Resultados das investigações do Departamento de Análise de Políticas MAP-Direcção de Economíafood security, food policy, Mozambique, maize trade, International Relations/Trade, Q18,

Santos, Ana Paula

Tschirley, David L.

English

Research Papers in Economics

24 November 1999  No.  18e
Resultados das investigações do Departamento de Análise de Políticas
MAP-Direcção de Economía*
The Effects of Maize Trade with Malawi on Price Levels in Mozambique: Implications for
Trade and Development Policy 
Ana Paula Santos and David L. Tschirley*
Introduction 
Mozambique emerged from a 15 year civil war in
1992 and held its first successful democratic elections
in 1994.  Since that time, it has aggressively
liberalized its economy.  In agriculture, it eliminated
nearly all fixed prices, slashed support to the cereals
marketing parastatal, and ended restrictions on
external trade for most commodities.
The effects of such liberalization measures on the
poor are hotly debated throughout Africa, including in
Mozambique.  The country’s macroeconomic
performance during the liberalization period has been
exceptional, with low and stable inflation, falling
interest rates, and some of the highest economic
growth rates in Africa.  Yet the fact that this growth
started from an extremely low base and occurred
during the first peaceful period in 15 years makes it
difficult to determine the relationship between this
growth and the new economic policies that the
country was pursuing.  
This paper sheds light on one aspect of this important
issue, evaluating the impacts of the opening of trade
in maize with Malawi on producer and consumer
maize prices in selected markets of Mozambique. 
Background
Rationale for free food trade in Mozambique: 
Mozambique’s geography makes the issue of trade
liberalization especially pertinent.  First, the country
has a long seacoast, with three excellent natural ports
spread along its length, and railroads linking these
ports with its own interior and with neighboring
countries.
1  Second, the most productive area of the
country is in the North, but this region is separated
from the key domestic consumption centers (Beira in
the Center and Maputo in the South) by long
distances, an under-developed system of feeder roads,
poor north-south road links, and a high-cost coastal
shipping industry.  These characteristics result in very
high costs of supplying the Center and South of the
country and, consequently, very low prices to
producers when such trade does occur.
Description of retail markets: Principal consumer
markets in the country are Maputo in the south, Beira
in the center, and Nampula in the north. Maputo is
the largest city in the country.  The city is fed by
maize grain from the center of Mozambique, and
grain and meal imported from South Africa.  Beira is
located on the coast at the end of the Beira Corridor
linking the city with Zimbabwe.  This city is typically
fed by surpluses from the central provinces of Sofala
and, especially, Manica, but is strongly affected by
fluctuations in regional production.  Nampula City is
the largest urban center in the north and is supplied
primarily by production from its own province,
sometimes receiving grain from northern Zambêzia.
Description of producer markets:  Manica market
near Zimbabwe at the end of the Beira Corridor is a
surplus production area with some of the highest
maize yields in the country.  This market is well
integrated with the south of Mozambique (Donovan,
1995), supplying Beira, Maputo, and consumption
centers in-between in addition to meeting its own
needs during most years. Mocuba is located in the
central-northern province of Zambézia, with good
* The opinions expressed here are the entire responsibility
of the Policy Analysis Department and do not reflect the
official position of the Ministry of Agriculture and
Fisheries.
This flash is based on MAF/MSU Research Report No. 34
- The Effects of Maize Trade with Malawi on Price Levels
in Mozambique: Implications for Trade and Development
Policy.  It is available from the Direcção de Economía,
MAP, or can be downloaded along with other MSU
publications at:
http://www.aec.msu.edu/agecon/fs2/mozambiquePag. 2
agro-climatic conditions for maize production.  
Mocuba is an important transit point for maize,
cassava, pigeon pea and butter beans to others
districts and to Malawi.  Only during food deficit
years is it economical for Mocuba to sell maize in the 
southern areas of the country.  In recent years with
the opening of trade to Malawi the importance of the
Mocuba market has increase as a wholesale
distribution point for traders. Ribaué is characterized
by generally good agro climatic conditions very
similar to the north of Malawi. Ribaué supplies deficit
areas within the province, including Nampula City and
some areas of the neighboring province of Cabo
Delgado. There is weak linkage between this
production area and the center and south, since this
zone is very far from Beira and Maputo and the road
links are poor.  With the opening of trade with
Malawi, this area became a major assembly point for
traders exporting to southern Malawi.
Recent developments in the maize trade: Formal and
informal trade between Mozambique and Malawi have
been ongoing for several years (Macamo, 1998;
Tickner, 1997; Bowen, 1998; Whiteside, 1998). 
However, this trade was relatively small scale and the
effects of exports were felt primarily along the border
until the 1997/98 marketing season.  Production in
