Fair Trade Hopes Take Root

Can Malawi's newly empowered farmers transform one of the world's poorest countries?

• Nick Mathiason
• The Observer,
• Sunday January 27 2008

This article appeared in the Observer on Sunday January 27 2008 on p6 of the Business news & features section. It was last updated at 23:17 on January 26 2008.

The district hospital at Mchinji in Malawi was built nearly 20 years ago to serve a population of 275,000. It is a modern complex that, from the outside, would not look out of place in any British city. The trouble is that it's drowning under a sea of patients.

Mchinji lies in the far west of Malawi where the Zambian and Mozambican borders meet. The sick swarm over the borders and swell the hospital's catchment area to more than 600,000. With a population of 13 million, Malawi has the lowest number of doctors per person in the world; a 17-bed children's ward will typically treat at any one time 185 kids suffering, and often dying, from malaria, pneumonia or anaemia.

The sick children are accompanied by a parent - or, just as likely, a guardian, because Aids has sunk its claws into the people who farm this fertile land. Consequently, life expectancy has reduced from 45 in 1990 to 37 in 2005. Virtually every adult you meet looks after at least one Aids orphan, more likely several.

But Mchinji District Hospital has no beds for those accompanying the sick, let alone cooking or washing facilities. So opposite the hospital, gathered on scrubby grass, are hundreds of women and children at the mercy of the elements. Some are pregnant, waiting to go into labour.

Yet here at Mchinji, contrary to perception, all is not lost. Three weeks ago, work started on a brick shelter to protect parents, guardians and expectant mothers from the sheeting rain and scorching sun. Progress has been rapid: the foundations have been laid and the structure is rising out of the ground. Work should finish soon. What's remarkable is that the shelter has been paid for by nuts - fair-trade groundnuts, grown in Malawi and sold to British shoppers.

The story is repeated across this southern African nation: infrastructure improvements and better life chances are being paid for by fair trade: new homes, water pumps and pipes, electricity, repaired bridges and bursaries to secondary school for orphans. Fair trade is, in a sense, the purest form of aid and the British public knows it. Government surveys show that people believe it is more effective than giving to charity. Growers are paid a guaranteed payment above world market price for their goods and smallholders form democratic associations that receive a premium to invest in improving communities.

This does not mean fair trade is a soft touch. 'Abuse the windfall and lose the Fairtrade mark' is no idle threat - accreditors constantly monitor projects. Smallholders in Cameroon have been thrown out of the scheme in the recent past; there is no stronger incentive to keep on the straight and narrow. Contrast this with traditional donor aid, up to 40 per cent of which is frittered away by consultants, while much of the rest is tied to murky procurement conditions that stipulate developing countries must import goods from the donor country.

Although it is a fledgling concept in Malawi, a growing number of smallholders have formed themselves into associations to sell tea, sugar, cotton and nuts to processors who can't get enough of Fairtrade products as the sector booms.

Next month the Fairtrade Foundation, which is the accreditation wing of the movement, will reveal that UK consumers annually spend more than £450m on fair-trade goods. In 16 years, fair trade has become one of the fastest-growing retail sectors. Brands such as CafeDirect and Divine chocolate have become household names. The latest launch is Liberation Nuts.

The leaders of the movement are now intent on a rapid acceleration, taking the sector beyond the billion-pound mark in short order - and they are going to concentrate on the least-developed countries, such as Malawi. In fact, the signs are that the Fairtrade Foundation movement will use Malawi as a pilot.

But to do this requires small and strategic investments in capacity-building, quality management systems and accreditation monitors. Processors and retailers complain that it takes a long time to be approved to supply Fairtrade products. The Fairtrade Foundation and retailers are lobbying the Department for International Development to come up with small amounts of extra cash to help kick-start change in poor countries. Since 2003, Dfid has granted just £2.1m to the Fairtrade Foundation and its international parent body.

