Markets and Policies for
Improving the Food Security and
Incomes of Poor African Farmers

        Joachim von Braun
      ...
Overview

I.   Conceptual Framework: On
     Markets, Institutions, and Policies

II. Poor African Farmer Within and
    W...
On Markets and the State

• Market: “the organization that coordinates
  the production of goods and services through
  vo...
Role for Institutions in Markets

Reducing Transactions Costs
Managing Risk
Building Social Capital
Enabling Collectiv...
State Roles for (not in) Markets

Rule of Law and Enforcement of
 Contracts
Taxation, Fiscal, Exchange Rate
 Policies
H...
Roles for Other „Informal”
               Institutions
Africa is rich in institutional diversity
Social capital and trus...
Poor African Farmers Operate in
Agricultural and Many Other Markets
 Land Markets +
 Off-farm Labor Markets ++++
 Credi...
Agricultural Markets Through a Poor
 Farmers Supply-Chain Lens

Resources „Markets‟
 Input Markets
    Output Markets
    ...
Overview

I.   Conceptual Framework: on Markets
     and Related Policies

II. The Poor African Farmer Within
    and With...
The Food and Nutrition Security
           Situation
1. Bad trends
2. Worse than expected
3. Regional diversity
4. Increas...
Increasing Food Insecurity                        (FAO 2003)




   West Africa                                         19...
Percent of people
       Ug                              food energy deficient
          an




                          ...
Local Risk Factors:
Child Malnutrition in Africa, 1990s
Farm Size Holdings, SSA                               (FAO, various years, 1990s




                      70%
           ...
In Agriculture and Other Markets:
 Income Sources of Farmers
 (Sources: von Braun and Pandya-Lorch 1991; Reardon 1997)


1...
African Markets in a Global
Context
 Old Global Risks Coming Back?

 Africa in International Trade

 Regional African T...
World Grain Production, 1960-2003



               1900

               1700

               1500
million tons




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



           2500
                       Sub-Saharan Africa...
World Grain Stocks, 1960-2003


               700

               600

               500
million tons




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



        ...
SSA‟s Share of World Agricultural
Exports        (Source: Diao et al 2003)


        %
 25.0

                            ...
Africa Most Globalized:
                 Trade as % of GDP          (Source: WDI 2003)




           70

           60

 ...
High Regional Tariff Rates in SSA                (Source:
World Economic Prospects 2004)



         Agriculture Trade:
  ...
Benefits of Global Trade Liberalization for
   IMPACT Commodities, 2025

              6

                  4.6           ...
Size of Africa‟s Agricultural Markets
(US$Billions) (Source: Diao 2003)

 Traditional       8.6
 Exports to Non-
 Africa
 ...
On Infrastructure and Institutions

 Infrastructure and the Basic Geographical
  Dilemma: High per capita Costs

 Instit...
Infrastructure: Total Roads Network
(100,000 km)               (Source: WDI 2003)



      45

      40     Sub-Saharan Af...
Infrastructure: Mobile Phones per
1,000 people, 1996-2001                                        (Source: WDI, 2003)



  ...
Transactions Costs and Physical Marketing Costs:
   Micro-Level Data (Ethiopia: Gabre-Madhin 2001)


                     ...
Overview

I. Conceptual Framework: on Markets
  and Related Policies

II. Poor African Farmer within and
  without Markets...
I. Crucial Areas for Pro-Poor
     Market Development

 Infrastructure Development in
  Rural Areas
 Ag. Science, Resear...
II. More research for building …


a deep micro-level understanding of the
  dynamics and structures of market
  and non- ...
Optimizing across Market and
      Non-Market Institutions
      Institutions          Markets across the Agricultural Sup...
III. Africa‟s Four Big
       Market Policy Issues
1. State failure leads to Market
   Failure: governance, contracts,
   ...
Big Market Policy Issues (cont.)

4. The Market Response - to - Geography –
   Time - Bomb:
High unit cost of market acces...
In Sum

Recognize: Markets do not work
 without State (and States do not work
 without Markets)
Identify: Synergy in Mar...
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Markets and Policies for Improving the Food Security and Incomes of Poor African Farmers

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April 5, 2004

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Markets and Policies for Improving the Food Security and Incomes of Poor African Farmers

