Agricultural Development and Marketing Corporation

The Agricultural Development and Marketing Corporation, or ADMARC, was formed in Malawi in 1971 as a Government-owned corporation or parastatal to promote the Malawian economy by increasing the volume and quality of agricultural exports, to develop new foreign markets for the consumption of Malawian agricultural produce and to supporting Malawi’s farmers. It was the successor of a number of marketing boards of the colonial-era and early post-colonial times, whose functions were as much about controlling African smallholders and generating government revenues as in promoting agricultural development. At its foundation, ADMARC was given the power to finance the economic development of any public or private organization. In its first decade of operation, ADMARC was considered to be more business-like and less bureaucratic than similar African parastatal bodies, but from its formation it was involved in the diversion of resources from smallholder farming to tobacco estates, often owned by members of the ruling elite. This led to corruption, abuse of office and inefficiency in ADMARC, and declining world tobacco prices made it insolvent by 1985. To obtain World Bank loans, ADMARC had to be partially privatised, but the neo-liberal economic policies imposed on it by the World Bank forced it to cut fertilizer subsidies and contributed to severe food shortages in 1992. Following the 1992 shortages, international aid donors demanded a return to multi-party politics by 1994 and President Banda who had ruled since 1964 was removed from office. In the aftermath of this change, ADMARC’s role was reduced to that of a buyer of last resort and of maintaining a strategic reserve of maize through domestic and foreign purchases to promote food security. In 1996, the World Bank again intervened, criticising ADMARC’s importation of maize as an unjustified subsidy and requiring it to give up control of grain imports. ADMARC’s record of promoting food security and maintaining a strategic reserve from domestic purchases after 1996 was patchy: its intervention prevented a famine in 1998, but financial pressures in 2000 and 2001 forced it to sell much of its reserves just before a poor harvest in 2002, resulting in food shortages and famine. A third round of World Bank intervention in 2002 forced ADMARC to reduce its financial losses by reducing its trading operations and to allow private sector competition. This market liberalisation had mixed results: ADMARC survived it and by 2009 it was growing again. It still exists because it has not been possible to create a comprehensive private-sector marketing system, but it is criticised as inefficient and wasteful.

The Forerunners of ADMARC

From the 1920s to 1951

The two forms of colonial-era produce marketing boards had different aims. Some, as in the Rhodesias, supported white commercial farmers; others as in Nyasaland and Tanganyika controlled African smallholders and restricted competition between them and the settlers.^[1] The declared objectives of Nyasaland’s colonial legislation on the production, control and marketing of economic crops were to increase the quantity and improve the quality of the crops, and to stabilise the income of farmers through periods of price fluctuation. Restrictions were imposed on the number of growers and their output to improve produce quality and to match production to demand. This was done by registering growers, fixing producer prices, licensing buyers and exporters and establishing commodity boards, which often had exclusive responsibility for crop production and marketing. For most of the colonial period, statutory interference in the production and marketing of the crops grown on European-owned estate was kept to a minimum. Controls for their tea and tobacco were introduced at the request, or with the consent, of the settler associations responsible for these crops.^[2] The use of marketing controls allowed the Nyasaland government to increase its revenues. By offering smallholders prices that were lower than the world market prices, the colonial state indirectly taxed the smallholders, extracting a significant part of their profits. Market regulations were extended to food crops after the Second World War and, by the mid-1950s, marketing boards controlled the trade of most African smallholder produce.^[3]

