ANNEX D: MODEL OF MAIZE PRICE INSTABILITY IN MALAWI


 It is often appropriate to assume a close link between production instability and price
instability. Contrariwise, in Malawi, high instability in maize production is not likely to translate
into high price instability. With some reflection, the reason seems obvious. In a country where
a high share of the population is engaged in the production of maize or related activities, a change
in production is likely to cause a simultaneous change in the demand and supply in the same
direction.

 The implications are that 1) food security of many rural households that live at the margin
of sufficiency is likely to be threatened primarily by loss of income (for maize producing farmers
in the form of maize), not by price instability in the market and 2) that the usual price stabilizing
interventions (e.g., publicly operated storage operations or compensatory foreign trade
interventions) might easily overshoot their mark, unless much caution is used. Moreover, some
of the money that it spend on price stabilization might be better used for income stabilization
measures.



 Figure El. Maize Markets in Malawi

 'Si S1 'S2 S2 'DT DT 'ST ST ST

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 Market 1 Market 2 Total Market
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