Improving Agricultural Market Performance:
Creation and Development of Market Institutions
17
well-performing agricultural markets and addressing issues to food security, equal access to
food, food price stabilization, and food self-sufficiency, Government intervention is justified to
complement private sector participation and, in fact, facilitate private sector investment.
Government interventions - and the market institutions that implement them - are in most
cases a Government response intended to mitigate or overcome these market failures.
Figure 2 – Global FDI flows in the agricultural and food sector (2006-2016)
Source: Investment Consulting Associates – ICA (2017), based on data from (2017)
1.2.3 Government Intervention in Agricultural & Food Markets
As a result, Governments everywhere across the globe intervene in the agricultural and food
sector to address market failures and realize policy objectives related to food security, food
self-sufficiency, rural poverty, reasonable and equal food prices, competitiveness,
industrialization, and rural economic development, thereby complementing and facilitating
private sector participation.
Market failures in agricultural markets can have especially acute consequences compared to
other markets, since it can be difficult to achieve contradictory policy objectives such as
guaranteeing high producer prices on the one hand (i.e. to support farmers’ incomes and as an
incentive to increase production) and low intermediate or consumer prices on the other hand
(i.e. to provide food at reasonable and stable prices to poorer segments of society and to make
value-added food processing commercially viable). Agricultural market failures include
information asymmetries, high transport and transaction costs, and unclear or limited
property rights12, all of which limit markets’ ability to provide the desired social benefits,
12 Ibid
0
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of FDI Projects
0
5
10
15
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Capital Investment (US$
billion)