Many developing countries are reforming the way agricultural products are marketed. Reforms aim to reduce the direct role of the state whilst developing an efficient privately run marketing system in its place. What role should the state play in enabling private markets to work? Researchers from the University of Birmingham collaborated with four other institutions to investigate this question. Their work forms part of an ongoing multi-country research programme into the role of government in liberalizing economies . The report explains why some states in Africa and elsewhere are reluctant to withdraw from agricultural markets, and suggests ways of strengthening the private sector.

The role of the state in the marketing of agricultural products is often far greater than economic theories recommend. In theory the state should act only if the market fails to be an effective system. Effectiveness requires accurate information, adequate physical infrastructure (transport, storage and communication), and appropriate legal and financial rules. However governments have intervened in markets in the past to ensure adequate supplies of basic foods, and to stabilise prices.

Some state policies have favoured urban consumers at the expense of farm workers, and have had counter-productive impacts on agriculture. This control has often been achieved through Public Marketing Agencies (PMAs). Such institutions can become large, inefficient bureaucracies despite their statutory purpose of encouraging agricultural development. There are however significant differences between countries in terms of the level and standard of marketing services provided by the state. At one extreme, Zimbabwe and India continue to exemplify a high standard of provision by the state. At the other (for example in most countries in the Horn of Africa), the state now provides very few marketing services.

Many countries are now shifting from state control of agricultural marketing towards creating the right conditions for private markets to work. This shift is in line with economic adjustments being made more broadly within most sectors of the economy. Even so, significant progress in this transition has been slow to emerge. Reasons behind this lack of progress were identified as:

• Reluctance on the part of governments to relinquish control over basic food markets.
• Resistance to change on the part of PMAs and similar official institutions that can command weighty political influence.
• Weakness in terms of competence and unwillingness to take on new functions, on the part of private sector players.
• Complexity of dividing powers between the state and private sectors in the face of fluctuating prices and local conditions.
• Run-down or overly bureaucratic state-run organisations at many levels in several countries undergoing change.

Most efforts to reform public agencies such as PMAs have been made in Africa. Up to now the results have been discouraging. Instead, reform programmes encourage governments to contract private companies to supply agricultural marketing services, such as managing reserve stocks. Support is also given to the private sector to improve marketing information, training and insurance.

The report advises policymakers to:

• avoid over-ambitious plans to change the agricultural sector
• improve essential public services such as infrastructure
• boost private sector confidence by including the private sector in policy discussions
• improve local marketing skills by funding training courses
• support the development of an appropriate legal framework of safeguards over food supplies and pricing
• promote credit markets to finance local traders
• recognise that governments can ensure food security without retaining direct control over food marketing.

Source(s):
Agricultural Marketing Sector Review. The Role of Government in Adjusting Economies, Green Series Paper No. 6. International Development Department, School of Public Policy, The University of Birmingham, M. Hubbard and M. Smith (1996)

Funded by: ESCOR, Department for International Development (DFID), UK (1994 -1997)

id21 Research Highlight: 1998-May-29

Further Information:
M. Hubbard
School of Public Policy
The University of Birmingham
Edgbaston
Birmingham
B15 2TT
UK

Tel: +44 (0)121 414 4985
Fax: +44 (0)121 414 7164
Contact the contributor: R.A.Batley@bham.ac.uk

The International Development Department of the School of Public Policy, University of Birmingham, UK