Urban proximity, demand for land and land shadow prices in Malawi

Abstract

We assess the spatial and intertemporal variation in farmland prices using per hectare minimum willingness to accept (WTA) sales and rental (shadow) prices in Malawi. We use three rounds of nationally representative farm household panel data from the Living Standards Measurement Surveys (LSMS), collected in 2010, 2013 and 2016. The sample is split in quintiles based on distance from the nearest major city, building on the land valuation and transaction cost theory, and agrarian political economy perspectives on global and national land transactions. Generally, farmland shadow prices decrease with distance from urban areas. However, farmland shadow sales prices increased more sharply between 2010 and 2013 in rural areas (+100 % vs +30 % in urban proximity). The results indicate that the sharp increase in demand for large-scale land transfers following the sharp increase in energy and food prices also affected rural smallholders’ land valuation, even in remote rural areas of Malawi. Conversely, by 2016 land shadow sales prices were again, like in 2010, about three times as high in areas near urban centres compared to remote rural areas. Even though sales prices declined in remote rural areas from 2013 to 2016, rental prices remained high. Using farm household-level population pressure variable, we show that local population pressure is a driver of farmland shadow prices, indicating land scarcity challenges, growing demand for land, and poorly developed land markets. With increasing land scarcity, land markets are becoming more important and need to be factored in when formulating development policies that aim to improve access to land in both peri-urban and rural areas.