Improving Agricultural Market Performance:
Creation and Development of Market Institutions
25
 Supply volatility – Trading volumes may be small in thin domestic markets, and
supply may be volatile due to seasonal and cyclical variation of products. Market
institutions seek to guarantee a stable and sufficient domestic supply of agricultural
produce while also moderating price fluctuations and increasing small farmers’ market
power relative to that of traders, transporters, processors, and other intermediaries.
 Protecting farmers’ income and risk exposure – Market institutions have been
established to ensure or generate sufficient demand to guarantee farmers a reasonable
price for their produce, thus also reducing their risks. This can encourage them to
invest in future production and more readily adopt new farming techniques and
technologies. Market institutions, especially non-Government institutions such as
cooperatives, can be instrumental in increasing the collective bargaining power of
small-scale agricultural and food producers, enabling them to reduce transaction and
transport costs and increase their share of proceeds from the market system.
Pineapple producers in Ghana, through growers’ and exporters’ associations, managed
to wrest control of domestic transport and sales from traders and small transporters
by collectively negotiating better prices and transport tariffs. This enabled them to
establish their own cold stores and packing facilities adjacent to the port and to
negotiate competitive tariffs with shipping lines, which in turn enabled them to set up
a cooperatively-owned storage and distribution center in France, supplying to
supermarkets across Europe.
 Encouraging agricultural value-addition – Efficient agricultural market systems
may also promote domestic agricultural value-addition and increased production. For
instance, agricultural market institutions in Uganda and Rwanda have led to higher
value coffee production and the ability to obtain higher prices for Uganda- or Rwanda-
branded coffee in export markets. In Côte d’Ivoire and Ghana, market institutions –
including some established and controlled by cocoa growers – have helped growers
obtain higher prices through exports of Fair Trade certified cocoa beans and also
through establishment of companies making chocolate confectionary for domestic
consumption and export.
 Ensuring food for urban consumers – With increased urbanization, providing secure
food supplies to urban consumers and mitigating price fluctuations has become an
important function of market institutions, typically achieved through a combination of
price controls and food subsidies and/or storage and importation of buffer stocks of
essential commodities.
This is where the six selected market institutions can be distinguished from the other three
remaining agricultural market institutions, being associations and federations, education and
research institutions, and development organizations and donors. The selected six agricultural
market institutions have a considerably larger impact on addressing market imperfections and
failures while the impact of associations and federations, education and research institutions,
and development organizations and donors is more indirect.