Comparative economic advantage in agricultural trade and production in Malawi

The study considered both low-input production technologies, including smallholders operating mainly under customary land tenure, and high-input production technologies, comprising large estates operating exclusively under leasehold or freehold land tenure systems. The agro-ecological zones for the various crops were placed in their respective Agricultural Development Divisions (ADD) to facilitate estimation of the domestic transport costs. Three major market nodes were identified: Blantyre in the south, Lilongwe in the center, and Mzuzu in the north. The eight ADDs were thus linked to these market nodes based on their distance from a particular node. The study demonstrated that most of the zones have a CEA in production of most of the crops selected for study. Cotton, paprika, macadamia, tobacco, and groundnuts have exceptionally strong domestic resource cost ratios in all areas of production. Except for tobacco, which is in declining world demand due to anti-smoking campaigns, all these crops have a very strong demand on the world market and exceptionally attractive world market prices and must be emphasized as the country"s major export crops. There is a reasonable CEA in the production of hybrid maize, with domestic resource cost ratios of 0.35-0.88 and 0.42-0.76 for high- and low-input technological levels, respectively. However, the CEA in hybrid maize production is lost in zones far from the exit/entry port, i.e., Nacala, due to high transportation costs. There is no CEA in local maize and soyabean production in most zones. Only Ngabu has a CEA in soyabeans produced for export. Lack of CEA in these crops are traced from low world market prices, especially for soyabeans, and low productivity (yield per hectare) on the world market. The study also revealed that the production efficiency of most of the crops can be increased greatly with increased productivity. Sensitivity analysis on price has demonstrated that changes in input prices affect the domestic resource cost ratios and hence influence the CEA. However, crops that utilize different inputs, such as fertilizer and chemicals, were more affected by input price changes. Not all crops would benefit from input price decreases unless the reduction translates into increased application of inputs to the recommended levels. If farmers take advantage of input price reductions and apply the recommended levels of inputs, crop productivity will increase. Crops such as cotton, paprika, and tobacco would benefit from such policies. A comparison of the sources of disparity between private and social profits revealed output transfers as a major influence in the net policy effect in the agricultural sector. Thus, the gap between net social and net private profitability is mainly the result of low commodity market prices. Since the net private profits for all cash crops (low and high input) are far below the net social profits, the government may be taxing away a portion of the social profits for the commercial farmers, thereby hindering efforts to increase production. The low (suppressed) commodity market prices stem from several factors, including agricultural policy and market imperfections. Commodities like tobacco and tea are exposed to export taxes and cess collection. A lack of competition in marketing certain commodities leads to low prices offered by the dominant buyers. Collusion in price setting cannot be overruled, especially in commodity markets such as cotton and paprika that are dominated by a few buyers. Includes bibliography (Author abstract, modified)