Smallholder market integration: review of basic concepts and implications for pro-poor policies. © FAO: http://www.fao.org

1. Pedro Arias
Trade and
Markets
Division
FAO
SMALLHOLDER
MARKET INTEGRATION:
REVIEW OF BASIC CONCEPTS
AND IMPLICATIONS FOR PRO-POOR
POLICIES
ADVANCED TRAINING OF TRAINERS
HANOI, VIET NAM
JUNE 2016

2. Smallholder farmers

3. What new risks are created by market integration that affect
smallholder farmers?
WHAT IS OUR QUESTION?
“Ultimately, the definition of smallholder farmer varies according to the question being
raised”
Example of a key question: which one is worse (risky), having high or low staple food prices?

4.  It´s about blending at least one of the following:
 the old with the new,
 the small market with the bigger one,
 the formal market with the informal,
 the imperfect with the perfect,
 the semi-subsistence farmer with the commercial,
 the market close to us, with another further away
 What new risks are created?
 Which are the policy options?
WHAT IS MARKET INTEGRATION?

5. First dimension: market formalisation
 Informal (tacit), semi-formal, highly codified
Second dimension: market functionality
 Degree of market imperfection
HOW ARE MARKETS CHANGING?

6. THREE THOUGHTS ON MARKET
FORMALISATION
• Formalisation and functionality are not synonyms
• Formalisation is inevitable
• Formalisation has nothing to do with pro-poor
Sustainable value chains = functioning markets
Does market formalisation always contribute to market
functionality?

7.  Where to focus support
 Efficiency or non-efficiency objectives
 Picking winners vs conducive environment
 What type of support
 Direct (subsidy) vs indirect support
 When to provide support
 The dynamic perspective: where is the market today?
POLICY CHALLENGES

8.  Identify the hazzards
 Identify who may be harmed and how
 Find out the probability of occurrence
 Find out degree of damage if it happens
 [Probability * damage] and do a ranking
 Can we prevent the worst from happening?
 How can smallholders be (ante/post) protected?
 What can GOV do to protect them?
 How much would it cost?
RISK ASSESSMENT: GUIDING QUESTIONS

9.  Who is left out? (exclusion risk)
 Is price an issue? (input/output price risk)
 Is delivery guaranteed? (production risk)
 Is malfeasance a possibility? (institutional risk)
 Are the rules of the game likely to change? (policy
risk)
POTENTIAL HAZZARDS (RISKS) RELATED TO
MARKET INTEGRATION

10. EXAMPLE OF POLICY IMPLICATIONS:
SMALLHOLDERS AND MODERN VALUE CHAINS
The Contract Cycle
 1st Stage: Where? Choice of geographical area
 2nd Stage: Who? Choice of farmer by industry
 3rd Stage: Why sign? Decision by farmer
 4th Stage: Help! Honouring the contract

11.  Defining price volatility
 Does price volatility matter?
 Volatility and social unrest
 Price transmission: domestic and world commodity markets
 At home: food items vs food baskets
PRICE VOLATILITY

12. BEWARE OF A CHANGING PARADIGM
“Development” VS “Transformation”
IMPLICATIONS FOR PRO-POOR POLICIES

13.  Diversification of rural economies;
 Reducing reliance on agriculture;
 Market integration;
 Urbanisation;
 Increasing dependence on trade;
 Cultural change !
 How does “pro-poor” relate to all this ?
TRANSFORMATION