Assessment of the macro-micro linkages between rural livelihoods,

agricultural research innovation systems and agricultural policy changes in

Malawi

By

Mariam A.T.J. Mapila

Submitted in partial fulfilment of the requirement for the degree of

PhD Agricultural Economics

Department of Agricultural Economics, Extension and Rural Development

Faculty of Natural and Agricultural Sciences
University of Pretoria
South Africa

(November, 2011)

© University of Pretoria
 DEDICATION
This work is dedicated to my mother, Professor Eta Elizabeth Banda, and my sister,
Dr. Angela Chipo Ulemu Chaponda, for their never-ending support and love. You
have been the giants on whose shoulders I have stood to see a little further.

ii
 DECLARATION
I declare that this thesis hereby submitted for the degree of PhD in Agricultural
Economics at the University of Pretoria is entirely my work and has not been
submitted anywhere else for the award of a degree or otherwise.

Parts of the thesis have been published and submitted for publications in journals.

Any errors in thinking and omission are entirely my own responsibility.

Signed: …………………………...

Name: Mariam A.T.J. Mapila

Date: November, 2011

iii
 ACKNOWLEDGEMENTS

First and foremost, I would like to thank God for providing me with more of
everything than I have ever dreamed possible and for allowing me to undertake this
study. I am indebted to the BACHOMA Family Trust Fund and to the Bureau for
Food and Agricultural Policy (BFAP) for providing the financial support that enabled
my studies and research.

I am thankful to my promoter, Professor Johann F. Kirsten, and my co-promoter, Dr.

Ferdinand H. Meyer, for always asking the right questions, and for their tireless
efforts and contributions that helped me to better focus my energy and ideas.

Appreciation should go to the communities of Katundulu, Kango and Mphamba. In

addition, I would like to thank Dr Jemimah Njuki, Dr Robert Delve, Mr A. Chavula,
Dr Franklin Simtowe, Mr Samuel Kazombo, Mr Frank Tembo, Mr Fredrik Msiska,
Mrs Zuna Botha and all staff of Ukwe EPA for providing different kinds of assistance
at various stages of the research. Gratitude also goes out to Professor A.K. Edriss, Dr
M.A.R. Phiri and Mr D.D.C. Mauambeta for providing inspiration. Thanks should
also be extended to Linda Kachale, Emma Chiwanda, Sylvia Thembulembu and Gift
Chimimba who are true change agents and who assisted greatly in data collection.

Special thanks are also extended to Edda Siliya, Eliza Mzimela, Nasiphi Mqedlana
and Bonolo Dinokopila for their friendship as well as my classmates, Goodness Aye,
Gody Sanga and Olivier Mosapha. In addition, I would like to thank Alex and
Mirriam Chimimba, Chifundo and Chikumbutso Chilivumbo, Harriet Gausi, Lilian
Moyo, George Lwanda, Joy Lulema, the Kapowo’s (Salome, Alamu, Bennie
&Wongs), Angella Ngoma, Anesu Makina, Wezi Mhango, Victor Jere, Chance
Mwabutwa, Grace Tomoka, Yemene Gebrehiwet, Tinashe Kapuya and all
congregational members of St. Columba’s Presbyterian church who supported me in
very different but equally important ways throughout my studies.

Finally, I would like to thank mom, Ang and Mas as well as Daliso, Zara and Teyo,
whose support and love have sustained me not only during these studies but since
time immemorial. I am forever grateful for your love and unfailing support.

iv
 ABSTRACT
ASSESSMENT OF THE MACRO-MICRO LINKAGES BETWEEN RURAL
LIVELIHOODS, AGRICULTURAL RESEARCH INNOVATION SYSTEMS
AND AGRICULTURAL POLICY CHANGES IN MALAWI

By

Mariam A.T.J. Mapila

Degree: PhD Agricultural Economics

Department: Agricultural Economics, Extension and Rural Development
Supervisor: Professor Johann F. Kirsten
Co-supervisor: Dr. Ferdinand H. Meyer

This thesis argues that the full impact of Agricultural Innovation Systems (AIS)
driven research, that works to enhance not only agricultural production and
productivity but also market linkages cannot be captured effectively using only micro-
economic level studies; but rather requires the use of a combination of micro and
macro-level analysis. This is because the innovation systems perspective entails the
collaboration of different actors across the entire agricultural value chain. Therefore
this study aimed to firstly quantify the degree to which AIS driven research impacts
upon the livelihood outcomes of rural smallholder farmers. Second, the study aimed
to determine the extent to which a combination of macro-economic and agricultural
policy shocks impact upon household incomes in the maize-based farming system in
Malawi; given macro-micro linkages as strengthened by AIS research.

