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How Responsive to Prices is the Supply of Milk in Malawi?

Author

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  • Revoredo-Giha, Cesar
  • Arakelyan, Irina
  • Chalmers, Neil
  • Chitika, Rollins

Abstract

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.

Suggested Citation

  • Revoredo-Giha, Cesar & Arakelyan, Irina & Chalmers, Neil & Chitika, Rollins, 2013. "How Responsive to Prices is the Supply of Milk in Malawi?," 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 160590, African Association of Agricultural Economists (AAAE).
  • Handle: RePEc:ags:aaae13:160590
    DOI: 10.22004/ag.econ.160590
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    References listed on IDEAS

    as
    1. AfDB AfDB, . "Malawi - Country Profile," Country Brochure, African Development Bank, number 110.
    2. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    3. Perloff,Jeffrey M. & Karp,Larry S. & Golan,Amos, 2007. "Estimating Market Power and Strategies," Cambridge Books, Cambridge University Press, number 9780521804400, November.
    4. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    5. Revoredo-Giha, Cesar, 2012. "Market structure and coherence of international cooperation: the case of the dairy sector in Malawi," Working Papers 131464, Scotland's Rural College (formerly Scottish Agricultural College), Land Economy & Environment Research Group.
    6. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
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    Cited by:

    1. Cesar Revoredo-Giha & Luiza Toma & Faical Akaichi, 2020. "An Analysis of the Tax Incidence of VAT to Milk in Malawi," Sustainability, MDPI, vol. 12(19), pages 1-17, September.
    2. Revoredo-Giha, Cesar & Arakelyan, Irina & Chalmers, Neil, 2015. "Processors pricing and smallholders’ milk supply response in Malawi: An application of the nonlinear autoregressive distributed lag model," 2015 Conference, August 9-14, 2015, Milan, Italy 212295, International Association of Agricultural Economists.
    3. Neil Chalmers & Cesar Revoredo-Giha & Charles Jumbe, 2019. "Measuring the Degree of Integration in the Dairy Products Market in Malawi," Social Sciences, MDPI, vol. 8(2), pages 1-13, February.

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    Agribusiness; Demand and Price Analysis;

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