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



These will accelerate both private and public response to supply gluts and shortages in the short
run and help farmers and traders plan investments more effectively in the long run. The timely
dissemination of market information can also help policymakers monitor the evolving effects of
market liberalization better, identify problems that require mid-course correction, and respond to
impending supply fluctuations in a more timely way. Such an approach also includes more public
support for the development of fledgling commodity exchanges, which have the longer-run
potential to improve the dissemination of market information, reduce search costs to link buyers
and sellers substantially, and lower supply and price risks through forward contracting and
hedging.

5.5 Coordinate Policies and Investments to Gain Complementary Benefits from Higher-
Valued Cash and Food Crop Production

In many areas of Africa, successful introduction/promotion to smallholders of high-valued cash
crops can have strategic spillover benefits that stimulate the same farmers’ food crop output (e.g.,
cotton in Burkina Faso, Mali and Mozambique). High-valued crops can attract a range of input
and output marketing services into a region. While originally intended to meet the needs of cash
crop producers, these delivery systems also tend to increase the availability of inputs for food
crops. Also, revenue from cash crop sales can help to capitalize farmers and finance household
investment in animal traction equipment and other inputs that also promote both cash and food
crop productivity improvements. Other important policies to stimulate cash and related food-crop
output involve clear rules and implementation of these so as to create incentives for foreign
private investments in agribusiness and processing activities.

5.6 Increase Business Skills Training and Related Support for Grass-Roots Farmer
Organizations

While the benefits of existing farmer organizations have derived mainly from reducing the
transaction costs of acquiring and repaying credit through group schemes, these benefits can be
potentially extended into a broader range of input and output marketing activities. For example,
in Mali, such organizations handle most of the bulking and initial grading of cotton and the
management of local savings and loan associations. Future roles for farmer organizations include
greater involvement in the gathering and dissemination of market information, the diffusion of
technical advice, and the bulking of farmer surpluses to facilitate smallholder participation in local
and regional markets, thereby opening up a number of market-oriented mechanisms for reducing
the risks of price and supply instability.

Moreover, there are very different economies of scale at various stages of the food system.
Multinational firms may have certain advantages in international trade (acquiring fertilizer and
other inputs, hedging on futures markets, having a wider trade portfolio to reduce risks) and
accessing technologies from around the world. But given the small size of most African markets,
such large firms are likely to have substantial market power and may not have incentives to pass
on all these benefits to smallholders. The development of strong farmer groups may mitigate the

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