The first objective was tackled by using quasi-experimentation with propensity score
matching to establish a valid counterfactual and single differencing to measure
impact. The second objective was achieved by using a combination of quantitative
and qualitative statistical and econometric tools to delve into the dynamics of the
maize market at different levels and to develop a model that is capable of capturing
the maize market dynamics. A multi-equation partial equilibrium model of the
national maize market was therefore developed and linked in a top-down
unidirectional manner to the local maize economy via a price-linkage equation. A

v
non-behavioural arithmetic micro-accounting approach was adopted to estimate
household incomes that were linked to the local economy, through which macro-
economic level maize price changes transmit.

The results of the study empirically demonstrate that AIS driven research impacts
positively upon the livelihood outcomes of rural households. This is demonstrated
with participating households exhibiting statistically significant higher production
outcomes (upland crop production, maize harvests, value of assets, and value of
livestock); household incomes as well as human capital outcomes in some cropping
seasons. In addition participating households also had much higher statistically
significant fertilizer use prior to the implementation of the fertilizer subsidy program
in the country; and statistically significant higher fertilizer use patterns for the first
two cropping seasons following the implementation of the subsidy program.
Participating households had greater linkages with the market economy which
allowed them to take greater advantage of market incentives but which also made
them more vulnerable to policy shocks. This study therefore shows that the analysis of
the impacts of the paradigm shift in agricultural research towards an innovation
system orientation cannot be contained at the household level, as this would lead to
the formulation of inadequate policies that do not take into account the effects of
greater market linkages of the rural households.

Policy implications are that increasing production and productivity and linking
farmers to markets may not in itself be enough for sustained livelihood improvement,
as the resultant greater linkages to the market economy may be detrimental to
household livelihood outcomes in the face of uncoordinated policies. In order for the
paradigm shift in agricultural research towards an innovation systems perspective to
be effective in sustaining an entrepreneurial culture in rural societies in Africa, there
is need to foster the diversification out of agricultural enterprises for income, while
supporting productivity improvements for food security. In addition any interventions
should be implemented only after systematic analysis of the potential consequences of
the resultant enhanced macro-micro linkages. This would help to ensure that there is
no mismatch between policies and livelihood improvement strategies.

vi
 TABLE OF CONTENTS
DEDICATION.......................................................................................................... ii
DECLARATION ..................................................................................................... iii
ACKNOWLEDGEMENTS.......................................................................................iv
ABSTRACT ...............................................................................................................v
TABLE OF CONTENTS.........................................................................................vii
LIST OF TABLES.................................................................................................... x
LIST OF FIGURES ............................................................................................... xii
LIST OF ACRONYMS .......................................................................................... xiii
CHAPTER 1............................................................................................................. 1
INTRODUCTION .................................................................................................... 1
1.1 BACKGROUND .....................................................................................................1
1.2 RESEARCH PROBLEM AND JUSTIFICATION .............................................3
1.3 HYPOTHESES AND OBJECTIVES....................................................................5
1.4 STUDY OUTLINE................................................................................................10
CHAPTER 2............................................................................................................12
RURAL LIVELIHOODS AND AGRICULTURAL INNOVATION SYSTEMS......12
2.1 INTRODUCTION.................................................................................................12
2.2 UNDERSTANDING RURAL LIVELIHOODS.................................................12
2.3 THE CONCEPT OF AGRICULTURAL INNOVATION SYSTEMS ............14
2.3.1 Innovation systems practice in African agriculture ........................................................ 20
2.3.2 Studies of agricultural innovation systems in Africa ...................................................... 21
2.3.3 Skepticism surrounding Agricultural Innovation Systems ............................................. 23
2.4 CHAPTER SUMMARY.......................................................................................25
CHAPTER 3............................................................................................................26
ANALYTICAL FRAMEWORK...............................................................................26
3.1 INTRODUCTION.................................................................................................26
3.2 THE MICRO-COMPONENT .............................................................................26
3.3 THE MACRO-COMPONENT ............................................................................31
3.3.1 General structure of model and economic theory ........................................................... 32
3.3.2 Equilibrium in an imperfect market................................................................................ 34
3.4 MACRO-MICRO LINKAGES AND MODEL CONSISTENCY ....................36
3.5 CHAPTER SUMMARY.......................................................................................38
CHAPTER 4............................................................................................................39
QUANTIFYING THE IMPACT OF AGRICULTURAL INNOVATION SYSTEMS
ON RURAL LIVELIHOODS ..................................................................................39
4.1 INTRODUCTION.................................................................................................39

