The Structural Adjustment Lending Facility was introduced by the World Bank (WB) and International Monetary Fund (IMF) as a way of addressing the observed structural weaknesses in the economy. As a prerequisite for loan access, recipient nations were required to put in place a comprehensive package of reforms, SAPs, aimed at inducing efficiency (Holmes & Jonas, 1984). This efficiency was to be achieved through market rather than state-led approaches. Malawi was approved for its first structural adjustment loan in 1981. The loan conditions included agricultural policy reforms, fiscal and monetary reforms, trade policy reforms, and public enterprise reforms among others. In the agricultural sector, removal of price controls, market liberalization,
This was to be done by significantly reducing the role of the state marketing institution, Agricultural Development and Marketing Corporation (ADMARC) in agricultural markets and removing price intervention policies, thus allowing markets to freely determine prices. Before liberalization, ADMARC had monopsony power in agricultural markets, particularly maize markets (Ephraim Wadonda Chirwa, 1999), the institution was also responsible for implementing government pricing policy (Ephraim Wadonda Chirwa, 1999, pp 5). IFIs however viewed state marketing boards as being inefficient and wasteful (Kherallah, Delgado, Gabre-Madhin, Minot, & Johnson, 2002). In addition, the stabilization role played by ADMARC was believed to be a drain on government resources and that reducing its operational scope would reduce public expenditure thereby cutting the government budget deficit. Furthermore, removal of price interventions would remove ‘distortions’ from prices and provide incentives production incentives for maize producers. Similarly, expanding the role of the private sector in agricultural markets was seen by the IFIs as a way of improving market performance; particularly because the private sector was seen as more efficient than the
Government first intervened in markets after liberalization in 1996 by instituting a price band for maize which was not lifted until 2000. The Government then restricted maize imports and exports following production decline and subsequent price spikes that followed a severe drought in 2001. During this period, only official imports through the Government were allowed and the imported maize stocks were released to the market at below market prices (Ephraim Wadonda Chirwa, 1999; Minot, 2010). After this, the Government next intervened in agricultural markets in 2005 following another weather shock that led to increased prices. During this period, the Government also restricted private maize trade domestically and as in 2001, later released imported maize to the domestic market at below market prices (Cameron, 2015). Another price spike occurred in 2007, prompting the government to restrict private trade (Cameron, 2015). The same pattern continued in 2011 when increasing prices resulted in maize export bans (Cameron, 2015). The Government maintains that government intervention is essential in order to protect consumers as inadequate trader competition leads to rising prices (Daudi, 2009). Nevertheless, agricultural markets are allowed to operate freely with occasional interventions at the discretion of the