Treasury needs to inject at least K100 billion annually for buffer stock maize purchases if the price of the staple is to be stabilised, a new study shows.
In a paper titled ‘Can a Maize Price Band Work in Malawi?,’ International Food Policy Research Institute (Ifpri) argues that price volatility together with operational challenges and high budgetary costs make it difficult for Malawi to stabilise either retail or farmgate maize prices using a price band combined with a buffer stock.
Reads the paper in part: “While a separate modeling exercise is required to estimate the volumes of stocks needed to stabilise maize prices, Ifpri estimates from 2016 suggest these are very large and would cost at least K100 billion a year.
“As with pure buffer stock interventions, there is a danger that mistimed trade interventions may destabilise rather than stabilize the domestic maize market.”
Malawi has attempted to stabilise the price of its main staple, maize, for many years by setting minimum prices.
Since 1999, this has been the dual responsibility of the National Food Reserve Agency (NFRA), which manages the nation’s Strategic Grain Reserve, and the Agricultural Marketing and Development Corporation (Admarc), an agricultural marketing parastatal with an extensive network of depots and warehouses throughout the country.
However, estimated farmgate prices have on most occasions remained below the minimum farmgate prices announced by Ministry of Agriculture.
For instance, in July Ifpri estimates that 93 percent of the farmers who reported having sold maize in July, sold at K142 per kilogramme (kg), which is lower than the minimum farmgate price of K200 per kg set by the Ministry of Agriculture and Food Security in April.
In the 2019/20 financial year, maize purchase was allocated K10 billion.
On Wednesday, Admarc acting chief executive officer Felix Jumbe Admarc said the biggest challenge Admarc has been facing in buying maize and in its operations, among others, is that although some reforms have taken place, there have been no deliberate programmes to re-capitalise the parastatal.
According to Jumbe, Admarc planned to buy 600 000 metric tonnes (MT) in the current buying season, but such plans have been frustrated because they do not have money.
He said Admarc has been operating on a hand-to-mouth basis in its quest to deliver its mandate,saying the parastatal needs K300 billion for re-capitalisation to help the institution run its operations, including buying of farm produce.
Minister of Agriculture Lobin Lowe said capitalising Admarc is a necessity, emphasising that the parastatal can do better and deliver to the satisfaction of Malawians.
Agricutural analyst Tamani Nkhono-Mvula believes that unless government enforces minimum prices and farmers get organised, the farmgate prices that the government releases every year won’t be of any benefit to the farmer.
Maize is an important crop in the country and, as part of the food component, it impacts the economy as it constitutes 45.2 percent of the Consumer Price Index (CPI), which is an aggregate basket of goods and services for computing inflation.
This means that any movement in the price of maize either way has a direct bearing on inflation.