What can be achieved is clear: when the foundation was given £250,000 from the department five years ago, it was able to increase its range of products from 100 or so to several thousand.

What started as a fringe movement championed by unions, church groups and the Co-op chain has been adopted by some of Britain's major retailers - Sainsbury's, Marks & Spencer and Waitrose. Sainsbury's and M&S have made giant strides in the past two years: Sainsbury's own-label tea is Fairtrade and the supermarket has committed to ensuring its price will stay in line with rivals' own-brand tea. All its bananas are Fairtrade and it is moving all its sugar the same way.

Last year, M&S purchased around a third of the world's Fairtrade cotton and sold more than 3.2 million garments made from it; all its jams and conserves use Fairtrade sugar. Waitrose has a similarly impressive story to tell.

The question that worries fair-trade leaders as the economy enters increasingly choppy waters is: will the supermarkets be able to invest in supply chains to ensure ambitious expansion plans can be achieved? It is a concern quickly allayed by the bosses of Sainsbury's, M&S and Waitrose, who insist there is no going back on their commitment.

For the people of Lujeri, in the shadow of Mount Mulanje, Malawi's highest peak, such talk is music to their ears. Here 6,000 smallholder farmers are poised to receive $800,000 (£404,000) once they get Fairtrade accreditation, which should come within months. The money is desperately needed: the women farmers say they go without food to ensure their children go to school, and that poverty creates the conditions for prostitution and Aids to spread. Money will go towards new medical facilities and bursaries for secondary schools.

If Malawi can scale up and take advantage of the fair-trade boom, it will be a remarkable turnaround. Until 2004, commodities were sold to the government, but liberalisation brought a catastrophic drop in prices. Smallholders were left exposed to duplicitous middlemen who conned growers by fixing weighing scales and altering the size of bags so they did not have to pay farmers what they were entitled to.

But by banding together - the motto of the National Smallholder Farmers' Association of Malawi is 'The future belongs to the organised' - farmers can achieve better prices, and benefit from training and quality management systems to ensure products meet standards.

It is a route out of poverty built on equity and entrepreneurialism. It is also a route that, now more than ever, needs to be backed by the British government.

The nation

Under President Bingu wa Mutharika, Malawi has stabilised its economy, although it is one of the world's poorest nations. Most people live on less than 50p a day. Rampant inflation, now 7.4 per cent, has been tamed and interest rates are roughly 25 per cent. The economy is dominated by agriculture, although uranium finds, now being exploited, will add significantly to GDP. Severe drought in 2004 led to hunger.

Malawi is split between three main tribes. Fears are growing that elections in 2009 could see a repeat of the chaos in Kenya. Despite opposition claims of corruption, most believe Mutharika's record of economic competence should see him win

Congrats Mr. President

by Ephraim Munthali

I am one of President Bingu wa Mutharika’s fierce critics but I also admire him a lot. My long held view—which I will always defend even with my last breath—is that Mutharika is not the best leader we can have in a democratic country like Malawi.

In the three years he has been in power, his ‘I don’t-give-a-damn’ style of leadership has polarised the country so much that his reign has never been smooth as he presides over a country split into warring camps but he is too pre-occupied with himself to notice.

The opposition see in the President a man whose dictionary does not stock the word compromise. Thus, they too want to show him that they are made of steel. It’s a futile tag of war which, were Mutharika a good leader, he should have seen and written off as such.

In his quest to get his way at all cost, Mutharika has raped the Constitution so repeatedly that the country’s most important book after the Bible may need long hours in the operating theatre to be stitched back to normal without leaving a deep wound that could keep hurting Malawi for generations to come. In short, his governance record in the short period he has tasted power is appalling to say the least.

But his leadership faults aside, the man is a good manager who delivers his pledges in most cases and has pumped life into an economy that was on its death bed for too long as it awaited the eventual death that any run down economy meets—a crisis point.

Of course, most people say they have voted him Nation Achiever—which does not normally entertain politicians by the way—because of his charity work through organisations such as the Silver Grey Foundation.

