Transcript Slide 1

FEATS Project
AGRICULTURAL TRADE, RURAL LIVELIHOODS AND TRADE FACILITATION
A Policy Study of the linkages between Agricultural Productivity and
Rural Livelihoods on the one hand and Trade in Agriculture and Trade
Facilitation on the other: Recommendations for Poverty Reduction and
Development for a Landlocked Country like Malawi
By Lawrence Mapemba
University of Malawi
Bunda College
6th October, 2010
LILONGWE, MALAWI
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International trade coupled with the right policies can lead
to economic growth and reduce poverty
There is need for better coherence between trade and
development policies
Improvements in economic growth resulted in
improvements in poverty situation
Number of people living below poverty line reduced from
52% to 40%
Mainly attributed to the good performance of the
agricultural sector
Agricultural development may lead to rural and national
economic development
For a number of years there has been low investment in the
agricultural sector
Lack of investment and development of the sector
poverty and productivity traps
constrained input and
output market development
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Lack of investment and development sector
inability
to attain potential in trade performance
increased investment in the agricultural sector
agricultural productivity
increasing agricultural
competitiveness and trade performance
Yet to make the economy predominantly producing and
exporting
A number of literature have shown the linkage between
trade, economic development and poverty reduction
Trade development alone not meaningful poverty reduction
Supporting policies and strategies that aim at reducing
poverty
Benefits of agriculture
increased investment in
agriculture
increased employment in the sector
and further development of SMEs
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Overall objective is to examine the linkages among
agricultural productivity, trade and rural livelihoods
Collect information and analyze recent trends in
agricultural productivity, agricultural trade, livelihoods,
and trade facilitation measures particularly in the
context of landlocked status of Malawi
Examine the key linkages and relationships between
these three aspects using a holistic framework
Generate new insights and knowledge that carry
practical implications including possible development of
concrete projects to contribute to the finding of
solutions through a coherent policy framework that will
assist Malawi in meeting the objectives of Vision 2020
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Primarily relied on literature review: CUTS-GRC,
MoAFS, MoDPE, MoTPSD and NSO – provided
agric productivity and trade data
Field survey was conducted - farms, companies
and organizations that are involved with
production, processing and exporting of tradable
crops were visited to collect information about
their operations and constraints and policy issues
that affect their operations.
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Millennium Development Goals (MDGs)
◦ Long term development agenda since 1990
◦ Goal – eradicate poverty and hunger by 2015
The Vision 2020
◦ Long term development policy since 2000
◦ Medium income economy by 2020
The Malawi Poverty Reduction Strategy (MPRS)
◦ 2002 for 3 years– sustainable poverty reduction
◦ Promoted agriculture and business activities to empower
the poor
The Malawi Economic Growth Strategy (MEGS)
◦ 2004 to complement MPRS – through investment in
cotton, tobacco, tea, sugar and agro-processing of crops
The Malawi Growth and Development Strategy (MGDS)
◦ 2006 took over from MPRS – link to Vision 2020 & MDGs
◦ 6 key priorities - agriculture and food security as one
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Growth of the estate sub-sector
SAPs (1980) – price decontrol, market liberalization,
repealing of the Special Crops Act
◦ Reforms met difficulties hence failed to produce expected
economic benefits
1998 subsidies in agric re-introduced with SPS
1999 APIP – provided inputs on credit to resource poor
farmers
2000 TIP – few targeted farmers on a package similar to
SPS
2005 FISP – with a larger number of farmers
◦ New Era Agricultural Policy – technology driven agric
sector
◦ Food and Nutrition Security Policy – promote agric
productivity to ensure food security
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In line with MGDS, MoAFS formulated the ADP in 2008
◦ Strategy for supporting priority activities in agric sector
◦ Increase agric productivity, improve food security, and
integrate S/H farmers into commercial agric
ADP was developed further into ASWAp
◦ A policy framework to accelerate achievement of the MGDS
at national level and CAADP at regional level
CAADP – regional agric growth and development
The Greenbelt Initiative (2009)
◦ a stretch of well-managed integrated enterprises aimed at
sustainably maximizing food, nutrition and income security
in different localities of the nation
◦ GBI aims at irrigation scheme rehabilitation and
development
◦ Ground for integrated packaging of interventions for
greater efficiency by getting farmers organized for effective
action in the market
Maize yield
2.50
MT/ha
2.00
1.50
