Wednesday, September 3, 2014

You are here

Malawi: Facing the Costs of Food Insecurity and Rising Prices

How can President Banda and international donors respond to rising food prices following the devaluation of the kwacha?
Share |
A market in central Malawi. Photograph by ILRI/Mann.

Mzuzu, Malawi:

The peaceful transition of presidential power in April from Bingu wa Mutharika to Joyce Banda highlighted the respect for democratic culture and constitutional order held by Malawian people and institutions. But now, Joyce Banda and her People’s Party are testing this respect to the maximum as the full effects of their devaluation of the kwacha lead to rapidly increasing food prices.

Before his unexpected death in office last April, Mutharika had steadfastly refused to heed calls from the IMF to devalue Malawi’s currency, arguing that to do so would hurt the country’s poorest. Yet devaluation by nearly 50% was one of Joyce Banda’s first actions, a dramatic move both for its inflationary impact and demonstration a new era of international and donor relations.

It is particularly bold for a president who has not yet won an election, and in a country where food security is seen as the government’s responsibility; in the fatal food riots last year, anger was directed at then-president Mutharika.

Inflation and livelihoods

In July, the Malawi Vulnerability Assessment Committee suggested that over 1.6 million people would be unable to meet basic food needs in the next three to eight months. Poor households, which spend a high proportion of income on food, will be particularly hard-hit.

One rural street trader told Think Africa Press, “I am now using a lot of money to buy just a few things…I’m worried that I now can’t buy enough for my family”. She explained that she has cut back on many food items such as tomatoes and usipa (small dried fish). Her household is now eating little other than maize. “The food I sell is now more expensive, so customers feel I am cheating them and they don’t buy”, she added.

To make matters worse, in the southern and central regions (but also in Karonga in the north), regional drought led to a poor harvest last season. Few have access to irrigation, and farmers in some districts harvested almost nothing last year.

Once prices stabilise therefore, it is also crucial that the underlying problems that leave many Malawian households vulnerable to food shortages are tackled, the central causal factor being poverty and its vicious cycles. Poor households struggle to ride out food shortages or high prices as they lack food stocks or tradable assets. They also suffer from annual volatility of prices, selling soon after harvest when prices are lowest (to repay debts incurred during production and due to inadequate storage facilities), and buying in the lean season when prices are highest. Furthermore, poverty restricts investment in things such as food production and education.

Reverberating impacts

The aim of the currency devaluation, other than satisfying donors, is to promote Malawian exports. Under Mutharika, Malawi experienced a severe shortage of foreign exchange and a trade deficit, which led to debilitating fuel shortages. Banda gambled that the devalued kwacha will increase exports like tobacco and sugar cane, but there are nonetheless big challenges to overcome.

Public sector employees, including health workers and university lecturers, have been striking as the government has failed to match their price inflation-induced wage increase demands. The government says it doesn’t have the funds to do so, yet without quick resolution, services and the economy could suffer.

Agricultural investment will also be restricted by the kwacha devaluation, with fuel and fertiliser prices rising. In spite of its contribution to maize surpluses in recent years, the government is not increasing its subsidy for farm inputs, given to the poorest and most vulnerable households, this year.

Additionally, while national grain stocks have started to be fed to supply-limited regions by the parastatal Agriculture Development and Marketing Corporation (ADMARC), which claims to have sufficient stocks, the body’s ability to act effectively has been questioned. In the 1990s, the World Bank’s structural adjustment programme required the privatisation of ADMARC. Mutharika partially re-instated ADMARC powers, but the parastatal remains unpopular with farmer groups due to the low prices it pays and allegations of corruption.

Tackling insecurity and donor responsibility

Having persuaded Banda to devalue the currency, international donors must act to deliver targeted food aid and provide budgetary support to maintain government programmes. But despite warnings of food insecurity, the donor response has not been particularly swift.

Government and NGOs need to continue to work to improve market and credit access and storage facilities. This might include further reform of ADMARC, a move which could be seen as “government revolting against donors”.

