Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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best practices in governance of agricultural and food markets from OIC members and non-
members alike, which will be explored throughout this study. Governments throughout the
world have recognized the need to revitalize, and increase productivity in, their agriculture
sectors, as it can’t be left alone to the private sector (Section 1.2.2). Hence, Government
intervention complements private sector participation (Section 1.2.3).
1.2.2 Private Sector Participation in Agricultural & Food Market
Private sector participation concerns domestic invest as well as foreign direct investment
(FDI) conducted by multinational agro-industrial enterprises. Many Governments have
increasingly recognized the latter as an avenue for socio-economic growth that may also
simultaneously help address challenges related to efficient agricultural markets, which can
contribute to food security, self-sufficiency, equal access to food, stable food prices, and rural
poverty, in part through enabling food value-addition and processing. This can be specifically
tied to the potential of FDI to expose the local economy to state-of-the-art and innovative
technologies as well as superior experience, knowledge, expertise, and capabilities to increase
the competitiveness of a country’s (agricultural) sector. This often occurs through spill-over of
such technologies and innovations to the local economy (i.e. “multiplier effects” or “positive
externalities”), eventually encouraging domestic investment as well.
The number of global FDI projects in the agriculture and food sector (not including mergers &
acquisitions) has gradually risen from 182 in 2006 to 322 in 2013 . However, value
of capital investment of these new FDI projects is volatile. The projects represented a total
value of US$18.21 billion in 2009, after which the total value declined to US$10.46 billion in
2014.
Recently, the annual number of newly established FDI projects has remained constant, ranging
from 300 to 350 FDI projects since 2013, representing between US$13.5 and US$14.5 billion.
However, the number of OIC Member Countries receiving shares of these FDI flows remains
limited.
However, FDI undertaken by MNEs as well as domestic investment cannot by itself improve
the performance of local agriculture and food markets. The ability of these investments, like
that of large-scale domestic investments, to raise productivity and to modernize the 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 environment. For FDI and domestic investment in large-scale agriculture
and food processing to deliver gains in productivity, food security, export expansion, and rural
incomes depends above all on appropriate policies and effective functioning of agriculture and
food market systems in the host countries.11
Leaving the agricultural market exclusively to the private sector lets market forces to
determine supply, demand, price, and allocation of food, which may not always support
Governments’ agricultural policy objectives. In fact, market failures may lead to inefficient
agricultural markets. Therefore, despite the potential of the private sector in terms of realizing
11 Shiferaw, B. & Muricho, G. (2011), “Farmer organizations and collective action institutions for improving market access
and technology adoption in subSaharan Africa: Review of experiences and implications for policy,” in ILRI (eds.), Towards
Priority Actions for Market Development for African Farmers, pp. 293-313, Addis Ababa: International Livestock Research
Institute.