This brief reviews the extensive evidence on agricultural market reforms in Sub-Saharan Africa and summarizes the impact reforms have had on market performance, agricultural production, use of modern inputs, and poverty. It offers eight recommendations for completing the reform process and developing a new agenda for agricultural markets in Sub-Saharan Africa.

Delgado, Christopher L.

Gabre-Madhin, Eleni Z.

Johnson, Michael

Kherallah, Mylène

Minot, Nicholas

English

Research Papers in Economics

THE ROAD HALF TRAVELED
Agricultural Market Reform in Sub-Saharan Africa
INTERNATIONAL
FOOD 
POLICY RESEARCH
INSTITUTE
Mylène Kherallah
Christopher Delgado
Eleni Gabre-Madhin
Nicholas Minot
Michael JohnsonIn the late 1970s many African countries faced a serious
fiscal crisis. Failing industrial sectors, stagnating
agricultural sectors, declining commodity prices, and
climbing trade deficits had severely compromised the
potential for economic growth.The crisis forced many of
these countries to accept much-needed structural
adjustment and stabilization programs
under the guidance of the International
Monetary Fund and World Bank.The
reform programs sought to reverse
balance-of-payments deficits and
declining growth rates. Because of
the importance of agriculture in Sub-
Saharan Africa, agricultural market
reforms occupied a central place in these
liberalization efforts.
The agricultural reform measures were designed to do
four things: (1) eliminate government control over input
and output prices, (2) reduce exchange rate
overvaluation; (3) eliminate regulatory controls over
input and output marketing; and (4) restructure public
enterprises and reduce marketing board involvement in
agricultural pricing and distribution.The expectation was
that improving price incentives for farmers and reducing
government intervention in the agricultural sector would
be enough to generate a sizable supply response and
allow well-functioning markets to emerge quickly.
Almost two decades later, the general consensus is that
the reform programs in Sub-Saharan Africa have not met
expectations.Average annual growth rates of per capita
gross domestic product and agricultural value-added have
been negative throughout the 1980s and 1990s. Economic
performance has trailed that of other developing regions.
At the beginning of the 21st century, Sub-Saharan Africa
confronts a number of daunting problems: extensive
hunger, malnutrition, poverty, resource degradation, and
the spread of AIDS. Because the majority of the region’s
population remains dependent on agriculture for its
livelihood, well-functioning and efficient agricultural
markets continue to be key to improving 
Sub-Saharan Africa’s economic health.
The reform experience has differed from country to
country and sector to sector, depending on a variety of
factors—among them the stance of prereform policies
and the degree of government commitment to reform.
But some common themes have emerged in terms of
successful implementation and the overall effect on
agricultural production and income growth.
Reforms were often partial and commonly
reversed. Lack of government commitment to full
market liberalization, fear of disturbing existing patron-
client relationships, and concern over losing important
sources of public revenue were some of the factors that
stymied reform programs. In Senegal, for example, the
government struggled to maintain control over the
processing and marketing of groundnuts, its primary
generator of export earnings.
In Malawi, fertilizer subsidies that were to be phased out
in the mid-1980s were reinstated when the currency was
devalued and transport routes through Mozambique were
cut off.The government eventually eliminated subsidies in
1995–96.
Reforms have increased competition and reduced
marketing margins. In most countries where reform
has taken hold, market liberalization has significantly
increased trader entry in food crop, export crop, and
fertilizer markets. Greater competition and increasingly
cost-effective private-sector trading have lowered
marketing margins and improved market efficiency.As a
result, farmers are receiving a greater share of the retail
or export price, and in many instances real consumer
prices have declined.
A
n extensive review of research findings on
agricultural market reforms in Sub-Saharan Africa
reveals that reforms have had mixed results and not
been fully implemented. Policymakers need to overcome
constraints to further reform and build on what has already
been achieved. Eight recommendations offer priorities for
completing the reform process.
Compliments of CGIAR
AFRICA   TODAY
NEED FOR REFORM
IMPACT OF THE REFORMSGrain markets remain risky, informal, and cash
based. High transaction costs—including costs of
obtaining market information, searching for buyers and
sellers, and enforcing contracts—and limited access to
credit have kept grain markets risky, personalized, and
cash based.This has made it difficult for private traders 
to make long-term investments in transportation and
storage. Consequently, cereal grain prices in Sub-Saharan
Africa remain highly volatile compared with other
developing countries. On the other hand, vertical linkages
in export crop markets that connect multinational
traders to domestic traders have helped the latter 
get credit for purchasing crops from farmers.
Export crop production has responded more
positively than food crop production.The larger
supply response of export crops is due mostly to two
effects of liberalization: the shift of relative agricultural
prices in favor of tradable goods, an outcome that has
generated higher returns for producers of tradable
goods, and the greater profitability in using imported
inputs on export crops rather than on food crops.
Fertilizer use has declined in many countries.
The disappearance of subsidies and the devaluation of
currencies have caused fertilizer prices to rise. Fertilizer-
crop price ratios have increased as
a result, particularly for
nontradable crops such as
maize.The higher cost of
fertilizer has reduced 
use in many countries
and on many crops,
especially on maize in
Southern Africa. In
general, fertilizer use in
Sub-Saharan Africa
remains strikingly low.
On average, 9 kilograms of
nutrient are used per hectare 
of arable land, compared with 
