1.     CONTEXT

1.1     Malawi's Commitment to Agriculture Commercialization

The Malawi Government recognizes Agriculture commercialization as one of the game changers that will accelerate Malawi’s progress towards creating an inclusively wealthy and self-reliant nation. This is emphasized in Pillar 1 of the Malawi 2063 agenda (Agriculture Productivity and Commercialization) that aims to transform Malawi into a middle-income economy by the year 2030. Through Mw2063 first Implementation Plan (MIP-1), the Government has set priority strategies and interventions to be implemented in the next ten years and has identified quick wins (interventions that are already in the pipeline, having ready finance commitment or just requiring scaling-up in the next five years). To have an optimally productive and commercialized agriculture sector, the focus areas under Agriculture Productivity and Commercialization are Agriculture Diversification; Irrigation Development; Anchor Farms; Agriculture Inputs; Agricultural Mechanization; Structured Markets; Agriculture Research, Innovation and Dissemination.

The government has demonstrated commitment to implementing the Agriculture Productivity and Commercialization by budgeting MK1.634 trillion in MIP-1 for 10 years. These resources shall be mobilized from GoM, DPs, Private Sector, CSO, Academia and Research Institutions.

1.2     Situation of Agriculture Commercialization in Malawi

The economy of Malawi is predominantly agriculture-based. In 2022, the share of agriculture in Malawi's Gross Domestic Product (GDP) was 21.76 percent (industry contributed approximately 18.35 percent and the services sector contributed about 54.91 percent). The agriculture sector employs 64% of the country’s workforce and contributes to food and nutrition security. The main Malawi exports include tobacco, tea, sugar, cotton, rice, groundnuts, textiles and apparel. Tobacco, tea and cane sugar together generate over 70% of export earnings. However, the following are some of the challenges affecting agriculture commercialization in Malawi: vulnerability to weather shocks; poor management of land, water and soils; low adoption of agricultural technologies; low access to finance facilities and farm inputs; low mechanization and technical labour skills; limited irrigation system and weak linkages to markets as well as weak private sector engagement.

1.3     Anticipated Roles of Various Stakeholders in Driving Agriculture Commercialization in Malawi

1. Government: The government will play a central role in the implementation of MIP-1. Among others, the Government shall create a conducive environment and incentivize private sector participation by providing several incentives such as fiscal incentives and appropriate policies. More importantly, the Government shall trailblaze investment into the drivers of economic growth and induce private sector participation in strategic sectors of the economy.
2. DPs: DPs are expected to align their work plans and assistance strategies to MIP-1. Consequently, all DP financing and technical support must align with the implementation and realization of Mw2063 as outlined under MIP-1. This shall be in tandem in keeping with the Addis Ababa development effectiveness agenda for action on financing for development towards the realization of the sustainable development goals. The DPs’ development effectiveness is to see an improved quality and impact towards the commercialization agenda.
3. CSO: The CSO will implement specific activities in various sectors to complement the Government’s oversight and accountability functions aimed at safeguarding the interests of Malawians. In addition, CSOs are among the most important and potentially legitimate actors that can promote pro-poor agricultural development by advocating for effective and profitable agriculture marketing systems.
4. Private Sector: Private sector investment in both economic and social sectors to generate growth and inclusively create wealth will be key. As the Government creates a conducive environment for investment, the private sector must take up opportunities and be incentivized to increase investment. In addition, the private sector shall be involved in the provision of other public goods through Private-Public Partnership (PPP) arrangements.

2     ACTIONS TAKEN AND LESSONS LEARNED

2.1     Actions Taken in Supporting Commercialization

Agriculture Commercialization is one of the DCAFS thematic priorities under WB and IFAD co-leadership. DCAFS have demonstrated commitment to funding the commercialization agenda through various projects. Among others, DCAFS are providing catalytic financing and technical assistance as well as building the capacity of Farmer/Producer Organizations. The table below presents some major DP-funded projects with agriculture commercialization components.

