Many small-scale farmers in low-income countries are excluded from markets for agricultural products and inputs because the costs and risks of market participation are simply too high. As a consequence, they often do not adopt new technologies to improve crop yields and natural resource management (NRM). Getting markets right is therefore a critical issue for increasing the food security and incomes of smallholder farmers and expanding smallholders’ access to new market opportunities. Government investments are needed to create an appropriate institutional framework, address risk management, complete reforms, and invest in appropriate infrastructure. Structural adjustments and economic liberalization have had a mixed and generally limited impact on improving the livelihoods of the poor, particularly in Africa. Producers do respond to market opportunities, but many markets function poorly even in the period following liberalization (box 7.25). Box 7.25 Producers’ response to functional markets In Mali, liberalization of the rice market led to a tripling of production over the 1990s, as small-scale processors and traders successfully halved the marketing margin from producer to consumer. In Kenya, liberalization of dairy markets caused dairy production to become the fastest-growing source of income for more than 600,000 small-scale farmers with one to three cows. Where markets do not function, however, productivity gains do not translate into increased income. In Ethiopia, a quintupling of maize production since 1995 caused maize prices to collapse in 2002. In turn, farmers disengaged from maize production, and fertilizer application dropped by one-third. Source: Authors |
The large markup from producer price to export price or, in the case of imported goods, from import price to final consumer price is a symptom of weakly functioning trade and distribution systems (box 7.26). In many places, these high transaction costs keep small-scale producers and the poor out of the market altogether. On average, only one-quarter to one-third of agricultural production reaches the market in Sub-Saharan Africa, and producers remain trapped in low-yield, subsistence production. Thus an important lesson learned in the aftermath of structural adjustment is the critical importance of moving beyond “getting prices right,” which entailed the removal of policy distortions, to “getting markets right.” Getting markets right involves creating an enabling environment for the private sector to operate and strengthening market institutions to reduce transaction costs and improve market performance. Investments Needed to Get Markets Right The weakness of market distribution systems is partly a problem of poor infrastructure, particularly roads and communication systems. Road density was five times greater in India in the 1950s than it is in all of Sub-Saharan Africa today. But the poor distribution system also reflects the absence of key market support institutions, such as market information systems, grades and standards, contract enforcement mechanisms, and auctions and exchanges. Sales by order, forward contracts, and other more sophisticated marketing arrangements are virtually unknown. Agricultural market development requires investment in:   
|
RSS