Markets and Policies for

Improving the Food Security and

Incomes of Poor African Farmers

Joachim von Braun

April 5, 2004

Overview

I. Conceptual Framework: On

Markets, Institutions, and Policies

II. Poor African Farmer Within and

Without Markets: Developments,

Opportunities, Constraints

III. Implications for Policy and

Research

On Markets and the State

• Market: “the organization that coordinates the production of goods and services through voluntary transactions”

• State: “an organization for monopolizing legitimate coercive power. … coordinates peoples activities according to set rules and regulations” (Hayami 1997)

Markets do not work without State, and

States do not without Markets

African Market and Government Failures are linked

Role for Institutions in Markets

Reducing Transactions Costs

Managing Risk

Building Social Capital

Enabling Collective Action

Redressing Missing Markets(Orden, Gulati, Torero 2004)

Broad Concept of Agricultural Markets Beyond the Supply Chain

State Roles for (not in) Markets

Rule of Law and Enforcement of Contracts

Taxation, Fiscal, Exchange Rate Policies

Human Capital and Science Policy Investment

Infrastructure and Information

Insurance and Risk management and Safety Nets

Roles for Other „Informal”

Institutions

Africa is rich in institutional diversity

Social capital and trust-building to circumvent market failures

Offer opportunities to participate in markets (e.g. overcoming small scale)

Cooperation without cooperatives

Optimizing market institutions must take these other institutions into account

Poor African Farmers Operate in

Agricultural and Many Other Markets

Land Markets +

Off-farm Labor Markets ++++

Credit Markets ++

Crop and Livestock Output and Input

Markets +++++

Risk and Insurance Markets +

Failures in one market affect all

Agricultural Markets Through a Poor

Farmers Supply-Chain Lens

Resources „Markets‟

Input Markets

Output Markets

Processing Markets

Retail MarketsFinancial Markets -- Insurance Markets --Labor Markets

Problem of weak elements and disconnected chain

Overview

I. Conceptual Framework: on Markets and Related Policies

II. The Poor African Farmer Within and Without Markets: Developments, Opportunities, Constraints

III. Implications for Policy and Research

The Food and Nutrition Security

Situation

1. Bad trends

2. Worse than expected

3. Regional diversity

4. Increased vulnerability to Market

shocks (HIV/AIDS,…)

5. Scope for hope due to less wars

Increasing Food Insecurity (FAO 2003)

0 10 20 30 40 50 60 70 80 90

Central Africa

East Africa

Southern Africa

West Africa

Millions

1999-2001

1990-1992

Food Insecurity Worse than Expected (Source: Smith, forthcoming)

0

10

20

30

40

50

60

70

80

90

Ugan

da (1

999)

Ken

ya (1

997)

Tanza

nia (2

000)

Guinea

(199

4)

Gha

na (1

998)

Moz

ambiqu

e (199

6)

Rwan

da (2

000)

Zambia

(199

6)

Bur

undi (

1998)

Eth

iopia

(1999

)

Malaw

i (199

7)

Perc

en

t o

f p

eo

ple

foo

d e

nerg

y d

efi

cie

nt

Household Consumption Survey Based Estimate

Country Food Availability Based Estimate

Local Risk Factors:

Child Malnutrition in Africa, 1990s

Farm Size Holdings, SSA (FAO, various years, 1990s

59%

21%

13%

7%

0%

10%

20%

30%

40%

50%

60%

70%

< 1 ha 1- 2 ha 2- 5 ha 5 ha and

above

% o

f T

ota

l H

old

ing

s

In Agriculture and Other Markets:

Income Sources of Farmers(Sources: von Braun and Pandya-Lorch 1991; Reardon 1997)

1980s 1990s

Country % Off-Farm

Income

Country % Off-Farm

Income

The Gambia 15 Namibia 56

Burkina Faso:

Sahelian Zone

72 Malawi 34

Burkina Faso:

Sudanian Zone

25 Zimbabwe 31

Rwanda 62.9 Rwanda 30

Kenya 48 Mozambique 15

African Markets in a Global

Context

Old Global Risks Coming Back?

