Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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expansion of publicly funded education and health care. The savings on subsidy
expenditures has enabled the Government to increase funding for infrastructure and
to upgrade and expand irrigation and mechanization in agriculture.
In fact, evidence has mounted that many market interventions (e.g. input and output subsidies
and direct intervention) put in place to facilitate growth and implemented by agricultural
market institutions have instead become an impediment to growth as they were inefficient,
wasteful, and fiscally unsustainable, drawing enormous resources that might have been better
employed elsewhere across the agricultural marketing system.126 In this light, the reform of
subsidies and distribution systems are an important and direct means by which Governments
can intervene in markets overall, and particularly in agricultural markets, in an attempt to
increase the markets’ efficiency and performance. Types of subsidy reform concern
liberalization of agricultural inputs and outputs, abolition of regulatory controls and other
quantity restrictions, and restructuring of agricultural market institutions (e.g. marketing
boards and state-owned economic enterprises). Such reforms may thus impact the nature,
activities, and leverage of agricultural market institutions. Hence, subsidy reforms is one
important and current topic within the subject of overall reform of agricultural and food
markets and the ability of agricultural market institutions to intervene in these markets.
3.6 Agricultural & Food Market Institutions and Enhancing Harmony in the
OIC
Agricultural and food market institutions may play a role in mitigating some of the worst
effects of natural disaster or conflict by distributing foodstuffs to vulnerable populations, often
in cooperation with international development partners and relief agencies. But they arguably
play, or can play, a much more important role in averting such calamities by providing better
services to farmers, by strengthening markets and facilitating trade in agricultural and food
commodities, and by promoting non-traditional agricultural exports, which, by helping people
move away from subsistence farming, can increase rural incomes and enable people to buy
food.
In many countries, marketing of agricultural commodities has traditionally been run by state
institutions as a monopsony (sole purchaser) and monopoly (sole seller). Private traders, to
the extent that they are allowed to operate, must generally be licensed by a Ministry of
Agriculture, and the attendant delays and licensing costs limit the number of traders, limit
farmers’ access to the best prices, increase consumer prices, and stifle innovation. Government
commodity marketing boards generally have no interest in increasing farmers’ access to
market information. The problem is further compounded by poor post-harvest handling,
storage, and transport infrastructure, which leads to substantial losses and drives up
consumer prices, without necessarily improving farmers’ incomes.
Many OIC Member Countries have undertaken reforms aimed at reframing the relationship
between public and private sector organizations and their role in influencing the market. This
has begun to change how state marketing boards and similar structures function, and also
reinforcing some farmer organizations.
126 Lundberg, M. (2005), “Agricultural Market Reforms,” in World Bank Group (eds.), Analyzing the Distributional Impact of
Reforms, pp. 145-153, Wageningen: World Bank Group.