Maize
1.00
Linear (Maize)
0.50
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
Tobacco Yield
1.20
MT/ha
1.00
0.80
0.60
Tobacco
0.40
Linear
(Tobacco)
0.20
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Cotton Yield
1.20
MT/ha
1.00
0.80
0.60
Cotton
0.40
Linear
(Cotton)
0.20
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Tea Yield
3.00
2.50
2.00
Mt/Ha
1.50
Tea
1.00
0.50
0.00
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
Line
ar
(Tea
)
Mt/Ha
Sugar Yield
120.0
118.0
116.0
114.0
112.0
110.0
108.0
106.0
104.0
102.0
100.0
98.0
Sugar
2004
2005
2006
2007
Year
2008
2009
Linear
2010 (Sugar
)
Soyabean Yield
Mt/Ha
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
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Malawi considered high-cost crop producing country, due to
◦ landlockedness
◦ Government policies (especially tax policy)
◦ low rates of adoption of good crop husbandry practices
Low input usage
◦ Most farmers do not apply the recommended rates of
fertilizer and chemicals - yields and quality highly
compromised
Constraints to smallholder increased tea productivity
include:
◦ Gaps (vacancies) in tea fields – low yields and weed
infestation
◦ Lack of improved varieties: high-yielding, drought-resistant
and disease and pest resistant
◦ Tea bushes established in 1965 - high cost of tea uprooting
and establishment
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Constraints to smallholder increased tea productivity continued:
◦ Poor crop husbandry skills such as picking schedule, trimming
skills, plant spacing
◦ Most smallholders are low input use. They look at the cost of
the inputs not at the output they will get in the end, hence
they put one-third of the recommended rate
Constraints to sugar productivity include:
◦ Unavailability of land for expansion
◦ Inadequate local labour with good skills
◦ Difficult to obtain foreign currency – Illovo uses a lot of
fertilizer and petroleum products
◦ High cost of transportation
Constraints to cotton productivity include:
◦ Low inputs usage among farmers
◦ Poor farm incomes due to poor markets for cotton
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Govt efforts to integrate the country into the global economy
through trade
Undermined by structural weaknesses in the economy including
the country’s landlocked position
Malawi’s exports less competitive on the international market
High transaction costs
depends on road and railway transport for its international trade
exports have to travel a minimum of 948 Km to the nearest sea port
high transport cost associated with the long distance to the ports
and the administrative requirements that the cargo is subjected to
while in transit makes Malawi one of the high cost producer
◦ Malawi railway system is unreliable making road transport to be the
preferred mode of transportation
◦ private sector in Malawi use longer trade routes which are easily
accessible by road
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Aggravated by the country’s lack of diversification of exports
and imbalances between imports and exports
◦ seasonality of the country’s exports, it is difficult for
transporters to arrange return load which would help to
reduce the transport cost
◦ For example, it costs $35 per tonne to transport sugar to
Beira with backhaul as compared to $60 without back haul
Shortages of vehicles during some periods of the year
particularly during tobacco marketing period
◦ vehicles are committed to transporting tobacco
◦ Industries like cotton have complained of lack of vehicles
as the industry cannot offer competitive rates as those
offered by the tobacco industry
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Estimated by TERA International Group Inc. that in 2003
Malawi paid US$60.7 million for transportation of exports
◦ Time costs add about 3% - total transaction cost to be US$
78.9 million
◦ transport cost for imports was estimated at US$129.3
million
For these reasons, government has put trade facilitation as a
major element of its economic policy
◦ Under the World Trade Organisation (WTO) negotiations –
Doha Round
◦ Under the regional trade agreements (RTAs) that Malawi is
a party to
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Malawi’s exports dominated by agricultural commodities
constitute about 84% of the value of the country’s export trade
◦ Despite government’s frantic effort to promote the manufacturing
sector contribution to export trade 14%
◦ In volume terms, from 2002 to 2008 Malawi's exports increased on
average by 14.7 percent per year while imports increased on
average by 15.1 percent over the same period
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For these reasons, government has put trade facilitation as a
major element of its economic policy
◦ Under the World Trade Organisation (WTO) negotiations –
Doha Round
◦ Under the regional trade agreements (RTAs) that Malawi is
a party to
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Government has also identified other new
corridors which are considered to be more
efficient than the existing ones
◦ Mtwara Corridor and the Shire - Zambezi waterway
◦ Mtwara corridor is a multi-modal transport corridor
which seeks to link Malawi to the Indian ocean by rail
