Malawi - Agricultural diversification

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 489'3MAI MALAWI AGRICULTURAL DIVER. FICAT1u. November 15, 1984 EastCrn Africa Projects Department Southern Agriculture Division This document has a restricted distribution and may be used bh recipients onl in the perfrmrance of their official duties. Its contents may not otherwise be disclost d without World Bank authorization.  CURRENrCY EQUIVALENT Currency Units = Malawi Kwacha (MK) and Tambala (t) SDR 1.00 = MK 1.3577 US$1.00 = MK 1.33 MK 1.00 = US$ 0.75 WEIGHTS AND MEASURES 1 hectare 2.47 acres 1 kilometer = 0.62 miles 1 square kilometer - 0.39 sq. miles = 100 ha 1 kilogram 2.2 pounds 1 metric ton 1000 kg = 2204 pounds 1 liter 1.05 US quarts ABBREVIATIONS AfDB - African Development Bank ADD - Agricultural Develcpment Division ADMARC - Agricultural Development and Marketing Corporation CIDA - Canadian International Development Agency DAR - Department of Agricultural Research DLVW - Department of Lands, Valuation and Water DRIMP - District Roads Improvement and Maintenance Program DTC - Day Training Center EDF - European Development Fund EPA - Extension Planning Area FCV - Flue-Cured Virginia (tobacco) FHA - Farm Home Assistant FRG - Federal Republic of Germany GOM - Government of Malawi GRAMIL - Grain and Milling Company ICO - International Coffee Organization IFAD - International Fund for Agricultural Development MOA - Ministry of Agriculture ODA - Overseas Development Administration PO - Professional Officer RDP - Rural. Development Projedt RTC - Residential Training Center SCA - SmalIholder Coffee Authority TA - Technical Assistant TNA - Tree Nut Authority TO - Technical Officer TRA - Tobacco Research Authority UK - United Kingdom USAID - United States Agency for International Development Government Fiscal Year April 1 - March 31  FOR OFFICIAL USE ONLY bIALAWI AGRICULTURA,. DIVERSIFICATION Table of Contents Page No. I. BACKGRoUND . ...................................... ...*... 1 Objectives .... ....... ...... Location and ISize e.... ..*..,.., 1 Economic Performance 1 Physical, and Environmental Resources 1 Agricultural Structure ....4 Terms of Trade 5 Import Substitution and Export Promotion 6 II. SECTORAL ISSUES AND CONSTRAINTS .................... 7 A. Transportation 8 B. Market Infrastructure 10 C. Research ........ ....... .. . 11 De Extension .u................ 13 F. Training .................. 14 F. Pricing Policy is G. Land Issues .. .. .... ...... ....... 16 HS. Credit ............. ............ 7 III. CROP PRODUCTION AND MARKETING PROSPECTS AND COMPARATIVE ADVANTAGE . ............... .......... . ... 18 A. Introductlon ... . . ..................... 18 B. Methodology.. .............................19 C. Comparative advantage...... 21 Macadamia nutu...t.......Os..... . 25 Tea............. , 26 Coashetonuts......*.e........ ......................... ,..* 23 Wheat . ......... 30 Cottonb ............................ ...3.... .... 3 Rubber ............................... .... 35 Guar B eans . . . . . . . ..... 0. ...... , , 3 6 Groundnuts ...... ... ................. 9 38 Tobacco*hicD*.rsifct ...on ....i.. 5 41 Co ffeeo*ands-.Shie Veaks . 45 Pulsesd ...... .ih.la.. .547 Sunflower .*..*.o .,.*.4., .. 48 Maie...*a ...... 49 D. Geographic Diversification Optin .............. 53 Lowlands - Shire Valley and Lakeshore .......... 54 Medium and High Plaeux...........a........ 55 This document has a restricted distribution and may be used oy recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Cont'd) Page No. IV. STRATEGY * * * **....... ... 58 A. Development Objectives ... ......... . .....*. * 58 B. Proposed Strategy .. .......................... .... 58 C. Implications for Dor.r Agencies .......................... 63 D. Priority Action Plan ................... ........... .. 64 Annexes: Tables and Maps Annex Bu......... CropBudget Tables Annex II....... .... Agro-industrial Processing Cost Tables Annex III.... ........Comparative Advantage Tables Annex .V. ...... ...Locational Comparative Advantage Tables Maps p IBRD Map 18012 Malawi: Soils IBRD Map 18013 Malawi: Tobacco and Rice Growing Areas EBRD Map i8014 Mlalawi: Groundnuts, Cotton, Tea, Potato and Sugar Growing Areas IBRD Map 18015 Malawi: Mean Annual Rainfall IBRD Map 16734R Malawi: Relief  Preface Malawi is heavily dependent on agriculture as there are no known mineral resources which can be exploited and other economic options are liiited. Agriculture employs about 85% of the labor force, contributes over 40% of the GDP and accounts for about 90% of export earnings. It is apparent that for the near and medium term, Malawi must rely on agriculture to achieve a respectable rate of growth. Although Malawi produces and exports several agricultural commodities, the commodity concentration has increased over the past 10 years. The world market prospects for Malawi's three major exports, tobacco sugar and tea, which contribute over 80% of the total value of exports, are poor. During the past three years, expanded maize production has made a substantial contribution to growth, but self-sufficiency has now been attained and high transport costs limit the prospects for maize exports. If the growth momentum is to be maintained it is imperative that the production of other crops be expanded. The high transnortation