Regulations introduced for Tobacco in 1926 and Cotton in 1934 required the registration of African peasant growers on Native Trust Land; the first also created the Native Tobacco Board (NTB). Settler demands for the regulation of the peasant tobacco and cotton sectors were partly motivated by fears that profitable smallholder farming could reduce the availability of cheap African labour for the estates. The Nyasaland administration did not encourage independent peasant tobacco production in the Southern Province where most settler estates were located, and it tolerated the Native Tobacco Board operating to preserve and promote settler tobacco interests.^[4] The formation of the Native Tobacco Board stimulated African production in the Central Region, but registered growers paid heavily for it. At first, the Board charged a levy of thirty pence a hundred pounds of tobacco, 10% of the price it paid growers. In 1930, this was raised to one third of the price paid to meet increased costs. In the Second World War and after the Board recovered its costs and underpaid growers, retaining between 25% and 35% of the auction prices it obtained to meet costs equal to only 15% to 20% of those prices. In 1930-1931, the Native Tobacco Board had 29,515 registered growers in the Central Region, where it purchased 4.9 million pounds of tobacco. The number of growers varied with demand until the Second World War when it expanded markedly. The Board had fewer growers in the Southern Province, partly because of European growers’ opposition. The Native Tobacco Board (later renamed the African Tobacco Board) limited tobacco growing by smallholders by imposing heavy dues until demand and prices rose after the war, when these dues became proportionately lower.^[5]

Compared with the Rhodesias, Nyasaland in the 1940s lacked a developed system for producing and distributing food surpluses. Its estates did not grow food commercially for local consumption, as towns were few and small and transport was limited and expensive. It was left to the African smallholders to supply the domestic markets.^[6] Commercial maize growing in Malawi was not feasible without government support. Its Maize Control Board did little to promote smallholder maize growing and it aimed to market less than 5% of the estimated annual crop.^[7]

The Maize Control Board (MCB) formed in 1947 was supposed to ensure that Malawi’s maize supplies were maintained and to guarantee minimum prices to farmers. It was given wide powers of control over maize marketing, but as maize could be grown or almost anywhere, its objectives were unattainable with the limited organisation it had.^[8] The MCB was hampered by lack of funds; it was reluctant to promote higher maize production for the local market on grounds of cost, and up to 1949 it also discouraged growing for export. To cover the cost of a country-wide network, the Board fixed a very low buying price and sold maize at double this price. The low prices that the MCB paid in the period 1945-1951 discouraged farmers from growing maize in excess of their own requirements, and inhibited the development of commercial grain markets. By paying the same price in remote areas as in accessible ones and by maintaining price floors in years of surplus, the MCB hoped to create grain reserves. However, as it paid only a penny for two to three pounds of maize against a market price of at least a penny a pound, growers lacked any incentive to produce for it and withheld their surpluses from their market. The quantities of maize available for the home market dropped significantly at a time of growing demand caused by poor harvests in the run up to the major famine in 1949.^[9][10]

After the 1949 famine, the MCB promoted maize production and exports, but when world prices fell in the 1950s, it abandoned the import and export trade, and the Nyasaland administration discouraged maize production in agriculturally unsuitable areas. By 1960, government intervention in maize marketing was limited to purchasing sufficient maize for the government’s own use and for a small food reserve. The deregulation of maize marketing was later extended to other types of food produce in 1959.^[11]

The late Colonial and post-Colonial periods

In 1952, an African Produce and Marketing Board (later renamed the Agricultural Production and Marketing Board) was created with control over the marketing of African produce including maize, beans, peas, wheat, groundnuts, rice, sorghum millet, cassava and cotton seed. In 1956, the activities, powers and duties of the Maize Control, African Tobacco and Cotton Control boards were transferred to the Agricultural Production and Marketing Board. It had powers to buy smallholder surpluses, but its producer prices were biased against peasant producers and did not reflect the rise in living costs: they were so unsatisfactory that even settlers on the Legislative Council called for the revision of the Board’s pricing policy.^[12][13] The first General Manager of the newly formed Agricultural Production and Marketing Board was Lionel R. Osborne, who served in this capacity until August 1962. When Dr Hastings Banda became Agriculture Minister in 1961, these policies were not greatly changed. The Agricultural Production and Marketing Board was replaced by the Farmers Marketing Board (FMB) in 1962, and European Board members were replaced by growers’ representatives. The Farmers Marketing Board was given wide powers to buy, sell and process farm products, promote price stability and subsidise seed and fertilizer.^[14] Banda recognised Malawi had few resources other than agriculture. He was an interventionist, and FMB became an aggressive purchaser of smallholders’ produce, but before 1969, its purchasing monopoly operated on a not-for-profit basis. This monopoly was partly neutralised by allowing co-operative societies to market crops, and African businessmen to act as carriers of produce, but little was done to raise producer prices. From 1963, the activities of the FMB included participation in business ventures through the provision of capital or loans. To accumulate investment funds competition in marketing African produce was restricted and the FMB's monopoly strengthened. The late colonial era administration’s policy of restricting food controls to a few crops in selected areas was abandoned by the African government. The Agriculture Minister was empowered to impose regulations affecting virtually every major food crop produced for sale or consumption by Africans in any district of the country. p. 255.^[15]

