Improving Agricultural Market Performance:
Creation and Development of Market Institutions
37
(BULOG) exclusive monopoly on importing rice, soybeans, sugar, wheat, wheat flour, and
garlic,63 which can also be tied to liberalization and privatization efforts.
Instead of regulating input and output markets, labor, land, and credit markets were
liberalized in combination with abolishing inefficient farmer credit schemes, input subsidies,
price control mechanisms, and agricultural extension, which were typical rationales for the
creation of agricultural market institutions in previous periods.64 Hence, monopoly power of
state-owned economic enterprises, marketing boards, cooperatives, commodity regulation
authorities, unions, and other agricultural market institutions became heavily restricted while
private sector firms (e.g. traders, wholesalers, supermarkets, and retailers) and, particularly,
multinational corporations increased their presence. The rise of these market participants
fundamentally changed the structure and organization of agricultural market systems as they
filled the void left behind by the market institutions in certain countries (e.g. Chile, South
Africa, and India), controlling the entire market system from farming to retail, increasing
contract farming and outgrow schemes.
However, these agricultural market systems functioned inefficiently due to the absence of
market institutions, input financing and credit, hardware (e.g. physical infrastructure), and
software (e.g. rules and regulations), especially limiting the market access of rural areas,
increasing transaction costs, and the hampering efficient market systems. Consequently,
market-led growth has only been partially successful 65 as most policy reforms have been
incomplete or only partially implemented while some market institutions remained active,
impeding the full withdrawal of Government intervention. Examples include the maize sector
in southern Africa, the cotton sector in western Africa, and food distribution done by BULOG in
Indonesia.66
The agricultural policy reforms and the roles market institutions occupied gradually shifted
from “getting the prices right” to “getting the institutions right” in response to the deficiencies
of the economic development programs through the late-1990s and early 21st century.
Agricultural market institutions re-emerged to mitigate market failures, improve market
information, reduce transaction costs, and enhance the market system’s efficiency, while not
exclusively focusing on increasing food production67 but also addressing concerns of food
security, oligopolistic multinational market power, and a dual market system, where an
efficient agricultural market system is only accessible for market participants with the right
size, scale, and skills. In Uganda, the reconstitution of the Uganda Development Corporation in
2008 is an example of the re-emergence of Government interference though its intervention
remains limited and certainly does not concern price controlling (e.g. funding of PPP projects
in fruit processing).68
63 FAO (2003), WTO Agreement on Agriculture: The Implementation Experience - Developing Country Case Studies, available
a Accessed June 2017].
64 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.
65 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.
66 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.
67 Tollens (2010), “The neglect of food market in developing countries,” in Van Trijp, H. & Ingenbeek, P. (eds.), Markets,
market and developing countries: Where we stand and where we are heading, pp. 23-32, Wageningen: Wageningen Academic
Publishers.
68 Interview conducted with Ministry of Finance, Planning and Economic Development in Kampala, June 7, 2017