Improving Agricultural Market Performance:
Creation and Development of Market Institutions
1
Executive Summary
The key objective of the present report is to show ways for increasing efficiency of the
agriculture sector and to contribute to food security in the OIC Member Countries by
improving agricultural market performance via the creation, development, enhancement, and
coordination of market institutions.
This report is based on extensive literature review together with in-depth country case studies
conducted in three selected OIC Member Countries: Indonesia, Tunisia, and Uganda, and
complemented by South Africa as non-OIC country. The literature study covers existing
(policy) documents, publications, and experience of relevant national and international
institutions, while the country case studies have been based on thorough desk research, which
has been complemented with on-site interviews to validate findings and observations.
Interconnected systems of market institutions are created by Governments across the globe to
ensure optimal performance of market systems as evaluated by the extent to which they serve
important economic and social policy objectives. In particular, efficient agricultural and food
markets depend on a well-functioning system of market institutions to address market failures
and to realize policy objectives related to ensuring food security, stabilizing food prices,
stimulating domestic food production, promoting social inclusion, and reducing rural poverty.
Governments throughout the world have recognized the importance of the agricultural sector
and the need to revitalize, and increase productivity in this agriculture sector. This requires
private sector participation as well as Government intervention in agricultural and food
markets to ensure its optimal performance. The ability of the private sector to raise
productivity and to modernize the agricultural sector by introducing innovative and
sustainable technologies and management practices, is often limited by poor infrastructure,
high losses and waste, high transaction costs, and an unfavorable business climate, and
depends above all on appropriate policies and effective functioning of agricultural market
systems.
Hence, Governments everywhere across the globe intervene in the agricultural and food sector
to address market failures, complement and facilitate private section participation, and realize
policy objectives related to food security, food self-sufficiency, rural poverty, reasonable and
equal food prices, competitiveness, industrialization, and rural economic development. Such
market failures include information asymmetries, high transport and transaction costs, and
unclear or limited property rights, all of which limit markets’ ability to provide the desired
social benefits, which in addition to food security often include attracting large-scale
investment in agriculture and agro-processing, linking smallholders to global market systems,
and enabling domestic agro-food producers to compete with imports and succeed in export
markets.
Such intervention conducted by Governments into agricultural markets typically includes the
subsidization of inputs and favorable tax mechanisms; output price control mechanisms;
quantity restrictions; public sector market operations; and public support to producers and
intermediaries. Governments across OIC Member Countries have established a wide variety of
agricultural and food market institutions with the objective to administer and implement these
Government interventions.