Trade and agricultural policies in Malawi: Not all policy reform is equally good for the poor

The reduction of the existing global distortions to agricultural incentives is sometimes stated as a priority to fight poverty worldwide. But the impacts of global trade policy and domestic development policy reforms are rarely, if ever, compared. Despite technical limitations hindering rigorous comparison of the overall growth effects, also hampering cost-benefit analysis, this study contributes at filling this gap by focusing on the comparison of the distributional poverty impacts of both types of policies. It uses the MIRAGE global computable general equilibrium –CGE- model feeding a national CGE model representing Malawi in 2007 linked to household survey to examine how different trade policy reforms by Malawi and the rest of the world would impact poverty in Malawi. The country’s recent agricultural growth history due to the Fertilizer Input Subsidy Program is replicated and compared with a more broad-based sectoral approach. The effects of accelerating growth in agriculture and downstream sectors are compared with those of integrating in the regional and multilateral markets. Non preferential trade policy reforms are found to be less favourable for poverty reduction of the poorest than regional integration or preferential integration. Faster intensification and diversification of agriculture is found to enable targeting the poorest that are less likely to be connected to international markets. Therefore, while policy reforms generating growth in general may be good for some poors, it is found that that not all policy reforms are equally good. Thus, despite the fact that trade policies could help fight poverty in Malawi, there are no substitute to development policies, and if undertaken simultaneously, their coherence should be checked thoroughly.