costs created by closure of the Mozambican rail corridors makes the production of import substitution crops attractive, but the number and quantity of imports that can be substituted is severely limited. Thus, to maintain any appreciable growth rate, agricultural exports must be expanded. The long distances and high transport costs require export crops to be non-perishable and have a high unit value. Malaw-i has very little unutilized land remaining, making it quite important to utilize a production structure (smallbolder, estate, nucleus estate, etc.) and produce crops which will optimize returns to land. The following comparative advantage study attempted to identify diversification crops by analyzing the domestic resource cost of earning (saving) foreign exchange by producing and exporting (consuming) various crops. The locational comparative advantage of crop production was analyzed under two transport scenarios; Mozambican and non-Mozambican transport routes. The analyses assumed that improved technology and management levels would be practiced. Additional sector work focusing on land policy issues is planned for 1984/85 and a complementary study on Land capability is expected to be undertaken by Government. This work will be followed by a sector overview update.  I. BACKGROUND Objectives 1.01 The objective of this study was to analyze the economics of diversification, to identify constraints and propose solutions for crop intensification/diversification. Specifically, the-study attempted to identify crops, technologies and processes which would: (i) utilize production resources more efficiently and tiereby; (ii) increase foreign exchange earnings through increased production/productivity; and (iii) increase foreign exchange savings through import substitution. Location and Size 1.02 Malawi is a relatively small landlocked country in Eastern Southern Africa with a total land area of 94,300 Km2 and 36,200 Km2 of arable land.1/ The implications of being landlocked are severe (paras. 2.02 -2.06) as the transport cost and reliability impact on production, export, input use and consumption. The population is growing at the rate of 2.9% annually and is estimated to be 6.58 million (1983)2/ making Malawi one of the most densely populated countries in sub-s;haran Africa. Economic Performance3/ 1.03 Malawi has had one of the best economic performance records in the region; between 1967 and 1979, real GDP grew at an average rate of 5.5% per annum. The growth rate declined sharply to 0.4% in 1980 and -0.8% in 1981 but recovered to 3.0% in 1982. Agriculture continues to be the most important sector of the economy, providing 40% of the GDP (down from 50% in the early 1970s), 85-90% of foreign exchange earnings and employing about 85% of the labor force. All sectors of the economy were dynamic between 1972 and 1979; agriculture grew at a lower rate than the economy as real growth averaged 3.9% per annuIm during that period. Between 1979 and 1982 agriculture grew at only 0.5% but along with the utilities were the only sectors to exhibit a positive growth rate over that period. Physical and Environmental Resources 1.04 Generally land and climate resources in Malawi are favorable for a wide range of crops. This is verified by the fact that a large number of crops have been grown on both a commercial and an experimental scale. However, in many cases, economic forces and market demand often resulted in 1/ Arable land estimates vary as the definition of "arable land" is inconsintent. Estimates range from 2.95 million hectares to 4.9 million hectares. The statistic quoted here was provided by the Land Husbandry Division, Ministry of Agriculture as "land possible for cultivation under present technological levels". 2/ GOM, Malawi Population Census, 1977, Zomba 1980. 3/ See: World Bank Report No.3082a-MAI, Malawi, Growth and Structural Ch_age a Rasioc Economic Report; and Report No.3459-MAI, Malawi, The Development of the Agricultural Sector  their discontinuation. To date no attempt has been made to draw agro-ecological zones for specific crops and therefore crop diversification has been carried out on an ad hoc basis. 1.05 The soils of Malawi have be-an described by Young and Brown (1962)4/; Brown and Young (1965)5/; and Stobbs (unpublished reports)6/. The solis are divided into four main groups. Pirst are the shallow and st,ny soils, Lithosols, which occupy large areas of dissected steeply s:oping land, particularly in the Rift Valley and Escarpment Zones as well as numerous mountains and hills. The second group are the hydro-morphic soils, also known locally as dambo soils. These are waterlogged for a substantial part of the year; they are mottled or black soils which occupy Valley floors at all altitudes. The third group are the calcimorphic group consisting of grayish brown alluvial soils with a mottled lower horizon, which are mainly found along the Lakeshore plain. The fourth and largest group for agricultural production are the Latosols. These consist of red, reddish brown and yellowish red soils with free drainage (no mottling), which occupy the more gently sloping areas in the north, central and southern highlands. A fifth group, the vertisols, (black cotton soils) are minor nationally but significant areas exist in the Shire and Bwanje Valleys. These soils contain over 50% clay, the major component being montmorillonites (welling clays) with a very weak micro-structure. As a result they become 'slippery' when wet and develop large cracks upon drying. 