The Impact of Agricultural Supply Chain Disruptions on Headline Inflation in Malawi

Justin Mfaume

MPRA Paper from University Library of Munich, Germany

Abstract: Inflation in Malawi is not an abstract statistic. It is the transport fare that doubled before wages moved, the fuel queue that delays inputs from reaching farms, and the exchange rate movement that raises landing costs before any policy response arrives. At the centre of these dynamics sits agriculture, a sector generating over 80% of export earnings, determining foreign exchange availability, shaping the economy's capacity to import fuel and fertiliser, and ultimately governing the conditions under which goods move from farms to markets to households. This study investigates the impact of agricultural supply chain disruptions on headline inflation in Malawi using annual time-series data from 1970 to 2024. A Vector Error Correction Model (VECM) captures dynamic relationships between headline inflation, climatic shocks proxied by annual rainfall, fertiliser prices, fuel prices, and exchange rate movements. Johansen cointegration tests confirm stable long-run equilibrium relationships among variables integrated of order one. Exchange rate depreciation emerges as the dominant long-run driver of inflation, inseparable from agricultural performance given the sector's control over export earnings and forex generation. Fuel price shocks transmit strongly through transport and distribution costs across the supply chain. Climatic shocks influence inflation through production cycles with a lag consistent with harvest timing. Contrary to standard cost-push assumptions, fertiliser prices exert no statistically significant effect on headline inflation, a finding explained by the cushioning role of government subsidy programmes and household remittances that insulate smallholder farmers from global input price movements. The error correction coefficient of -0.48 indicates rapid adjustment toward long-run equilibrium. Controlling inflation in Malawi requires more than monetary tightening and praying for good rains; it requires strengthening agricultural supply chains, improving energy logistics, and building structural resilience to shocks that cascade through the entire economy.

Keywords: headline inflation; agricultural supply chain; climatic shocks; exchange rate; fuel prices; fertilizer prices; Vector Error Correction Model; cointegration; time series; macroeconomics; Malawi; Africa (search for similar items in EconPapers)
JEL-codes: C01 C32 E31 O11 O13 Q11 Q54 (search for similar items in EconPapers)
Date: 2026-01-01
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