Invited paper presented at the 4th International Conference of the
African Association of Agricultural Economists, September 22-25, 2013,
Dairy is a key investment sector for the Government of Malawi. Advocacy
institutions operating in the country have successfully lobbied for
increasing the duty applied for powder milk, with the aim of improving
the price received by farmers. It should be noted that whilst an
increase of the price paid to farmers would rise their revenues
(assuming the same amount of milk delivery), it might also bring
additional blessings, in the sense that if farmers respond to prices,
they may rise their revenues beyond the increase in prices, and
furthermore, they would expand their delivery of milk to processors
offsetting the imports of powder milk and reducing their idle capacity
in factories. Hence, the purpose of this paper is to measure the
responsiveness of the deliveries of milk at the milk bulking groups to
prices paid to farmers (i.e., the elasticity of supply faced by
processors). This is done using a unique dataset that comprises
information by milk bulking group from January 2009 to February 2013.
The results indicate that the supply of milk is price responsive. The
price elasticity in the short term is equal to 0.6 and in the long term
is 1.44. This indicates that farmers’ revenues not only benefit from an
increase in the price of milk but also from the increase in the quantity
produced. Furthermore, it indicates the possibility that domestic
producers could offset imports of milk powder by processors, although
answer to this requires further research.
Revoredo-Giha, C.; Arakelyan, I.; Chalmers, N.; Chitika, R. How Responsive to Prices is the Supply of Milk in Malawi? Presented at the 4th International Conference of the African Association of Agricultural Economists, September 22-25, 2013, Hammamet, Tunisia. (2013) 21 pp.
How Responsive to Prices is the Supply of Milk in Malawi?