Facilitating Smallholder Farmers’ Market Access
In the OIC Member Countries
21
Determinants of Smallholder Farmers’ Participation in Agri-Food
Markets
Numerous factors influence the extent to which smallholders participate in and benefit
from agri-food markets. The enabling environment—including the prevailing
macroeconomic, trade, and price policies—is a major influence. Another is the quality of
policies and regulations related to the functioning of the agricultural sector, and those that
more broadly affect private sector participation and investment.
Physical access to markets depends on factors such as the distance to markets, the quality
of roads, and the modes of transportation available to move products to market. When
markets are far away, it is generally more convenient for smallholders to sell their crops at
the farm gate, but although selling at the farm gate is more convenient and reduces
transport costs, it is usually less remunerative. In addition to transport infrastructure and
trade logistics, access to reliable electricity, telecommunications infrastructure, and
potable water also plays an important role in influencing the market opportunities
available to smallholders. Smallholders’ participation in markets is often limited by
transaction costs, including high search and information costs as well as high costs of
bargaining, negotiating, and enforcing contracts. These costs may vary by crop. High-value
crops, which are often perishable, typically are associated with higher transaction costs.
The availability of infrastructure, including mobile phones and roads, helps to reduce the
transaction costs faced by farmers.
Public investment decisions and the effectiveness of public and private institutions in
delivering services to farmers are also important factors in market participation. For
example, investments in agricultural R&D, along with the effectiveness of extension and
advisory services in disseminating appropriate technologies and practices, will have an
impact on productivity, farmers’ choice of crops and varieties, and whether smallholders
have a surplus available to market. Smallholder farmers’ access to markets also depends
on the effectiveness of farmer organizations, access to finance, and risk management
instruments.
A growing body of empirical evidence indicates that a household’s private assets are also
key determinants of market participation, even after controlling for public goods and
policies.29 Households with better initial endowments of assets (such as access to land and
higher levels of human capital) are likely to be in a better position to take advantage of
changing market opportunities. Privately held assets such as land can be an important
source of collateral, influencing a producer’s access to credit for purchasing inputs or
investing in post-harvest infrastructure.
In OIC member countries that are still agriculture based, the vast majority of smallholders
that have marketable surpluses are not part of structured value chains. They usually sell
their surpluses to village traders or in local spot markets. Marketing is often hindered by
poor access to roads and transport facilities, lack of access to financing, and limited access
to updated information and technology. Typically the vast majority of smallholders have
29 Donovan and Poole (2014).