Value Chain and Focus

No	Project	Budget (Million)	Value Chain and Focus
1	Shire Valley Transformation Project (SVTP) of the WB	US$160	Increased share of the population above the national poverty line and reduced food insecurity
2	Agricultural Commercialization Project (AGCOM 1.0) of the WB	US$95	Increased commercialization of agricultural value chain products
3	Malawi Food Systems Resilience Project (AGCOM 2.0) - World Bank	US$265	Increased commercialization of agricultural value chain products
4	Shire Valley Transformation Program (SVTPI &II) of the WB, AfDB and GEF	US$519.59	Increase agricultural productivity and commercialization, and improve the sustainable management and utilization of natural resources.
5	KULIMA - Promoting Farming in Malawi of the EU	US$118	Sustainable agricultural growth promoted to increase in incomes, employment and food security
6	Growth Poles Project and USAID-Pyxus Partnership Project of the USAID	US$54.6	Increased jobs, contract farmers, exports, and leveraging.
7	Transforming Agriculture through Diversification and Entrepreneurship Programme (TRADE) of IFAD	US$125.2	Increasing value chain commercialization and improving the resilience of smallholder producers
8	Agricultural finance for Agri-based enterprises of the German Development Corporation	US$6.5	Access of Agri-based enterprises to financial services in specific value chains (Groundnuts, Soybean, Aquaculture and Rice).
9	The Financial Access for Rural Markets, Smallholders and Enterprise Programme (FARMSE) of IFAD	US$ 102.73	Access to agriculture financial services through social payment graduation programmes, community-based financial organizations, financial cooperatives, microfinance institutions and commercial banks.
10	Programme for Rural Irrigation Development (PRIDE) of IFAD	US$ 125.88	Irrigation and water storage techniques to increase agricultural productivity, & climate-smart land and water management systems
11	Sustainable Agriculture Production Programme Phase 2 of IFAD	US$ 53.2	Market-led agriculture production & productivity. Cooperative development.
12	Financial Inclusion in the Agricultural Value Chains (IFAD funded, implemented through NBS Bank)	US$ 5.0	Credit lines for the production and processing of tea and macadamia value chains

2.2     Lessons Learned by the DCAFS

The DCAFS through thematic discussion under the Agriculture Commercialization have drawn the following lessons which are informative in driving the commercialization agenda in a coordinated fashion.

1. Harmonization: Harmonization of various donor-funded projects is possible because there are commonalities in the approaches and interventions in different programs. For example, most projects agree on the need to strategically involve the private sector to ensure a functional value chain system. The Private sector remains a key player and game-changer in the value chain market development.
2. Financial Institutions: It remains very important to adequately engage and sensitize commercial banks when running Partial Credit Guarantee (PCG) instruments. In practice, there are some practices of the banks that affect the efficiency of the PCG facilities. For example, banks demand collateral on the 30% bank asset contribution to the PCG facility after the 70% project contribution. The a need for more sensitization and capacity building on the commercial banks and cooperatives to take advantage of the facility.
3. Business Coaching: This is imperative and should be an integral intervention in the capacity building of the Producer/Farmer Organizations. Such business coaching shall among others help the producer organizations to understand bank credit procedures as well as gain skills in developing and managing business plans.
4. Market Stabilization Policies: such as unpredictable export bans/restrictions tend to affect investment plans and setting minimum farm gate prices without considering the international market prices is reducing the competitiveness of the country. For example, the Minimum Farmgate Prices for soya beans in the 2022/23 season were above the export parity price. The government should aim at creating proper policies and procedures to address some common agricultural value chain marketing systems.
5. Agriculture Commercialization Status: Malawi is still at the early stages of agriculture commercialization such that it is important to recognize that in the current operating context, support towards building from the bottom-up in creating a pipeline of producers and service providers along agriculture value chains is required.