Agricultural interventions could also help. Crop diversification is a form of risk-aversion, and shifting away from maize towards more drought-tolerant and/or less fertiliser-hungry crops including sorghum, millet, cassava, legumes and tree crops would help subsistence households cope with climate variation and rising fertiliser prices. But this will require assistance.

Agronomic interventions are another area which could bring support and build resilience. First, the installation of small-scale irrigation schemes and adoption of farming techniques such as Conservation Agriculture, which help maintain soil moisture, can reduce susceptibility to erratic rainfall – historically a problem in the southern region. Second, the nutritional quality of maize grain can be improved through breeding and mineral-enriched fertiliser. This would help poorest households which rely almost solely on a diet of maize to meet energy and micronutrient requirements. Parallel health and sanitation programmes could also bring big benefits for nutrition, particularly by combating diarrhoeal diseases.

To be sure, not all donor interventions have helped Malawi. Aid conditions have caused considerable market volatility and uncertainty. The IMF-required kwacha devaluation as well as the World Bank-required privatisation of ADMARC both exemplify this. And in 2002, Malawi experienced famine when donors turned their backs on President Bakili Muluzi’s administration.

Still, donors should act on humanitarian grounds to mitigate the price shocks currently hurting Malawians though there is ultimately a need to reduce dependence on international donations.

Looking forward

The kwacha devaluation is widely regarded as a bitter pill that Malawi had to swallow at some time, with much of the blame being laid on Mutharika’s administration and the economic mess it left behind.

Joyce Banda’s People’s Party inherited a difficult economic situation and her belt-tightening reforms are made more painful by high global food prices. Whether southern Africa’s first female president can survive the general election in 2014 will depend on her success in navigating the turbulent waters that have followed the currency devaluation.

Banda will also be praying that the rain gods are kind to Malawi this year, as this season’s harvest will be hugely influential in the fate of Malawians and her own fate at the ballot box. Malawi may have earned back the trust of major donors, but the country has yet to see donors’ support coordinated into an effective response.

Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact: editor@thinkafricapress.com

Share |

Comments

I would request the author not to misuse the word FOOD sORTAGES in his/her writings. It is these types of writings that bring panick to politicians to start instituting unnecessary export bans. The author does not indicate any food balance sheet statistics to substantiate the claim.What I would say is that Malawi has been and is still suffering from chronic shortage of foreign currency (foreign currency reserve depletion). Following former president's bad political relationship with the British that saw a British High Commissioner to Lilongwe expelled, most donors withdrew their funding to the country. This funding was subsistantial source of foreign currency. Apart from that political isolation, Malawi faced economic isolation when its sales of its major export crop and foreign exchange earner, tobacco slumped 35% in the 2010/2011 season dropping the total earnings to US$267 million from US$363 million earned the previous year. Unlike other countries that are rich in minerals, oil, gas and other natural resources, Malawi has been unable to attract adequate borrowing commercially-oriented lenders such as China, to hedge against negative effects on balance of payments of the economic downturn.The IMF standard prescription - DEVALUATION - is only worsening matters. As the country is now borrowing foreign currency from bilateral donors, international financial institutions, and from private sources, devaluation is only DISCOUNTING its repayment abilities. By devaluing the local currency by 50%, it means the value of local taxes or volume of exports will have to be 1.5 times more the value or volume that was needed just 6 months ago, to meet the same value of imports (fuel, drugs, fertilizers, etc).In short, rising prices of especially fuel from MK195.00 in April 2012 to MK500.00 in July 2012 is the main driver of local inflation. In many countries governments are instituting measures to contain foreign currency depreciation and related fuel price crises BUT Malawi under the arm pits of "good advisers" is not doing that. I am not sure what political repurcursions this will have much more sooner than later. 

