enhanced sector performance. These costs include legitimate business costs and mark-ups, official customs duties and taxes, and any number of unofficial payments and bribes that sometimes have to be made to facilitate a particular operation.<sup>6</sup> If some cost accounts for a large share of total value, or is significantly higher than an equivalent international benchmark, then new policies or investments focused on reducing that cost would likely be an effective strategy for improved competitiveness.

18. For cross-commodity and international comparisons, the final calculation of SV including foreign components is the most comprehensive measure of actual and potential competitiveness. For any given commodity, trade competitiveness is determined by comparing SV at the final market with an equivalent parity price (either a FOB price for exports or CIF price for import substitutes). By looking at the build-up of SV (and DVA) from stage to stage, the methodology therefore reveals the competitiveness of individual participants. If one stage accounts for a disproportionately large share of final shipment value, interventions focused on that part of the value chain likely also have a disproportionately large impact on the overall competitiveness of the chain.

19. A further advantage of the value chain methodology is that it allows for comparisons of production cost and other aspects of sector performance with the CCAA study countries for maize, cotton, rice and inputs. In Africa, the CCAA study was undertaken in Mozambique, Nigeria, and Zambia. To establish international benchmarks of successful development, a parallel analysis of value chain performance was also carried out for CCAA in Brazil and Thailand. Following the CCAA project, additional value chain research was undertaken in Cameroon covering maize and cotton and the data from this work are also available for comparison.<sup>7</sup> While this type of cross-country comparisons produces some interesting results that help better understand development opportunities in Malawi, differences in data collection and modeling mean that the results cannot be compared exactly.<sup>8</sup> Moreover the methodology cannot be used to say that farm production or assembly should cost a certain amount, or that one country is above the so-called benchmark, because conditions naturally vary between countries for many good and inherent reasons. This study therefore highlights these comparisons whenever they add value to the understanding of Malawi’s growth opportunities, but does not consistently report the other countries’ benchmark indicators for every value chain stage or process.

20. Another important distinction in the methodology is that agriculture commodities can take on different forms at each stage of the value chain. In the most basic sense, this can be the difference between a recently harvested farm product with high moisture content and one that has been assembled in a warehouse and dried for several months. Agriculture raw materials may also be processed into one or more finished goods. Seed cotton, for example, is processed into lint and seed while leaf tobacco must be threshed to remove the tips and stems before export. Similarly, paddy rice must be milled to produce polished grain. DVA and SV are therefore measured according to equations [1] and [2] on a per ton basis for the following product forms: 6 For Malawi, information on unofficial costs were unavailable and “domestic extras” were excluded from the analysis.

7 World Bank (2008). <u>Cameroon Agriculture Value Chain Competitiveness Study, Agriculture and Rural</u> Development (AFTAR) Sustainable Development Network, Washington DC.

8 For more details of the CCAA results (and discussion of the limitations of cross-country analysis) see Keyser, John C (2008). Competitive Commercial Agriculture in Africa (CCAA) Synthesis of Quantitative <u>Results. The World Bank, Environmental, Rural and Social Development Unit, Washington DC.</u> 9