Economic Liberalisation and food security in Malawi

Economic Liberalisation and Food Security In Malawi © Charles Mhango, LLB (Hons) (Mw), LLM (Warwick). ‘People are dying. Quietly, but in huge numbers, all over Zambia, lives are being wasted. Wasted not because of some accident of nature but as a direct result of economic policies imposed by faceless Western planners. For more than twenty years now the World Bank and the International Monetary Fund have been forcing "structural adjustment programs," or SAPs, on the bankrupt countries of Africa.’1 1(a) Mark Lynas, Letter from Zambia, February 14, 2000: <http://past.thenation.com/cgi-bin/framizer.cgi?url=http://past.thenation.com/issue/000214/0214lynas.shtml ( visited on 12.12.01)(a) Introduction Malawi, a landlocked country in Central Africa, is quintessentially an agro-based economy having no known precious minerals (the only mineral activity at present being coal mining in the North of the country). The major export earner is tobacco SADC Human Development Report 1998, Saps Books (1998) at page 26. Table 2.3(a). . About 90% of the population consists of subsistent farmers who largely depend on agriculture for their livelihood Chilowa, W. & Ephraim W. Chirwa, (1997), The Impact Of Saps On Social And Human Development In Malawi, in Bwalo, Centre for Social Research, University of Malawi 39-68 at page 48. . The main staple food in Malawi is maize followed by rice, cassava and potatoes. During the past two decades or so, Malawi has implemented economic liberalisation policies as a lending conditionality of multilateral banks like the World Bank and the International Monetary Fund (IMF) and other donor agencies. This article critically examines the effect these polices have had on the legal and or regulatory framework on the agriculture industry and the attendant effects on food security in Malawi. In doing this, the first part of the article offers a historical background to the regulation of the agricultural industry alongside its benefits. In the second part, the article critically scrutinises the advent of economic liberalisation as prescribed by multilateral banks and donor agencies. This part also explores the ideological and socio-political justification for liberalisation policies. The third part analyses the impact of liberalisation on the agriculture industry and ultimately food security. This part demonstrates that economic liberalisation in so far as it relates to the regulatory framework of the agriculture industry needed to be fine-tuned to suit the specific conditions facing the poor Malawian before implementation. The article argues that economic liberalisation has exacerbated the already poor conditions of the majority of the population in Malawi and has almost reduced the people to subservience and dependency especially in terms of food security. It must be pointed out at the outset that it is not uncommon these days in Malawi to hear of villagers suffering from acute shortage of food See Malawi News, 22-28 September 2001, Vol.43 No. 2523. at page 3. See also UN Integrated Regional Information Networks, 11 December 2001: http://allafrica.com/stories/200112110269.html (visited on 15.12.01). This is a testimony that even though the economy of the country as a whole may be said to be undergoing moderate growth See The Memorandum on the Economic Policies of the Government of Malawi, 8th December 2000: http://www.imf.org/external/np/loi/2000/mwi/01/index.htm. See also Chilowa Wycliffe & Ephraim W. Chirwa, (1997), (supra) at page 44. such growth doest not entail better living standards for the majority of the population. Part One: The Role Of The State In The Agriculture Industry In Malawi During the colonial era Malawi was a rich source of a cheap labour force See SADC Human Development Report, (supra) page 19. for the mineral rich colonies of Zambia, Zimbabwe and largely South Africa. Since Malawi did not have mineral resources, the only viable activity for the white colonisers within Malawi was agriculture. In this regard most Malawians who remained within the country were used as a source of labour for the white farmers in the tea and tobacco industries. This factor led to the introduction of a system of neo-feudalism called Thangata Maganya Ernest N., Of large Scale & Small Farms: A Comparative Paradigmatic Inquiry into the Agricultural Policies of Zimbabwe, Malawi & Tanzania, in Ulf Himmelstrand et al (ed), African Perspectives On Development, James Currey, London (1994) pages 96-106, at 102. whereby the white masters apportioned land to Malawians in return for their labour on the estates. This system left most Malawians