During the first years after independence in 1964, Banda and the governing Malawi Congress Party actively supported the smallholder farming sector, as few European-owned estates remained. Disappointing smallholder production and the development of a policy of growing Burley tobacco on estates caused the government to transfer land to the estate sector.^[16] In 1966, Banda argued that customary land tenure was insecure and inhibited investment. A Customary Land Development Act in 1967 allowed the creation of agricultural leases of up to 99 years over Customary Land. Many estates in the Central Region growing Burley tobacco were controlled by Banda and senior officials and politicians.^[17][18] Land alienation speeded up in the 1970s; however the process differed from that of the early colonial period as most new estates were medium-sized farms and not in the scale of former European-owned estates. This still represented the transfer of land from smallholders to a better off elite.^[19]

ADMARC under Banda

The formation of ADMARC

In 1971, a Farmers Marketing (Amendment) Act changed the name of the FMB to the Agricultural Development and Marketing Corporation (ADMARC). It also changed the corporate structure: instead of the FMB’s non-executive chairman, ADMARC was given an executive chairman and a Board comprising him and between four and eight directors, all appointed by the Agriculture Minister. It was given the new power to assist any public or private organization with capital, credit or other resources in any projects relating to the economic development of Malawi.^[20] ADMARC had three mandates: to promote the Malawian economy by increasing the volume of exportable economic crops and improving their quality, to develop new agricultural markets by promoting the consumption of Malawian agricultural produce abroad and to support farmers on Customary Land. To achieve its mandates, was divided into three sections dealing with internal marketing, the export trade and the management of development projects. It took over the FMB monopolies over maize, tobacco and cotton, and powers to fix prices, operate markets and supply credit. ADMARC produce prices were uniform across Malawi: these rarely changed, so reducing price fluctuations. It was also a major seller of maize, with 47% of the market in 1982. Smallholders had to support ADMARC’s high operating costs and much of its profits came from underpaying them. Despite its mandate, it only re-invested 5% of funds in smallholder farms but subsidised estates and other businesses. By the mid-1980s, ADMARC diverted two-thirds of its income into estates. Until 1979, it had sound finances: when tobacco prices collapsed, its liquidity problems threatened its main creditors, Malawi’s two commercial banks.^[21][22]

State intervention in marketing peasant produce was justified in colonial times as protecting farmers against commodity price fluctuations. However, in ADMARC, development and profit-making were given priority of over price stabilization. At first, ADMARC accumulated substantial profits and re-invested them in a range of private companies and statutory corporations.^[23] Compared to those its neighbours Tanzania, Zambia, and later Mozambique and Zimbabwe, Malawi’s parastatal bodies were less bureaucratic and aimed to be business-like and profitable. In particular, its ADMARC was considered efficient until 1980.^[24] With an economic decline at the start of the 1980s, the flaws in its strategy became apparent. Profit accumulation had reduced the economic well-being of the peasant producers. The main beneficiaries of this strategy were the political elite who controlled organisations sponsored by ADMARC, the urban population obtaining subsidised food and the employees of ADMARC and other state bodies. Transferring resources away from smallholders to the state led to corruption and abuse of office. In 1977, a long serving ADMARC chairman was convicted for misusing corporation property in his private businesses and of making large unauthorised loans to a private company in which he and family were involved. Corruption and general inefficiency in statutory corporations including ADMARC resulted in a 1980 law limiting their holding office for a renewable two year period. This was not followed by any change in ADMARC's business activities or its conflicting roles as a marketing organization and provider of development finance.^[25]

