Improving Agricultural Market Performance:
Creation and Development of Market Institutions
35
This overlapped with policy liberalization and deregulation of global trade. The proliferation of
international trade agreements under supervision of the World Trade Organization (WTO) in
the 1990s further opened up global markets and facilitated the integration of developing
countries into global market systems. This resulted in increased private sector investment and
FDI across various stages of market systems, thereby partly substituting the role of traditional
market institutions and the vacuum which emerged after withdrawal from Government
intervention.
However, the openness of markets to international investors in combination with withdrawal
of Government-supported market institutions has resulted in the emergence of large
enterprises that dominate various stages of market systems (e.g. intermediary, distribution,
and wholesale). The result is non-competitive market channels, where the Government is not
in full control, but rather the private sector is.
Hence, more awareness has recently emerged for the need to balance Government
intervention through market institutions with private sector involvement. This is also in
response to the awareness of consumers and companies concerning sustainable development,
reflected in adoption of CSR principles.52 This brings considerable opportunities and need for
agricultural market institutions as to facilitate the implementation of CSR principles.
2.4 Recent Trends in the Development of Agricultural & Food Market
Institutions
Recent trends in the development of these institutions reflect the general trends of market
institution development as described in the previous section. Promoting agricultural market
was a typical Government activity throughout much of the early 1980s.53 Expansion of public
sector involvement in agricultural market has been undertaken through the creation of new
market institutions.54 Indeed, this strong Government interference in agricultural markets is
shown by the proliferation of Government (-supported) institutions such as marketing boards,
cooperatives, unions, and commodity regulation authorities. 55
Objectives of these market institutions primarily concerned regulating inputs (e.g. fertilizers,
seeds, and equipment) through price controls and subsidies, as well as controlling a stable
supply and demand of food commodities with fixed commodity pricing (i.e. below market
levels), public storages and processing, and minimum price guarantees. Imposing quality
standards and grades and regulating (rather “limiting”) private commercial agricultural
activities also belonged to the responsibilities of many agricultural market institutions.
This strong Government interference in the agricultural market and the role of agricultural
market institutions eventually discouraged agricultural producers from innovating as fixed
commodity prices and guarantees created a disincentive for agricultural producers to remain
competitive and operate efficiently. Agricultural production and exports stagnated. Moreover,
52 Van Trijp, H. & Ingenbleek, P. (2010), “Markets, market and developing countries: Where we stand and where we are
heading”, pp. 9-16, Wageningen: Wageningen Academic Publishers.
53 Ibid
54 Poole (2010), “From ‘market systems’ to ‘value chains’: what have we learnt sinc the post-colonial era and where do we
go?,” in Van Trijp, H. & Ingenbeek, P. (eds.), Markets, market and developing countries: Where we stand and where we are
heading, pp. 17-22, Wageningen: Wageningen Academic Publishers.
55 Barrett, C. & Mutambatsere, B. (2008), “Agricultural Markets in Developing Countries,” in Blume, L. & Durlauf, S. (eds.), The
New Palgrave Dictionary of Economics, pp. 2-3, London: Palgrave Macmillan.