vii
 4.2 METHODOLOGY................................................................................................39
4.2.1 Place of study and data collection................................................................................... 39
4.2.2 Data analysis................................................................................................................... 40
4.3 DESCRIPTIVE ANALYSIS OF SAMPLED HOUSEHOLDS ........................45
4.3.1 Household characteristics ............................................................................................... 45
4.3.2 Human capital characteristics ......................................................................................... 48
4.3.3 Farming characteristics ................................................................................................... 49
4.4 IMPACT OF AIS DRIVEN RESEARCH ..........................................................52
4.4.1 Generation of propensity scores ..................................................................................... 52
4.4.2 Differences in rural livelihood outcomes........................................................................ 54
4.5 HOUSEHOLD TYPOLOGIES AND INCOME PORTFOLIOS .....................62
4.5.1 Household typologies ..................................................................................................... 62
4.5.2 Household income portfolios .......................................................................................... 69
4.6 CHAPTER SUMMARY.......................................................................................72
CHAPTER 5............................................................................................................73
DYNAMICS OF THE MALAWI MAIZE MARKET ..............................................73
5.1 INTRODUCTION.................................................................................................73
5.2 DESCRIPTION OF THE DATA.........................................................................74
5.3 PRICE FORMATION IN THE MALAWI MAIZE MARKET .......................76
5.3.1 Understanding farm/household-level maize price formation.......................................... 77
5.3.2 Understanding national and local level maize price formation....................................... 82
5.3.3 Modelling of national and local maize prices ................................................................. 93
5.4 MODEL SPECIFICATION, ESTIMATION AND VALIDATION ................99
5.4.1 The domestic supply block ........................................................................................... 102
5.4.2 The domestic demand block ......................................................................................... 106
5.4.3 The local maize economy ............................................................................................. 110
5.4.4 Model closure ............................................................................................................... 114
5.4.5 Overall model performance .......................................................................................... 117
5.4.6 Feedback effects ........................................................................................................... 119
5.5 CHAPTER SUMMARY.....................................................................................120
CHAPTER 6..........................................................................................................121
SIMULATION ANALYSIS ...................................................................................121
6.1 INTRODUCTION...............................................................................................121
6.2 BASELINE PROJECTIONS .............................................................................121
6.3 MODEL DYNAMIC RESPONSES...................................................................125
6.4 IMPACT OF POLICY SHOCKS ON HOUSEHOLD INCOME ..................127
6.4.1 ADMARC liberalization and exchange rate devaluation.............................................. 131
6.4.2 The impact of policy coordination on household incomes ........................................... 133
6.5 CHALLENGES FACED AND LIMITATIONS ..............................................137
6.6 CHAPTER SUMMARY.....................................................................................138
CHAPTER 7..........................................................................................................140
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS.............................140
7.1 SUMMARY .........................................................................................................140
7.2 CONCLUSIONS .................................................................................................141
7.3 POLICY RECOMMENDATIONS ...................................................................143

viii
REFERENCES .....................................................................................................146
APPENDICES.......................................................................................................157

