Improving the Impact of Market Reform on Agricultural Productivity in Africa: How Institutional Design Makes a Difference



can be especially serious in landlocked areas that fluctuate from grain surplus to grain
deficit according to weather conditions, and face high transport costs to other regional and
international markets.

In spite of the strong rationale for moderating extreme price fluctuation, the marketing
board "buyer and seller of last resort" approach has not emerged as a successful model in
the prevailing market environment. First, this system exposes the state to larger trading
deficits in a liberalized market environment than in a strongly controlled one if floor and
ceiling prices are not constantly adjusted according to prevailing market conditions
(Kangasniemi et al. 1993; Pinckney 1993). In several cases marketing board deficits
actually increased after the reforms were initiated (Jayne and Jones 1997). Second,
stabilization schemes have impeded private investment in the marketing system by
dampening spatial and temporal price variation and by the unpredictable and uneven
implementation of these schemes. Third, there remains an unresolved conflict between the
marketing boards’ commercial objectives (implying a withdrawal from unprofitable
activities) and their social objectives (implying engaging in unprofitable activities that the
private sector will not undertake, such as the “buyer and seller of last resort” approach in
remote areas to stabilize prices). The failure of the policy process in the post-reform
period to separate the boards’ social functions (including price stabilization) from their
commercial activities has often resulted in the boards taking steps to improve their
financial trading account in ways that exacerbate market uncertainty rather than reduce it.

Moreover, macroeconomic policies such as devaluation can increase the average return to
investment (if the farmgate price increase outweighs the increase in cost due to more
expensive imported inputs), but would not alone reduce the variability of returns due to
rainfall instability, and hence reduce the risk of investment (Reardon et al. 1995). Thus
the expected increase in farm investment may not occur. Devaluation could even increase
risk by increasing transportation costs, so that prices in production areas will be
determined locally and thus be more unstable.

2.3 The Challenge

Although there is some evidence that output marketing reforms have been associated with
increases in land and labor productivity at the aggregate level in the countries studied, much of
these increases are due to shifts in crop mix and the geographical location of production rather
than the intensification of existing farming systems (Block 1994; Dioné et al. 1996; Savadogo,
Reardon, and Pietola 1995). Crop mix shifts have often been toward crops whose output markets
were not liberalized (e.g., cotton in Burkina Faso, peanuts in Senegal, coffee in Rwanda).

However, this does not imply that cash cropping incentives have not benefitted from marketing
policy reform in key subsistence crop sectors. Jayne (1994) and Goetz (1993) have shown that
the ability to ensure reliable and low-cost food for rural households
as purchasers of food is an
important determinant of their ability to diversify into higher-valued nonfood crops. And the
evidence across Africa indicates that food marketing reform has indeed reduced marketing costs
for consumers (Staatz and Dembélé 1992; Sasaki 1995; Jayne et al. 1996; Asfaw and Jayne 1997).

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