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Malawi: Strengthening storage, credit, and food security linkages

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Source: International Food Policy Research Institute
Country: Malawi, World

The role and potential impact of warehouse receipt systems in Malawi

This study considers the extent to which smallholder farmers, including those who do not necessarily produce a surplus for the market, might benefit from participating in warehouse receipt systems (WRS) in terms of improved income and food security. We consider three potential channels: efficient food markets; reduced post-harvest losses; and access to credit. Firstly, we find that WRS, through its potential to increase demand for storage and facilitate temporal arbitrage, could address high price seasonality driven by high transport margins and thin commodity markets. By lowering price seasonality, WRS would benefit net-consuming households that tend to sell low and buy high. However, since temporal arbitrage transactions are associated with costs and price risks, engaging in them becomes undesirable if prices do not follow predictable seasonal patterns. Prices tend to be less predictable in countries such as Malawi where government market intervention is highly discretionary. This hinders the development of a well-functioning WRS. Secondly, as WRS guarantees the quantity and quality of the commodity stored, such systems could improve food security in Malawi by reducing post-harvest losses. Storage-related maize losses are currently thought to be between 5 and 10 percent in Malawi. The combined benefit of reduced storage losses and higher expected future prices provides an opportunity for smallholder farmers to benefit from temporal arbitrage. The extent of post-harvest losses under home storage and the distance to the WRS storage facility are important determinants of whether home storage is more cost-effective than WRS. Thirdly, the use of WRS-stored commodity as collateral for accessing formal credit could enable households to obtain cash for immediate needs, while better timing their commodity sales and avoiding having to use the grain market as a lender of last resort when prices are low, particularly shortly after harvest. Currently only around two percent of farm households in Malawi have access to formal credit, suggesting considerable potential for WRS as a market mechanism for credit access. The study concludes by considering factors that discourage farmers from participating in WRS. These include high minimum commodity deposit quantities; high transport costs; lack of trust in and difficulties understanding WRS; and problems in accessing WRS credit.


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