTURAL PRODUCTIVITY, TRADE AND TRADE FACILITATION

By Lawrence Mapemba

University of Malawi

Bunda College

21st February, 2011

GENEVA, SWITZERLAND

Overall objective is to examine the linkages among agricultural productivity, trade and rural livelihoods

Field survey was conducted - farms, companies and organizations that are involved with production, processing and exporting of tradable crops were visited to collect information about their operations and constraints and policy issues that affect their operations.

Objectives and Methodology

AGRICULTURAL PRODUCTIVITY

There has been an increase in productivity of major agricultural tradable crops in the past decade although in some years, yield was affected by unfavourable rainfall

The increased productivity has been due to government’s effort through the introduction of different interventions that aimed at increasing land productivity by smallholder farmers such as farm input subsidy program, promotion of organic manure, intensive extension methods and promotion of high yielding varieties

The availability of policies and strategies that targeted smallholder farmers and the agricultural sector as a whole, have influenced the increase in crop productivity

AGRICULTURAL PRODUCTIVITYMaize yield

0.00

0.50

1.00

1.50

2.00

2.50

199819992000 200120022003 200420052006 200720082009

Year

MT/

ha Maize

Linear (Maize)

AGRICULTURAL PRODUCTIVITYTobacco Yield

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

MT/

ha Tobacco

Linear(Tobacco)

AGRICULTURAL PRODUCTIVITY

Cotton Yield

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

MT/

ha Cotton

Linear(Cotton)

AGRICULTURAL PRODUCTIVITY

Tea Yield

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Mt/HaTea

Linear(Tea)

AGRICULTURAL PRODUCTIVITY

Sugar Yield

98.0100.0102.0104.0106.0108.0110.0112.0114.0116.0118.0120.0

2004 2005 2006 2007 2008 2009 2010

Year

Mt/

Ha

Sugar

Linear(Sugar)

CONSTRAINTS TO AGRICULTURAL PRODUCTIVITY Malawi considered high-cost crop producing country, due to

◦ landlockedness◦ Government policies (especially tax policy)◦ low rates of adoption of good crop husbandry practices

Low input usage◦ Most farmers not applying recommended rates - yields and

quality highly compromised Difficult to access agricultural inputs e.g. fertilizer, remote

farmers Poor soils due to over cultivation on same piece of land Lack of small-scale mechanization – over reliance on hand

hoe

AGRICULTURAL TRADELandlockedness and Trade Facilitation

Govt efforts to integrate the country into the global economy through trade

Undermined by structural weaknesses in the economy including the country’s landlocked position◦ Malawi’s exports less competitive on the international market ◦ High transaction costs ◦ depends on road and railway transport for its international trade ◦ exports have to travel a minimum of 948 Km to the nearest sea

port ◦ high transport cost associated with the long distance to the ports

and the administrative requirements that the cargo is subjected to while in transit makes Malawi one of the high cost producer

◦ Malawi railway system is unreliable making road transport to be the preferred mode of transportation

◦ private sector in Malawi use longer trade routes which are easily accessible by road

Landlockedness and Trade Facilitation

Aggravated by the country’s lack of diversification of exports and imbalances between imports and exports◦ seasonality of the country’s exports, it is difficult for

transporters to arrange return load which would help to reduce the transport cost

◦ For example, it costs $35 per tonne to transport sugar to Beira with backhaul as compared to $60 without back haul

Shortages of vehicles during some periods of the year particularly during tobacco marketing period ◦ vehicles are committed to transporting tobacco ◦ Industries like cotton have complained of lack of vehicles

as the industry cannot offer competitive rates as those offered by the tobacco industry

Landlockedness and Trade Facilitation

Estimated by TERA International Group Inc. that in 2003 Malawi paid US$60.7 million for transportation of exports ◦ Time costs add about 3% - total transaction cost to be US$

78.9 million ◦ transport cost for imports was estimated at US$129.3

million For these reasons, government has put trade facilitation as a

major element of its economic policy ◦ Under the World Trade Organisation (WTO) negotiations –

Doha Round ◦ Under the regional trade agreements (RTAs) that Malawi is

a party to

On-going/planned corridor development projects

Government has also identified other new corridors which are considered to be more efficient than the existing ones ◦ Mtwara Corridor and the Shire - Zambezi waterway ◦ Mtwara corridor is a multi-modal transport corridor

which seeks to link Malawi to the Indian ocean by rail from the port of Mbamba bay on Tanzanian side of Lake Malawi to the port of Mtwara

