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

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

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

Determinants of Agricultural Technology adoption: the Case of Improved Pigeonpea Varieties in Tanzania

If dryland legumes are to meet the expectations of reducing poverty and hunger in the semi-Arid Tropics, there will be need for a full understanding of their potential for diffusion and the barriers to adoption. We apply a program evaluation technique to data obtained from Tanzania to derive estimates of the actual and potential adoption rates of improved pigeonpea varieties and their determinants. The study reveals that only 33% of the sampled farmers were aware of the improved pigeonpea varieties which consequently restricted the sample adoption rate of improved varieties to only 19%. The potential adoption rate of improved pigeonpea if all farmers had been exposed to improved varieties is estimated at 62% and the adoption gap resulting from the incomplete exposure of the population to the improved pigeonpea is 43%. We further find that the awareness of improved varieties is mainly influenced by attendance of Participatory Variety Selection activities. The adoption of improved varieties is more pronounced among farmers with smaller landholdings suggesting that farmers facing land pressure intensify pigeonpea production through the adoption of improved high yielding varieties. The findings are indicative of the relatively large demand for improved pigeonpea varieties suggesting that there is scope for increasing their adoption rate in Tanzania once the farmers are made aware of the existence of the technologies