I agree with Mkumbwa. When we talk of situation I would rather substantiate with facts, figures that are on the ground. While I agree with the author that 1.76 million people are facing food shortages, it does not translate to automatic increase food prices. The author and the world should know that Malawi is not a market-based economy and much of the population does not buy the staple food. It is only the poor urban population that is mostly under susch strain.Secondly, when we talk of effects of devaluation on net imports, we shoul not just look at the volumes of the stuff we import or export. We should look at the values of the imports and exports. Malawi's trade deficit has always been increasing. This indeed has an impact on the volume of foreign reserves especially as the economy continues to expand and indeed attract foreigners into play. As small an economy it is, and indeed conforming to the neo-classical thinking, Malawi heeded calls from the World Bank and IMF to be as open as possible in order to entrench competition which "would" promote innovativeness and reduce costs. Over the last two decades that is yet to be seen and indeed things are still worsening. This is exactly what Mutharika read and thought "fixing" would save Malawi. We all know he was wrong.Way forward, political leadership needs to acknowledge the "between hard place and a rock" situation the country is in. Given a chance I would discourage use of fertilisers as the subsidy program is only benefiting the elite and middle income group more than it benefits the ultra-poor (there are a number of studies that show that). In the longer term fertilisers are also hurting the economy in two ways. One way is that the importation is done at the time the foreign reserves are undergoing through a strain i.e. August-October when donors havent responded yet to the budget, earnings from tobacco are diminishing and global fuel prices are on upward trend as a result of typhoon season in America (minus the dramas that surround anti-Muslim movies and such related issuies). Secondly, fertilisers have negative longer term impacts on the soil and water quality which have to be properly mitigated which the poor farmer out there is not aware of.

Thanks for both these replies which will have contributed greatly to readers' knowledge.  As the article got edited for length some details were cut. Here in Mzuzu, a 50kg bag of maize now costs MKW3,600 compared to 2,500 before devaluation. This is going to hit hard anyone on a fixed income or living from savings. This document (http://reliefweb.int/sites/reliefweb.int/files/resources/Food-Price-Watch-August-2012.pdf) provides some more facts and figures on price rises, including specifically in Malawi. As we head into the growing season we'll expect to see prices continue to rise. We don't know how many households will fail to be able to buy enough healthy food to meet their needs, but the forecast looks bad.You rightly point out that the urban poor (often an overlooked group) will be particularly vulnerable to price rises. However, those whose harvests were hit by drought last year will also need to buy. And it should be remembered that the poorest rural households (think less land area, lower fertility land, and and/ or less fertiliser) are generally net buyers over the year. In fact, 60% of maize producers are net buyers (http://www.future-agricultures.org/pdf%20files/MalawiAISPFinalReport31March.pdf). I completely agree that the trade deficit is at the heart of Malawi's economic troubles. Almost all manufactured goods here are from South Africa, China or India. Fertiliser seems to come from China. It is near impossible to balance the expense of these imports through export of raw agricultural products, even with cash crops such as tobacco. The opening up of markets has not, it seems, served Malawians well. Investment is needed in post-harvest processing to raise the value of agricultural products (this will surely need external assistance). There are also other ways the government could subsidise farming (e.g. domestically-produced lime, rainwater harvesting and irrigation systems, farmer field schools etc.) which could act in the long-term health and economic interests of the population. Again, I agree with you, the fertiliser subsidy has big problems regarding economic and environmental sustainability.

You've touched on a lot in a little space, thank you.  I appreciate that you included a bit on diversity and healthy living condisitons - this is really the take away message to fix the root causes of the symptoms we are facing with inconsistent "food" supplies, "food" prices, and malnutrition (meaning bad nutrition, both over and under what one requires). I say "food" as I refer to food, not maize, which is a major underlying reason for the problems that you outline.  The focus on monocropping maize harms the environment, causes peaks and valleys in supply making maize too cheap when there are peaks and too expensive during the valleys, and provides only a few of the 51 nutrients needed for our bodies to be healthy, strong and energetic.Changing the foods through breeding or chemically fertilizing would not address the problem (from article "Second, the nutritional quality of maize grain can be improved through breeding and mineral-enriched fertiliser. This would help poorest households which rely almost solely on a diet of maize to meet energy and micronutrient requirements").  It would only hide the symptoms.for people who chose to buy those seeds and chemicals from the agro-dealer.  The problem would still exist.  With the limited resources that we have for development, it is best that we use our energy to address the real problems.  We must move to healthy diverse food systems that supply food year round - there are thousands of foods from which to choose, we don't need to change them, just use them.  This can provide all the nutrients we need while at the same time being great for our environment and our economy.