POLICY INCENTIVES AND THE COMPARATIVE ECONOMIC ADVANTAGE IN MALAWIAN AGRICULTURE

Abstract

The policy analysis matrix (PAM) framework was employed to analyse the comparative economic advantage in production and explore the impact of policy distortions on agricultural competitiveness in Malawi. The study demonstrated that Malawi has strong comparative advantage in the production of tobacco, paprika, macadamia nuts, cotton, tea, phaseolous beans, groundnuts and hybrid maize. Notably, Malawi has weak comparative advantage in the production of open pollinated maize and soybeans, both produced using low input technology. Of interest though, is the fact that low input producers are more efficient users of domestic resources in the production of some major cash crops such as tobacco and paprika. The study also revealed a large disparity between net private and net social profitability. This wide gap is mainly attributed to suppressed market prices over the long years of controlled commodity pricing in Malawian agriculture. Input market prices in Malawi were found to be higher than their equivalent social prices, thus forming an indirect tax on farmers. High transportation costs due to poor road infrastructure and the sales tax imposed on inputs such as chemicals are major factors behind the high input market prices. Elimination of such bottlenecks and policy distortions, improved access to credit and modern technology research investments should contribute to improved competitiveness in agricultural production, especially among small holders given their existing potential.