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

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

No 160590, 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia from African Association of Agricultural Economists (AAAE)

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.

Keywords: Agribusiness; Demand and Price Analysis (search for similar items in EconPapers)
Pages: 21
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: How Responsive to Prices is the Supply of Milk in Malawi? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaae13:160590

DOI: 10.22004/ag.econ.160590

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