But the truth is that the man’s strategic management of the economy and the food situation in the country has made him so popular both among the middle class and the poor that any opportunity to show just how grateful people are will see the President at the summit of every popularity related vote.

Whatever the case, however, this is a well deserved recognition of the man who has restored pride and self belief in us as a people; regained for us the respect of our neighbours and the larger international community; taught us that it’s possible to live again; that instead of feeling sorry for ourselves, we can do something about our poverty; and has given us reason to think positively about the future.

Congratulations Mr. President. I hope that this award will also go a long way in helping you work on the other weaknesses that your opponents pounce on to derail your good progress and discredit your person and efforts.

Don’t be a boss but a leader Mr. President. The difference is that leaders are servants of the people, including their critics and opponents while bosses turn the people to be their servants. This is something I ask you to reflect on in 2008. Happy New Year, Sir.

Malawi impresses IMF--gets US$18 m
By GERALD NAMWAZA - 19 December 2007 - 13:05:38

INTERNATIONAL Monetary Fund (IMF) Monday approved a US$18.1 million (about K2.6 billion) disbursement to Malawi under Poverty Reduction and Growth Facility (PRGF) arrangement.

The executive board of the IMF says it was compelled to dish out the cash after Malawi successfully met the economic targets in the fourth and fifth review of the three year programme started in 2005.

“The completion of the review enables the release of SDR 11.45 million (about US$18.1 million), bringing total disbursements under the arrangement to SDR 33.4 million (about US$52.9 million),” reads part of the IMF statement.

Following the executive board discussion on Malawi, Takatoshi Kato, Deputy Managing Director and Acting Chair praised the country for its unflinching resolve to grow the economy.

"Malawi has shown commendable performance under its PRGF-supported program. Economic growth remains high and inflation has continued to decline. This should continue to support Malawi's poverty reduction and development efforts,” Kato says.

This should come as good news to Finance Minister Goodall Gondwe, who last month in Blantyre, told journalists the economy was on the right track and that the IMF was impressed with the country’s progress.

Inflation has gone down from 9.6 percent in January this year and was at 7.2 percent in October while the local economy is estimated to grow at about 7 percent, a situation that prompted Reserve Bank of Malawi (RBM) to cut the bank rate from 17.5 percent to 15 percent last month.


"The domestic debt burden has declined further, though somewhat less rapidly than expected. Fiscal policy implementation has been supported by strong revenue performance, and the recent improvement in the government's control of payroll execution has facilitated the lifting of the program's ceiling on the wage bill,” says the IMF statement.


However, IMF says government's domestic borrowing targets came under pressure from unforeseen challenges, including delays in aid disbursements and unexpectedly high interest payments.

"The improvement in the macroeconomic environment has permitted the monetary authorities to bring inflation down to single digits while maintaining a stable exchange rate. Inflation is expected to remain in single figures.

However, monetary policy implementation came under some strain in mid-2007, and the authorities need to address the ensuing rapid monetary expansion.

"The program envisages economic growth in 2007 /08 spreading beyond the agricultural sector and remaining high. Further declines in the domestic public debt burden should continue to support robust private sector credit growth,” Kato says in the statement.

The IMF, has since advised government to put greater emphasis on structural reforms and improve public financial management in addition to creating a better business environment.

The three-year PRGF arrangement for Malawi was approved on August 5, 2005, for a total amount of SDR 38.2 million (about US$60.4 million) to support the government's economic program for 2005-2007 after being suspended in 2001 when the previous government went off track.

Malawi qualifies for Millennium Challenge Account
BY DICKSON KASHOTI
07:55:49 - 14 December 2007

Malawi is now eligible for a large-scale grant from the Millennium Challenge Account, bringing hope for a significant new flow of funding that could have a major impact on Malawi’s efforts to reduce poverty through sustainable economic growth.