Failure to provide food security

Before the 1980s, smallholders grew local, open-pollinated types of maize, using seed reserved from previous crops. With adequate rain, this needed 80 to 120 days to develop fully. The hybrid maize introduced in the 1980s, ripened after as little as 75 days in similar conditions with sufficient fertilizer. Local maize benefited from fertilizer, but hybrid maize yielded up to 4 tonnes per hectare only if sufficient fertilizer was applied. Growing hybrid maize required reasonable sale prices and low fertilizer costs for farmers.^[26] However, farm incomes started to declining after 1976, and from 1981 to 1986 the real value of Malawi maize producer prices fell to 40% to 60% of those of other Central and East African states. Even with low fertilizer prices, hybrid maize growing was difficult for smallholders.^[27]

From 1971, ADMARC subsidised fertilizer for every farmer. Estates benefited most, as tobacco needed more fertilizer than maize did. Estates also had access to credit and, without this, few smallholders could buy enough fertilizer, even when it was subsidised. After 1985, declining world tobacco prices and supporting the estates made ADMARC insolvent. The Malawi government agreed to partially privatise it to obtain World Bank loans. It also lost the power to invest in new development projects, but remained under the influence of the government.The World Bank required a phased elimination of fertilizer subsidies, which decreased from 30.5% in 1983/84 to 19.8% in 1987/88. A complete withdrawal of these subsidies prevented 75% of smallholders buying fertilizer in 1988/89: a 25% subsidy was restored for 1989/90 and 1990/91 but removed in 1991/92. A temporary 11% subsidy was provided from 1992/93 to 1994/95 only.^[28][29]

The partial privatisation left ADMARC with limited funds to supply fertilizer and seed to smallholders, and the closure of many of its depots hindered distribution. Credit was also tightened and from 1988 until 1992 (when donors funded alternatives) smallholders had little access to credit. An increase in maize producer prices in 1988 did not compensate farmers who had previously grown hybrid maize for their lost subsidies, so many reverted to growing local maize. After privatisation had increased competition, ADMARC reduced its maize sales, but by 1988 it had to support over 500,000 Mozambican refugees, and could not replenish its stocks from the poor harvests of the late 1980s. Its weakness led to increased consumer prices and reduced food security.^[30][31]

It only needed a significant fall in rainfall to cause a crisis, and in 1989-90 and 1990-91 Malawi’s rainfall was at best moderate and locally poor. This depleted smallholder food reserves before a deeper crisis in 1991-92. Rainfall before the 1991 planting season was low and sporadic. The withdrawal of fertilizer subsidies made a poor harvest poorer: only 40% of the normal maize crop was gathered in 1992. After better rainfall and a good crop in 1992-93, the 1993-94 growing season was dry, and its harvest was below 50% of normal. Maize prices were very high, as household and ADMARC reserves were low and alternative foods were scarce. The crisis was caused by state regulation of agriculture, the diversion of resources to inefficient estates and failure to support smallholders growing food crops; all policies executed through ADMARC. Fertilizer subsidies and Malawi-wide ADMARC pricing and market coverage were no substitute for paying reasonable prices for the crops that farmers grew. Although withdrawal of subsidies exacerbated the agricultural decline, it originated in the policies the government had followed since ADMARC was formed.^[32]

ADMARC after Banda

Liberalisation and intervention

After the 1992 famine, international donors made their aid conditional on the re-establishment of political pluralism by 1994. One party formed by Malawian exiles opposed to Banda returned to Malawi in 1993, and others were formed within the country. The United Democratic Front (UDF) won most votes in 1994 and 1999, but not a majority. Its governments were weak and only retained power in alliance with smaller parties. They were accused of corruption, clientism and the uncritical acceptance of World Bank policies.^[33]

Smallholders used the dense network of ADMARC markets to obtain fertilizer or seed and to buy or sell crops at standard prices. Partial privatisation inspired by the World Bank in 1987 left it short of funds to provide services. Despite liberalisation, few private traders emerged, and maize markets were disrupted. Malawi was increasingly dependent on imported maize in deficit years, but limited state funding forced ADMARC to use commercial loans to import 312,000 tonnes of maize a year in the 1990s. It also had to create, with inadequate funds, an 180,000 tonne Strategic Grain Reserve from the cheaper of domestic or imported maize to stabilise prices for farmers and consumers. The World Bank criticised losses on imported maize as an untargeted subsidy: in 1996, it required the creation of a National Food Reserve Agency (NFRA) independent of government influence to control grain imports. NFRA was not responsible for price stability, and was poorly funded. ADMARC kept control over domestic grain and remained under political control. It also started selling the domestic reserves after the NFRA was formed.^[34][35]