from the port of Mbamba bay on Tanzanian side of
Lake Malawi to the port of Mtwara
◦ The plans are that goods destined for Malawi will be
offloaded at Mtwara port and transported to Mbamba
Bay by rail then ferried by ship to various destinations
along Lake Malawi
◦ there has not been much policy talk about the project
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Shire Zambezi waterway which is expected to link Malawi
to the India Ocean through the rivers of Shire and
Zambezi to the port of Chindi in Mozambique
◦ used to be the communication and trade route for the white
settlers during the colonial era
◦ Goods destined to and from Malawi will be transported from
the ports of Beira and Nacala by bulges all the way to Nsanje
from where goods will be transported by rail to various
destinations including Zambia, Democratic Republic of
Congo, and Zimbabwe
◦ It is expected that the route will reduce Malawi’s cost of
production by over 50%
◦ The success of this project largely depends on the
cooperation of the Mozambican government
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Favourable agronomic conditions for production of a
range of tradable agricultural commodities
Realizing the high risk associated with the dependence
on a narrow export base
◦ potential for production and export include cotton, coffee,
ground nuts, pigeon peas, beans, macadamia nuts, cashew
nuts, soya beans and paprika
◦ Although maize food security also a crop with export
potential
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their production volumes still remain low
◦ productivity problems
◦ problem of competitiveness at regional and international
markets
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Agricultural exports from Malawi compete for the same buyers
Being a small producer of these commodities, Malawi is a price
taker on international market
◦ the high transaction costs which the country faces due to its
landlockedness cannot be factored into the price of its exports
◦ These costs are transferred to the producers by the intermediaries
◦ the low returns, the producers are less motivated to produce these
crops
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This could be a reason maize, beans, soya beans, and ground
nuts have not been taken up significantly by the estate subsector
Therefore important to address the problem of high transport
cost
◦ through improvement in transport efficiency
◦ exploration of cheap transport routes
◦ would increase the returns to the farmers and therefore motivate them
to produce and export more
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Malawi’s trade policy is oriented towards addressing the
disadvantages that the country faces as a result of its
landlockedness
Based on the Malawi Growth and Development Strategy
(MGDS) which is Malawi’s medium term development
strategy crafted to meet the Malawi Vision 2020
The main thrust of the MGDS is to create wealth through
sustainable economic growth and infrastructure
development as a means of achieving poverty reduction
expected to transform the country from being a
predominantly importing and consuming economy to a
predominantly manufacturing and exporting economy
◦ There are six thematic pillars
◦ trade policy issues are handled under sustainable
development pillar
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Trade policy builds on the market oriented policies
implemented under the WB/IMF sponsored SAPs adopted
in later 1980s
Some of the trade policy reforms undertaken under SAPs
include:
◦ Reduction of tariffs to 25% as a maximum tariff that can be
levied on imports
◦ Streamlining the tariff bands to only four
◦ Removal of quantitative restrictions such as quotas and
import and export bans
◦ Elimination of multiple customs documentation
◦ Removal of controls on foreign exchange
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Implementation of these reforms has made Malawi to be
among most liberal economies in Southern Africa
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Through the MGDS government seeks to address this
imbalance while consolidating the trade liberalisation
drive
Specifically government seeks to promote sectors with
high potential for growth
◦ include tourism, mining, agro-processing, manufacturing
and integrated cotton industry
◦ traditional sectors of tea, sugar, tobacco are considered to
be important sub-sectors on which to launch diversification
of the economy
◦ address supply-side constraints that the private sector is
facing such as poor utility supply, high transport cost, erratic
power supply and high cost of doing business
◦ The policy also seeks to address impediments that Malawi’s
exports face in international markets
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Will these trigger a positive supply response from the
private sector
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Agricultural commodities are by their nature highly
perishable
◦ requires a good handling system including efficient
transport system to markets
◦ long distance to seaports as outlets to international market
puts Malawi at a big disadvantage
◦ In transit the cargo is subjected to checks and inspection
which further contribute to long delivery period of the cargo
