Food and Agricultural

Policy Analysis
By
Horace Phiri, PhD

Lecture (6)
Today plan
• Concepts in marketing
• Marketing policy objectives
• Marketing policy instruments
• Marketing policy analysis
Concepts in marketing
• Marketing plays dual role
• Transmission of price signals between producers and consumers e.g.
increase in demand raises prices and commodities and such information
gets to producers
• Physical movement of commodities from farmer to consumer which
has three dimensions time, space and form
• Time – consumers are able to buy at different time from its harvest time
• Space – Different location
• Form – different form e.g. maize flour instead of maize grain
Market margins
• The overall difference between the purchase price of a commodity by
consumers and its sale by producers
• The market margin covers all three dimensions of marketing
• It includes transportation, processing and storage costs plus agent
profit
Objectives of marketing policies
1) To protect farmers or consumers from parasitic traders
• According to this view the market margin is wider under typical
systems of private trade than would be under a competitive market
system or a state run system
• 2) To stabilize or increase farm gate prices
• Output price policies designed to stabilize or increase producer prices
may require marketing interventions to achieve their aim. For
instance fixed price prices can only be implemented if all produce is
sold through same channel
• 3) To reduce market margins
• Linked to the first objective
• The state may intervene to narrow the gap between consumer and
producer prices
• 4) To improve quality and minimum standards
• The aim is to raise quality of farm output especially for export crops
which confront rigorous quality norms in international markets
• 5) To increase food security
• Private traders take advantage of foreseen food shortages the hoard
grain for speculative purposes. This worsens the food shortage. The
government has to intervene to avoid detrimental effects of this
behaviour
Marketing policy instruments
• Monopoly parastatals
• Non Monopoly parastatals
• Farmer cooperatives
• Trader licensing
• Instruments to improve market conduct and performance
• Instruments to improve market structure
Monopoly parastatals
• All government owned institutions that represent some form of
monopoly control over one or other stage of the marketing system.
• It includes marketing boards that widely prevalent in developing
countries e.g FMB, ADMARC up to 1989
• In some countries the boards are also responsible for extension,
research, credit provision
Non Monopoly Parastatals
• This include a wide range of institutions that provide one channel but
not the only channel
• The predominant form is the state buffer stock authority e.g National
Food Reserve Agency (NFRA) or modern day ADMARC
• The task is to implement floor and ceiling prices for major grains
• There many ways that these institutions use but the basic aim is to
keep prices within an acceptable range
Farmer cooperatives
• Marketing cooperatives are usually found in conjunction with
parastatals systems.
• Their task is to undertake primary procurement (rural assembly) for
onward delivery to licensed processors or to designated parastatals
e.g. Milking Bulking Groups in the past
• Sometimes its compulsory for all farmers in a particular location to
belong to a designated cooperatives
Trader licensing
• Where the state does not take direct marketing responsibilities
• It can control private traders by licensing designated enterprises
• e.g. In Malawi to engage in commodity trading you need a licence
issued by MoAFS
• The threat is the loss of licence if the trader is perceived not to be
doing what the government wants.
Instruments to improve market
conduct and performance
• There are three distinct type of instruments
1) Provision of information to market system participants e.g.
Agricultural Communication Branch
2) Regulatory functions setting and enforcing quality standards e.g.
Seed unit
3) Provision of market facilities such as auction rooms, retail and
wholesale markets e.g. Auction Floors
Instruments to improve market
structure
• Increasing participation and reducing barriers to entry.
• Instruments fall into two categories;
1) Substitution of private trade by state marketing agencies or vice
versa or introducing parastatals e.g. Malawi Leaf
2) Support the functioning of private trade with minimal state
intervention
Policy Analysis of market systems
• The performance of marketing system is subject to routine monitoring
and analysis in developing countries
• Price data is collected especially of staple foods
• Analysis of price and margin data follows the space, time, and form
dimensions of marketing system
• That is you learn about the functioning of a market system by looking
at trends in prices and margins for different locations, different times
of the year and different commodities
Typical analyses – Price and Margin
Seasonal price trends
• The variations between the different times of the year reflect the
functioning of storage activities
• If variations are larger in one part of the country than another then
you need to analyze structural differences
• If variations are getting larger over the years the either private storage
is becoming less competitive or public stabilization efforts are
becoming less effective
Spatial price trends
• This corresponds to space dimension of marketing
• Differences in margins for place which vary in distance from the
market should be reflective of the transport cost differences
• Variations may be dampened or eliminated by a pan territorial price
policy
• Inspection of spatial price information for same crop in different
location can reveal the working of a marketing system or effectiveness
of state marketing policies
Overall market margins
1) Seasonal variation of margin reflect efficiency of storage functions
2) Variation in viability of different institutions operating within the
same market margin
• For instance public agencies maybe making losses where private traders are
making profit but both buying and selling at same price
3) Variation over time – this can reflect competition in the market
END