Improving Agricultural Market Performance:
Creation and Development of Market Institutions
12
When these five conditions are present, it is possible for a market to form and for the seller to
fix a price and for the buyer to accept or reject that price. However, impediments such as
insufficient market infrastructure, market information failures, which enables consumers to
estimate the net benefit from purchasing the products, time lags, absence of property rights,
and negative externalities may result in market failures, impacting the efficiency and
competitiveness of the entire market system.
Therefore, equal access to high-quality market infrastructure, sufficient provision of market
intelligence, and an enabling environment are some of the key ingredients which may foster
the creation of competitive and efficient market systems, which, in turn, can enable producers
to keep a larger share of the profits from their production, while also contributing to
economies of scale and lower prices in domestic and export markets. Such market systems can
support increases in domestic value-added through improvements in product quality as well
as domestic processing of products and goods. Hence, the subsequent Chapters will explore the
relationship between market systems and institutions in a number of (OIC) countries to gauge
the extent to which these institutions contribute to market efficiency and competitiveness.
Now markets and market systems are defined, it is necessary to explore how efficient market
systems operate. The extent to which a market system functions efficiently is determined by a
number of characteristics:
 The type and nature of product(s) and how they move through the market system (e.g.
production, storage, handling, processing, packaging, and distribution).
 The size, number, nature, roles, and responsibilities of market participants.
 The density of market participants and geographical location.
 Physical infrastructure connecting these locations.6
 The legal, regulatory, and institutional framework in which the market operates.
A comprehensive market system involves all activities from supply of inputs through
production, storage, handling, warehousing, processing, and both intermediate and final
distribution. These activities are undertaken by a great variety market participants.
1.1.2 Participants of Market Systems
Three key groups of such market participants typically constitute a market system:7
1. Direct Market Participants: These participants drive economic activity in the market
and may include input importers and suppliers, producers, transporters, wholesalers,
traders, processors, exporters, and retailers.
2. Line Ministries and Market Institutions: These participants set the market system’s
framework and typically include Government bodies (e.g., Ministries of Agriculture,
Ministries of Trade, Ministries of Health, produce marketing boards, export and
investment promotion agencies, customs services, standards bureaus), non-
Government associations and federations (such as farmer groups and cooperatives,
6 Tollens (2010), “The neglect of food market in developing countries,” in Van Trijp, H. & Ingenbeek, P. (eds.), Markets,
market and developing countries: Where we stand and where we are heading, pp. 23-32, Wageningen: Wageningen Academic
Publishers.
7 Technoserve (2017), What is a market system?, available a
[accessed May 2017].