ABSTRACT
Agribusiness in Malawi is still in the early stages of development and is associated with insufficient value addition. Farmers‟ ability to produce outputs in quantities and quality forms that are marketable and commercially viable is limited by a number of factors. Lack of sufficient storage and processing facilities as well as inadequate skills are some of the notable constraints. As a way of enhancing the competitiveness of the rural agribusiness actors and ultimately raising their incomes, the government of Malawi with support from the African Development Bank (AfDB) implemented an initiative called Deepening Enterprise Development (DED) under the Local Economic Development (LED) project. The study was therefore carried out to better understand the impact of the project in solving the problem of low household income through value added agriculture. The aim was to assess the effect of value addition on income among DED farmer groups in Ntchisi District, Malawi. The study used a multi-stage sampling procedure to select 100 farmer groups comprising of 62 beneficiaries and 38 non-beneficiaries of the project. Data analysis was done using descriptive statistics, probit model and propensity score matching (PSM) model. Cleaning, grading, processing, packaging and labelling were the forms of value addition found to be practiced by the farmer groups. Beneficiaries of DED (23%) were more involved in packaging as compared to non-beneficiaries (3%). About 21% of the beneficiaries processed and labelled their products while none of the non-beneficiaries were involved in either of the two practices. Location and project participation were found to have significant positive influence on groups‟ decision to add value. On the contrary, type of farming, number of enterprises and belonging to a single gender group had a negative influence on the groups‟ decision to engage in value addition. Lastly, the difference in gross margins (ATT) between the two groups that came about due to value addition was MK251.08. The study therefore recommends that strategies be put in place to enhance the farmers‟ ability to engage in higher forms of value addition techniques. These may include creation of an enabling environment for credit access that can be used for investment in value addition equipment and facilities. Efforts should also be made by all stakeholders to advance the provision of agricultural extension services, which may lead to an increase in the adoption rate of value addition activities among the farmers. Value added agriculture should be promoted as one of the strategies for improving the socio-economic wellbeing of smallholder farmers through increased income.
CHAPTER ONE
INTRODUCTION
1.1 Background Information
Malawi‟s economy relies greatly on agriculture. About 30 percent of the Gross Domestic Product (GDP) is contributed by the agricultural sector. The sector is characterised into estate agriculture sector and smallholder sector. The smallholder agriculture is a key source of living for most of the population residing in the rural area. It also represents more than three quarters of national exports and generates more than 80 percent of the export earnings. For the case in point, about 84 percent of value-added products from agriculture originates from 1.8 to 2 million smallholder farmers. These also contribute more than 70 percent of the agricultural Gross Domestic Product (GDP) despite owning not more than 2.5 hectares of land (GoM, 2016).
Agriculture in Malawi is rain-fed. Due to limited land holding size, the smallholder farmers prioritise the production of food crop to cash crop. Adoption of modern technology is mostly limited by lack of capital and credit hence their inability to increase production. Malawi‟s exports have for the most part been less competitive. This can be attributed to inadequate marketing institutions, poor road infrastructure and high transportation costs (Nankhumwa et al., 1999). Malawian products, such is the case for most African countries, have had difficulties penetrating the global market. Identifying new markets for alternative exports to replace the traditional exports has faced challenges and reluctance due to the fear of the repercussions such a shift may have on the economy in the short-run.
Poverty in Malawi is widespread. Based on the Integrated Household Survey (HIS), the estimates show that about 40 percent of the population earn or spend less than the threshold (GoM, 2012). The agricultural sector is the primary means of support for the poor majority which live in the rural areas (Benson et al., 2005). Market liberalisation, from 1987 onwards, resulted in the creation of new and better prospects for smallholder farmers to earn cash income. Due to liberalisation, rural trade fostered the growth of small and medium enterprises. On the other hand, liberalisation of smallholder crop production as well as marketing led to increased area of land dedicated to cash crops such as legumes. Cash crops provide smallholder farmers with limited land a way out of poverty. In essence, this implies that to combat poverty, policies should be market driven and place much emphasis to raising rural household incomes (Orr and Orr, 2002).
According to IFAD (2014), rural people in Malawi who are also less resource endowed lack the ability to diversify out of agriculture. Agribusiness is still in the early stages of development. Smallholder agriculture is associated with insufficient value addition and the farmers fail to meet the growing demands for both domestic and international market because they normally produce and sell primary commodities (GoM, 2009). Farmers‟ ability to produce outputs in quantities and quality, which are marketable and commercially viable, is inadequate due to limitations that they face.
