# **I. INTRODUCTION**

1. This report presents the results of an analysis of Malawi’s competitiveness in key agricultural value chains. The analysis is based on prices prevailing in the 2007/08 agriculture season before the spike in agricultural commodity prices that preceded the global financial crisis. Specifically, the report covers two levels of smallholder management for open pollinated and hybrid maize, irrigated and non-irrigated rice, burley tobacco, and cotton. For the sake of completeness, the results of other recent value chains undertaken in Malawi have also been summarized and the main conclusions synchronized with those from this particular analysis.

2. The main objectives of the analysis are:

- **To determine private costs and profitability of different stages in the value chain:** Only by understanding the costs and returns to farming itself and the other stages of production and distribution until the final market can policymakers begin to understand the incentives for production, processing, and shipping, as well as the incentives for improvement in each stage.

- **To understand cost composition:** By analyzing the detailed cost structures of individual value chain participants, value chain analysis (VCA) can identify the types of costs that account for the majority of total value, and therefore focus on specific areas where new investment or other improvement could have the greatest impact on sector profitability and growth.

- **To measure trade competitiveness:** This was aimed at exploring Malawi’s competitiveness in regional and global markets i.e. what are Malawi’s best opportunities for import substitution or exports? To do this, we compared the results with other countries in the region and beyond (Zambia, Mozambique, Cameroon, Nigeria, Brazil and Thailand) in which a similar methodology was applied during the past two years under the World Bank supported study on Competitive Commercial Agriculture in Africa (CCAA)<sup>1</sup> .

3. To address these issues, the analysis covers two levels of smallholder management for open pollinated and hybrid maize, irrigated and non-irrigated rice, burley tobacco, and cotton. Beyond farm production, the analysis is also based on enterprise budgets for the most typical crop assembly, processing, and distribution arrangement for each commodity up to the point where total accumulated value can most realistically be compared with an import or export parity price as a final measure of trade competitiveness. By identifying the types of costs that account for the majority of total value and where these costs occur, the value chain approach is designed to help policy makers and project planners zero in on specific areas where new investment or other types of improvement could have the greatest impact on profitability, competitiveness, and growth.

> 1 See Keyser, John C (2006). <u>Definition of Methodology and Presentation of Templates for Value Chain Analysis,</u> Competitive Commercial Agriculture in Africa (CCAA), The World Bank, Environmental, Rural and Social Development Unit, Washington DC. The methodology is built around a set of interlinked Excel templates designed to calculate standard indicators of costs and profitability at each major stage of the production cycle. By filling in the elements of each template for individual commodities and farm systems, the methodology offers a practical way to establish benchmark prices that can be compared with international standards and identify specific areas where costs can most effectively be reduced through policy change or other types of investment.

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