Agriculture drives the Mozambican economy. The sector is largely dominated by smallholder farmers and is a major source of livelihood in the country (World Bank, 2006). Available statistics indicate that agriculture contributes 25 percent to Gross Domestic Product (GDP) and employs 80 percent of the total labor force (African Development Bank, 2008). Development in the agricultural sector in Mozambique has evolved since colonial times to date due to different reasons. The main objective of the Portuguese colonialists was to increase the supply of raw materials to their country and hence targeted the needed investments in Mozambique. The sector was dependent on Portugal for skilled labor supply and suffered brain drain when these Portuguese returned home after independence in 1975 (Howard et al, 1998). Soon after independence, the abandoned Portuguese properties were taken over by the government which formed large centralized state farms. The greater part of government investment in agriculture between 1978 and 1982 was channeled towards input purchases for these farms (Population Project, 2001). During the same period, marketing and trade of crops was done by parastatal monopolies but private traders were still allowed to operate in certain areas provided they had been granted monopoly rights. Market margins were however regulated by the government through the Ministry of Internal Commerce (Kyle, 1999). The civil war which started in 1977 and ended with a peace accord signed in 1992, had a notable impact on the agricultural sector (Skelton et al, 2003). The war resulted in widespread destruction of infrastructure which affected both the factor and product markets. During this period, economic growth and food production dropped significantly. Between 1981 and 1986 for example, Howard et al (1998) reported that GDP and food production fell by 30 percent, marketed production of maize and rice declined by half and exports declined by 75 percent. The country became almost entirely dependent on food aid because food production levels were not sufficient to satisfy demand. The end of the war overlapped with the beginning of the drought hence there was no time for any recovery measures to be implemented in the agricultural sector. During the war and drought period, food aid constituted a considerable portion of total cereal available in the country. Between 1992 and 1993 yellow maize food aid accounted for 60 percent of cereals but the figure dropped to 15 percent between 1994 and 1995 as a result of increased domestic production of white maize (Donovan, 1996).