An evaluation of smallholder cotton marketing in Malawi: A case of Salima and Balaka rural development projects, Malawi

Abstract

Liberalization of the Cotton market in Malawi permitted private sector participation in the market. As such it was expected that the liberalized market would afford both the sellers as well as the buyers of cotton a fair return on investment as compared to the days when the Government was controlling the cotton prices. A major consequence of the market liberalization policy was that a new market structure has emerged because of the entrance of individuals firms and corporate organizations that now support production and marketing of Cotton in Malawi. However, there is very little empirical evidence on how this development in the Cotton market affected the performance of the market in terms of its efficiency. It is with this background that a study to analyse the performance of Cotton marketing in Salima and Balaka Rural Development Projects (RDP) was conducted. A total of 120 cotton producers, 30 traders and 4 cotton ginning companies were interviewed. A price spread method was used to determine marketing margins of private traders and ginners and measure marketing efficiency. The Hirfindahl Hirshman index was used to measure the concentration level and competitiveness of the cotton market in the two RDPs. A modified production function analysis using ordinary least squares was carried out to analyse factors influencing the quantity of cotton produced. Analysis of the structure of the cotton market revealed that the cotton market is less competitive in nature. Market margin analysis indicated that the cotton market would be efficient if producers sell their cotton through farmers‘organizations. Results on regression indicated that land allocated to cotton, household income invested, amount of pesticides used in cotton production and gender as being main determinants of cotton produced and sold. All these factors were significant at 5% level. Key recommendations of the study includes; improved access to market information, encourage farmers and traders to form cooperatives /associations and enhanced accessibility to credit facilities and create policy environment that facilitate active participation of private traders and ginners in the marketing of cotton.