◦ The plans are that goods destined for Malawi will be offloaded at Mtwara port and transported to Mbamba Bay by rail then ferried by ship to various destinations along Lake Malawi

◦ there has not been much policy talk about the project

On-going/planned corridor development projects

Shire Zambezi waterway which is expected to link Malawi to the India Ocean through the rivers of Shire and Zambezi to the port of Chindi in Mozambique ◦ used to be the communication and trade route for the

white settlers during the colonial era ◦ Goods destined to and from Malawi will be transported

from the ports of Beira and Nacala by bulges all the way to Nsanje from where goods will be transported by rail to various destinations including Zambia, Democratic Republic of Congo, and Zimbabwe

◦ It is expected that the route will reduce Malawi’s cost of production by over 50%

◦ The success of this project largely depends on the cooperation of the Mozambican government

Effect of landlockedness on export decision

Favourable agronomic conditions for production of a range of tradable agricultural commodities

Realizing the high risk associated with the dependence on a narrow export base ◦ potential for production and export include cotton, coffee,

ground nuts, pigeon peas, beans, macadamia nuts, cashew nuts, soya beans and paprika

◦ Although maize food security also a crop with export potential

their production volumes still remain low ◦ productivity problems◦ problem of competitiveness at regional and international

markets

Effect of landlockedness on export decision

Agricultural exports from Malawi compete for the same buyers Being a small producer of these commodities, Malawi is a price

taker on international market ◦ the high transaction costs which the country faces due to its

landlockedness cannot be factored into the price of its exports ◦ These costs are transferred to the producers by the intermediaries ◦ the low returns, the producers are less motivated to produce these

crops The estate subsector not cultivate maize, beans, soya beans,

and ground nuts significantly Therefore important to address the problem of high transport

cost ◦ through improvement in transport efficiency ◦ exploration of cheap transport routes ◦ would increase the returns to the farmers and therefore motivate

them to produce and export more

Agricultural Trade and Trade Facilitation

Agricultural commodities are by their nature highly perishable ◦ requires a good handling system including efficient

transport system to markets ◦ long distance to seaports as outlets to international market

puts Malawi at a big disadvantage ◦ In transit the cargo is subjected to checks and inspection

which further contribute to long delivery period of the cargo

◦ only export products which are less time sensitive Malawi’s nuts have been denied entry into the

European Union market allegedly due to high aflotoxin levels

According to Illovo Sugar Company, the costs of sending sugar consignment to Beira and Nacala averaged US$60/ton in 2006/7 and the cost has since increased to US$70/ton

Agricultural Trade and Trade Facilitation

There are plans to rehabilitate the rail way system including the 77 Km section of the rail to Nacala

The customs documentation has been streamlined such that currently importers/exporters use a single customs document

The Malawi Revenue Authority (MRA) computerised some of its border posts - speed up clearance of goods - plans to computerise all key border posts

SADC and COMESA are implementing trade facilitation schemes as part of their regional integration programmes

CONCLUSIONS Improved agricultural productivity has improved

agricultural trade performance For crops that have direct benefits to rural livelihoods,

the trade has improved the livelihoods of smallholder farmers

For some cash crops no improvements in incomes of smallholder farmers - poor market systems and no value addition

Research exploitation of smallholder farmers Deliberate policies by government - improve farmers

livelihoods

Recommendations-productivity

Identify financing agency to loan tea farmers to uproot old tea and establish plantations of hybrid tea

Extension-Research-Farmer linkages should be strengthened at a platform level

Promote irrigation in tea farming to improve land productivity on both commercial and smallholder farmers

Recommendations-Trade Facilitation

Government to work on improving the railway between Malawi and Mozambique

Shire-Zambezi waterway Malawi should continue dialogue with Mozambican counterpart

Government put in place mechanisms to ensure no siltation of the waterway

Recommendations-Trade Facilitation

The government to work with countries in COMESA and SADC regions - port and rail related problems delay shipping

Coming up with efficient and effective means of clearing goods

Malawi’s trade should invest in research and development - competitive advantage e.g. Kilombero rice which is a speciality of Malawi

Recommendations-General There is need for a sample survey of large scale and

smallholder farmers cultivate of tradable crops Study their levels of production, extent of

involvement in trade, livelihoods and general constraints

Study domestic market The threat of burley tobacco necessitates extensive

policy research in feasible alternatives NOW◦ Biofuel crops like jatropha◦ Other tradable crops that have an expanding market

Institute studies on exploitation of farmers Value-addition necessary for some tradable crops

Questions?