When vendors capitalise on liberalised market

The normal way of doing business entails the seller dictating the price on the market. It is up to the buyer to pick or leave it. However, this is not the case with selling of agricultural harvests mainly by smallholder farmers in Malawi. Despite government intervention by setting the minimum price every year the vendors still buy the harvests from the farmers at a very low price.

This year government set K170 per kilogramme (KG) as the minimum price for maize. Conversely, in some parts of the country many vendors have been buying the maize at as low as K90. Last year, government set K160/KG as the minimum price but still many vendors bought the maize atas low as K60/KG. The silent justification of this practice is that the vendors are operating in a liberalised and free market. Free market system refers to an economy where the government imposes few or no restrictions and regulations on buyers and sellers. In a free market, participants determine what products are produced, how, when and where they are made, to whom they are offered, and at what price—all based on supply and demand.

Vendors take advantage of the market to buy at low prices

 

Crop marketing and pricing

The control of smallholder produce markets and prices was started in the colonial period through the establishment of ‘produce boards’. The first to be established was the Native Tobacco Board (NTB) in 1926. In 1951, a Cotton Board was set up. Later in 1952, a Produce (i.e. maize, groundnuts, and beans) Board was established.

In 1956, all the boards were amalgamated into the Agricultural Production and Marketing Board (APMB). At independence, the APMB was reorganized and became the Farmers Marketing Board (FMB).  In 1971, following the 1968/69 crop failure and the subsequent change in agricultural policy, FMB was reorganized once again to become the present Agricultural Development and Marketing Corporation (Admarc).

As the name implies, Admarc’s responsibilities still involved marketing of smallholder crops and also buying farm produce at guaranteed fixed prices. Admarc provided pan-territorial and pan-seasonal prices for farmers, requiring it to subsidize maize prices with export earnings from tobacco. As the world prices for tobacco deteriorated in the early 1980s, its ability to continue maize subsidies was eroded.

Chimwendo Banda: Vendors capitalised on it

Liberalised market

In 1981, Malawi embarked on a series of structural adjustment programmes, which entailed moving slowly towards liberalizing its price and marketing policies.

Although the World Bank initially supported Admarc’s activities, it disagreed on the level of food prices relative to export prices. In 1987, a new series of structural adjustment loans were launched, with the conditionality of complete privatization of maize marketing. However, although private trading was allowed in this period, producer prices remained fixed by the government until as late as 1995, when a price band was established.

In the first structural adjustment loans agreement approved in 1981, the World Bank recommended policy reforms which included price incentives. Since then a lot has happened and some of these changes include the following; liberalization of agricultural produce and input pricing; liberalization of agricultural marketing services that opened up the activities to the private sector. This is when the private traders including those commonly called ‘vendors’ flooded the agricultural markets in rural areas.

 

Strength of vendors

Since most vendors have readily available cash, they capitalize on Admarc’s delay to purchase maize by rushing into the rural areas to buy maize below the government set minimum price. Member of Parliament for Dowa East, Richard Chimwendo Banda, is quoted as saying Admarc’s failure to buy maize in time exposes the farmers to unscrupulous vendors.  The rural poor farmers continue to be exploited by vendors and thereby worsening their poverty even despite selling their produce. This is due to government’s ‘dilemma’ in as far as controlling vendors in a liberalised market is concerned.

The country is in a silent dilemma on managing her commitment on trade liberalisation and ensuring that agriculture is commercialised by maximising smallholder farmers’ profits. The government’s minimum price on farm produces is meant to protect the farmer so that they can make profit out of their sweat. However, government fails to ‘chase’ the vendors who buy the crop below the minimum price because these vendors are operating in a liberalised economy.

Other commentators have concluded that market policies in Malawi do not result in widening of markets making the smallholder farmer not reaping from their sweat.

According to a paper by Civil Society Agriculture Network (CisaNet) titled “Malawi agriculture at 50: towards a common vision for the next 50 years”, many smallholder farmers lack market access hence they just accept any price from vendors mainly when Admarc delays to purchase the crop or when its depot is far from the farmer’s village. The paper also says the farmers lack bargaining power due to low volumes and lack of organisation. This leads to desperate sales immediately after harvest.  These farmers are therefore trapped in a vicious cycle of subsistence that has prevented their transformation to full commercial farming.

The rural areas are annually awash with vendors who are at liberty to impose prices at the farmers who sweat to produce the harvest. The paper by CisaNet also observed that current vendor marketing does not benefit farmers besides promoting poor quality standards.

The weakness among many smallholder farmers is that they sell their produce individually hence lack joint negotiation powers on the price that vendors offer. According to a research paper titled Agricultural Markets in Benin and Malawi by Marcel Fafchamps and Eleni Gabre-Madhin, most of the agricultural traders transport their purchased harvest at a median distances of 15km from where they buy to the place of resale. This means that most agricultural traders only travel short distance to their supply market. Therefore, if majority of smallholder farmers work in groups such as clubs and cooperatives to sell their produce they can beat the middle men and sell directly to companies hence maximise their margins. Cooperatives are the pathway to revolutionise marketing.

 

Some hope for a farmer

The coming in of trading organisations such as  AHCX brings some hope for farmers. AHCX is a marketplace where buyers and sellers can transact trade of commodities with an assurance on quality, delivery and payment. The exchange is committed to ensure that the market is assisted with a modern market institution that brings in the much-needed integrity, by providing a guaranteed mechanism, for the quality, quantity and payments. Further it makes the market efficient, by introducing standardized contracts and trading systems. AHCX is a fully electronic market, bringing in transparency and empowering the farmers by disseminating market information in real time to all market players; and at a later stage, the exchange will provide the market with options for risk management by offering future trading.

There is need for the country to have transformation that should focus on good markets development. n

 

*The author is Communications Officer for CisaNet

 

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