Reforming the Malawi Agricultural Development and Marketing Corporation (ADMARC): Poverty and Social Impact Analysis (PSIA)

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1 Reforming the Malawi Agricultural Development and Marketing Corporation (ADMARC): Poverty and Social Impact Analysis (PSIA) Antonio Nucifora (AFTP1) PRSP Training Course, April 25, 2005

2 ADMARC (Agricultural Development and Marketing Corporation) Main marketing channel and storage facility of agricultural produce and inputs in 1980s Mandated with food security role: Pan-territorial and pan-seasonal pricing system Buyer and seller of maize in remote areas (establish ADMARC markets in non-profitable areas) Large growth during 1970s and entry into all sorts of activities (textiles, football, hospitals, etc.) Significantly smaller role after liberalization in 1990s (weak finances and greater private sector) 2

remote areas (establish ADMARC markets in non-profitable areas) Large growth during 1970s and entry into all sorts of activities

3 Distribution of ADMARC markets Picture shows location of ADMARC markets and distance to main roads Light colour = less than 2.5 km Dark colour = more than 12.5 km 3

4 Why reforming ADMARC? Significant and unpredictable financial losses: 1.6% of GDP in 1997, 1.9% in 2000, 0.6% in 2001 Fiscal burden leads to increased Govt borrowing and higher interest rates, and results in slower growth and poverty reduction Disincentive to PSD and efficient operation of maize market Questionable grain reserves handling reinforces doubts over ADMARC s food security role 4

6% in 2001 Fiscal burden leads to increased Govt borrowing and higher interest rates, and results

5 Poverty and Social Impact Analysis (PSIA): Why the PSIA? Persisting concerns about impacts of the reform: Closure of ADMARC markets in remote areas unlikely to be replaced by traders. How important is role of ADMARC in maize marketing? ADMARC is source of supply in times of scarcity (ample storage facilities). How important is role of ADMARC for food security? Public perception of ADMARC s importance much higher than supported by data. How important is ADMARC really? Sensitive topic of debate between WB and GoM, and publicly/politically sensitive 5

How important is role of ADMARC in maize marketing? ADMARC is source of supply in times of scarcity (ample storage facilities).

6 Poverty and Social Impact Analysis (PSIA): What is it? Analysis of distributional impact of policy reforms on well-being of stakeholders, with particular focus on poor and vulnerable Builds on premise that policy formulation is not just technical process political as well Participatory & inclusive process is critical to achieve positive implementation of reforms Study should bring together main stakeholders, clarify issues, and build consensus and political support for reforms Introduced in 2001 and increasingly adopted by WB 6 and other donors

premise that policy formulation is not just technical process political as well Participatory & inclusive process is critical to achieve

7 Poverty and Social Impact Analysis (PSIA): How does it work? Process should be undertaken early enough to inform reform design All stakeholders should be consulted & considered, to foster broad ownership Use local expertise in as far as possible, to increase ownership Wide tool box of methodologies: Best to mix quantitative and qualitative methodologies Assumptions behind analysis should be clear Risks to policy implementation should be addressed Enhance transparency on expected impacts to 7 strengthen local ownership

broad ownership Use local expertise in as far as possible, to increase ownership Wide tool box of methodologies: Best to mix

8 PSIA of market reform: methods Quantitative studies: Study A: Econometric model using data from 1998 household survey (WB consultant). Study B: Econometric model using panel data from 1998 household survey and 2002 follow up CPS4 survey (University of Malawi CSR and IFPRI). Qualitative study: Study C: Participatory learning methods (University of Malawi, Wadonda Consulting Malawi). 8

Study B: Econometric model using panel data from 1998 household survey and 2002 follow up CPS4

9 Quantitative study A: Econometric model using 1998 household survey Use existing household data from nationally representative 1998 Household Survey. Econometric linear regression model. Regress per capita household expenditures in 1998 against distance to ADMARC and other household characteristics (age, education, land, etc.). Fixed effects specified to sweep out unobserved factors influencing markets placement Test impact of distance from ADMARC s facilities on household expenditures. 9

Regress per capita household expenditures in 1998 against distance to ADMARC and other household characteristics (age,

10 Quantitative study B: Econometric model using 2002 follow up panel New data from follow up panel to 1998 Household Survey with questions on ADMARC use Econometric linear regression model Regress changes in household expenditures between 1998 and 2001 against distance to ADMARC and other household characteristics Fixed effects specified to sweep out unobserved factors influencing markets placement Test impact of distance from ADMARC s facilities changes on household expenditures 10

and 2001 against distance to ADMARC and other household characteristics Fixed effects specified to sweep out unobserved

11 Qualitative study C: Participatory learning methods on closure of ADMARC markets Participatory learning methods on various social groups and stakeholders 40 FGD with farming households; 66 SSIs with ADMARC officers, private traders and policy makers; 32 KIIs with community leaders Purposively selected a total of 20 villages in the catchment areas of 10 ADMARC markets based on remoteness Participatory learning methods used to explore well-being categories, poverty dynamics and relation to ADMARC s marketing services Ex-post assessment of impact of closing selected ADMARC markets in recent years 11

Purposively selected a total of 20 villages in the catchment areas of 10 ADMARC markets based on remoteness Participatory learning methods used to

12 PSIA of ADMARC restructuring: Main findings Not very important in urban and semi-urban areas Positive role in remote areas, far from major roads (lack of alternative marketing channels) Positive welfare impact for households closer to ADMARC facilities (up to 20%) Evidence of oligopolistic / oligopsonistic traders behavior in remote areas, especially where ADMARC not present ADMARC s role most important in maize sales during hungry season (i.e. food security role) 12

ADMARC facilities (up to 20%) Evidence of oligopolistic / oligopsonistic traders behavior in remote areas, especially

13 PSIA of ADMARC restructuring: Policy recommendations ADMARC maize marketing in remote areas important for poor households. Thin markets require Govt intervention. In the short term: ADMARC is wasteful; should be restructured Need for provision of cost-effective marketing services in remote areas (market based mechanisms, but how?) ADMARC services not required in less remote areas Commercialize ADMARC s non-marketing activities In the medium term: Govt investment in market infrastructure in remote areas 13

In the short term: ADMARC is wasteful; should be restructured Need for provision of cost-effective marketing services in remote

14 PSIA of ADMARC restructuring: Progress in implementation Government has set in motion process to restructure ADMARC. In early 2005, Government has advertised to hire technical advisors to advise/implement restructuring Consultant will prepare detailed restructuring plans Separation of ADMARC s social and commercial activities may be jump started Expectation is that plans be ready by mid-2005, and could be operationalized by early

In early 2005, Government has advertised to hire technical advisors to advise/implement restructuring

15 Lessons learned Combined quantitative and qualitative approach brings rich understanding of issues Important to coordinate different methodological approaches to minimize source of variations in the results Qualitative approach facilitates understanding by stakeholders, ownership of findings, and reforms 15

approaches to minimize source of variations in the results Qualitative

16 Lessons learned (cont.) Consultative process raises profile and provides basis for decisions owned by Govt & CSOs Crucial to ensure that consultations are as wide as possible since beginning of process PSIA study has improved quality of WB recommendations and policy advice to Govt PSIA approach appears likely to yield more successful reform outcomes 16

CSOs Crucial to ensure that consultations are as wide as possible since beginning of

17 Thank you! 17

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