The Political Economy of Food Price Policy in Malawi
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WIDER Working Paper No. 2013/30 Dealing with the 2007/08 global food price crisis The political economy of food price policy in Malawi Ephraim Chirwa and Blessings Chinsinga* March 2013 Abstract The paper examines the underlying political economy motivations of the government’s policy responses to food price increases in 2007/08 focusing particularly on maize as the main staple crop. The main government policy responses to the food price spikes in 2007/08 were price control, bans on domestic and international trade. We argue that although there has been increased openness in policy debates and dialogue relating to the question of food security since the transition to democracy in May 1994, the process continues to be unclear, dominated by presidential interventions, and tends to be highly motivated by electoral politics and considerations. Keywords: food policy, price policy, food security, policy processes, political economy Copyright UNU-WIDER 2013 *University of Malawi, corresponding author email: [email protected] This study has been prepared within the UNU-WIDER project ‘Political Economy of Food Price Policy’ directed by Per Pinstrup-Andersen. UNU-WIDER gratefully acknowledges the financial contributions to the research programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. This publication was supported by an agreement with Cornell University Division of Nutritional Sciences under Subagreement No. 60891-9461. ISSN 1798-7237 ISBN 978-92-9230-607-6 JEL classification: Q18, E64, P 48 The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world. www.wider.unu.edu [email protected] UNU World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6 B, 00160 Helsinki, Finland Typescript prepared by Lisa Winkler at UNU-WIDER. The views expressed in this publication are those of the author(s). Publication does not imply endorsement by the Institute or the United Nations University, nor by the programme/project sponsors, of any of the views expressed. 1 Introduction This paper examines the underlying political economy motivations of the government’s policy responses to the 2007/08 dramatic global food price spikes. Although periodic food spikes are not a new phenomenon in Malawi, the uniqueness of the 2007/08 experiences is that the country experienced sustained price increases when it had registered a historic record surplus of its maize harvest. The country reportedly recorded 1.3 million metric tonnes (MT) of maize over and above annual food requirements estimated at 2.8 MT (Dorward and Chirwa 2009). The record maize harvest followed the implementation of the Farm Input Subsidy Programme (FISP) which provides smallholder farmers with highly subsidized fertilizer and seed using a voucher system. Although the FISP was launched against fierce resistance among development partners, it turned out to be a huge success which, for several years, put Malawi at the centre of the global debates about the desirability of subsidies in reviving the fledging agricultural sector across the African continent. Malawi was actually touted as a model for the rest of the countries on the continent to emulate for achieving and accelerating the attainment of a uniquely African green revolution (Chinsinga 2010). As a predominantly agro-based economy, Malawi is one of the poorest countries in the world. The 2012 Integrated Household Survey (IHS) estimates that the incidence of headcount poverty is as high as 52 per cent (GoM 2012). A large proportion of Malawians are vulnerable since the IHS estimates that up to 25 per cent are ultra-poor. This vulnerability is reinforced by the predominance of rain-fed agriculture which makes smallholder farmers vulnerable to erratic weather patterns and conditions often leading to unforeseen changes in food supplies. The food production trends have greatly affected food prices which, in some cases, lead to sharp increases in the prices of food. Food price swings in Malawi are therefore not uncommon due to the seasonality of the agricultural system. Food prices tend to rise sharply during the lean season which stretches between December and March when most households run out of their own-produced food stocks. As depicted in Figure 1, there is a very close relationship between the movement in the general price level and the food price level due to the relative weight of the food index in the price index. The importance of maize in the food policy debates is illustrated by the fact that it is the dominant commodity in the food basket accounting for 58 per cent of the weights. According to Figure 1, Malawi experienced rising levels of inflation in the 1990s mainly due to deficit spending following the suspension of donor aid in 1991 and the devaluation and floatation of the Malawi Kwacha against major currencies (Chirwa 2011). Both general and food inflation declined dramatically from the turn of the millennium reaching single digit in 2007. This trend is clearly in marked contrast to the rising international food prices in 2007/08. The declining food inflation was attributed to low maize prices facilitated by the successful implementation of the FISP which benefited from generally good rains for a period of five consecutive years since its launch in the 2005/06 growing season. 1 Figure 1: General and food inflation in Malawi, 1990–2010 90.0 80.0 Inflation (General) 70.0 Inflation (food) 60.0 50.0 40.0 Percent 30.0 20.0 10.0 0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: authors’ computation based on quarterly economic reviews between 1990 and 2010. Malawi is one of the countries that rely heavily on foreign aid and debts to finance its development programmes. Grants as a proportion of the fiscal budget have remained a significant source of funding for government operations, reaching as high as 41 per cent in 2006. Most of the foreign aid is channelled towards the development budget in form of project support, although more recently there has been an increase in direct budget support particularly since 2006 (Africa Forum and Network on Aid and Development 2007). Such inflows have helped to keep the fiscal budget deficit under control. For instance, in 2007, the fiscal deficit before grants was as high as 16 per cent of the GDP but only 1.6 per cent after taking into account foreign aid (Chirwa 2011). Actually, Chinsinga and Chirwa (2011) note that in the context of Malawi’s international trade position, with a narrow export base, foreign aid and foreign debt in addition to budgetary support also bring foreign exchange that support most imports of goods and services in Malawi. The suspension of the International Monetary Fund (IMF) programme in mid-2011 and the suspension of budget support by the British government, Malawi’s major and most predictable bilateral donor and other donors due to concerns about democracy and governance seriously undermined the growth potential of the economy. This saw the growth rate plummet from about 7 per cent in 2010 to 1.4 per cent in 2012. Although there are several food crops in Malawi such as rice, cassava, and beans, the government’s policy responses to the 2007/08 dramatic global food price spikes focused exclusively on maize. In addition to existing price support mechanisms such as input subsidies, safety nets, and strategic grain reserves, the government responded by introducing price control, domestic trade restrictions, and an export ban policy on maize. The government responded as such because maize is a very important political crop due to the fact that the legitimacy of politicians in government is closely linked to the availability and accessibility of maize to the people at the grassroots at prices they can afford, either through their own production or buying from the market (Harrigan 2003). It is against this backdrop that food security in Malawi is defined primarily in terms of the availability and accessibility of maize. Furthermore, it is consumed by almost all Malawians on a daily basis and accounts for about 97 per cent of the total land area planted with crops. It 2 is thus the most basic of all basic needs for the majority of the poor people and is closely associated with their definition of poverty. As expressed by Levy (2005: 23) maize is very important so much that nothing would ‘... dispel the widespread state of gloom and insecurity as much as a bumper maize harvest shared by all of Malawian farmers, and delivered to consumers in the form of lower maize prices’. Consequently, food policy debates focus almost exclusively on policies relating to maize production, marketing, trade, and consumption (Chirwa 2009). It is therefore not surprising that the question of food security is a major policy issue in electoral politics especially since the transition to democracy in May 1994. A critical analysis of the government’s policy responses to the 2007/08 global food price crisis reveals that the president’s direct involvement in food policy-making, national food security considerations as a key electoral issue, and vibrant private media were very important in influencing the shape, form, and nature of the government’s reactions, actions, and strategies.