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Module 7 - Investment in Agribusiness and Market Development

Well-functioning agricultural markets and a competitive and innovative private sector are critical to agricultural growth and structural change. Efficient agricultural markets provide the basis for capitalizing on market opportunities and benefiting from increased farm productivity. Private sector and market development require a suitable enabling environment, characterized by a stable macroeconomic climate with adequate commercial laws and financial services, a well-functioning legal system, and adequate infrastructure. Enhancing private sector and market development in a way that includes the poor presents a key challenge to development efforts.

Rationale for Investment

In addition to agricultural producers, the farm sector encompasses a diverse range of large and small enterprises, sometimes referred to as agribusinesses, which include farm input and service suppliers (seed, fertilizer, equipment), downstream processors, traders, and retailers. These enterprises are interlinked in networks that together constitute agricultural market systems, which match buyers and sellers, provide a venue for consolidating small lots and grading, facilitate physical exchange and price discovery, transmit information, and manage risk. Markets coordinate the activities of input providers, producers, and downstream agents. NGOs, such as industry associations and producer organizations, play supporting roles.

Although a well-functioning private agribusiness sector is a precondition for a productive farm sector, the environment for private sector operations frequently has serious limitations. Rural areas often lack infrastructure, effective local government, adequate commercial and social services, and information and communication systems. In addition, product and often factor markets do not function well, and considerable interregional market rigidities exist. These difficulties increase the risks associated with doing business and contribute to interregional disparities. When agroenterprises find it too costly or risky to rely on small-scale farmers for supplying raw materials, these farmers are excluded from market opportunities. For agricultural growth to be pro-poor, the rural poor must be integrated successfully into expanding markets.

The competitiveness of agricultural production and market efficiency are becoming more important with the commercialization of agriculture and the growing importance of global market access provided under the WTO. Increased competitiveness in national and international markets has become a core issue for national policy (box 7.1). Privatization and market liberalization reforms continue in many countries and, even where they are completed, must be accompanied by a thorough review and reform of public policy relating to private sector and market development.

Many requirements for effective market and private sector development have public good characteristics. Examples include contract law and other legal provisions, trade agreements, competition policy, food safety regulations, the establishment and enforcement of grades and standards, infrastructure, training, market information services, and overall coordination of public and private sector activity.


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