However, United States of America ambassador to Malawi, Alan Eastham could not say how much Malawi expected to receive at a press conference convened to announce the Millennium Challenge Corporation decision.

He said the amount would depend on negotiations between the MCC board and the government of Malawi.

But information made available to The Daily Times indicate that some countries have received amounts ranging from US$285 to US$ million 700 for a five-year period.

Eastham said Malawi’s eligibility for the MCC assistance means the country may now begin the process of applying for a large-scale grant, popularly known as compact, under this foreign aid program funded by the US government aimed at reducing poverty through economic growth.

“Malawi’s selection is in recognition of the substantial steps taken by the government of Malawi towards addressing corruption and putting in place other sound policies to promote economic development,” Eastham said.

Malawi has scored 54 percent in its control of corruption, 80 percent in rule of law, 68 percent for voice and accountability, 59 percent in political rights and 65 percent in civil liberties, according to rates from the Freedom House and World Bank Institute.

But Eastham said although the announcement of the eligibility is an essential step toward obtaining an MCC compact facility for Malawi, it does not guarantee funding, saying the MCC will ask the government of Malawi to begin a broad based consultative process to develop a proposal for a five-year program.

“There is no pre-established dollar figure for Malawi’s compact at this stage. The level of assistance the MCC could eventually provide will be based on the strength of Malawi’s proposal, as well as the availability of funding. Negotiating compact agreement is a complex and often lengthy process,” said the ambassador.

Eastham then applauded Malawi for the feat, saying this is the only country in the world that has qualified for the eligibility of MCC funding.

The MCC board has also selected Mauritania to participate in MCC’s Threshold Programme, a programme designed to assist countries that do not yet qualify for the compact grants but that are close to qualifying and have demonstrated a commitment to enact reforms necessary to improve policy performance that may eventually help them qualify for the compact assistance.

The board also welcomed MCC’s intention to invite Albania, Paraguay and Zambia to submit a stage 11 threshold proposal to build upon their current threshold programmes that expire in 2008.

The following countries are participating in the MCC programme and were selected as eligible for 2008 compact funding: Armenia, Benin, Bolivia, Burkina Faso, El Savador, Georgia, Ghana, Honduras, Jordan, Lesotho, Madagascar, Mali, Moldova, Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Senegal, Tanzania, Timor-Leste, Ukraine and Vanuatu.

Ending Famine, Simply by Ignoring the Experts

Evelyn Hockstein for The New York Times

The secret of Malawi’s success: heavy subsidies for fertilizer, farmers say. The World Bank had pressed for their elimination. More Photos >

by CELIA W. DUGGER

Published: December 2, 2007

LILONGWE, Malawi — Malawi hovered for years at the brink of famine. After a disastrous corn harvest in 2005, almost five million of its 13 million people needed emergency food aid.

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Ending Famine in Malawi

Graphic

Bumper Corn Harvest in Malawi

But this year, a nation that has perennially extended a begging bowl to the world is instead feeding its hungry neighbors. It is selling more corn to the World Food Program of the United Nations than any other country in southern Africa and is exporting hundreds of thousands of tons of corn to Zimbabwe.

In Malawi itself, the prevalence of acute child hunger has fallen sharply. In October, the United Nations Children’s Fund sent three tons of powdered milk, stockpiled here to treat severely malnourished children, to Uganda instead. “We will not be able to use it!” Juan Ortiz-Iruri, Unicef’s deputy representative in Malawi, said jubilantly.

Farmers explain Malawi’s extraordinary turnaround — one with broad implications for hunger-fighting methods across Africa — with one word: fertilizer.

Over the past 20 years, the World Bank and some rich nations Malawi depends on for aid have periodically pressed this small, landlocked country to adhere to free market policies and cut back or eliminate fertilizer subsidies, even as the United States and Europe extensively subsidized their own farmers. But after the 2005 harvest, the worst in a decade, Bingu wa Mutharika, Malawi’s newly elected president, decided to follow what the West practiced, not what it preached.

