Some of these requirements can be met by the private sector, but they often require regulation and cofinancing or approval by the public sector. Public investment to improve the rural investment climate improves the competitiveness of agriculture and rural enterprises. Without the support of enabling institutions in the public sector, private agroenterprises and markets will remain inadequately developed and inequitable. Box 7.1 Competitiveness and supply chains Competitiveness is the ability of enterprises to earn a sufficient income for employed labor and capital. If a firm is competitive, it can invest to expand, innovate, and adjust to changes in markets. Competitiveness depends on the cost structure and on prices realized on sales, which are factors that depend on a firm’s own performance, on public infrastructure and services, and on the performance of other institutions that provide a firm with inputs and services. Since firms that are linked to distant input or product markets often depend heavily on other firms and the public sector, competitiveness may need to be analyzed for clusters of enterprises with interrelated activities. Competitiveness frequently depends on a chain of firms that together produce, collect, process, transport, and sell products. In agriculture, many firms and farms are strongly interdependent in such supply chains. For example, for fruit producers in Ghana to be competitive, they must be effectively linked with suppliers, technology providers, traders, processors, transporters, and retailers in the UK to earn sufficient income for their labor, land, and capital. Supply chains provide for market linkages that ensure the supply, quality, and safety of agricultural products. The chain’s performance depends on the effectiveness of cooperation and coordination among all partners in the chain. Source: Authors |
Improved market efficiency and greater private sector activity are essential to aid the transition from subsistence farming to more commercialized agricultural systems. The latter produce and market food staple crops more efficiently, or they produce higher-value products (mainly livestock, aquaculture, and horticulture products) that require more inputs, processing, and handling. Market efficiency improves competitiveness in local and foreign markets and increases incomes to farmers, laborers, and small entrepreneurs involved in input supply and downstream processing and distribution. Private sector development typically generates employment opportunities distributed across a broad spectrum of the economy. Increased market efficiency can also improve living conditions for poor consumers by reducing food prices, improving food quality and variety, and increasing the accessibility of food and other consumer goods. As a result, real household income rises and nutritional status improves. Past Investment Activity In the 1960s and 1970s, governments in many countries played a direct role in input supply, production, trade, transport, and distribution, or at least they had a dominant role in the control or management of these markets. The World Bank and other donors provided significant direct investment in parastatals (state-owned companies), government-controlled cooperatives, and public marketing. When government-dominated systems fell into disgrace in the 1980s and 1990s because of their poor performance, lending for these types of investments disappeared. Â   Â 
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