Africa in International Trade

Regional African Trade

World Grain Production, 1960-2003

500

700

900

1100

1300

1500

1700

1900

1960 1965 1970 1975 1980 1985 1990 1995 2000

millio

n t

on

s

Land Productivity: Stagnant Cereal Yields (Source: WDI, 2003)

0

500

1000

1500

2000

2500

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

kg

/ha

Sub-Saharan Africa

World

World Grain Stocks, 1960-2003

0

100

200

300

400

500

600

700

1960 1965 1970 1975 1980 1985 1990 1995 2000

millio

n t

on

s

Wheat International Price(US No.2, Soft Red Winter Wheat , Delivered US Gulf ports (Tuesday))

90

100

110

120

130

140

150

160

1998 1999 2000 2001 2002 2003 2004

U$S

/To

n

SSA‟s Share of World Agricultural

Exports (Source: Diao et al 2003)

0.0

5.0

10.0

15.0

20.0

25.0

1970 1975 1980 1985 1990 1995 2000

%

Total ag exports

6 traditional crops

Africa Most Globalized:

Trade as % of GDP (Source: WDI 2003)

0

10

20

30

40

50

60

70

1990 1992 1994 1996 1998 2000

% o

f G

DP

Sub-Saharan Africa

South Asia

Latin America & Caribbean

High Regional Tariff Rates in SSA (Source:

World Economic Prospects 2004)

Agriculture Trade:

SSA to SSA: 33.6% Tariff

SSA to Industrial Countries: 23.6 % Tariff

Industrial to Industrial: 15.3% Tariff

Non-Agriculture:

SSA to SSA- 20.6% Tariff

SSA to Industrial Countries- 4.2% Tariff

Industrial to Industrial Countries: 1% Tariff

Benefits of Global Trade Liberalization for

IMPACT Commodities, 2025

4.6

0.4

5

0

1

2

3

4

5

6

SSA North Africa All Africa

US

$ b

illi

on

Size of Africa‟s Agricultural Markets

(US$Billions) (Source: Diao 2003)

Traditional

Exports to Non-

Africa

8.6

Non-Traditional

to Non-Africa6.1

Other to Non-

Africa1.9

Intra-African

Trade1.9

Domestic 50.0

On Infrastructure and Institutions

Infrastructure and the Basic Geographical

Dilemma: High per capita Costs

Institutions with Infrastructure:

(De-) Regulation, Decentralization

The High “Transactions Costs”

confronting small farmers

Infrastructure: Total Roads Network

(100,000 km) (Source: WDI 2003)

10

15

20

25

30

35

40

45

1990 1995 1999

100,0

00 K

m

Sub-Saharan Africa

South Asia

Latin America & Caribbean

Infrastructure: Mobile Phones per

1,000 people, 1996-2001 (Source: WDI, 2003)

0

5

10

15

20

25

30

1996 1997 1998 1999 2000 2001

tele

phones p

er

1,0

00 p

eople

Sub-Saharan Africa

South Asia

Transactions Costs and Physical Marketing Costs:

Micro-Level Data (Ethiopia: Gabre-Madhin 2001)

Markets search labor cost capital holding cost marketing cost

Surplus 9 6 86

Deficit 14 7 79

Central 17 11 72

percentage of total costs

Issues in TAC: all transactions? Profit margins?

Research issues: e.g. institutional efficiency,

local monopolies

Overview

I. Conceptual Framework: on Markets and Related Policies

II. Poor African Farmer within and without Markets: New Developments, Opportunities, Constraints

III. Implications for Policy and Research

I. Crucial Areas for Pro-Poor

Market Development

Infrastructure Development in

Rural Areas

Ag. Science, Research and

Technology for Small Farmers

Domestic Trade Banking

Market Risk Management

II. More research for building …

a deep micro-level understanding of the

dynamics and structures of market

and non- market institutions, and

their relationship to poverty and food

insecurity of the small holders.

Optimizing across Market and

Non-Market Institutions

Markets across the Agricultural Supply Chain

Factor Markets: Land, Labor, and Capital

Institutions

Land Labor Capital

Intermediate Factor: Fertilizer, Seeds

Outputs: Crops and Livestock

Retail

Market Institutions ? X X X X X

Informal Institutions: i.e., collective action

X ? X X X ?Non-

Market

Institutions

Government Intervention

X X ? ? ? ?

III. Africa‟s Four Big

Market Policy Issues

1. State failure leads to Market

Failure: governance, contracts,

corruption

2. Realistic Policy Road Maps Toward

Market Strengthening Missing

3. Reduction of International and

Intra-Regional Trade Barriers – the

policy forums missing or weak

Big Market Policy Issues (cont.)

4. The Market Response - to - Geography –Time - Bomb:

High unit cost of market access in an environment of small and geographically dispersed actors

Address with infrastructure, institutional innovation and migration

Needed: Centers of rural growth off-coast, connected with infrastructure to coast

small holder market development is an investment in peace and security

In Sum

Recognize: Markets do not work without State (and States do not work without Markets)

Identify: Synergy in Market and Non-market Organizations Serving transactions Relevant for the Poor

Develop: Realistic „Roadmaps‟ for Institutional Innovation for and in Markets Serving Africa‟s Poor Farmers