Improving Agricultural Market Performance:
Creation and Development of Market Institutions
13
producer associations, trader organizations, and export federations), and chambers of
commerce.
3. Indirect Market Participants: Other institutions that do not have a mandate directly
connected to the agriculture sector may, nonetheless, influence the effectiveness of
market systems. These include tax authorities especially (agriculture is often subjected
to special tax regimes), but may also include central banks, whose influence over
exchange rates and interest rates can have a profound effect on import and export
prices and agriculture credit. Other entities include both public and state-owned
financial institutions, some of which may specialize in agricultural and/or small
business credit.
Different participants in the same market system may have different goals.8 Most direct market
participants seek mainly to increase their revenues and profits. An efficient market system
would contribute to realizing this.
On the other hand, line Ministries and market institutions play a critical role in realizing
efficient market systems as they may serve a regulatory or a facilitation role or – certain cases
– both. As regulators, they seek to ensure efficient allocation of resources, market stability and
efficiency, economic development and inclusive growth, and public health and safety. As
facilitators, they may channel physical or financial resources to the sector, administer
incentives and subsidies, conduct research, provide extension services and new technologies,
support producer organizations, and promote investment and export development. However,
some overlap among the roles of the market participants may exist. For instance, market
institutions may even operate as direct market participants, which is the case for state-owned
economic enterprises. Though many market institutions are in the public sector, development
partners and donors, as well as non-Government share the common prime objectives of
market institutions such as Governments, multilateral organizations, and non-Governmental
organizations (NGOs).
1.2 Introduction to Agricultural & Food Markets
1.2.1 Importance of Agricultural & Food Market Systems
It is the job of this interconnected system of market institutions - as described in Section 1.1 -
to ensure optimal performance of a market as evaluated by the extent to which it serves
important economic and social objectives. This Section focus on the importance of the
agricultural and food market systems (Section 1.2.1) and, hence, why the private sector
participates (Section 1.2.2) and, particularly, Governments (Section 1.2.3) intervene in these
markets. This paves the way for exploring what kind of agricultural market institutions are
used and what roles these agricultural market institutions serve (Section 1.3).
Indeed, efficient agricultural and food markets in particular depend on a well-functioning
system of market institutions to address market failures and ensure food security, stabilize
food prices, stimulate domestic food production, promote social inclusion, and reduce rural
poverty. This is particularly true given the specifics of the agri-food market systems vis-à-vis
8 International Livestock Research Institute (1995), Livestock Policy Analysis, pp. 111-148, Addis Ababa: International
Livestock Research Institute.