◦ only export products which are less time sensitive
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On a number of occasions Malawi’s nuts have been
denied entry into the European Union market allegedly
due to high aflotoxin levels
According to Illovo Sugar Company, the costs of sending
sugar consignment to Beira and Nacala averaged
US$60/ton in 2006/7 and the cost has since increased to
US$70/ton
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There are plans to rehabilitate the rail way system
including the 77 Km section of the rail to Nacala
The customs documentation has been streamlined such
that currently importers/exporters use a single customs
document
The Malawi Revenue Authority (MRA) has also
computerised some of its border posts (Mwanza and
Kamuzu International Airport) in an attempt to speed up
clearance of goods - plans to computerise all key border
posts
SADC and COMESA are implementing trade facilitation
schemes as part of their regional integration
programmes
Volume of Tobacco Exports (in MT)
140000
120000
MT
100000
80000
Tobacco
60000
40000
20000
0
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
YEAR
Million USD
Value of Tobacco Exports (in Million USD)
500
450
400
350
300
250
200
150
100
50
-
Tobacco Value
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
YEAR
Tobacco Exports By Types (Million USD)
450.00
400.00
350.00
Burley
Flue Cured
NDDF
SD FIRED
S/Air
Oriental
All Types
300.00
250.00
200.00
150.00
100.00
50.00
0.00
1994
1996
1998
2000
2002
YEAR
2004
2006
2008
Number of Registered Tobacco Farmer Clubs by TCC
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
BURLEY
FLUE
NDDF
2004
2005
2006
2007
YEAR
2008
2009
Number of Registered Burley Tobacco Farmer Clubs by TCC by
Region
35000
30000
25000
20000
15000
SOUTH
CENTRAL
10000
5000
NORTH
0
2004
2005
2006
2007
YEAR
2008
2009
Number of Registered Flue Tobacco Farmer Clubs by TCC by
Region
800
700
600
500
400
300
200
100
0
SOUTH
CENTRAL
NORTH
2004
2005
2006
2007
YEAR
2008
2009
Number of Registered NDDF Tobacco Farmer Clubs by TCC by
Region
1600
1400
1200
1000
800
600
400
200
0
SOUTH
CENTRAL
NORTH
2004
2005
2006
2007
YEAR
2008
2009
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Agriculture mainstay of the economy
Main livelihood of majority of rural people
Provides 87% of the total employment
Provides 64% of the total income of rural
people
Value of Sugar and Sugar Confectionary Exports (Million US$)
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
1999
2000
2001
2002
2003
2004
2005
YEAR
VALUE (Million US$)
2006
2007
2008
Volume of Sugar and Sugar Confectionary Exports (MT)
300,000.00
250,000.00
200,000.00
150,000.00
100,000.00
50,000.00
1999
2000
2001
2002
2003
2004
YEAR
QUANTITY (MT)
2005
2006
2007
2008
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About 282 smallholder farming households
currently grow cane sugar in Nchalo.
Between Oct 2008 to Sept 2009 annual
average gross for a sugarcane farmer was
US$2,155.
Dwangwa outgrower scheme has 200
smallholder farming families – five villages
The farmers are part of Dwangwa Cane
Growers Limited (DCGL) which has shares
belonging to the management employees
and farmers
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A study done by Chirwa et al. reported that
smallholder farmers under DCGL experienced
unreasonable deductions for some of the
services, high interests rates, lack of
transparency in sugar pricing and staggering of
payments of their net proceeds
This in turn reduced the incomes of the farmers
Elite shareholders who manage the company
take advantage of the smallholder farmers (who
holds the majority shares) due to high illiteracy
levels and powerlessness
Tea production and exports (Mt)
60,000
50,000
exports (Mt)
Production/
40,000
30,000
Production (Metric Tones)
20,000
Exports (Metric Tones)
10,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Value of Tea Exports in Million USD
70.00
60.00
US$
50.00
40.00
Tea Exports
30.00
20.00
10.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
YEAR
Eastern Outgrower Trust Number of Outgrower Farmers and their
Hectarage
3500
3000
2500
2000
1500
1000
500
0
OUTGROWERS
HECTARAGE
Thyolo Thyolo MJ East MJ MJ West TOTAL
South North
Central
BLOCK
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Tea is the third major export of Malawi: tobacco
is the leading export industry while sugar is in
second place
The tea sector employs about 42,000 people in
commercial estates and about 8,000 smallholder
farmers produce tea as their main economic
activity
Using the average household size, it is estimated
that that about 300,000 people in Malawi directly
rely on the tea industry as a major source of
income
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For most smallholder tea growers, tea farming is
their primary source of income and livelihood
The tea sector employs about 42,000 people in
commercial estates and about 8,000 smallholder
farmers produce tea as their main economic
activity
Tea sector is very significant since it provides
incomes, stable livelihoods to growers, other
community benefits such as business activities
and more importantly labour market by hiring of
villagers to work on the smallholder tea farms as
well as commercial estates.
