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Abstract
The purpose of this paper is to analyse the effects that the practice of setting prices of
milk sporadically has on the deliveries of milk to processors in Malawi. This is of
particular importance due to two factors: first, Malawi has a significant inflationary
process, which erodes quickly the real price paid to farmers, and second, the
existence of an informal parallel market for milk which may absorb some of the milk
that otherwise would go to the processors. If the real price paid by processors is not
adjusted, the informal market becomes more attractive as farmers can sell there their
milk with less quality control and at a similar price. This paper explores the response
of deliveries of milk to processors to changes in the real price paid for milk, using a
nonlinear autoregressive distributed lag (NARDL). The results indicates that the
response differ by processor and in most of the cases is asymmetric. Managerial
implications are explored.