Is maize export ban lift inflationary?

While the lift in the maize export ban is a boon for others, it could drive up inflation and interest rates in the short to medium-term, according to some economists.

But others think this will not be the case because inflation was supposed to go up anyway during this time as the country is heading towards the lean period.

President Peter Mutharika on Monday lifted the maize export ban he effected early this year to avoid creating a shortage of the staple grain.

Over the past 12 months, inflation rate, currently at 8.4 percent according to the National Statistical Office (NSO), has been trending downward largely due to the availability of food, particularly maize which has a huge weight at 50.1 percent in the consumer price index (CPI)—a basket that measures changes in the price level of consumer goods and services purchased by households.

This year, Malawi produced a maize surplus of about 30 percent, according to the Ministry of Agriculture, Irrigation and Water Development. Because of the availability of the commodity on the market, prices crashed to around K50 per kilogramme (kg) against the government’s recommended K177 per kg.

This has been a blessing because inflation has eased to a six-year low and has beaten the Reserve Bank of Malawi (RBM) projection for a single digit by December this year.

As a result of the inflation drop, the central bank has twice this year reduced the policy rate or bank rate—the rate at which commercial banks borrow from the central bank as the lender of last resort—to 18 percent from 28 percent during the same period last year.

In an interview on Tuesday, Catholic University dean of social sciences Gilbert Kachamba feared inflation will start to edge up as it is highly food dependent and any disturbance on the food market will affect the rise in the prices of goods and services with a bigger margin.

“As the export ban has been lifted and the price is still low as compared to other countries, people will prefer selling to other countries where the prices are relatively higher, and in Malawi, maize will be slowly becoming a scarce commodity and then prices will slowly start going upwards,” he said.

Government set the minimum buying price of maize at K177 per kg, but due to desperation as a result of supply of maize being higher than the demand, farmers have been disposing of their crop at much more reduced prices.

Reports from East African countries such as Kenya and Tanzania where they had deficit in maize, at some point prices were say hovering around K500 (70 cents) per kg, a situation that could compel traders to scramble for the grain on the market to take advantage of the pricing there, according to agriculture experts.

But University of Malawi’s Chancellor College economics professor Ben Kaluwa said under normal circumstances, inflation should be going up during this time of the year and not necessarily on the account of the lifting of the ban.

He said: “The lifting of the ban now coincides with the harvesting season of most of the eastern countries who were demanding maize, therefore, limiting the market for the commodity on the foreign market.

“The prices might go up because as people are saying, farmers have already sold to intermediaries so the price of maize will go up just like any other commodity”

Another Chancellor College economist Exley Silumbu said while the maize market is subjected to speculative tendencies, whether inflation goes up on account of the lifting of the ban will depend on how serious the maize shortages might get.

“We don’t have accurate production figures. We have allowed the exportation of maize only to realise that we had under estimated the domestic demand requirement and it is risky. I only hope the figures they have are reliable, which I doubt,” he said.

According to Nico Asset Manager Limited there is potential decrease in food availability during the lean period which may lead to food inflationary pressures.

“Non-food inflation may increase due to the possible rise in electricity tariffs, the demand for wage increases and housing cost increases. Insufficient power supply may also increase inflationary pressure by hindering productivity,” said the firm.

Centre for Social Concern (CfSC) economics governance programmes officer Lucky Mfungwe said it is likely that maize prices will fetch higher prices on the market in the long run as some farmers are no longer in possession of the commodity.

“Local farmers are bound to face tough time buying inputs for this coming farming season as they already sold their commodity at low prices to middlemen to have the capacity to store the commodity for export,” he said.

Critics have argued that the ban limited the market scope for farmers; hence, crushing the maize prices on the domestic market and consequently pushing inflation down. n