Markets in Africa: Experiences from Producer Marketing Groups in Kenya

Many Sub-Saharan African countries have liberalized their economies and developed poverty reduction strategies aimed at opening up new market-led opportunities for economic recovery and accelerated growth. The outcomes of these policy reforms have, however, been quite mixed (Winter-Nelson and Temu 2002; Dorward and Kydd 2004; Fafchamps 2004). Many smallholder farmers continue to engage in subsistence agriculture and are therefore unable to benefit from liberalized markets. Structural problems of poor infrastructure (Kydd and Dorward 2004; Dorward et al. 2005) and lack of market-enabling institutions (World Bank 2002, 2003) continue to characterize the subsector, contributing to high transaction costs, coordination failure, and pervasive market imperfections. Moreover, partial implementation of reforms and policy reversals in terms of increasing the use of discretionary trade policy instruments by the state or parastatal marketing boards have tended to mute the positive effects of liberalization (Jayne et al. 2002; Jayne, Chapoto, and Shiferaw 2009). Although the opportunities afforded by liberalization have not been fully exploited, the expectation that removing or rationalizing state marketing boards would open opportunities for the private sector to take over these functions has not been fully realized in many areas. This is mainly because of underdeveloped infrastructure and missing institutions that support the proper functioning of markets. The private-sector traders are unlikely to offer input and output marketing services to smallholder producers in such less favored areas, where market infrastructure or enabling institutions are weak or missing. Lack of such infrastructure and institutions diminishes the incentives for the private sector to invest in agribusiness development and the provision of marketing functions, especially for food staples and other low-value grains produced in these areas. However, avenues exist in market institutions that make use of collective action to complement government and private-sector responses for enhanced coordination in rural commodity markets. This is because the individual marketing of produce may not make economic sense due to small quantities, large spatial distances from input and output markets, and the associated high transportation costs, all characteristics of small-scale production in Sub-Saharan Africa. 5 Rural Institutions and Imperfect Agricultural Markets in Africa: Experiences from Producer Marketing Groups in Kenya