landless. This landlessness was exacerbated by the introduction, after independence, of private ownership of land in 1967 with the legislation of the Land Act Cap. 57:01 of the Laws of Malawi, the Registered Land Act Cap. 58:01 of the Laws of Malawi and the Customary Land Development Act Cap. 59:01 of the Laws of Malawi. The raison d’etre for these new laws was to introduce private ownership of land to enable Malawians have access to credit facilities Banda G., ‘A Raging Calm’? – The Impact of Labour Relations on Politics in Malawi, in Nzunda M. S. & Kenneth R. Ross (ed), Church Law and Political Transition in Malawi 1992-94, Mambo Press, Gweru, (1995) pages 43-57, at 53. . When Malawi attained independence in 1963 the government that came into power kept a tight control by heavily regulating the agriculture industry. The agricultural industry was predominantly classified into "estate sector” and “smallholder sector” See The World Bank Impact Evaluation Report Number 17898, 1998: Malawi – The World Bank and the Agricultural Sector: < http://wbln0018.worldbank.org/oed/oeddoclib.nsf/14fedf7e58129bcd85256808006a0023/77ffef892a3b1326852567f5005d6550?OpenDocument (visited on 14/12/2001). with the estate sector being the preserve of the expatriate minority who owned large chunks of land and accounting for the country's major exports (largely tobacco and tea), while the smallholder sector remained subsistence oriented. The government was particularly interested in controlling the growing and selling of tobacco and encouraging food production amongst smallholder farmers. To do this Government enacted the Special Crop Act by Act Number 27 of 1963 which empowered the Minister of Agriculture to declare a crop to be a special crop. By 1980 crops such as tobacco (Flue-Cured tobacco), tea, cotton, coffee, macadamia, groundnuts, cashew and tung had been declared special crops under the Act. Government Subsidies in Agriculture Agricultural subsidies Payments made to farmers for the purpose of encouraging food production and supporting the incomes of farmers. See Famine Early Warning System (FEWS NET) – Glossary of terms:<http://www.fews.net (visited on 14.12.01) played a very crucial role in improving food production capacity amongst smallholder farmers. This helped to maintain a steady harvest of both food and cash crops as smallholder farmers could afford agricultural inputs. The establishment of the Thangata system mentioned earlier left most Malawians not only landless but also subservient to their colonial masters. Thus most subsistence farmers did not have the capacity to produce their own crops. This was, borrowing from Amartya Sen Sen Amartya, Development as Freedom, Oxford University Press, 1999, Chp 4., a clear ‘capability deprivation’ that kept the majority of Malawians vulnerable to abject poverty. In order to achieve a meaningful shift from this situation the government introduced subsidies on agricultural implements and inputs to enable the people access basic agricultural implements and inputs. Additionally, the government endeavoured to improve smallholder agriculture by taking a central role in the identification, financing and offering of extension services’ Maganya Ernest N., (supra) at page 97. Through extension services smallholder farmers were taught good crop husbandry through farmers clubs at grassroots level. By encouraging the smallholder farmers to work collectively in farmers’ clubs, the government provided a necessary impetus for the inculcation of a culture of independence in food production and economic independence. This impetus was heightened by the stand taken by the former head of state, Dr. Hastings Kamuzu Banda, who took a personal initiative and interest in agriculture. The former President owned a chain of Tobacco Estates in the country run by Press Holdings Limited. Ibid at 99 In theory, and in our view this yielded the ‘trickle down’ effect as by the middle of the 1980s Malawi was a success story Ibid at 97. in agriculture and was already boasting of food self-sufficiency through the ‘Achikumbe’ system Ibid at 102 with the former president as its self-styled ‘Mchikumbe Number One’ (Mchikumbe is a Chichewa term meaning ‘farmer’ and metaphorically used to mean a rich or progressive farmer.) . It must be emphasised here that it was the policy of the government, as was clear from the Special Crops Act, that priority be given to food production by smallholder farmers and not cash crop production hence the restrictions in the growing of tobacco, the major cash crop. This policy has been criticised as bordering on ‘naked selfishness designed to suppress the peasantry’ Banda G. (1995) (supra) 53. and being the cause for the ‘deterioration’ Mhone G. C. Z. (1987), ‘Agriculture and Food Policy in Malawi: A Review’, in Mkandawire, T and N. Bourename, The State and Agriculture in Africa. CODESRIA Books Series: London, quoted by Maganya Ernest, (supra) op.cit. of the smallholder subsistence farmers. We hold a contrary view. The above policy was justified in the light of the background of the neo-feudal Thangata system augmented by the paucity of the necessary paraphernalia for engaging in the intricacy of tobacco growing on the part of most Malawians when the country gained independence. If growing tobacco was opened to everyone, these factors would have impinged on the quality of tobacco produced in Malawi and would have adversely affected the country’s economic performance in the global market. A further justification for such a policy, in our view, is the fact that expenditure on food accounts for over 56% of the income Chilowa, W. & Ephraim W. Chirwa, (1997), Supra) at 44. . In this regard even if smallholder farmers were to engage in the growing of tobacco, given the above impeding factors their income from tobacco would have gone towards food. The Regulation and Control of the Agriculture Market. The selling and buying of produce was controlled and monopolised by the state controlled marketing corporation, the Agricultural Development and Marketing Corporation (ADMARC)  Banda G (1995) op. cit. at 53. See also Memorandum on the Economic Policies of the Government of Malawi, 8th December 2000: <http://www.imf.org/external/np/loi/2000/mwi/01/index.htm (visited on 14/12/2001). ADMARC has since been commercialised in 2004. . Even though such monopoly met the criticism of the World Bank and the IMF as early as 1981 Chilowa, W. & Ephraim W. Chirwa, (1997) op.cit. at 41. during the first Structural Adjustment Programmes (SAPs), we are of the view that the importance of ADMARC in the agriculture industry in Malawi cannot be overemphasised. Firstly, ADMARC operated over 1,000 permanent and seasonal markets Ibid. across the country. In most cases these markets were strategically located to ensure that farmers did not have problems in accessing farm inputs or travel long distances to sell their produce during the harvest season. Secondly, pricing of farm inputs and agricultural produce was heavily regulated across the country. Regulation of prices of agricultural produce may, prime facie and to an external observer, sound unfair as failing to take into account variables such as different production and transport costs. This is echoed by the argument that the survival of peasant farmers was at the mercy of ADMARC as it was the sole purchaser of produce Banda, G. (1995) op. cit. at 53. A contrary view is offered here. The strategic location of a network of seasonal markets by ADMARC, meant that ADMARC footed the transportation bill to go to the farmers in most rural areas both during selling of agricultural inputs as well as buying of produce. Additionally a determining factor on the prices of farm produce was the subsidies on agricultural inputs and not their commercial value. Part Two The Advent of Liberalisation in Malawi Adam Smith Jenkins, A. H., Adam Smith Today: An inquiry into the Nature and Causes of the Wealth of Nations, Kennikat Press, New York (1948), pages 107 and 109. criticised state intervention in, and regulation of, the market place as a restriction and obstruction in the market. He perceived regulation as hinging on both oppression and impudence. This criticism and approach to market economics has received support from various theorists and schools of thought. Some of the proponents of this approach are those theorists from the Chicago Law and Economics in the United States, commonly known as the Chicago School of thought See Mercuro, N. and Steven G. Medema, (1997) Economics and the Law: From Posner to Postmodernism, N.J., Princeton Uni. Press. . The Chicago approach is premised on the assumption that individuals are rational maximisers of satisfaction in both ‘their nonmarket as well as their market behaviour’ and respond to price incentives. The Chicago approach prefers the Kaldor-Hicks efficiency to the Pareto efficiency See further Cobb, Clifford, (1999), Review of: From Posner to Postmodernism by Mercuro and Medema, The School of Cooperative Individualism: http://www.geocities.com/Athens/Acropolis/5148/cobb_lawandeconomics.html (visited on 22/12/01). and argues that laws, especially judge-made decisions should endeavour to ‘increase the overall productivity of the economy, without being concerned about the distribution of costs and