Improving Agricultural Market Performance:
Creation and Development of Market Institutions
26
1.3.2 Roles, Duties, and Responsibilities of Agricultural & Food Market Institutions
These six selected agricultural and food market institutions may serve different roles, which
can be roughly classified as follows:30
1. Exchange functions – Activities where agricultural goods and products are
transferred from one market participant to another. This is the most common notion
of a market system as it mediates market transactions, connects buyers and sellers
through physical market infrastructure, and facilitates exchange through market
intelligence, information, and communication. Exchange functions also include market
interventions via subsidies, price controls, import and distribution of buffer stocks,
commodity marketing boards, and development and regulation of warehousing
systems and commodities exchanges, all intended to reduce price and supply volatility.
Market institutions may shorten supply chains or make them more efficient by linking
small-scale producers directly to end-consumers, thereby providing an efficient
channel in the absence of efficient third party market participants.
2. Physical functions – Support to activities where agricultural goods and products are
physically moved through space and time. These functions generally involve
improvements to or maintenance of physical market infrastructure (roads, transport,
storage, warehousing), together with technical support in areas such as post-harvest
handling. These functions often involve value addition, by improving the quality of a
product (washing of green coffee beans, for example), reducing or eliminating loss and
wastage through improved storage and handling, application of quality standards or
classifications, packaging, or transformation from a raw into a processed product
(cocoa into chocolate, for example, or grapes into wine).
3. Facilitating functions – Activities that facilitate the physical and exchange functions
and coordinate the market. This is tied to connecting demand and supply through
market intelligence and dissemination of market information, provision of working
capital and risk-bearing mechanisms (e.g. insurances guarantees, and loans), and
facilitation of enforcement mechanisms related to property rights and contracts.
Facilitating functions enable producers to respond to market signals and anticipate on
customized products and goods desired by consumers. This function also includes
training and skills development. 31
These functions collectively make up the market framework of the agricultural and food sector.
This includes the physical facilities and infrastructure connecting the various market
participants, market intelligence and information, and the institutional and regulatory
framework (e.g. regulations, quality standards and grades, and relevant legislation and
policies).32
30 International Livestock Research Institute (1995), Livestock Policy Analysis , pp. 111-148, Addis Ababa: International
Livestock Research Institute.
31 FAO/INRA (2016), Innovative markets for sustainable agriculture - How innovations in market institutions encourage
sustainable agriculture in developing countries, p. 2, Rome: Food and Agriculture Organization of the United Nations and
Institut National de la Recherche Agronomique.
32 International Livestock Research Institute (1995), Livestock Policy Analysis , pp. 111-148, Addis Ababa: International
Livestock Research Institute.