1.06 The latosols consist of ferrisols, ferruginous and ferrallitic soils (which represent various stages in soil development). The ferrisols occupy only small areas in Malawi. Parent material has a dominant effect on the distribution of ferrallitic and ferruginous soils on the plains as well as in areas of moderate slopes. The ferruginous soils are generally found on parent material rich in basic composition, contain 2-3% organic matter, over 0.1% nitrogen and are more fertile than the ferrallitic soils found on parent material poor in basic composition (acidic). The ferrallitic soils have been sub-divided into several stages of weathered parent material. 1.07 Soil texture varies according to type of parent material and degree of weathering; two main types occur in Malawi - one is the clay soils found on basic parent material such as the ferruginous soils and the other is the loamy sands to sandy loams which are derived from acidic parent material found in the ferrallitic soils. 1.08 From an agricultural production viewpoint, the red and brown clay soils have a strongly developed, relatively stable granular micro- structure (made up by aluminium sesquioxides), good moisture retention 4/ Young, A and Brown (1962); The Physical Environment of Northern Nyasaland; with Speciai 'Neference to Soils and Agriculture. (Government Printer Zomba). 5/ Brown and Young (1965); The Physical Environment of Central Malawi with Special Reference to Soils and Agriculture. (Government Printer Zomba). 6/ Stobbs, A (1970) Agro Ecological Survev and Maps; Southern Malawi (unpublished, Directorate of Overseas Surveys).  properties and ca;i be highly productive if mar-aged moderately well. Soil reaction is in the acid range (pH 4.5-5.5) a"td tends to slowly become more acid under continuous cultivation, which may be exacerbated with continued application of S/A fertilizer. Fertilizer response is generally limited to nitrogen and phosphorus. Tre black cotton soils are very fertile and can be very productive but excellent management is required. Fertilizer input requirements are low and the soil reaction is neutral to basic (pH. 6.0- 7.5). Very little information is readily available about crop production on these soils in 4alawi, but cotton, particularly, and most other crops should do well excepc those requiring low temperatures (wheat) and those requiring soil lifting (groundnuts). 1.09 The sandy soils have generally a less developed and less stable mnicro-structure (fewer aluminium sesquioxides), and are consequently more prone to structural damage under poor management. A high level of management is required to maintain soil structure. Soil moisture retention is low and periodic warer logging can occur in areas where soil structure has been damaged as a result of poor management. Therefore, crops which are sensitive to waterlogging, such as cotton, should not be grown. Under good management, high economic yields of most crops can be obtained, but due to fluctuating soil moisture levels, yields will be less consistent than in the clay soilso In the sandier soils potassium levels are low, and under good management potassium fertilizer will give a positive response. Due to the generally lower s5il fertility, higher levels of nitrogen and phosphorous fertilizers are required for optimum yields. Micro-nutrients are likely to become deficient if these soils are continuously cultivated. The soil reaction is strongly acidic (pH 4-5.2) and has a tendency to become more acid unless limestone is periodically applied. 1.10 Average rainfall varies from 650 mm to over 2,000 mm. But for the principle agricultural areas, it is mainly in the range of 750 to 1,200 mm. Less than 5% of the total land area receives less than 750 mm (Lower Shire Valley, Southern Lakeshtore and Mzimba-Rumphi) and less than 4% of the land receives over 1,600 mm (the very high plateaux). 1.11 The rains normally commence in the Southern part of the country in late October to early November. They move progressively northward, commencing a month later in the northernmost part of the country. They terminate in late March to late April. Considerable variation in rainfall exists between years and in the distribution within the year. Although the total rainfall during the months of December through February is relatively consistent, droughts during the rainy season are not uncommon. The least variable rainfall pattern is fotund in the Northern Region Plateau including Chitipa and the Central Region plateau incorporating the Kasungu and Lilongwe plains. The most variable rainfall patterns occur in the central Lakeshore areas where rainfall often occurs in intense short duration storms followed by periods of drought. Rainfall in the Shire Highlands and Shire Valley also is variable. The Shire Highlands, Kirk range and Northern plateau have small amoujnts of dry season rainfall which make them Darticularly attractive for wheat or pulses. 1.12 Temperature is mainly dictated by relief. The coolest temperatures occur in the northern and central region plateau, with monthly maximurn temperatures ranging between 26-29CC and minimum between 11-18