benefits’. In this regard, the Chicago approach concludes on the implicit assumption that everyone benefits from economic growth that, societies should not rely on legislation or bureaucratic mechanisms to promote efficiency but that societies can generate the requisite efficiency through the common law Mercuro, N. and Steven G. Medema, (1997) op. cit. and not only by state regulation passed in Parliament. However state intervention and market regulation has not been without support See Novak, William J., (1993), Public economy and the well-ordered market: Law and Economic Regulation in 19th Century America, Law & Social Enquiry 18, 1-32. . The driving force for such support has been founded on the salus populi This comes from the common law maxim salus populi suprema est lex ‘the welfare of the people is the supreme law. See Novak, William J., ibid. at 7. principle and the indispensable relationship between law, state, market and economy. In the 19th Century, American courts overwhelmingly supported state and local market regulation as protecting the welfare of the people. In the leading case of Wartman v. City of Philadelphia 33 Pa. St. 202 (1859) Chief Justice Black of the Pennsylvania Supreme Court defended licensing in public markets and the control of the market by local government. His Lordship held that: ‘The necessity of a public market, where the producers and consumers of fresh provisions can be brought together at stated times for the sale of those commodities is very apparent. There is nothing which more imperatively requires the constant supervision of some authority which can regulate it and control it. Such authority is seldom, if ever vested in individuals.’ Ibid., at 209. This was quoted by Novak, William J. (supra) at 24. Drawing an analogy between the antebellum American society and the post colonial Malawi of the 1960s and 1970s, we would argue that state intervention and regulation of the agricultural industry in Malawi was imperative both for the protection of the welfare of Malawians who had just graduated from the notorious neo-feudal Thangata system and, borrowing from Novak Novak, (1993) (supra) at 6. , a ‘public mechanism for advancement’ towards an ‘ultimately private market and economic individualism’. Based on Adam Smith and persuaded by the theoretical arguments in support of liberalisation Pill, H. & Mahmood Pradhan, Financial Liberalization in Africa and Asia, IMF Finance & Development/June 1997: < http://www.imf.org/external/pubs/ft/fandd/1997/06/pdf/pill.pdf, (visited on 21/12/01). , in the 1980s the World Bank and the IMF begun to impose conditionality on their lending to countries on liberalisation policies especially the ‘removal of impediments to competition’ See Picciotto, S., (1998), What Rules for the World Economy, (Draft – 1998) at page 1.. Such conditionality was further spurred by an upsurge in the demand for more loans by most countries due to ‘severe strains in the international economy’ Schaler, S., How Successful Are IMF – Supported Adjustment Programs?, IMF Finance & Development/June 1996: < http://www.imf.org/external/pubs/ft/fandd/1996/06/pdf/schadler.pdf, (visited on 21/12/01).. Schadler has singled out severe institutional weaknesses, lack of fiscal discipline and weak external competitiveness as some of the primary devastating problems in most countries. With these problems in mind, The World Bank and the IMF See Gundrum Kochendrorfer-Lucius & Mohsin S. Khan, Preface – Ownership and Conditionality, German Foundation for International Development and the IMF: <http://www.dse.de/ef/cond/fwd0801e.htm (visited on 21/12/01) found a justification for imposing conditionality on loans arguing that the primary purpose was to ensure that the financing would be implemented and the loans repaid. The World Bank Report of 1981 on ‘Accelerated Development in Sub-Saharan Africa – An Agenda for Action’ (known as the Berg Report See Maganya, Ernest, (1994) Supra) at 100) devised a set of macro-economic policies for Third World countries constituting the conditionality for any grants or loans. The policies, inter alia, prescribed liberalisation of the market including removal of input subsidies as conditions. In that year the World Bank advanced to Malawi the sum of $45 million as the first Structural Adjustment Loan (SALI) See Chilowa, Wycliffe & Ephraim W. Chirwa, (1997) (supra) at 41 specifically targeting diversification of the export base, import substitution, appropriate price structures and income policy, among others. In 1986 SAL III was implemented with the policy objective of liberalising the marketing of smallholder crops with the exception