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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.

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