(Alemu and Jayne 1997).12 Analysis shows that better managing of food aid and
facilitating regional and international trade could reduce the price instability (Tschirley and
Weber 1996).
• High market risks and ineffective coordination depress incentives to invest in
productivity-enhancing technology. When the market environment is risky (e.g., because
of uncertainty over future government actions), traders and potential marketing agents do
not perceive it to be profitable to invest in developing either reliable markets or inputs for
small farmers. The poverty trap is reinforced. Markets remain thin and risky. Each
participant works hard in his or her own perceived interest, prices are more or less
competitive, but the aggregate consequences are much less production and consumption
than the system could provide with greater specialization and improved coordination.
Uncertainty and transaction costs limit trade and investment, particularly investments with
high sunk costs, and reinforce subsistence production patterns. The rate of technical
change and productivity growth is not simply a function of available technology, but
equally important are institutions sufficient to reduce the risks and transaction costs of
exchange to make investment in new technology profitable (Boughton et al. 1995). This
is the task currently being faced by the Sasakawa-Global 2000 programs implemented in
several African countries. A major contribution of the SG-2000 programs has been to
demonstrate that smallholder food production can grow rapidly if given a conducive set of
incentives, including access to a viable technical package, credit, and management
information. However, the SG-2000 experiments have also demonstrated the transience
of such growth if input delivery, credit access, and output markets cannot be coordinated
in a sustainable manner (Putterman 1995). Greater attention to the institutional details and
coordination mechanisms and their interactions with technology is crucial to develop
markets so that they act as a catalyst to farm technology investment and productivity
growth.
Such coordination will become even more critical as research information becomes more
and more important in the generation of agricultural products. The rising importance of
biotechnology in agriculture is creating a variety of new functions in the vertical system
for applying new scientific discoveries toward practical use in the food and fiber system.
Such applications will require working out intellectual property rights for the product that
balance the need for allowing creators of new material to capture adequate returns to
maintain incentives with the desire to minimize the capturing of windfall profits through
exclusion of competition over the long run (Zilberman, Yarkin, and Heiman 1997). The
competitiveness of African farmers may increasingly depend on the ability of local research
and marketing systems to utilize, adapt and distribute newly engineered agricultural
material. An important implication for research is that social scientists and technical
scientists need to work together from the beginning in the design and diffusion of
“improved technology” (Staatz 1989; Reardon 1989; Boughton et al. 1995).
12 For a similar analysis for Mali, see Staatz, Dioné, and Dembélé (1989).
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