Stung by the humiliation of pleading for charity, he led the way to reinstating and deepening fertilizer subsidies despite a skeptical reception from the United States and Britain. Malawi’s soil, like that across sub-Saharan Africa, is gravely depleted, and many, if not most, of its farmers are too poor to afford fertilizer at market prices.

“As long as I’m president, I don’t want to be going to other capitals begging for food,” Mr. Mutharika declared. Patrick Kabambe, the senior civil servant in the Agriculture Ministry, said the president told his advisers, “Our people are poor because they lack the resources to use the soil and the water we have.”

The country’s successful use of subsidies is contributing to a broader reappraisal of the crucial role of agriculture in alleviating poverty in Africa and the pivotal importance of public investments in the basics of a farm economy: fertilizer, improved seed, farmer education, credit and agricultural research.

Malawi, an overwhelmingly rural nation about the size of Pennsylvania, is an extreme example of what happens when those things are missing. As its population has grown and inherited landholdings have shrunk, impoverished farmers have planted every inch of ground. Desperate to feed their families, they could not afford to let their land lie fallow or to fertilize it. Over time, their depleted plots yielded less food and the farmers fell deeper into poverty.

Malawi’s leaders have long favored fertilizer subsidies, but they reluctantly acceded to donor prescriptions, often shaped by foreign-aid fashions in Washington, that featured a faith in private markets and an antipathy to government intervention.

In the 1980s and again in the 1990s, the World Bank pushed Malawi to eliminate fertilizer subsidies entirely. Its theory both times was that Malawi’s farmers should shift to growing cash crops for export and use the foreign exchange earnings to import food, according to Jane Harrigan, an economist at the University of London.

In a withering evaluation of the World Bank’s record on African agriculture, the bank’s own internal watchdog concluded in October not only that the removal of subsidies had led to exorbitant fertilizer prices in African countries, but that the bank itself had often failed to recognize that improving Africa’s declining soil quality was essential to lifting food production.

“The donors took away the role of the government and the disasters mounted,” said Jeffrey Sachs, a Columbia University economist who lobbied Britain and the World Bank on behalf of Malawi’s fertilizer program and who has championed the idea that wealthy countries should invest in fertilizer and seed for Africa’s farmers.

Here in Malawi, deep fertilizer subsidies and lesser ones for seed, abetted by good rains, helped farmers produce record-breaking corn harvests in 2006 and 2007, according to government crop estimates. Corn production leapt to 2.7 billion metric tons in 2006 and 3.4 billion in 2007 from 1.2 billion in 2005, the government reported.

“The rest of the world is fed because of the use of good seed and inorganic fertilizer, full stop,” said Stephen Carr, who has lived in Malawi since 1989, when he retired as the World Bank’s principal agriculturalist in sub-Saharan Africa. “This technology has not been used in most of Africa. The only way you can help farmers gain access to it is to give it away free or subsidize it heavily.”

“The government has taken the bull by the horns and done what farmers wanted,” he said. Some economists have questioned whether Malawi’s 2007 bumper harvest should be credited to good rains or subsidies, but an independent evaluation, financed by the United States and Britain, found that the subsidy program accounted for a large share of this year’s increase in corn production.

The harvest also helped the poor by lowering food prices and increasing wages for farm workers. Researchers at Imperial College London and Michigan State University concluded in their preliminary report that a well-run subsidy program in a sensibly managed economy “has the potential to drive growth forward out of the poverty trap in which many Malawians and the Malawian economy are currently caught.”

Farmers interviewed recently in Malawi’s southern and central regions said fertilizer had greatly improved their ability to fill their bellies with nsima, the thick, cornmeal porridge that is Malawi’s staff of life.

In the hamlet of Mthungu, Enelesi Chakhaza, an elderly widow whose husband died of hunger five years ago, boasted that she got two ox-cart-loads of corn this year from her small plot instead of half a cart.

