World Bank helps Malawi to cushion rising food prices

“Under the arrangement we also intend to use Malawi as a model as we intend to bring in issues of livestock insurance for smallholder farmers in all developing countries,” said a World Bank official in Malawi.

A statement released by the bank's President Robert Zoellick also testifies to this arrangement.

Malawi's Finance Minister Goodall Gondwe described the World Bank's decision as an honour for Malawi.

“We have been chosen over other countries in the world to be the first to manage the valuable scheme which should prove invaluable in days of climatic change,” intoned Gondwe.

This has come about as World Bank's board of directors is working on an initiative to hedge against skyrocketing prices to provide risk management tools to poor countries faced by drought and other catastrophes in the face high food prices, which has affected a number of countries.

Zoellick said his bank intends to “deploy index-related hedges and insurance products to protect poor farmers and countries from weather and supply shocks.”

Malawi is expected to enter into discussions with the World Bank's board before the end of this month, which will allow it to use the bank's proposal to use it as an intermediary to access weather derivatives.

“Under the arrangement, if it is found that the country's weather conditions have impaired crop production, the insurance company would pay the Malawi Government an agreed amount that would help the country purchase food to alleviate the effects of bad weather,” explained Gondwe.

The finance minister, who presented Malawi's 2008/09 national budget in parliament last Friday and which also touches the issue of soaring food prices, said if the scheme works in Malawi, the World Bank would use it elsewhere in the world.

One civil society organisation in Malawi has pointed out that in Malawi's budget statement, the government mentions how Malawi will gain from the World food price hikes if it continues to export food materials.

The Centre for Social Concern says over the last 12 months, average price of food in the world market has gone up by 56%, with the price of rice rising by 96%.

“We therefore see a lot of challenge for Malawi achieving this trade benefit. This will work only if trade policies at the international market are re-examined to accommodate poor countries like Malawi,” Centre for Social Concern's Social Conditions Research Program Officer Chrissie Kafundu.