Transition to a market-based agricultural economy in Malawi : a multi-market analysis

Furthermore, demands for domestically consumed commodities are jointly constrained by extremely limited household budgets. This suggests that changes in the production, consumption, and marketing of any one commodity will have direct effects on other commodities and that these cross-commodity effects and production-consumption linkages should be explicitly integrated in any analysis of agricultural policy in Malawi. However, this type of analysis has been absent from most policy discussions, and even when these aspects are taken into consideration there is little empirically based quantitative evidence available (e.g., price elasticities) to help inform policy decisions. This study develops a multi-market model to analyze the effects of policy changes on commodity markets and on real incomes and consumption of poor households in the country. Several key policy issues related to agricultural pricing, liberalization, and trade are analyzed, with a focus on the distributional impact of policy change. By modeling several commodities together in a consistent fashion, the multi-market framework allows policy analysts to take into account the important cross-commodity effects in Malawi"s agriculture -- effects arising through choices made by both producers and consumers in the economy. Section 2 of the report provides a brief review of policies enacted to increase the market orientation of Malawi"s agricultural economy, which has been an ongoing process for over a decade. The details of the Malawi multi-market model are presented in Section 3. Section 4 discusses the results of several simulations conducted using the multi-market model, followed, in Section 5, by a discussion of the lessons to be learned from this analysis. Appendices provide further details on the structure of the multi-market model. Includes references.