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

5. LOOKING TO THE FUTURE: STRATEGIES TO STRENGTHEN THE
PRODUCTIVITY OF THE FOOD SYSTEM

A major goal of food policy is to reduce costs throughout the food system and promote structural
transformation. This will involve technical innovation. One should not conclude that Africa is
failing to utilize much of the agricultural production and marketing technologies being utilized in
many other parts of the world because these technical processes are inherently inappropriate in
Africa. Rather, their adoption is constrained in some way by incompatibility with the current
structure of incentives and institutions. Identifying the rules of the game restricting productive
investments and those providing increased security for private investment and innovation
represent low-cost, high-return public investments. What is least-cost depends upon the situation,
including the political support for development.

The most obvious constraint on development is the lack of resources (broadly defined). It is clear
that productivity can be increased by improving transportation and communication infrastructure,
public health, education, research, extension, improved legal and police services etc. Even a
country committed to private enterprise and markets has to make choices, and that amounts to at
least an implicit strategy. Part of the strategy in making the transition to a more productive
economy is to focus early on the low-cost, high-pay-off investments. To make an enterprise
system work, investing in developing the details of the rules of the economic game and a strategy
for public investments needs to be at the top of the list.

Refocusing the debate from economic liberalization to economic development within a market-
oriented system will require increased attention to the institutional details of the political
economy. These institutional details, by defining rights, costs, and the incentives of market
participants, influence the patterns and rate of trade and investment that evolve. Market
institutions thus influence both monetary and transaction costs, and hence the supply and demand
conditions in the market. If the set of regulations does not adequately reduce uncertainties and
transaction costs, then markets break down or fail to develop. Economic activity remains
characterized by semi-subsistence production, with low volumes of trade and low levels of
economic specialization. A low proportion of production is traded in markets that may be
allocatively efficient but unable to reduce the risks and costs of investing in more productive
technologies and specialized production patterns. The goal of policy should not focus so much on
eking out remaining efficiency gains from existing technology. Rather, it should concentrate on
changing the incentive structure to maximize the rate of investment in new productivity-enhancing
technology that achieves broad-based increases in living standards.

With the reality of fiscal restrictions facing most African countries, there will be increased
emphasis in the foreseeable future on developing financially sustainable means of reducing the
risks in the agro-food system. Such an approach will require increased reliance on market-
oriented mechanisms that exploit potential gains from local, regional and international trade. But
economists will need to get beyond simply prescribing free markets, and become more specific
about which set of institutions should be promoted within a market economy. As stated by
Bromley (1997, p.17), “there is no such thing as the market. Rather, there are infinitely many

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