Highlights on the agricultural sector:

CHAPTER 2: Agricultural commercialization can drive structural transformation and support the transformation of the rural economy

Malawi’s economy remains highly dependent on agriculture, with the sector playing a critical role in the country’s overall economic performance. In 2021, it is estimated that over three-quarters of all adults derived their livelihoods from agriculture, contributing approximately 23 percent to the total GDP. The sector is also critically important to the food security of households and the nation as a whole. Given these factors, agriculture will remain central to Malawi’s development for years to come. 

However, rural households in Malawi have had few opportunities to increase their incomes. Ninety-four percent of all poor households in Malawi are in rural communities, and the rural poverty headcount ratio at the national poverty line (57 percent) is almost three times that found in urban areas (19 percent). Fewer than 7 percent of households can generate enough income from their farming to meet their basic needs, contributing, on average, 30 percent of the total income of the typical farming household. The median farming household surveyed in the most recent Integrated Household Survey (2019/20) derived MWK 16,190 (about US$20 in nominal terms) in value per capita annually from their efforts.

Even with significantly higher levels of productivity, a farmer with extremely small landholdings is likely to remain in poverty and struggle to meet basic needs. Under current conditions, non-farm rural employment does not provide sufficiently high incomes to lift households out of poverty either. In this context, a shift in the rural economy is needed to sustainably reduce poverty. Successful commercial farming creates demand for labor, contributing significantly to rural markets. With effective market development and increased agricultural productivity, the share of Malawian households that are commercially oriented farming households can be expected to grow.

Productive alliances, characterized by strong farmer organizations, links to offtake markets, improved access to finance, and an enabling environment, can help make markets work for commercializing smallholders. Productive alliances’ efforts to improve the enabling environment, including reforms to land tenure security, standards, and certifications, are all geared toward improving agricultural commercialization.

The Government of Malawi has recently intensified efforts to promote and develop large-scale farms in the country through its “mega-farms” initiative. This marks a potentially significant shift in the Government’s approach to economic development and the transformation of the agriculture sector, towards a greater emphasis on supporting land access and consolidation, along with the rehabilitation of idle or underutilized land on a larger scale. However, there are critical binding constraints to the realization of the agricultural growth and rural transformation vision, including an inefficient use of agricultural expenditures and trade restrictions. A central challenge in this regard is the dominance of fertilizer subsidy schemes in policymaking. Despite consuming about 40 percent of scarce agriculture budget resources in recent years, the Affordable Inputs Program has done little to stimulate the process of agricultural transformation necessary for Malawi to generate higher economic growth and create more jobs. Existing constraints also stem from the legacy of past policy interventions, including prevailing trade restrictions, that dampen incentives for greater commercialization. Malawi’s agriculture sector has largely been shaped by policies that have promoted food self-sufficiency rather than commercial farming.

Addressing these challenges requires a comprehensive agenda focused on effective coordination, sequencing, and targeting of policies and investments, structured around three pillars:

Pillar 1: Remove barriers to stimulate private sector engagement in the agri-food sector, such that private investments can complement scarce public resources.

Pillar 2: Repurpose existing policies and support programs such as input subsidies to foster efficiency and equity in the rural agricultural market and better serve the expansion of rural employment and growth.

Pillar 3: Foster commercially oriented agricultural production and marketing systems that can expand opportunities for and participation of farmers in productive agricultural value chains and lead to broader rural economic transformation in Malawi.