107 kilograms for all developing countries.
Access to extension and credit for inputs have
declined.Where state-sponsored credit systems 
have collapsed, farmers have found it harder to 
get access to credit.The private sector has not been
able to provide credit to farmers because of its inability
to enforce loan payment.Access to extension services
has declined because governments have cut public
expenditure in the agricultural sector.
The impact on crop yields has been disappointing
in general. Crop yields under reforms have been 
mixed but generally disappointing. Many countries have
experienced either marginal increases or even decreases
in yield.
Reforms have increased the income 
of small export growers but have 
had mixed impact on poor farmers.
Devaluation and export market
liberalization have increased the 
income of small export growers by 
20 percent on average, although the
magnitude has varied greatly by country
and crop.The effect of the reforms on poor
farmers, on the other hand, has been both
negative and positive, depending on the net food situation
of farmers, the remoteness of their location, and the
extent and effectiveness of state intervention before the
reforms. Farm households in remote areas are often
worse off than they were before the reforms, because 
of the elimination of uniform nationwide prices that
subsidized transport costs and the reduction of
noncommercial procurement by parastatals.
The evidence from Sub-Saharan Africa overwhelmingly
indicates that improving price incentives for farmers was
a necessary measure, but it was not enough to boost
agricultural production. Nor have reforms properly
transferred structural and institutional functions
performed by the state to the private sector. In many
cases, the vacuum left by government withdrawal could
not be filled by the private sector because of prohibitive
risks, high transaction costs, lack of access to information,
and absence of contract and property rights laws. In
general, the agricultural sector’s response to reforms 
has been constrained by the following: deficiencies in
research, extension, transportation, and communications
infrastructure that were neglected during reform;
inadequate legal and other regulatory infrastructure 
having to do with contract enforcement, quality control,
and property rights, and the lack of good governance in
general; absence of fully implemented reforms; and
exogenous factors such as drought, disease, and war.
Further progress in developing well-functioning markets
will require not only further liberalization, but also a
more concerted effort to go beyond the withdrawal of
the public sector from agricultural marketing.The state
must assume a new, supportive role as market facilitator.
One aspect of this role is to strengthen investment in 
public goods such as infrastructure, research and
extension, and public market information. The second is
to foster institutions required for the development of 
REMAINING CONSTRAINTS
NEW AGENDAINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
2033 K Street, NW,Washington, DC 20006-1002 USA
PHONE  001-202-862-5600  •  FAX 001-202-467-4439
EMAIL ifpri@cgiar.org  •  WEB www.ifpri.org
competitive and efficient markets.The new agenda for
market development in Sub-Saharan Africa includes the
following priorities:
1. Fully implement market liberalization.Where
reforms are partial and the government is still playing an
active role in production and marketing, liberalization
should be fully implemented. Market performance
improves and marketing costs fall when the government
no longer monopolizes trade and a competitive private
sector emerges.
2. Provide input credit to farmers. Input and 
output markets should be linked and contracts enforced
in order to make credit available to farmers.The needed
institutional frameworks for these actions include traders’
associations, contract farming, group lending, and farmers’
organizations.
3. Develop a legislative infrastructure.A legislative
infrastructure helps to enforce contracts and reduce
exchange risk and transaction costs for both farmers and
traders. It includes regulations and laws that deal with
property rights, contracts, investment, market conduct,
and an official grading and quality control system
(especially for export crops).
4. Promote smallholder production of export
crops. Export crop production has positive spillover
effects on input use and food crop productivity, increases
access to markets, and has beneficial impacts on the food
security and income of smallholder farmers.
5. Invest in transportation, research, extension,
and communications infrastructure. Investment
needs include transportation and communication
infrastructure to strengthen markets and reduce
marketing costs, research to develop appropriate crop
varieties, extension services to spread technology and
improve farm productivity, and timely public market
information to help stabilize markets.
6. Promote effective governance and monitor
market development. Proper governance can help
eliminate rent-seeking behavior, improve the public
sector’s capacity to monitor market development, reduce
risk, and increase confidence among producers and
consumers.
7. Provide safety nets to support vulnerable
groups. Farmers and consumers in remote rural areas
have suffered from the loss of parastatal activity and
official price-setting, both of which effectively subsidized
high transportation costs. Short-term targeted
interventions are needed to support these groups.
8. Maintain credible and sustainable
macroeconomic policies. Stable, predictable policies
are key to successful liberalization because of their
importance in mobilizing savings and investment, fostering
private-sector activity, and providing accurate and
transparent incentives for consumers and producers.
This brief is based on a forthcoming book by Mylène Kherallah,
Christopher Delgado, Eleni Gabre-Madhin, Nicholas Minot,
and Michael Johnson.A more extensive overview of the book’s 
findings has been published as a food policy report with the 
same title.The food policy report can be downloaded at
www.ifpri.org/pubs/pubs.htm#fpr.
Alison Slack/IFPRI

The road half traveled

http://www.ifpri.org/sites/default/files/publications/ib2.pdf

The road half traveled

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics