Is relaxing equity constraints panacea for Malawi’s green gold expansion? A fuzzy regression discontinuity design approach

This paper assesses the causal effect of relaxing equity constraints on the cultivation of tobacco in Malawi, a crop viewed by the local population as Malawi’s green gold. Applying the counterfactual outcome framework we find that relaxing equity constraints substantially increases the amount of tobacco land cultivated by smallholder farmers, suggesting that there is scope for increasing tobacco production once equity constraints are relaxed among producers. These findings provide justification for extensive public financing of tobacco production in Malawi.tobacco; equity constraints; counterfactual; treatment effect; Malawi

Can Risk-aversion towards fertilizer explain part of the non-adoption puzzle for hybrid maize? Empirical evidence from Malawi

This study investigates the linkage between attitudes towards risk and adoption. We empirically examine the relative risk premium related to fertilizer-use among 404 farmers from Malawi and examine the relationship between risk aversion on fertilizer-use and the adoption of hybrid maize. Results show that Malawian farmers exhibit absolute Arrow-Pratt risk aversion towards the use of fertilizer. The findings also reveal that risk aversion towards the use of fertilizer is strongly associated with low intensity of hybrid maize adoption and that other than the safety net programs, human and financial capital variables such as age, household size, land size and off-farm income can be helpful in explaining the non-adoption puzzle. While safety net programs such as the free input distribution increase the likelihood of adoption, they are associated with low adoption intensity for hybrid maize. A key lesson is that when considering promoting a technology, it is important to assess the profit distribution associated with the use of complementary inputs and its implications for risk preference among technology users in order to avoid formulating misguiding policies.Adoption; hybrid maize; fertilizer; risk-aversion; Malawi

The Impact of Access to Credit on the Adoption of hybrid maize in Malawi: An Empirical test of an Agricultural Household Model under credit market failure

A substantial amount of the literature has reported on the impact of access to credit on technology adoption, and many studies find that credit has a positive impact on adoption. However, most existing studies have failed to explicitly measure and analyze the amount of credit that farm households are able to borrow and whether they are credit constrained or not. They overlooked the fact that credit access can be a panacea for non-adoption only if it is targeted at households that face binding liquidity constraints. Guided by the frame work of a household model under credit market failure, this paper aims at investigating the impact of access to credit on the adoption of hybrid maize among households that vary in their credit constraints. The data used in the study is from Malawi collected by the International Food Policy Research Institute (IFPRI).Using the direct elicitation approach, households are classified into constrained and unconstrained regimes. We start by estimating the probability of being credit constrained, followed by an estimation of the impact of access to credit for the two categories of households (credit constrained and unconstrained), while accounting for selection bias. The impact of access to credit is estimated using a switching regression in a Double-Hurdle model. Results reveal that while access to credit increases adoption among credit constrained households, it has no effect among unconstrained households. Results also show that factors that affect adoption among credit constrained households are different from those that that affect adoption among unconstrained household. Landholding size, for example, has opposite effects on adoption in the two regimes of households. The policy implication is that microfinance institutions should consider scaling up their credit services to ensure that more households benefit from it, and in so doing maize adoption will be enhanced.credit constraints; double-hurdle; hybrid maize; adoption; Malawi

Determinants of Moral Hazard in Microfinance: Empirical Evidence from Joint Liability Lending Programs in Malawi

Moral hazard is widely reported as a problem in credit and insurance markets, mainly arising from information asymmetry. Although theorists have attempted to explain how group lending with joint liability can be an important tool for mitigating moral hazard among the poor, empirical studies are rare and sometimes give mixed results. In Malawi, for example, although, group lending with joint liability has been practiced for nearly four decades, the unwillingness to repay loans remains the single major cause of default. This paper examines the extent of occurrence of moral hazard and investigates its determinants of occurrence among joint liability lending programs from Malawi, using group level data from 99 farm and non-farm credit groups. Results reveal that peer selection, peer monitoring, peer pressure, dynamic incentives and variables capturing the extent of matching problems explain most of the variation in the incidence of moral hazard among credit groups. The implications are that joint liability lending institutions will continue to rely on social cohesion and dynamic incentives as a means to enhancing their performance which has a direct implication on their outreach, impact and sustainability.moral hazard; joint liability; dynamic incentives; group lending; Malawi

Value chain analysis of Paprika and Bird's Eye Chillies in Malawi

Total LandCare Malawi (TLC) is implementing a three-year USAID-funded Spice Promotion in Commercial Enterprises (SPICE) project in collaboration with NALI Limited and ASSNAP. The main aim of the project is to link small-scale spice producers to high-value markets and develop the competitiveness of bird’s eye chillies and paprika through commercial upgrading of the major players in their respective value chains. Under the SPICE project, TLC commissioned the paprika and bird’s eye chillies’ value chain study in February 2010 with the overall objective of providing technical guidance, professional expertise and knowledge on the current status of the paprika and bird’s eye chillies sector in Malawi and the prospects for value addition of the two crops in Malawi. The study covered Dowa, Dedza, Ntcheu, Salima, Nkhotakota, Nkhatabay, Mzimba and Thyolo districts. A value chain approach was used to identify the main players in paprika and bird’s eye chillies sub-sectors, the governance of the respective value chains, the vertical and horizontal linkages along the value chains and opportunities for value chain upgrading. A review of the different policies that relate to agriculture was also done to highlight the extent to which different policies promote or inhibit paprika and bird’s eye chillies production and marketing in Malawi. An analysis of the institutional framework was also conducted to determine the degree of coordination between different institutions in the paprika and bird’s eye chillies sub-sector. Among the major findings of the study, male farmers dominate the production of both paprika and bird’s eye chillies in Malawi and the two crops are largely sold to large-scale traders, most of whom are also exporters of the commodities. The smallholder farmers allocated relatively less land (18 percent) to paprika production in 2009/2010 season, compared to 40 percent of land to bird’s eye chillies. Although production is dominated by small-scale farmers, a number of commercial producers are also involved, such as Africa Invest Malawi. Some of the commercial producers are also engaged in out-grower schemes with the smallholder farmers. It was also observed that a large proportion of the farmers of both paprika and chillies access their seed through market-based sources. Among the major constraints facing the smallholder farmers is access to market information, especially as it relates to prices. Gross margins for bird’s eye chillies were found to be significantly higher (MK79,057/Ha) than that of paprika in the study areas (MK11,553/Ha). The Malawi paprika value chain has a number of actors. Paprika is mostly grown by smallholder producers, with Africa Invest Malawi being the only commercial producer. Apart from NALI LTD that buys fresh paprika as an ingredient into its Mango achar, most of the paprika is sold to large-scale traders/players as de-seeded pods. Most of the Malawi paprika is exported to spice manufacturing companies and brokers in South Africa. The brokers then export the product to Europe and USA, among other markets. The governance of the Malawi paprika value chain rests with the final buyers. In this buyer-driven chain, the quality demanded by the international buyers is enforced through prices. Similarly, the bird’s eye chilli value chain also has few players. The producers are mostly smallholder farmers, who sell their dry chillies to large-scale traders (Nali LTD, Africa Invest Malawi, Cheetah Malawi LTD, and Duconti Produce, among others). The large-scale traders export the commodity mostly to brokers in South Africa, and to end-users in Europe, the United Kingdom and others parts of the developed world. In this buyer-driven chain, prices are dictated by the final consumers. In order to improve the paprika and bird’s eye chillies sector in Malawi, there is an urgent need to substantially increase the production levels and the productivity of the two crops. Specifically, there is need to improve the paprika and bird’s eye chillies seed system; improve farmer’s agronomic practices through the provision of quality agricultural extension services and also improve the organization of farmers into groups. In order to improve marketing of the two commodities there is need to promote legally-binding contracts between producers and buyers, promote value-adding activities and processes so that different players experience value chain upgrading, promote domestic demand for chillies and paprika, promote vertical linkages among the buyers of paprika and chillies, and also improve the quality, timeliness and utilization of market information. On the policy front, there is an urgent need to develop a horticultural policy, as the sector is operating without a policy, an institutional framework or a legislative framework. It is expected that the three-year SPICE project will help the targeted farmers to address the major constraints and challenges highlighted in this report.value chain analysis; paprika; bird's eye chillies; Malawi

Determinants of Moral hazard in Microfinance: Empirical Evidence from Joint Liability Lending Schemes in Malawi

Moral hazard is widely reported as a problem in credit and insurance markets, mainly arising from information asymmetry. Although theorists have attempted to explain the success of Joint Liability Lending (JLL) schemes in mitigating moral hazard, empirical studies are rare. This paper investigates the determinants of moral hazard among JLL schemes from Malawi, using group level data from 99 farm and non-farm credit groups. Results reveal that peer selection, peer monitoring, peer pressure, dynamic incentives and variables capturing the extent of matching problems explain most of the variation in the incidence of moral hazard among credit groups. The implications are that Joint Liability Lending institutions will continue to rely on social cohesion and dynamic incentives as a means to enhancing their performance which has a direct implication on their outreach, impact and sustainability.moral hazard, joint liability, dynamic incentives, group lending, Malawi, Financial Economics,

The impact of credit constraints on the adoption of hybrid maize in Malawi.