Malawi in 1997 fell by 34%, and ADMARC and
private traders suddenly looked to Mozambique to
cover the deficit.
In response,Mozambican formal sector wholesalers
entered the maize trade, many for the first time,along
with the Instituto de Cereais de Moçambique.
Officially registered exports to Malawi surged during
the third quarter of 1997, and have remained at high
levels through the end of 1998, almost entirely
replacing exports to other countries.  Total official
exports to Malawi out of the 1997 harvest were
nearly 42,000 metric tons; exports out of the 1998
harvest have continued at a slightly slower pace. 
Estimates of total formal and informal exports during
the 1997/98 marketing year approach 100,000 mt. 
Exports continued at slightly slower pace first half of
1998/99. These factors pushed the effects of the trade
far beyond the border areas.  These flows had
profound effects on prices in Central and Northern
Mozambique; the next section presents the results of
econometric modeling work to quantify these effects.
Model and Results
To test the effect of the opening of trade with Malawi
on price levels in Mozambique, an econometric model
was developed and estimated.
2 The general model is:
PRICEm,y = f (PRODREGy, PRODMOZy,
FAMOZy, TRADE, Sm)
Where PRICEm,y is the white maize price during
month m of year y, in real meticais, PRODREGy is
total white maize production during year y in South
Africa, Swaziland, Lesotho, Zimbabwe, Zambia, and
Malawi, PRODMOZy is domestic production of white
maize during year y, FAMOZy is domestic maize food
aid arrivals during year y (white and yellow), TRADE
is a dichotomous variable representing trade with
Malawi, equal to zero through July 1997, equal to 1
from August 1997 forward, and
Smis a vector of 11 monthly dichotomous variables, to
control for seasonal effects.
Table 1 presents the results of this model, expressed
as the percent increase in prices due to trade with
Malawi.  In general, both producer and consumer
prices in the north of the country were substantially
affected by trade, while neither was affected in the
center and south of the country.
Discussion
Since most producers live in the north, while most
consumers live in the center and south, these results
indicate that maize exports benefit most rural
households while having no negative effect on most
consumers.  Mozambique (see the final section of this
paper).  
Table 1. Percentage impact of maize trade with
Malawi on selected producer and retail
prices in Mozambique
Markets % increase in price from
trade with Malawi
Producer
Manica not statistically significant
Mocuba 21%
Ribaue 15%
Retail
Nampula 13%
Beira not statistically significant
Maputo not statistically significant
The impact of trade with Malawi during the period
under analysis was extremely important to producers. 
In 1996, Nampula and Zambezia provinces containedPag. 3
37% of all maize producers in the country, and
accounted for 40% of all maize sales (1996 National
Agricultural Survey).   Available data suggest that the
percentage of net buyers of maize in rural areas is
low: during the 1994/95 marketing year, between
12% and 25% of all households in surveyed areas of
Nampula and southern Cabo Delgado province were
net maize buyers.  With large increases in maize
production since that time, it is likely that these
figures have not increased significantly, meaning that
large majorities of rural households benefitted from
these price increases.
Table 2 presents the increase in value of production
and cash earnings from sales due to trade with Malawi
during the 1998/99 marketing year.  In Nampula the
increase in earnings from maize sales was
US$1,264,000 and in Zambezia was US$2,219,000, a
total of nearly US$3.5 million in increased cash
income in the two provinces due to the price
increases.  Increases during the 1997/98 marketing
year would have been similar, though household level
data are not available to estimate them precisely.
These increased earnings have an impact on the
broader rural economy through consumption
multipliers and through the self-financing of rural
micro enterprise activities.    Haggblade, et al. (1989)
estimate average growth multipliers in rural Africa of
1.5.  In this case, such a multiplier implies nearly
US$1.75 million in additional income through
respending during each of the two years that this trade
took place.
The producer level price impacts of trade with Malawi
have potentially important implications for the
intensification of maize production in Mozambique. 
Studies to date (Howard et al. 1999) calculate break-
even prices at mean yields for high external input
technology (HEIT) maize in the better agroecological
zones of US$50-69/metric ton.  During the period of
exports to Malawi (since August 1997), 88% of all
monthly producer prices in the four markets have
exceeded US$69/ton; 94% have exceeded US$50/ton. 
These prices have obtained despite very good
production in Mozambique and no serious shortages
in the region.  By increasing the probability of
remunerative prices even during years of regional
surplus, the development of regional markets will
reduce the risk of adopting these technologies.
Table 2. Increases in value of maize production
and cash earnings from maize sales due
to trade with Malawi, 1998/99
marketing season 
1
Province Increase in total
value of maize
production
(‘000 US$)
Increase in cash
earnings from
maize sales
(‘000 US$)
Nampula 1961 677
Zambêzia 3061 827
Manica 0 0
