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What needs to be done to improve the impact of ADMARC on the poor - July 2002
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Executive Summary
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The aim of the study was to look into what can be done in order to improve the impact of ADMARC on the poor. It was meant to investigate the likely effects of privatizing ADMARC on the poor and providing alternatives which could then be used by Oxfam and other civil society institutions in advancing the interests of the poor.
A two-phased approach was adopted. The main purpose of phase one was to understand the history of ADMARC as a corporation, with particular interest in the reforms through which it undergone. Phase two formed the core of the study's research. Research in this phase mainly involved a survey that targeted the rural poor in appreciation of the fact that they are ADMARC's primary beneficiaries and a literature review of other countries' experiences with marketing boards.
The main purpose of the survey was to obtain a deeper understanding of the opportunities and constraints that the primary beneficiaries of ADMARC face in the area of agricultural marketing, as well as to get some idea of their perceptions regarding the likely effects of privatizing ADMARC. The main data collection instruments used a household questionnaire, which was administered to mainly household heads, and focus group discussions also with mainly household heads as participants. Areas where ADMARC is still operational and where ADMARC closed its markets were sampled in all the three regions of the country.
A socio-economic profile of the questionnaire respondents reveals that although randomly selected, they do qualify as primary beneficiaries of ADMARC's services. The majority is poor, dependent on cash crop sales, and food deficit for most part of the year.
A number of results emerge from the survey. First, the study establishes that when it comes to the selling of agricultural produce, ADMARC no longer plays the crucial role that it used to play in the past, even in areas where it is still operational. Firstly, produce fetches higher prices when sold to private traders and at local markets than at ADMARC. Secondly, in most cases, ADMARC starts buying from farmers very late in the year. Thus, they are forced to sell their crops to private traders or local markets in order to raise cash in time of need. Thirdly, in other areas, ADMARC tends to run out of cash in the middle of the buying season.
In general, the most crucial problem that people face in the realm of produce selling is low prices followed by unavailability of markets in some cases.
But with regard to the buying of food by deficit households, the study finds that ADMARC plays a very crucial role. Even in areas where ADMARC withdrew, people still depend on the next alternative ADMARC market. Distance does not seem to be an issue. The role ADMARC plays in this regard is that it sells maize at a much lower price than private traders, for example. The only problem with ADMARC is that it usually runs out of stocks. As a result, people are forced to buy from private traders, though at exorbitant prices.
The main problem faced by people when trying to purchase food is the high price of maize, followed by unavailability.
Also, the study finds that despite the coming in of private traders, ADMARC still plays a very important role in the provision of farm inputs in many areas, especially in those areas that are remote. For those areas where agricultural activity is high and road conditions are good, there is evidence of private traders having displaced ADMARC. People in these area prefer to buy from private traders because their prices are lower.
With regard to fertilizer, the main problem faced is high prices, followed by low supply in areas where ADMARC is operational, and long distance in areas where it closed its markets.
The study also finds that on the basis of people's experiences with private traders so far, and on the basis of the experience of other countries in the region, total privatization of ADMARC would have adverse effects on the poor. In particular, should ADMARC be totally privatized, only areas where agricultural activity is high, and where road conditions are good will be serviced. In remote areas, there will be very thin markets for produce, food, and inputs. As a result, the level of prices there will be to the disadvantage of the poor. It is not surprising that on the basis of their experiences with private traders so far, the poor themselves are opposed to the privatization of ADMARC.
The study acknowledges that maintaining the status quo would not be the best way forward. Although ADMARC as a parastatal has indeed played a very important social role, especially in the area of food security, this has cost the government, and hence the poor, more than would have been necessary. This is mainly because of too much political interference. In particular, the temptation by politicians has been to insist that ADMARC does certain things in the name of performing social roles, even if ADMARC itself feels that the need is overstated. Similarly, some very innocuous reforms have been resisted by politicians on the premise that they would be socially harmful.
At the same time, the study contends that total privatization is not a panacea either. Even if the government were to maintain a budget line for engaging the privatized ADMARC in performing some social roles, this may turn out to be an equally expensive option in view of the fact that the private sector is always out and about to make the most profits out of every opportunity. Further, there is even a risk that a privatized ADMARC may even decide to pull out of even those areas where it could just be breaking-even or making some small margin of profits. Totally privatizing ADMARC would therefore be throwing caution to the wind.
The study's proposed solution takes the form of a joint venture between the government and the private sector. The private sector would have a majority shareholding in ADMARC, with the government having some direct influence through its board of trustees, in order to safeguard the interests of the Malawian people. Although this arrangement amounts to privatization of ADMARC, the form is a qualified one.
On top of the conversion of ADMARC into a trust company, the study proposes the formation of a quasi-government institution, the Social Development Unit that will be charged with the responsibility of coordinating all agricultural marketing activities that are of a social nature. For example, the study proposes the formation of agricultural development cooperatives in those rural areas that are remote and hence not easily accessible by road. It will be the duty of the ASDU to coordinate the formation of these cooperatives and also to ensure that their operations are sustainable. The ASDU would partly be funded by any proceeds from the trust company, and partly by donors.
In the meantime, the study recommends that calls by the donor community to speed up the process of privatizing ADMARC should be resisted. Instead, the government should embark of a process of wide ranging consultations with all the stakeholders.
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