Under What Circumstances Can the Use of Price Policy Contribute to Improved Food Security Ephraim W. Chirwa Presented at FAO Consultation on “Trade Policy Supportive of Food Security” 20 - 21 April 2015

Outline of the Presentation Stages of Agricultural Transformation Roles of Price Policy Input price policy Output price policy From state intervention to withdrawal Coordinated approach

Stages of Agricultural Transformation Literature points to several theoretical frameworks on agricultural transformation Structural models of transformation in development – stages theories of development: from subsistence to industrial economies Lewis two-sector model: increasing productivity in agriculture releasing surplus labour to industrial activities

Within Agricultural Transformation Three stages of transformation (Ray, 1998) Subsistence farming Transition to mixed and diversified farming Specialized farming Three policy stages of transformation(Dorward et al, 2004), Establishing the basics Kick-starting markets Withdrawal

Agricultural Transformation & Policy Strategies Stage I Subsistence Farming Stage II Transition to Mixed and Diversified Farming Stage III Specialized Farming Key Features Dominance of food staples Low productivity Low marketable surplus Unstable staple food prices Small and declining land holdings Family labour Traditional technologies Own production based food security system – low food diversity Key Features Dominance of cash crops Uptake of new technologies (seeds, fertilizers, tractors) High marketable surplus – for accessing food Rising agricultural productivity Food security relying mostly on purchases – medium food diversity Key Features Modern commercial specialised farms – cash crops Advanced farming technologies High productivity Exclusive production for market Food security exclusively based on purchases – high food diversity 1. Establishing Basics: Infrastructure (roads/ communication), Extension, Research, Land Tenure (reforms), farmer organisations 2. Active State Intervention: Kick-Starting Markets 3. State Gradual Withdrawal: Private Marketing Systems Price Policy ‘Smart’ subsidies on inputs (seeds/fertilizers) & credit Output price control – higher producer prices (above export parity) Price Policy Limited subsidies on inputs (seeds/fertilizers) & credit Output price control – floor prices biased towards staple food producers Managed consumer food prices Price Policy Liberalized prices on inputs (seeds/fertilizers) & credit Liberal consumer food price policy Safety net-based subsidies Source: Adapted from Dorward et al (2004)

State Intervention to Withdrawal Input subsidies targeted to households in low productivity staple food Price support must be implemented efficiently and effectively Price policy must provide incentives to staple food producers Gradual withdraw based on achievement of productivity targets Price support policy require good and timely data on production, post-harvest losses etc Price support requires coordination with other policies Experiences show that most were poorly implemented and have not been effective High volatility in food prices Poor targeting of input subsidies, and difficult to withdrawal Lack of monitoring and evaluation of outcomes

Malawi Justified Need for Input Subsidy UNSTABLE POLICIES UNSTABLE WEATHER SLOW PRIVATE SECTOR DEVELOPMENT POOR ROADS CREDIT, RESEARCH, EXTENSION, CASH & OIL CROPS ROADS PRIVATE SECTOR, NON-FARM MAIZE PRICE & TRADE POLICY Low producer investment Unstable maize prices Low maize & agric productivity Consumer ‘lock in’ to low productivity maize Low & vulnerable real incomes Low demand for non-agric goods & services INPUT SUBSIDY SOCIAL PROTECTION

But Needs Policy Coordination TRADE OPENNESS? INSTRUMENTS? FLOOR / CEILING PRICES? TRANSITION MANAGEMENT? MARKET INFORMATION? POOR/ REMOTE AREAS? MAIZE PRICE AND TRADE POLICY INPUT SUBSIDY OTHER AGRIC. PRODUCTIVITY POLICIES EXTENSION, RESEARCH, CREDIT, ROADS, NON-FARM GROWTH TIMING? CONDITIONS? TYPES OF TRANSFERS? TARGETING? SOCIAL PROTECTION

THANK YOU FOR YOUR ATTENTION Under What Circumstances Can the Use of Price Policy Contribute to Improved Food Security THANK YOU FOR YOUR ATTENTION Ephraim W. Chirwa 20th April 2015