Improving Agricultural Market Performance:
Creation and Development of Market Institutions
32
economic markets and sectors, provide public goods, and set prices for goods, products, and
services.
2.2 Historical Development of Agricultural & Food Market Institutions
The first records of market institutions specifically interfering in the agricultural and food
market on behalf of authorities can be traced back to early Medieval Europe.36 The Dutch city
of Gouda, for instance, was granted feudal rights to establish a food market to exclusively trade
cheese, which was actually not produced in Gouda itself but in the surrounding country side.
The growth of agricultural and food market institutions was driven by rapid urbanization and
economic growth, which forced fragmented and inefficient small-scale institutions (e.g. fairs,
markets, and travelling tradesmen) to transform into fixed and interconnected institutions
with a legal and statutory framework.
Early forms of agricultural market institutions secured low food prices and stable food
supplies – especially in times of harvest failure and food shortages - and regulated the
exchange of agricultural products for services and manufactured goods, with local institutions
licensing marketplaces where such trade of agricultural commodities was allowed. A strong
moral duty existed for these market institutions to ensure producers of agricultural
commodities did not hoard more than their immediate needs, preventing from excess profits
or monopoly power. Early market institutions also introduced and ensured compliance with
uniform weights, standards, and grades. An example is the “Assize of Bread,” which
determined the price of grain vis-à-vis the weight of a standard loaf of bread, and which is one
of the earliest examples of a law regulating the agricultural and food market.
Political stability and integration of early modern states as well as a centralization of power
(and, hence, market institutions) led to increased integration of agricultural markets, more
stable supplies of food, and to improved controls of price volatility. Indeed, many early modern
states actively implemented regulations through market institutions for controlling and
guiding the benefits of trade, while supporting market development too.
The introduction of capitalism and mass production during this era also impacted the
agricultural and food market system, transforming the nature, volume, specialization,
geographical range, and size of market channels, particularly food retail, distribution, and
wholesale. Supplying large centers of consumers encouraged traders to respond to price
differences.
Indeed, modern forms of agricultural market institutions date back to the mid-19th century. In
Europe, farmer-owned cooperatives came to dominate dairy production in Scandinavia by the
1890s, having crowded out most capitalist firms,37 and Government-sponsored agriculture
extension services emerged in France, Italy, and the U.K., starting in the 1870s.
In the United States, the Morrill Act of 1862, signed by President Lincoln during the Civil War,
created state colleges "of agriculture and the mechanic arts" in the northern United States,
36 Casson, M. & Lee, J. (2011), “The Origin and Development of Markets: A Business History Perspective,” Business History
Review, 85(1), pp 9-37.
37 Persson, K. (2010), An Economic History of Europe: Knowledge, Institutions, and Growth, 600 to the Present, pp. 85-87, New
York: Cambridge University Press.