of tobacco and cotton Ibid.. In 1990 the Agriculture Sector Adjustment Credit (ASAC) Ibid. at 66 was made available to Malawi by the World Bank emphasising in its policy instruments specific items like smallholder price adjustments, liberalisation of the marketing of fertilizer, removal of fertilizer subsidies and the liberalization of the growing of burley tobacco. The Entrepreneurship Development and Drought Recovery Programme (EDDRP) Ibid. at 67 introduced in 1992 following the drought that hit Southern Africa in the 1991/92 growing season coincided with the rapid and volatile political change from a one-party dictatorship to a multi-party democracy between 1992 and 1994 in Malawi. For a general overview of the political atmosphere during this period, see Nzunda, Matembo S. & Kenneth R. Ross (ed), (1994) (supra). The political changes culminated in the adoption of a new Constitution in 1994. It must be pointed out here that by this time most of the salus populi suprema est lex policies that begun as noble and aimed at emancipating and protecting the poor Malawians by the government at independence in 1963 had been heavily manipulated for both personal and political reasons by those who held the reigns of power. To illustrate this point, what begun as the former president’s personal initiative and interest in the development of a strong agriculture industry by encouraging smallholder farmers to concentrate on the growing of food crops for food security led the former president to monopolise the lucrative tobacco industry for his personal benefits and the members of his family See Maganya, Ernest, (1994) (supra) at 99 and close political associates. Another example is the manner in which the Malawi Young Pioneer (MYP) Tengatenga, James, (1994), Operation Bwezani: A Theological Response, in Nzunda, Matembo S. & Kenneth R. Ross (ed) (supra) pages 101-109 at 101., which had humbly begun as an institution for the development of the youth into productive citizens in agriculture, had been transformed into a terrorizing paramilitary wing of the then ruling Malawi Congress Party. The foregoing issues heavily influenced the implementation of the EDDRP and the Fiscal Restructuring and Deregulation Program (FRDP) Chilowa, Wycliffe & Ephraim W. Chirwa, (1997) (supra) at 68. that followed in 1996. The EDDRP and FRDP ushered in the acceleration of trade liberalisation, the floatation of the Malawi Currency in 1994 and the review of several laws to bring them in consonance with the new Constitution Section 200 of the Republic of Malawi Constitution of 1994 provides, ‘Except in so far as they are inconsistent with this Constitution, all Acts of Parliament, common law and customary law in force on the appointed day shall continue to have force of law, as if they had been made in accordance with and in pursuance of this Constitution.’ . Implementation of these programs led to the repeal of various legal provisions impinging on accessibility of smallholder farmers to production of burley tobacco under the Special Crops Act. Part Three The Impact of Economic liberalization on the Agriculture Industry and Food Security The above policies have had serious socio-economic implications on the agricultural industry. As already stated above, almost 90% of the population in Malawi live in the rural areas and depend on agriculture Chilowa, Wycliffe & Ephraim Chirwa, (1997) op.cit. . The elimination of subsidies has greatly affected this sector. Prices of agricultural inputs have escalated beyond the reach of the majority of the population. This has been exacerbated by successive devaluations of the Malawi Kwacha in 1992 and its ultimate floatation in 1994 resulting in its cumulative depreciation of over 400% Ibid at 42 by 1997. Due to space limitation this article will not delve into the general economic implications of these factors, suffice to say that the poor smallholder farmer was completely taken unawares. The liberalisation of the marketing of inputs like fertilizer, in addition, significantly affected their prices as private traders are mainly driven by profit maximisation rather than the welfare of the people. A further factor leading to high prices in agricultural inputs is the high transportation costs caused by high fuel prices and a poor road network which most private traders cannot stand. The result is that such costs are transferred to the poor farmer. Recognising the problems facing the smallholder farmers following the removal of subsidies and escalating input prices, the government, in conjunction with other donor agencies like the European Union See European Food Security Network Report, February, 