Groundnut variety replacement, market structure, marketed surplus and demand for improved varieties in Malawi: the case of smallholders and traders.

Abstract

Groundnut is an important crop for the Malawian agricultural sector. It has the potential to increase agricultural farm incomes and contribute to improving food security for the predominantly maizebased food production system. The Government of Malawi also considers groundnut as one of the legume crops to complement dwindling export earnings from tobacco, which is the main export crop for the country. Despite its potential to contribute to the economic wellbeing of smallholders and the economy at large, the empirical literature has not adequately investigated how factors inherent in the production and marketing chain affect the performance of the groundnut subsector. Given this, the objectives of this study were to: investigate factors that determine smallholder' replacement decisions of conventional and modern varieties of groundnuts; assess effects of marketed surplus on demand for improved varieties by smallholders, and determine market competitiveness and entry barriers for groundnut markets among intermediary traders in central and northern Malawi. These objectives were achieved with survey data collected from groundnut smallholder producers and intermediary traders. Simple and systematic random sample sizes of 416 and 124 respectively were selected. The study focused on five potential groundnut producing districts, namely, Lilongwe, Mchinji, Kasungu and Salima in central Malawi, and Mzimba in northern Malawi. Several econometric techniques were applied to analyze the data, namely, Bivariate Probit (BVP), Endogenous Switching Probit (ESP), and the Multivariate Probit (MVP) regression models. The empirical results of the Bivariate Probit (BVP) model indicated that among the smallholders that replaced conventional with improved varieties, few reverted to the cultivation of the former. Other findings suggest that the probability that farmers would replace groundnut varieties, improved or conventional, was lower than the probability for not replacing them. Conversely, the probability of maintaining modern varieties was higher than that of maintaining conventional ones. Further results indicated that the production of groundnuts for food and income increased the probability of replacing both conventional and improved varieties. The statistical significance and the probability for this dual-purpose production were stronger and higher in the replacement of conventional varieties than for the modern ones. Factors related to the road infrastructure network decreased the likelihood of replacing conventional varieties, whereas institutional factors and smallholder' productive assets increased the likelihood of replacement of the same.

Finally, farm household characteristics and related institutional factors positively influenced the probability of replacing modern groundnut varieties. These findings suggest that promoting dualpurpose production of groundnuts could increase the adoption of modern varieties while concurrently maintaining the diversity of the conventional ones. Farmers that belong to farmer organizations, those experienced in groundnut production and human capital development of the farmers, are also critical in contributing to the conservation of conventional varieties through strategies that mitigate their erosion. The results of the Endogenous Switching Probit (ESP) showed that marketed surplus had a positive effect on demand for improved varieties. The average treatment effect for smallholders with a marketed surplus (ATET) on the probability that they demanded improved varieties increased by 40%. Conversely, the average treatment effect for smallholders that did not have marketed surplus, the untreated (ATU), on the probability that they demanded improved varieties declined by 14%. Further, the marginal treatment effect (MTE) and average treatment effect (ATE) of marketed surplus on the probabilities to demand improved varieties increased by about 30% and 26%, respectively. Other results of this analysis revealed that despite groundnut productivity remaining constant for over a decade at smallholder level, marketed surplus, as indicated by the average commercialization index, was observed to be about twice the household's average consumption index. This finding suggests that farmers are orienting themselves towards the commercialized production of groundnuts. Access to market information, being involved in piece work jobs, yield per hectare and the proportion of total land allocated to the production of groundnuts had a positive and significant effect on marketed surplus. The positive average effects of marketed surplus on demand for improved varieties suggest that farmers that are inclined to intensify market participation value high yielding traits from improved varieties more than any other groundnut varietal attributes. The findings of the study suggest that demand for improved varieties among smallholders could increase if policy interventions could also focus on the challenges that smallholders encounter in the output market. In this case, increased crop productivity, engagement of smallholders in off-farm economic activities, and enhancing access to output market information are critical.

In other results, an interval Herfindahl-Hirschman Index (HHI) revealed the existence of a competitive structure in the local, district, and city groundnut markets. However, the Multivariate Probit (MVP) regression model showed more entry barriers in the local and city markets than in the district market. Such findings suggest that the existence of competitive market structures does not imply the absence of trader entry barriers into the markets. Other results of the MVP showed that experience in business and sole ownership of business positively influenced entry into the district and local markets, respectively. Market transaction costs and storage infrastructure negatively and positively influenced entry into local and city markets, respectively, while the quantity of produce transacted positively and negatively influenced entry into both local and city markets, respectively. Access to credit and informal credit sources positively and negatively influenced entry into city markets, respectively. Membership in informal trader' associations positively influenced entry into city markets. The findings of the study suggest that policy facilitation for the formation of formal trader associations and access to credit from formal financial institutions could enhance trader' participation in the city groundnut markets. Further, public-private partnership investment in storage facilities and public investment in road infrastructure is critical in reducing market transaction costs, which could enhance the participation of intermediary traders in the local and city groundnut markets. The overall findings of the study attest to the need for policy support for an integrated smallholder groundnut seed system that would contribute to the growth and development of smallholder agriculture. Strategies that would enhance the adoption of improved varieties and minimize losses of indigenous germplasm are critical. In this vein, the marketed surplus has shown to be relevant to increase the demand for improved varieties among the smallholders. There is also a need for policy support in reducing constraints that prevent intermediary traders from enhancing their participation in the groundnut markets. In such a way, they would continue to render marketing services to smallholders, which otherwise could be costly if undertaken by themselves. One crosscutting issue that merits attention for policy support is infrastructural development in improved road networks from crop production centers to the distribution of produce along the marketing chain of groundnuts.