3.     ROLLING TALKING POINTS

APPLAUD:
The DCAFS would like to applaud the Government on the following:

1. Mw2063 Pillars: Having Agricultural productivity and commercialization as a primary pillar in Mw2063 is a demonstration of commitment to the commercialization agenda which is a catalyst to encourage more local agricultural industry. In addition, a vibrant commercial smallholder sector would give rise to better non-farm livelihood opportunities thereby sparking rural economic transformation. In addition, the establishment of an agriculture productivity and commercialization coordination group is strategic to foster a dialogue among various stakeholders in the sector.
2. Enabling Business Environment: The Government has shown commitment to policy and regulatory movements to provide an enabling environment for agriculture commercialization. In the recent past, the review of the Control of Goods Act (COGA); the Seed Act (2021) enactment to eliminate fake seeds and the Fertilizer Act (2022) to increase access to high-quality fertilizers are commendable movements.
3. Development Cooperation: Negotiating and signing the huge commercialization and value chain system development projects with Development Partners such as WB on AGCOM, MFSRP (AGCOM 2) and Shire Valley Transformation Program; EU on the KULIMA program and the TRADE Project funded by IFAD is applaudable.

ENCOURAGE:
Building on the above situation and lessons, the DCAFS would like to encourage the Government on the following:

1. Export competitiveness and development: Malawi needs to promote agribusiness to leverage its potential in agriculture to enhance its export competitiveness. This is important because the global market has become very demanding for high-quality products, including ready availability, flavour, quality, freshness, convenience, environmental safety, and traceability, which can only be met through appropriate value chain development. Therefore, the government needs to pursue wide-ranging economic policies and strategies and invest in technological upgrading, quality control, marketing networks and connections.
2. Policy and regulatory frameworks:
   1. Governments have a role to play in creating the appropriate policy and regulatory frameworks to level the playing field, increase the opportunities and reduce risks in the value chain system. Regulations and policies should aim at setting minimum standards, incentivizing investment in value chain system development as well and clarification of the regulatory position of certain instruments such as the Warehouse Receipt System.
   2. The government should accelerate the movements in policy and regulatory frameworks driving agriculture commercialization. These policies and regulatory frameworks include the finalization and approval of the National Agriculture Policy (2023-2030 which is well-aligned to Pillar 1 of the Mw2063); Seed Act 2021 implementation by developing and gazetting its regulations to promote reliability of seed certification; Fertilizer Act 2022 implementation by developing and gazetting the regulations to increase access to high-quality fertilizers; Livestock Act to accelerate growth in livestock production and productivity; and Crops Bill to regulate development, production and marketing of crops in a win-win situation with the private sector.
   3. The government should improve transparency and communication channels with the private sector by among others streamlining public-private policy engagement. For example, the Government to ensure an honest consultative process in drafting the policies and bills. In addition, the Government to ensure transparency and accountability about issues raised by the private sector. For example, ministries to take a proactive and leadership role in providing feedback to the stakeholders on whether comments raised to the Bills have been incorporated or not and the reasons for such decisions. Such transparency shall ensure that the Policies and regulations are not a deterrent to investment in agriculture commercialization.
3. Crop Diversification and Insurance: There is a need to encourage farmers to diversify crops to avoid dependence on a single crop. In addition, there is a need to promote the practice of procuring insurance to protect against crop failure and weather-related risks. The government is encouraged to come up with appropriate strategies and investment crop improvement research and extension, rural infrastructure establishment and secure land rights to help alleviate many of the possible adverse transitional consequences.
4. Risk Mitigation: It is important to recognize that Agriculture Value Chain development is characterized by various risks including market and price risks, crop and weather risks, production-related risks, collateral risks and human factors. Therefore, it is important to come up with various instruments and methods for mitigating the risks that plague agri-business finance, value chain development and market risks.
5. Mechanization: Mechanizing the Malawian farming system is critical to increase agro-processing. It is important to come up with a clear strategy to enhance mechanizing the Malawian farming system. Among others, the government must foster private-public partnerships in efforts aimed at enchaining mechanization. In addition, there is a need to deepen investment in local technical capacity building in the usage of mechanization services and products.
6. Value Addition: The government needs to have a clear strategy for promoting value addition and enhancing domestic productive capacity as a drive to participate beneficially in global trade. In addition, regional cooperation in conformity assessment systems and regulatory frameworks is strategic to pave the way for new, nontraditional exports.