Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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Chapter 4 – The Link between Market Institutions and Market
Performance
4.1 Overview
It can be difficult to evaluate or quantify the effects of market institutions and their
interventions on market performance. This is a problem of attribution or causality: positive or
negative changes in market performance may be observed, but it is often hard to establish the
causes of those changes. Agro-food markets in any country, especially in internationally-traded
commodities, are subject to global market forces and to the policies and market interventions
of governments in other countries. A market institution may be doing the right things, but its
actions may be overwhelmed by those of other market participants. The problem is
compounded by the focus of many market institutions on the most highly-traded cash crops
such as coffee, cocoa, palm oil, and cotton, and food commodities such as cereals and oilseeds.
International cotton markets are an example of this phenomenon, as shown in Box 2. It is clear
that the main West/Central African cotton producing countries would have suffered from U.S.
subsidies, regardless of any market interventions their institutions could have taken.
Subsidies in other countries, however, are not the only external factors that can reduce or
erase the effects of market interventions. Other factors that can affect global supplies and
prices for a commodity exchange rates, competition from alternative products, increases or
decreases in domestic demand for imports, the entrance into global markets of new producers,
and changes in regional trade preferences.
Vietnam, for example, was a minor coffee producer until the late 1980s, when the Government
introduced more market-based policies, allowing farmers to keep the profits from their
production, while at the same time introducing tax incentives, price supports, and subsidies.
By 1998, the area planted with coffee had risen from 40,000 to 740,000 acres, annual
production had shot up from about 60,000 to 550,000 tons, and the country had overtaken
Colombia to become the world’s second-largest coffee producer.132 This development affected
world coffee prices and disrupted markets in many countries, including OIC members Cote
d’Ivoire and Indonesia.
This Chapter examines experiences of several OIC member countries – and, for comparative
purposes, some non-OIC countries – with some of the more common kinds of market
institutions and market interventions. The purpose is not to provide a comprehensive
inventory of institutions or interventions, nor is it to contend that some kinds of institutions
and interventions tend to produce poor outcomes while others produce good outcomes.
Instead, this discussion seeks to identify some features of successful and unsuccessful
institutions and interventions, which may help OIC member countries as they seek to set up
new market institutions or improve the performance of existing ones.
132 Hays, J. (2008), Coffee Agriculture in Vietnam, available a
Accessed August 2017].