Last year, roughly half the country’s farming families received coupons that entitled them to buy two 110-pound bags of fertilizer, enough to nourish an acre of land, for around $15 — about a third the market price. The government also gave them coupons for enough seed to plant less than half an acre.

Malawians are still haunted by the hungry season of 2001-02. That season, an already shrunken program to give poor farmers enough fertilizer and seed to plant a meager quarter acre of land had been reduced again. Regional flooding further lowered the harvest. Corn prices surged. And under the government then in power, the country’s entire grain reserve was sold as a result of mismanagement and corruption.

Mrs. Chakhaza watched her husband starve to death that season. His strength ebbed away as they tried to subsist on pumpkin leaves. He was one of many who succumbed that year, said K. B. Kakunga, the local Agriculture Ministry official. He recalled mothers and children begging for food at his door.

“I had a little something, but I could not afford to help each and every one,” he said. “It was very pathetic, very pathetic indeed.”

But Mr. Kakunga brightened as he talked about the impact of the subsidies, which he said had more than doubled corn production in his jurisdiction since 2005.

“It’s quite marvelous!” he exclaimed.

Malawi’s determination to heavily subsidize fertilizer and the payoff in increased production are beginning to change the attitudes of donors, say economists who have studied Malawi’s experience.

The Department for International Development in Britain contributed $8 million to the subsidy program last year. Bernabé Sánchez, an economist with the agency in Malawi, estimated the extra corn produced because of the $74 million subsidy was worth $120 million to $140 million.

“It was really a good economic investment,” he said.

The United States, which has shipped $147 million worth of American food to Malawi as emergency relief since 2002, but only $53 million to help Malawi grow its own food, has not provided any financial support for the subsidy program, except for helping pay for the evaluation of it. Over the years, the United States Agency for International Development has focused on promoting the role of the private sector in delivering fertilizer and seed, and saw subsidies as undermining that effort.

But Alan Eastham, the American ambassador to Malawi, said in a recent interview that the subsidy program had worked “pretty well,” though it displaced some commercial fertilizer sales.

“The plain fact is that Malawi got lucky last year,” he said. “They got fertilizer out while it was needed. The lucky part was that they got the rains.”

And the World Bank now sometimes supports the temporary use of subsidies aimed at the poor and carried out in a way that fosters private markets.

Here in Malawi, bank officials say they generally support Malawi’s policy, though they criticize the government for not having a strategy to eventually end the subsidies, question whether its 2007 corn production estimates are inflated and say there is still a lot of room for improvement in how the subsidy is carried out.

“The issue is, let’s do a better job of it,” said David Rohrbach, a senior agricultural economist at the bank.

Though the donors are sometimes ambivalent, Malawi’s farmers have embraced the subsidies. And the government moved this year to give its people a more direct hand in their distribution.

Villagers in Chembe gathered one recent morning under the spreading arms of a kachere tree to decide who most needed fertilizer coupons as the planting season loomed. They had only enough for 19 of the village’s 53 families.

“Ladies and gentlemen, should we start with the elderly or the orphans?” asked Samuel Dama, a representative of the Chembe clan.

Men led the assembly, but women sitting on the ground at their feet called out almost all the names of the neediest, gesturing to families rearing children orphaned by AIDS or caring for toothless elders.

There were more poor families than there were coupons, so grumbling began among those who knew they would have to watch over the coming year as their neighbors’ fertilized corn fields turned deep green.

Sensing the rising resentment, the village chief, Zaudeni Mapila, rose. Barefoot and dressed in dusty jeans and a royal blue jacket, he acted out a silly pantomime of husbands stuffing their pants with corn to sell on the sly for money to get drunk at the beer hall. The women howled with laughter. The tension fled.

He closed with a reminder he hoped would dampen any jealousy.

“I don’t want anyone to complain,” he said. “It’s not me who chose. It’s you.”

The women sang back to him in a chorus of acknowledgment, then dispersed to their homes and fields.