This paper investigates the impact of credit constraints on the adoption of hybrid maize among rural households in Malawi. To address the endogenous and binary nature of the household's credit constraints status, we employ a treatment-effects model to consistently estimate the effect of credit constraints. Results reveal that after effectively correcting for endogeneity, credit constraints have a negative and significant effect on the amount of land allocated to hybrid maize. Results also show that farmers with larger land holdings allocate more land to hybrid maize. Although less likely to report credit constraints, older farmers allocate less land to hybrid maize than younger farmers. These findings suggest that there is scope for increasing the cultivation of hybrid maize in Malawi if credit is targeted at younger farmers that are credit-constrained.credit constraints, hybrid maize, adoption, treatment-effect, endogenous, Malawi

The Impact of Access to Credit on the Adoption of Tobacco in Malawi

This paper investigates the impact of access to credit on the adoption of burley tobacco among households that differ in their credit constraint status using a Double hurdle model. The data used in the study is from Malawi collected by the International Food Policy Research Institute (IFPRI) in collaboration with the Rural Development Department of Bunda College of Agriculture. Results reveal that while access to credit increases adoption among credit constrained households, it has a limited effect among unconstrained households. Results further show that access to credit does not lead to an immediate increase in the likelihood of adoption for tobacco, but conditional on adoption it enables credit constrained households to allocate more land to tobacco production. Consistent with theory, results for the test for separation of consumption and production decisions indicate that household demographic factors affect demand for labor among credit constrained households while they have no effect among unconstrained households.credit constraints, double-hurdle, tobacco, adoption, Malawi

Determinants of Agricultural Technology adoption: the case of improved groundnut varieties in Malawi

This paper applies the Average Treatment Effect (ATE) framework on data obtained from a random cross-section sample of 594 farmers in Malawi to document the actual and potential adoption rates of improved groundnut varieties and their determinants conditional on farmers’ awareness of the technology. The fact that not all farmers are exposed to the new technologies makes it difficult to obtain consistent estimates of population adoption rates and their determinants using direct sample estimates and classical adoption models such as probit or tobit. Our approach tries to control for exposure and selection bias in assessing the adoption rate of technology and its determinants. Results indicate that only 26% of the sampled farmers grew at least one of the improved groundnut varieties. The potential adoption rate of improved groundnut for the population is estimated at 37% and the adoption gap resulting from the incomplete exposure of the population to the improved groundnut is 12%. We further find that the awareness of improved varieties is mainly influenced by information access variables, while adoption is largely influenced by economic constraints. The findings are indicative of the relatively large unmet demand for improved groundnut varieties suggesting that there is scope for increasing the adoption rate of improved groundnut varieties in Malawi once the farmers are made aware of the technologies and if other constraints such as lack of access to credit are addressed.groundnuts, adoption, Average Treatment Effect, Malawi, Crop Production/Industries,

Agricultural growth and investment options for poverty reduction in Malawi:

"Malawi has experienced modest economic growth over the last decade and a half. However, agricultural growth has been particularly erratic, and while the incidence of poverty has declined, it still remains high. The Malawian government, within the framework of the Agricultural Development Plan (ADP), is in the process of implementing the Comprehensive Africa Agriculture Development Programme (CAADP), which provides an integrated framework of development priorities aimed at restoring agricultural growth, rural development and food security. This paper analyzes agricultural growth and investment options that can support the development of a comprehensive agricultural development strategy consistent with the principles and objectives of the CAADP, which include achieving six percent agricultural growth and allocating at least ten percent of budgetary resources to the sector. Economic modeling results indicate that it is possible for Malawi to reach the CAADP target of six percent agricultural growth. However, achievement of these goals will require additional growth in most crops and agricultural sub-sectors, meaning that Malawi cannot rely solely on growth in maize or tobacco to reach this growth target. Broader-based agricultural growth, including growth in pulses and horticultural crops, will be important if this target is to be achieved. So, too, is meeting the Maputo declaration of spending at least ten percent of the government's total budget on agriculture. In fact, even under a more optimistic and efficient spending scenario, the Government of Malawi must increase its spending on agriculture in real value terms by about 20 percent per year between 2006 and 2015, and account for at least 24 percent of its total expenditure by 2015 if the CAADP goals are to be met. Although agriculture has strong linkages to the rest of the economy, with agricultural growth typically resulting in substantial overall growth in the economy and rising incomes in rural and urban areas, simply achieving the CAADP target of six percent will not be sufficient to halve poverty by 2015, i.e. achieving the first Millennium Development Goal (MDG1). To achieve this more ambitious target, agriculture and non-agriculture would need an average annual growth rate above seven percent. This growth requirement is substantial, as is the associated resource requirements, indicating that the MDG1 target may be beyond reach. However, achieving the CAADP target should remain a priority, as this goal has more reasonable growth and expenditure requirements, and will substantially reduce the number of people living below the poverty line by 2015 and significantly improve the well-being of both rural and urban households." from authors' abstractAgriculture, GDP, Poverty, Public investment, MDGs, Development strategies,