  1. 1. Markets and Policies for Improving the Food Security and Incomes of Poor African Farmers Joachim von Braun April 5, 2004
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. Agricultural Markets Through a Poor Farmers Supply-Chain Lens Resources „Markets‟ Input Markets Output Markets Processing Markets Retail Markets Financial Markets -- Insurance Markets --Labor Markets Problem of weak elements and disconnected chain
  9. 9. 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
  10. 10. 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
  11. 11. Increasing Food Insecurity (FAO 2003) West Africa 1999-2001 1990-1992 Southern Africa East Africa Central Africa 0 10 20 30 40 50 60 70 80 90 Millions
  12. 12. Percent of people Ug food energy deficient an 0 10 20 30 40 50 60 70 80 90 da (1 99 Ke 9) ny a (1 Ta 99 nz 7) an ia (Source: Smith, forthcoming) (2 00 G 0) ui ne a (1 99 G 4) ha na M (1 oz 99 am 8) bi qu e (1 99 Rw 6) an Country Food Availability Based Estimate da (2 00 Za 0) m Household Consumption Survey Based Estimate bi a (1 99 Bu 6) ru nd i( 19 Et 98 hi ) op ia (1 99 M 9) al aw i( 19 97 ) Food Insecurity Worse than Expected
  13. 13. Local Risk Factors: Child Malnutrition in Africa, 1990s
  14. 14. Farm Size Holdings, SSA (FAO, various years, 1990s 70% 59% 60% % of Total Holdings 50% 40% 30% 21% 20% 13% 10% 7% 0% < 1 ha 1- 2 ha 2- 5 ha 5 ha and above
  15. 15. In Agriculture and Other Markets: Income Sources of Farmers (Sources: von Braun and Pandya-Lorch 1991; Reardon 1997) 1980s 1990s Country % Off-Farm Country % Off-Farm Income Income The Gambia 15 Namibia 56 Burkina Faso: 72 Malawi 34 Sahelian Zone Burkina Faso: 25 Zimbabwe 31 Sudanian Zone Rwanda 62.9 Rwanda 30 Kenya 48 Mozambique 15
  16. 16. African Markets in a Global Context  Old Global Risks Coming Back?  Africa in International Trade  Regional African Trade
  17. 17. World Grain Production, 1960-2003 1900 1700 1500 million tons 1300 1100 900 700 500 1960 1965 1970 1975 1980 1985 1990 1995 2000
  18. 18. Land Productivity: Stagnant Cereal Yields (Source: WDI, 2003) 2500 Sub-Saharan Africa World 2000 1500 kg/ha 1000 500 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20
  19. 19. World Grain Stocks, 1960-2003 700 600 500 million tons 400 300 200 100 0 1960 1965 1970 1975 1980 1985 1990 1995 2000
  20. 20. Wheat International Price (US No.2, Soft Red Winter Wheat , Delivered US Gulf ports (Tuesday)) 160 150 140 U$S/Ton 130 120 110 100 90 1998 1999 2000 2001 2002 2003 2004
  21. 21. SSA‟s Share of World Agricultural Exports (Source: Diao et al 2003) % 25.0 Total ag exports 20.0 6 traditional crops 15.0 10.0 5.0 0.0 1970 1975 1980 1985 1990 1995 2000
  22. 22. Africa Most Globalized: Trade as % of GDP (Source: WDI 2003) 70 60 50 % of GDP 40 30 20 Sub-Saharan Africa 10 South Asia Latin America & Caribbean 0 1990 1992 1994 1996 1998 2000
  23. 23. High Regional Tariff Rates in SSA (Source: World Economic Prospects 2004) Agriculture Trade:  SSA to SSA: 33.6% Tariff  SSA to Industrial Countries: 23.6 % Tariff  Industrial to Industrial: 15.3% Tariff Non-Agriculture:  SSA to SSA- 20.6% Tariff  SSA to Industrial Countries- 4.2% Tariff  Industrial to Industrial Countries: 1% Tariff
  24. 24. Benefits of Global Trade Liberalization for IMPACT Commodities, 2025 6 4.6 5 5 US$ billion 4 3 2 1 0.4 0 SSA North Africa All Africa
  25. 25. Size of Africa‟s Agricultural Markets (US$Billions) (Source: Diao 2003) Traditional 8.6 Exports to Non- Africa Non-Traditional 6.1 to Non-Africa Other to Non- 1.9 Africa Intra-African 1.9 Trade Domestic 50.0
  26. 26. 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
  27. 27. Infrastructure: Total Roads Network (100,000 km) (Source: WDI 2003) 45 40 Sub-Saharan Africa South Asia 35 Latin America & Caribbean 100,000 Km 30 25 20 15 10 1990 1995 1999
  28. 28. Infrastructure: Mobile Phones per 1,000 people, 1996-2001 (Source: WDI, 2003) 30 Sub-Saharan Africa 25 South Asia telephones per 1,000 people 20 15 10 5 0 1996 1997 1998 1999 2000 2001
  29. 29. Transactions Costs and Physical Marketing Costs: Micro-Level Data (Ethiopia: Gabre-Madhin 2001) percentage of total costs Markets search labor cost capital holding cost marketing cost Surplus 9 6 86 Deficit 14 7 79 Central 17 11 72 Issues in TAC: all transactions? Profit margins? Research issues: e.g. institutional efficiency, local monopolies
  30. 30. 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
  31. 31. 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
  32. 32. 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.
  33. 33. Optimizing across Market and Non-Market Institutions Institutions Markets across the Agricultural Supply Chain Factor Markets: Land, Intermediate Outputs: Retail Labor, and Capital Factor: Crops Land Labor Capital Fertilizer, and Seeds Livestock Market Institutions ? X X X X X Non- Informal X ? X X X ? Market Institutions: Institutions i.e., collective action Government X X ? ? ? ? Intervention
  34. 34. 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
  35. 35. 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
  36. 36. 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

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