The smallholder sector in Malawi faces a number of constraints that can be resolved through increased agricultural productivity, diversification of commodities to combat risk as well as production of high value outputs (Ellis and Ntengua, 2003). Lack of sufficient storage and processing facilities as well as inadequate skills are among the important constraints. This results in high post-harvest losses that in turn leads to inability of the farmers to capture premium prices during the off-season due to limited opportunities. Limited access to credit is another challenge to agricultural development in Malawi. Smallholder farmers lack access to formal lending institutions since they are perceived as bad risk (Aliou and Zeller, 2001). Information asymmetry also emerges as a challenge that comes about due to lack of information and poor access to commercial services. This causes farmers to earn relatively low profit margins for their products in agricultural markets. Participation of the farmers in agricultural value chain is affected by these constraints deterring them from satisfying both domestic and export markets (GoM, 2016). Reducing the challenges faced by the small-scale farmers would enhance their competitiveness and help to set up growth in the agricultural sector.
The policy environment has been dominated by agricultural development policies since 1964. This has been the case because Malawi has more than 80% of the population in the rural areas whose livelihood strategies are dependent on agriculture. The agricultural sector has for long driven the performance of Malawi‟s economy. The government has been focusing on developing the smallholder agriculture by devoting considerable amount of resources to the sector. A number of investments have been made including the founding of state-owned enterprises engaged directly in production and marketing of smallholder agricultural produce, provision of extension services by the state as well as subsidized credit and inputs. With all the effort however, the growth of the agricultural sector and the economy has been inconsistent and poverty has remained high (Chirwa et al., 2008).
It is recognised by the Malawi Growth and Development Strategy (MGDS) that advancement of local economic development would help to achieve broad based growth. The development should however be done based on the potentials that exist within the local areas. Several interventions have been put in place with the aim of protecting the poor from the risks of market reforms. The government has implemented a series of programmes with aid from bilateral donors since the late 1990s. The African Development Bank‟s mid-term review conducted in February 2008 emphasised the need for a multi-sector intervention that would enable local areas to develop by promoting value addition and building capabilities for entrepreneurship development as essential in maintaining pro-poor economic growth in the country (AfDB, 2008). It is to this effect that the Government of Malawi initiated the LED project with financial funding from the African Development Bank (AfDB).
The LED project supported a number of initiatives with the purpose of supporting the development of small and medium enterprises (SMEs). The household income and the socio economic wellbeing of these SMEs would be improved through their involvement in a series of economic activities. Among the supported components of the LED project was the Deepening Enterprise development (DED). The initiative focused on expanding already established businesses through a series of trainings on marketing, value addition, financial management and savings mobilisation. The farmer groups were involved in different types of enterprises. However, the study focus on tomato, groundnuts and honey. The value added products form the mentioned enterprises were tomato jam, cooking oil and honey. The project also supported the construction of basic economic development infrastructure such as processing and storage facilities and provided the beneficiaries with processing and other value addition equipment. The targeted beneficiaries were the economically active poor such as local business associations and cooperatives as well as small-scale entrepreneurs (AfDB, 2008).
Statement of the problem
Production and productivity has been the focus of Malawi‟s agricultural development strategies in the past. However, farmer groups remain less business oriented and weak. Because little has been done on value addition, majority of the smallholder farmers continue to trade their produce in raw form. This can be attributed to lack of capacity as well as processing equipment and facilities. Consequently, returns from their sales has remained low due to their inability to satisfy customer demands. The DED initiative was implemented to increase household income and improve the socio-economic wellbeing of the SMEs through their involvement in a range of value addition activities. The study, therefore, intended to assess the effect of value addition on income among the DED project beneficiaries in Ntchisi District.
Objectives of the study
The overall objective of this study was to contribute towards the improvement of income through demonstrating the role of farmers‟ involvement in value addition activities.
Specific objectives
i. To establish the different types of value addition techniques practiced by the beneficiary and non-beneficiary groups of DED.
ii. To determine the factors influencing the groups‟ decision to engage in value addition.
iii. To determine the effect of value addition on gross margins between beneficiary and non-beneficiary groups of DED.
Research questions
i. What are the types of value addition techniques practiced by beneficiaries and non- beneficiaries of DED?
ii. What are the factors that influence the decision of the beneficiary and non-beneficiary groups to engage in value addition?
iii. Does value addition have any significant effect on gross margins between beneficiaries and non-beneficiaries of DED?
Justification of the study
Given the fact that poverty reduction is a critical issue in Malawi with agriculture as the driving force to the same, higher farm returns is one of the ways that ensures income availability at household level. Therefore, any research work that aims to better understand the strategies employed such as DED geared to solve the problem of low household income is essential. In order to formulate appropriate and effective agricultural and poverty reduction policies, there is need to be well informed of the impact of programs implemented by government and Non-Governmental Organizations (NGOs). Therefore, the study would assist policy makers in identifying appropriate rural development interventions hence improving the wellbeing of the rural poor. Additionally, the study would be helpful for the project in providing the feedback information on its effectiveness and in validating the works done on its interventions.
Scope and limitations of the study
The study was limited to smallholder farmer groups in Malomo EPA of Ntchisi district. The aim was to analyse the effect of value addition on income of the beneficiary and non- beneficiary groups of DED. The study sorely relied on the farmer‟s ability to recall information due to poorly kept records. However, probing technique was used to enhance the accuracy of the information obtained.
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