Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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The country case study of Indonesia shows the Government operates a state-owned economic
enterprise, which is responsible for producing a fixed volume of pesticides and fertilizers.
These fertilizers and pesticides function as subsidized inputs for smallholders but are not
provided to plantations and industrial processors (e.g. other fertilizer producers). Even though
this is an approach to mainly provide subsidized inputs, it may also be a method to supervise
input manufacturing and ensure the quality of inputs is in compliance with international
standards.
Additionally, Governments may develop and supervise authorities responsible for quality
assurance and distribution of inputs (e.g. feeds, seeds, fertilizers, pesticides, and equipment).
This authority should be mandated to develop certification for inputs which meet a certain
quality standard, which would increase the overall productivity and performance of the entire
agricultural market system. Such an authority, which ideally is placed under the Ministry of
Agriculture, should enforce these standards through representatives inspecting domestic input
producers and on imported inputs.
6.2.4 The Role of Warehousing
Where not currently in place, provide means whereby small producers may gain access to
warehousing and storage capacity, thereby allowing small producers to better manage
when their products may come to market.
During interviews in the three country case studies, it became evident farmers need to sell
their produce immediately after harvest partly if there is a lack of storage, warehouse, and
post-harvest facilities. This generates a great amount of supply, leading to lower prices. WRS
have been implemented in Uganda (managed by UWSRA) and Indonesia (managed by
COFTRA) to enable smallholders’ access to storage facilities, which would enable them to trade
receipts (e.g. at the auction markets in Indonesia) and release and sell their produce at later
point in time, when supply is low(er) and, hence, market prices are better and fairer. In
addition, storage facilities to enable smallholders’ access to credit (storage of produces as form
of collateral).
However, by the time the harvest comes around, smallholders have typically run out of money
and need to sell for whatever price they can get. The WRS in Indonesia is challenged as there is
no guaranteed farmers’ income during periods of storage and processing. Storing goods to sell
at a later point has a higher return on investment but requires to convince farmers. A “change
in farmers’ mindset” has been mentioned across the three case study countries.
Organizing farmers into cooperatives that can set up warehouses of their own may prove to be
an alternative solution. Warehouses need to be efficiently managed. As a somewhat direct
result of this need, there needs to be a critical mass of products to be stored in order to justify
the required infrastructure and organization. Therefore, the formation of agricultural private
sector-led cooperatives should be (further) encouraged to increase the economies of scale and
volume of agricultural products and goods which can be stored in the warehouse. A key to
success for cooperatives is control, by the primary producers, through direct ownership or
contractual arrangements backed by the producers’ common market power, of the
downstream processing, marketing, and distribution elements of the agricultural market
system. Without such control, the producers are price-takers and their share of the overall
proceeds from the market system tends to be much smaller.