1. 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” April 2015

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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

8. 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

9. 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