Value of Cotton Exports (Million US$)
25.00
20.00
15.00
10.00
5.00
1999
2000
2001
2002
2003
2004
2005
YEAR
VALUE (Million US$)
2006
2007
2008
Volume of Cotton Exports (MT)
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
1999
2000
2001
2002
2003
2004
YEAR
QUANTITY (MT)
2005
2006
2007
2008
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Unlike tobacco, sugar and tea smallholder
farmers, cotton farmers have suffered loss
The drop in cotton prices on the international
market and the increased price floor for cotton
buying in Malawi resulted in lack of market for
cotton in the country
In general, cotton farming has suffered loss of
profits in the last few years
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A study by Chirwa et al. reported that a high
proportion of smallholder farmers in chillies,
paprika and cotton revealed that profitability in
these crops had slumped over the years, and the
proportion was particularly high among the
smallholder cotton farmers
Most farmers of these crops reported that their
socio-economic status was worse off than a few
years back due to the increase in inputs costs
and low output market prices
The construction of the cotton Ginnery by the
Chinese may improve the market prices farmers
face
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There has been an increase in productivity of major
agricultural tradable crops in the past decade although in
some years, yield was affected by unfavourable rainfall
The increased productivity has been due to government’s
effort through the introduction of different interventions
that aimed at increasing land productivity by smallholder
farmers such as farm input subsidy program, promotion
of organic manure, intensive extension methods and
promotion of high yielding varieties
The availability of policies and strategies that targeted
smallholder farmers and the agricultural sector as a
whole, have influenced the increase in crop productivity
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The constraints to increased productivity include:
increased costs of agricultural inputs, lack of access to
credit and to some extent negligence by smallholder
farmers
Productivity of tea is mainly constrained by: termites
attack on tea plants of most smallholder farmers due to
field gaps (vacancies) that also give room to weed growth,
high cost of clones that are unaffordable by smallholder
farmers and lack of modern tea crop husbandry skills
The availability of policies and strategies that targeted
smallholder farmers and the agricultural sector as a
whole, have influenced the increase in crop productivity
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High transaction costs have been singled out as one of
the major factors that contribute to uncompetitiveness
of Malawi’s exports on the international market
The high transport cost contributes to Malawi’s high
production costs
With regard to export markets, the European Union and
the Southern Africa Development Community (SADC)
constitute Malawi’s major export destinations
The country has also intensified cooperation with
regional partners within the framework of SADC and
COMESA
The challenges that Malawi is facing as a result of its
landlockedness are aggravated by institutional
constraints
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It is clear that improved agricultural productivity that
Malawi has attained in the last few years has improved
its agricultural trade performance
For crops that have direct benefits to rural livelihoods,
the trade has improved the livelihoods of smallholder
farmers
For some cash crops there has been no improvements
in incomes of smallholder farmers due to poor market
systems and lack of value addition in the value chain
There still reports of exploitation of smallholder
farmers by some institutions that warrant further
research
Deliberate policies by government may help improve
farmers livelihoods especially among smallholder tea
farmers
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The threat of burley tobacco necessitates extensive
policy research in feasible alternatives NOW
◦ Biofuel crops like jatropha
◦ Other tradable crops that have an expanding market
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Institute studies on exploitation of farmers
Value-addition necessary for some tradable crops
Identify financing agency to loan tea farmers to uproot
old tea and establish plantations of hybrid tea
Extension-Research-Farmer linkages should be
strengthened at a platform level
Promote irrigation in tea farming to improve land
productivity on both commercial and smallholder
farmers
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Malawi’s trade can take advantage by investing in
research and development of producing more of those
commodities that it has a competitive advantage or has
a niche e.g. Kilombero rice which is a speciality of
Malawi
Government to work on improving the railway between
Malawi and Mozambique port of Beira since it is
cheaper.
On the Shire-Zambezi waterway the government should
put in place mechanisms to ensure that siltation of the
waterway is highly controlled. All the catchment area
should be planted to trees to curb soil erosion
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The government should work hand in hand with
countries in COMESA and SADC regions in coming up
with ways of dealing with port and rail related problems
that delay off and on loading of ships at the ports .
Coming up with efficient and effective means of
clearing goods at borders since this process is delayed
at the borders and it is also prone to abuse by custom
officials.
There is need for a sample survey of large scale and
smallholder farmers that are involved in cultivation of
tradable crops to study their levels of production,
extent of involvement in trade, livelihoods and general
constraints. This would provide more detailed
information that will be used to substantiate the large
body of information obtained using desk research as
largely done in this study
Questions?