Source: MSU/USAID Focus Area Income Survey
Notes:1) Price increase due to trade is taken as the
estimated regression parameter from the opening of trade
regressions: 205 Mts/kg in Nampula, 332 Mts/kg in
Zambêzia (Mocuba market), 0 in Manica (coefficient on
TRADE was insignificant).
Even if the long-run trend in Malawi is toward a
structural deficit in maize, however, Mozambique
cannot necessarily rely on that market every year. 
Malawian production in 1999 is forecast to have
increased by 34% and Northern Mozambique also is
forecasted to have a very good harvest for this year. 
It remains too early to predict the impacts of these
developments, but there are indications that some
large wholesalers involved in the maize export trade
over the past two years are avoiding it this year.  
Too, as production in Mozambique continues to
increase (especially if HEIT technologies become
more widely adopted), the Malawi market may not be
large enough to absorb all of Mozambique’s
exportable surplus.  So, Mozambique needs to look
beyond Malawi to other areas in the region which will
periodically require imports, such as Zimbabwe,
eastern Zambia, Kenya and Tanzania.  More
generally, it needs to develop regional markets on a
broad scale. 
Conclusions and Policy Implications
The study has investigated the effects of the opening
of trade in maize with Malawi on producer and
consumer maize prices in Mozambique. 
Major findings of the empirical analysis are as follows.
Trade with Malawi had large and statistically
significant effects on producer prices in Ribaué,
Angoche and Mocuba. Consumers in Maputo and
Beira have suffered no adverse price effects
Three policy implications emerge from these findings. Pag. 4
1. Inefficiencies in the ports and rails have substantially
increased the cost of importing and exporting, but are
being addressed through major investment and moves
towards privatization of port management.
2. A Seemingly Unrelated Regression (SURE) approach
was used in which the equations for each of the six
markets were estimated jointly.  Autocorrelated errors
were corrected using lagged values of the dependent
variables, based on the results of a Durbin-h test.  See
Tschirley and Santos (1999) for more detail on
methods.
First, an open trade regime is clearly in Mozambique's
national interest.  Policy makers should expect the
north and the center should export maize regularly,
and the south to import every year and should design
policies and programs that reduce the cost of doing
so. Three specific steps should be taken: 1) push for
rapid liberalization of maize trade in the region under
the SADC Trade Protocol, 2) provide timely and
improved regional outlook information and regional
policy monitoring, and 3) simplify and facilitate the
export process. 
A second policy implication is that Mozambique
needs to look beyond Malawi in developing its market
for maize; Zambia and Zimbabwe may provide
demand for Mozambican maize in years when Malawi
does not (as in 1999).
The final policy implication relates to efforts to
intensify maize production in Mozambique.  Studies
to date make it clear that producer prices will be too
low to sustain maize intensification in the absence of
regional trade.  By substantially increasing the
probability of remunerative prices for northern
Mozambican producers even during years of overall
regional surplus, this trade creates the possibility of
successful intensification.  Efforts to deal with the
institutional and technical challenges of intensification
must be pursued in the context of developing these
regional markets.
Endnotes
References
Bowen, Nina (1998). “Trade, Traders and Trading -
Malawi and Zambezia Province, Mozambique”.
Annex 1 to Whiteside (1998).
Donovan, Cynthia (1996).  “Effects of Monetized
Food Aid on Local Maize Prices in Mozambique”. 
Unpublished Ph.D. Dissertation.  Michigan State
University Department of Agricultural Economics. 
East Lansing, MI.
Haggblade, Steven, Peter Hazall and James Brown
(1989). “Farm-nonfarm linkages in rural Sub-Saharan
Africa”. World Development, vol. 17 no. 8, pp. 1173-
1201.
Macamo, Jose Luis (1998).  “Estimates of unrecorded
cross-border trade between Mozambique and her
neighbors: implications for food security”.  Final
report for TechnoServe, Inc.  Nairobi, Kenya.
Tickner, Vincent (1997).  “Rural trade in
Mozambique: Pre-feasibility study central and
northern provinces”.  Publications on Agriculture and
Rural Development No. 5, Dept for Natural
Resources and the Environment.  SIDA, Stockholm.
Tschirley, David and Ana Paula Santos (1999).  “The
Effects of Maize Trade with Malawi on Price Levels
in Mozambique: Implications for Trade and
Development Policy”.  Under review for Food Policy.
Whiteside, Martin (1998). “When the Whole is More
than the Sum of the Parts - the effects of cross-border
interactions on livelihood security in southern Malawi
and northern Mozambique”.  A Report for Oxfam
GB. 
The original version of the paper on which this flash is based
was prepared for the Agricultural Transformation in Africa
Workshop, June 27-30, 1999 Nairobi, Kenya , Sponsored by
Tegemeo Institute / Egerton University, Njoro, Kenya, Eastern
and Central Africa Programme for Agricultural Policy Analysis
(Ecapapa), Entebbe, Uganda and Michigan State University,
East Lansing, Michigan.

The Effects of Maize Trade with Malawi on Price Levels in Mozambique: Implications for Trade and Development Policy

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