Improving Agricultural Market Performance:
Creation and Development of Market Institutions
14
general market systems, as geography and seasonal variety play an important role in efficient
agricultural market systems:
 Geography - Agricultural and food producers are often geographically spread across a
country and may be located at a considerable distance from principal, largely urban,
markets. Most agricultural produce is perishable, and requires specific post-
production handling, storage, and distribution processes to limit losses. FAO estimates
that 1.3 billion tons of food are lost to spoilage or wastage each year. This is true in
both rich and poor countries, though attributable to different causes (people in rich
countries buy more than they need and dispose of unused or unwanted excesses,
whereas losses in poor countries are generally the result of poor post-harvest handling
and storage). And while losses in rich countries have negligible effects on access to and
consumption of food, in poor countries these losses can cause widespread hunger.
 Seasonality – Many agricultural commodities are plentiful during and immediately
after the harvest, and scarce and expensive in other seasons (especially in the interval
between the planting and harvest seasons). These seasonal fluctuations may be further
accentuated by variations from one year to another, especially when excess rainfall,
drought, or other extreme weather conditions can disrupt an entire planting and
harvesting cycle. These inter-seasonal variations have become more frequent and
more severe as the effects of climate change become more acute. Market institutions
and interventions typically seek to ensure adequate food supplies and to moderate
price increases in seasons and years of scarcity by storing and, when necessary,
importing basic food commodities. They also seek to maintain minimum prices and
protect farmers’ incomes in times of plenty by buying up and storing food stocks,
facilitating food exports, and providing mechanisms such as warehouse receipts and
commodity exchanges.9
Despite the importance of the entire agri-food market system, Governments often have
different goals, and may accord different weights to different performance criteria, based on
their Governments’ political priorities. It is not the purpose of this analysis to assess these
political choices and priorities, but rather to show how they guide the actions of market
institutions in regulating the operation of agri-food markets.
Many countries, for example, have given priority to the needs of urban populations, and have
regulated markets to limit the cost of basic food commodities for urban consumers, typically
with price controls, subsidies, or direct operation of distribution channels. Governments of the
countries have prioritized rural incomes and benefits to farmers through price supports or
import tariffs and quotas. There are trade-offs to either set of choices: favoring urban
consumers can work to farmers’ disadvantage and can reduce a country’s agricultural
production and productivity. This occurred in Nigeria following the discovery of oil, and the
devastation to the agriculture sector was compounded by “Dutch disease,” appreciation of the
currency that made it cheaper to import food than to produce it domestically. Japan, partly
because prosperous farmers are an important part of the political base of the ruling Liberal
Democrat Party, has kept food prices high by imposing high import tariffs, stringent import
9 Mangisoni, J. (2006), “Markets, Institutions and Agricultural Performance in Africa,” ATPS Special Paper Series , No. 27, pp. 2-
7.