ix
 LIST OF TABLES

Table 2.1: Selected examples of innovation systems driven initiatives in Africa .....22
Table 4.1: Summary of household respondents and headship..................................46
Table 4.2: Household characteristics.......................................................................46
Table 4.3: Community engagement and leadership of sampled households.............47
Table 4.4: Human capital characteristics.................................................................48
Table 4.5: Farming characteristics ..........................................................................50
Table 4.6: Fertiliser use patterns .............................................................................51
Table 4.7: Parameter estimates of the logistic model of ERI participation...............53
Table 4.8: Socio-economic characteristics for matched households.........................54
Table 4.9: Impact of the ERI intervention on production outcomes.........................55
Table 4.10: Impact of the ERI intervention on household cash incomes....................58
Table 4.11: Impact of the ERI intervention on trainings and group membership .......59
Table 4.12: Impact of the ERI intervention on fertiliser use patterns .........................60
Table 4.13: Summary of the cluster solution.............................................................62
Table 4.14: ANOVA results for the intervention community clusters .......................63
Table 4.15: ANOVA results for counterfactual community clusters..........................64
Table 4.16: ANOVA results for intervention community (profile variables) .............66
Table 4.17: ANOVA results for counterfactual community (profile variables)..........66
Table 4.18: Description of household typologies in the counterfactual community ...67
Table 4.19: Description of household typologies in intervention community ............68
Table 4.20: Sources of income..................................................................................69
Table 4.21: Income portfolio compositions (%) ........................................................70
Table 5.1: Various maize production and marketing data in Malawi .......................74
Table 5.2 Average maize harvest for sellers and non-sellers of maize .....................79
Table 5.3: Variations in maize unit prices across different markets .........................81
Table 5.4: ADF unit root tests for maize prices.......................................................84
Table 5.5: Results of the Johansen co-integration test .............................................84
Table 5.6: Results of the pairwise Granger causality test.........................................85
Table 5.7: Correlation co-efficient measures...........................................................87
Table 5.8: Local maize grain market correlation measures ......................................88
Table 5.9: Equation for the ADMARC maize price.................................................95
Table 5.10: Equation for the local maize price (Nsundwe) ........................................98
Table 5.11: Equation for area of maize planted.......................................................103
Table 5.12: Equation for yield of maize ..................................................................105
Table 5.13: Equation for per capita maize consumption..........................................107
Table 5.14: Equation for ending stock ....................................................................110
Table 5.15: Equation for local maize consumption .................................................111
Table 5.16: Equation for local maize production.....................................................113
Table 5.17: Equation for maize imports ..................................................................116
Table 6.1: Macro-economic indicators/assumptions..............................................122
Table 6.2: Baseline projections .............................................................................123
Table 6.3: Average household income projections in USD ...................................124
Table 6.4: Impact of a 10 % positive change in the ADMARC maize price ..........125
Table 6.5: Impact of a 10% positive change in local maize price...........................127
Table 6.6: Income impacts – ADMARC liberalization only ..................................131
Table 6.7: Income impacts – Smallholder maize irrigation shock only ..................132

x
Table 6.8: Income impacts – Exchange rate devaluation only ...............................132
Table 6.9: Income impacts – both agricultural sector shocks.................................134
Table 6.10: Income impacts – Exchange rate devaluation and ADMARC...............134
Table 6.11: Income impacts – Exchange rate devaluation and irrigation shock .......134
Table 6.12: Income impacts – all shocks.................................................................135

xi
 LIST OF FIGURES

Figure 1-1: Conceptual framework for the study........................................................ 8

Figure 2-1: Representation of an agricultural innovation platform ............................15
Figure 5-1: Use of maize as currency........................................................................78
Figure 5-2: Maize unit price variations in the intervention community......................79
Figure 5-3: Maize unit price variations in the counterfactual community ..................80
Figure 5-4: Maize price co-movements in selected markets ......................................86
Figure 5-5: Maize price movements over time: 1997-2009 .......................................90
Figure 5-6: Import and export parity price analysis...................................................92
Figure 6-1: Domestic maize production and maize prices (2000–2014) ..................123

xii
 LIST OF ACRONYMS

ADMARC Agricultural Development and Marketing Corporation

ADD Agricultural Development Division
AIS Agricultural Innovation Systems
AISP Agricultural Input Support Programme
AKIS Agricultural Knowledge and Information Systems
ANOVA Analysis of Variance
BFAP Bureau for Food and Agricultural Policy
CGE Computable General Equilibrium
CIAT International Centre for Tropical Agriculture
COMESA Common Market for Eastern and Southern Africa
DAES Department of Agricultural Extension Services
DARS Department of Agricultural Research Services
EPA Extension Planning Area
ERI Enabling Rural Innovation
FO Farmer Organization
FPR Farmer Participatory Research
HSD Honestly Significant Difference
IFPRI International Food Policy Research Institute
LADD Lilongwe Agricultural Development Division
MOA Ministry of Agriculture
NARS National Agricultural Research System
NFRA National Food Reserve Agency
NGO Non-Governmental Organization
NRM Natural Resources Management
PM&E Participatory Monitoring and Evaluation
PSM Propensity Score Matching
RMSE Root Mean Square Error
SPI Starter Pack Initiative
TIP Targeted Input Programme

xiii