In 1997, ADMARC had needed to sell the strategic reserve to repay its loans, and after a poor harvest later in 1997, maize stocks were low and consumer prices high. Rainfall in 1997/98 was erratic and the 1998 crop was also poor: ADMARC released reserves and imported maize to prevent famine. The 1999 and 2000 harvests were good, with large sweet potato and cassava crops as the result of USAIDprojects to promote drought-resistant foods. ADMARC undertook a partial sale of its reserves in 2000, as it could not pay the interest its commercial loans. Sales, including some exports at low prices continued in 2001 despite a poor harvest. The harvest of 2002 was also disappointing, and failure to prevent food shortages caused deaths from hunger and related diseases, mainly in 2002. Estimates of the death toll ranged from a semi-official figure of 500 to 1,000 to credible reports by NGO over 1,000.^[36][37] The harvest of 2003 was also poor and that of 2004 was deficient in maize and in root crops; the next satisfactory harvest was in 2005. Rural poverty increased and by 2005, about 14% of Malawian adult were HIV positive.^[38]

After the 2002 famine

After 2002, ADMARC was under pressure to reduce its financial losses by reducing its trading operations. The World Bank disliked ADMARC being under political control and proposed that it should only keep its core agricultural marketing operations and only provide marketing services in those outlying areas of the country with limited private sector competition. It was also to give up excess warehouse space in and near towns to a new company, the Malawi Agricultural Warehousing and Trading Company (MAWTCO), which would then lease warehouse space to the private sector. These reforms were implemented from 2006 on, with World Bank support. The private sector lacked the capacity to provide competitive marketing services. It was unable to store enough of grain to meet food needs in the lean season, unwilling to buy maize from smallholders in remote rural areas and without the capacity to import sufficient maize during national shortfalls to maintain prices. As Malawian maize markets did not act competitively, direct state intervention was needed. ADMARC therefore remained as a residual buyer and seller, operating designated floor and ceiling prices. ADMARC’s role allowed some long-distance maize trading between surplus and deficit areas, and created some competition in areas which lacked competing buyers.^[39]

When Malawi’s agricultural sector was liberalised, it was expected that the role of the parastatal ADMARC would be taken over by private traders, and that the private sector would create an efficient marketing system that would stimulate the use of fertilizer and hybrid maize, which in turn would lead to expanded distribution networks. Liberalisation, it was hoped, would create an efficient and responsive private sector marketing system that would stimulate agricultural production. In Malawi, the withdrawal of ADMARC from most areas contributed to widespread food insecurity among smallholder farmers, especially those in remote areas. To fill up the vacuum created following the withdrawal of ADMARC, the Ministry of Agriculture launched a development programme to train agro-dealers preferably rural shop owners. This started in 2001 with financial support from the USAID, but the programme had limited success as the majority of those trained ceased to be active agro-dealers within a few years of training, and most continuing agro-dealers were not rural based small-businessmen, as to start a successful dealing business required more capital than these possessed.^[40]

At the peak of liberalisation in 2002/03, there were only 180 ADMARC outlets. By 2009/10, the number of ADMARC-operated markets had grown to 788, and in 2010/11 the figure rose to 904. It remains under the control of politicians, and this has led to claims of corruption and the public perception that ADMARC does not act in the best interests of those it is meant to assist.^[41] ADMARC expanded in the decade after 2002 and still exists because of the failure of the agro-dealer programme to create an efficient private sector marketing system. This does not mean that ADMARC is efficient, it was heavily criticised in early 2013 for allowing stored grain to rot in its silos as many went hungry for lack of maize in ADMARC markets. Had that maize been released on the market before it spoiled, it was claimed, it would have helped to lower prices and prevented many having to queue for scarce maize.^[42]

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