Trade restrictions such as export bans have been a popular way for governments to protect their countries’ domestic food supplies, but research suggests that such policies are largely ineffective and even detrimental. A new policy note from the Malawi Strategy Support Program examines Malawi’s use of these policies and presents alternative policies that could help better meet the country’s food security and agricultural development goals. (Also read about the use of export bans in Tanzania )
According to the report, Malawi has enforced maize export bans fairly continuously since 2005 in order to protect domestic food security; bans on soybean exports were used on-and-off between 2010 and 2012 in order to help domestic vegetable oil processors by providing low-cost inputs. These policies did not have the desired effects, however.
First, the maize export bans did not lower domestic maize prices compared to 12 neighboring countries. Second, during the period in which the export bans were enacted, domestic maize prices were high enough compared to regional prices to make it more profitable for traders to sell maize domestically anyway. In other words, the export ban policy was somewhat redundant.
Third, Malawi did not institute maize export bans in a strategic manner which likely contributed to high domestic price volatility; with the exception of Harare, Zimbabwe, Malawi saw the highest maize price volatility in the region between 2005 and 2015. The report finds that only 40 percent of this volatility can be attributed to seasonality, suggesting that volatile prices are largely due to unpredictable factors such as government policy interventions. This market uncertainty limits both smallholders’ and commercial farmers’ incentives to increase maize production or to market maize commercially. The report finds that only 10 percent of the maize produced in the country is traded commercially and only 12 percent of farmers are net sellers of maize. A study of planting decisions of 15 large-scale commercial farmers found that unpredictable government interventions, such as export bans, played a role in deterring these farmers from increasing investments in maize production.
At the economy-wide level, the report finds that maize export bans tend to benefit richer urban consumers rather than poorer urban households and to hurt poorer rural households more than they hurt better-off farmers. Thus, the bans do not appear to support the country’s goals of poverty reduction and increased food security.
Soy export bans also appear to increase domestic price volatility. Between June 2010 and September 2012, the Malawian government imposed and then lifted three successive export bans on soy; during this period the domestic soy price was significantly higher and more volatile than the export parity price. From October 2012 and December 2015, on the other hand, there was no export ban imposed on soy. During this time, the domestic price of soy remained generally within the export/import parity price range and was much less volatile, according to the report.
While the soy sector plays too small a role in Malawi’s overall agricultural sector to have economy-wide impacts, export bans can have significant impacts on the soy sector itself. A simulation of the effects of export bans on the sector finds that a ban could reduce soy farmers’ net revenue by 56 percent in a given year. Unpredictable soy markets have made Malawian farmers more reluctant to diversify their production from traditional export crops, like tobacco, to soybeans. This means that the domestic supply of soybeans for processing remains low, causing domestic oil processors to rely more on imports than on domestic supplies.
The report ends by highlighting several policies that could be more effective in meeting the government’s goals of increased food security and development of the maize and soy sectors. For soybeans, the report suggests that the government would do best to simply continue its policy of the past three years – forego export bans in favor more open trade. Since abandoning soy export bans in 2012, soy prices have been lower and more stable on average and land allocated to soy production has increased by 34 percent, meaning higher domestic supplies for oil processors.
For the maize sector, the report stresses the need for transparent, predictable policies to stabilize prices and encourage investments in production. While maize export bans do not need to be removed completely, there need to be clear criteria for when such bans will be put into place. One way to do this would be to set a maximum domestic maize price that is acceptable to both the government and the private sector and to allow maize exports as long as domestic maize prices remain below this level. This will both ensure that domestic prices do not become too high for consumers to afford and allow farmers and the private sector to more confidently invest in commercial maize production because they will not be taken by surprise by ad hoc export bans.
Such a policy will require the government and the private sector to work closely together; to accomplish this, the report suggests the creation of a formal platform through which government and private sector representatives can meet regularly to exchange information on price, production, and trade trends. The report also calls for the creation of a maize market monitoring tool to track domestic and regional prices and national stock levels. Such a tool will allow stakeholders to anticipate maize shortages and price spikes and allow policymakers to better understand the potential impacts of interventions like export bans.
Malawi’s maize and soy sectors have been plagued by a lack of open communication and trust between producers and the government, with unpredictable government policies like ad hoc export bans making producers reluctant to invest in increased production. Making the channels of communication more open and the rules governing trade and trade policies more transparent is an important first step in encouraging growth in these sectors to support both Malawi’s domestic food security needs and its commercial agricultural development.
By: Sara Gustafson, FIPRI