The African Development Bank (AfDB) has asked policymakers to either change policies in favour of poor farming households or brace for deepening levels of inequalities.
The pan-African bank argues that credit-constrained households are forced to sell their farm produce early when output prices are well below their peak to meet their short-term expenditure needs.
In a latest working paper for October 2016 titled Selling Crops Early to Pay for School: A Large-Scale Natural Experiment in Malawi, the bank says the broader lesson is that weak financial markets and highly seasonal crop prices combine to affect poor households.
Reads the report in part: “We would argue that lessons for policy are not limited to the timing of school fees although the results do suggest that allowing flexible timing of school-related payments could be beneficial for poor households, if such a policy were easily implementable.
“Access to inexpensive credit would allow households to finance their school expenditures at lower rates than those offered by crop markets. Alternatively, better development of crop markets to dampen the severity of intra-annual price cycles would lower the penalty for selling early.”
Farmers Union of Malawi (FUM) and AHL Commodities Exchange (AHCX) agreed that lack of proper market structures has contributed to the poor state of Malawian farmers who are yet to benefit from their farming as they are ripped off by unscrupulous traders.
Said FUM president Alfred Kapichira Banda: “Our farmers have remained poorer while the middle men are getting richer by the day because we have not development crop market as most of the companies that support farmers would rather buy from their base prompting the coming in of middle men.”
AHCX communications manager Thom Khanje said that while farmers continue to sell their crops earlier than the peak season, use of warehouse receipt system would better address the challenges where farmers are selling at below-average prices just to meet their short-term expenditure needs.
The AfDB study said pressure to sell early comes from an education policy change unrelated to crop marketing and advised on the need to consider policy spillovers in settings where households have limited ability to smooth expenditures over time. n