Food Security The Role of the Private Sector Jason Agar April 30 th 2004

Basics Food is being equated with Maize – definitions of hunger Tend to confuse self-sufficiency with security Focusing on food security not livelihood security Private sector not homogenous: Commercial farmers & smallholder farming households Formal full time & informal seasonal (cross-border) traders Large millers/processors & Micro/small maize millers Formal and informal distributors Large, medium and small Retailers

Growing Maize Commercial Farmers grow: For seed maize For workforce Contracts for processors Not attractive as a commercial crop because: Price controls, Grain Reserve and Donor handouts limit profit potential over agricultural cycle Export ban unpredictability and caution limits market opportunities Better cash crop alternatives in most areas

Smallholder Farming Families Local variety for own consumption, hybrid for cash Harvest and returns unpredictable – low input/productivity cycle Unsuitable crop in low and high rainfall areas like Shire Valley & Thyolo/Mulange and hilly areas Returns are relatively poor compared to other cash crops despite TIP (which also discourages regional smallholder supply and cross border trade) Aid distributions distort local market potential Most farming households are net consumers of maize But unpredictability of availability and price means it is almost always part of the crop mix

Traders Under-estimate role of informal seasonal traders in the supply chain – how many here have/do some maize trading?? Cost of transport, working capital and investing in storage/warehousing all prohibitive Risks to traders if price controls and widespread maize distribution Yet formal and informal trade acts as a safety valve to limit prices Regional surplus and deficits tend to cancel themselves out Needs regional view, but prone to national interests

Processors Vulnerable to supply fluctuations Cost of working capital is too high to smooth production by storing maize Cost of investing in storage/warehousing too high – capital allowances work against it…… Cost of operating a formal sector business is becoming too high and problematic

Other Impacts Cost of transport into and within Malawi for all goods driven up by maize and fertiliser imports Cost of employment driven up due to high dependence of workforce on maize Cost of capital driven up by borrowing for the purchase of maize

Suggestions - 1 Encourage consumption of other staples Promote the right crops in the right areas that enhance household livelihood security Consider effects on supply and demand of each maize intervention – these mitigate against a market solution in future Promote formal and informal trade – remove informal barriers to maize import Lift export bans as soon as possible, compatible with domestic availability – make conditions for export bans transparent Promote domestic investment in irrigation, warehousing, silos, vehicles, processing etc. through enhanced capital allowances, removal of duties on spare parts and reclaim surtax

Suggestions - 2 Review the MD Electricity tariff that makes irrigation not viable Promote investment and competition in strategic industries such as fertiliser production, irrigation supply, seed production and transport Address the underlying causes of the high real cost of capital that hits domestic capital intensive businesses hardest Remove structural incentives for informalising business and improve incentives for formalising business Make Malawi a better place to do business