2000,<http://europa.eu.int/comm/europeaid/projects/resal/Download/report/mission/Mlwmoz/0200stmlw.pdf (visited on 23/12/01) has embarked on alternative programs aimed at assisting the local farmer. Of particular mention would be the Agricultural Productivity Investment Program (APIP), which started in 1997 and funded by the European Union and the Starter Pack Scheme, which was launched in 1998. These programs provide smallholder farmers with free basic inputs like fertilizers and seeds. By their very nature these programs have turned most smallholder farmers to be subservient and politicians have taken advantage of such a situation and have turned such programs into political campaign tools during elections. The liberalisation of the marketing of agriculture produce has also had its implications on the welfare of the poor population. Whereas the initial government policy in ADMARC was to buy agriculture produce with the aim of reselling the same to the population within Malawi, most private traders have diverted produce, especially maize, to neighbouring countries like Tanzania, Mozambique and Zambia. This has seriously affected food security in Malawi. Chilowa and Chirwa have singled out market liberalisation as ‘the single most detrimental reform on poor households’, who have traditionally depended on ADMARC for the purchase of maize Chilowa, Wycliffe & Ephraim W.Chirwa, (1997) (supra) at 59.. They have argued that a liberalised market alone is not sufficient to attain food security and that ADMARC needs to continue both its roles of ‘marketing smallholder crops’ and that of the ‘buyer of last resort with government’s assistance’ Ibid. at 49.. We agree. As pointed out earlier, prior to liberalisation, the growing of tobacco and other cash crops was strictly controlled. This left most rural Malawians to concentrate on the production of food crops like maize, rice and cassava. With the removal of restrictions on tobacco growing, smallholder farmers have abandoned the production of food crops to diversify into tobacco production even though they do not have the necessary paraphernalia and experience for such an enterprise. Due to these impeding factors, growing season after growing season, most smallholder farmers have found themselves in a dilemma whereby their tobacco crop has failed yet they do not have sufficient food. For those few who succeed, accessing the market is not easy as tobacco auction floors are located far from rural areas. Their fate has been aggravated by the introduction of intermediate buyers who have taken advantage of this particular situation. Intermediate buyers simply wait for the harvest season when they invade the rural areas to buy untreated tobacco at pathetically low prices, treat the same and resell it at the auction floors. Even though the country’s economy may have experienced some growth with the implementation of the above policies, the position of the smallholder farmer demonstrates the implicit failure of some of these policies. While conceding that the post 1971 The year when the former President of Malawi was made Life President. dictatorial regime in Malawi was unwelcome and needed dismantling, it was not necessary for multilateral banks and donor agencies to impose pre-packed policies for a complete overhaul of the economic agenda and demand deregulation in the agricultural sector. In our view, when the first SALs were implemented in 1981, the smallholder farmer was not ready for an open and competitive market having just graduated from the Thangata system. What was needed was, borrowing from Braithwaite and Drahos Braithwaite, John & Peter Drahos, (2000), Golbal Business Regulation, Cambrdge University Press, pages 7-9. , to engage the population in a dialogue to develop the necessary economic agenda and regulation of the agriculture industry. Conclusion Instead of being a vehicle for economic development and independence, liberalisation policies have left the subsistence farmers in a poor state. Food security has been threatened. This article has demonstrated how overemphasising economic liberalisation and free markets per se can further impoverish poor smallholder farmers in underdeveloped economies. It is suggested that for future policies, understanding the local situation and assimilating the same into designing economic policies is imperative. This needs to be borne in mind by multilateral banks and other donor agencies if they are to prescribe sound policies for various economic settings and borrowing governments need to unpack such policies and scrutinise them before implementation if the same were to benefit their people. PAGE 2