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« Making agricultural markets work for the undernourished population »
A recent report by the World Food Program (WFP) entitled “Hunger and Markets”, proposes 10 market-based actions to compensate for its failures, as well as to find a way to make it serve the interest of poor and undernourished populations.
The recent economic and financial crisis has sounded the death knell of neo-liberal ideology as the best and only way to organize trade. Today, there is a genuine and gradual realization of the fact that the markets remain widely marked by imperfection, uncertainty, and risks that are becoming increasingly difficult to insure.
This official report best applies to the food and agricultural sector than anywhere else. The agricultural markets have always been subject to price hyper-volatility, which affects producers as well as consumers, and does not encourage the development of local agriculture, which is vital to food security in developing countries. Consequently, in keeping with the latest 2009 World Food Program report, “Hunger and Markets”, many other reports also illustrate the importance of rectifying market imperfections with appropriate regulatory measures.
The challenge is, therefore, to reconcile the economic objectives of the market with the fight against world hunger. It is in this respect that we recommend reading the latest WFP report, which tries hard to determine the precise actions required to correct the failures of the market, without unduly restricting it. The WFP sums it all up with the expression: “markets where possible, governments when needed” – a desire that is close to momagri’s objectives.
Here, we present the introduction of Chapter 9 of the report entitled “Making markets work for the hungry poor”, which aims to respond to the main questions which form the foundation of any corrective state intervention measure in the market. These are: why, how and what actions should be taken by states to ensure that the market serves the interests of the poorest people as well? The 10 measures proposed by the WFP to correct the market are also listed at the end.
Momagri’s Editorial Board
Chapter 9.
« Making markets work for the hungry poor »
, Introduction
“The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”
John Maynard Keynes, 1926
There are moments when markets provide the best playing field for the hungry poor to sustain their livelihoods and safeguard food security. However, government actions are often necessary to manage vulnerability and address food insecurity, and always desirable to guide and discipline markets, particularly during the first stages of economic and agricultural development or in transition situations1. One of the key ingredients for China’s remarkable progress in reducing poverty was that “China did not make the mistake of believing that freer markets called for weakening [state] institutions… It is plain that the combination of sound policy-making practices with strong state institutions was a key factor in China’s success against poverty. And it is also clear that the two ingredients are complements, not substitutes”2. However, inadequate actions can be worse than no action, and there are often trade-offs. Markets, market failures and interventions
Why intervene in markets?
Markets “fail” for several reasons: externalities, market power, public goods and imperfect information. If markets send incorrect price signals to producers, traders and consumers, these groups are likely to misallocate scarce resources, thus contributing to food insecurity. Actions to enhance market functioning may prevent or mitigate the effects of market failures and improve households’ access to food, local food availability and, in some cases, food utilization.
As well as addressing market failures, there are other motivations for intervening in markets, including fighting hunger, improving political support, stabilizing prices and ensuring domestic food self-sufficiency. Even Adam Smith, the father of the free market argument, “did not hesitate to investigate economic circumstances in which particular restrictions may be sensibly proposed, or economic fields in which nonmarket institutions would be badly needed to supplement what the markets can do”3. During 2007 and 2008, governments implemented a wide range of policies to dampen the impact of high food prices.
However, just as interventions can alleviate market failures, they can also cause distortions that have negative impacts on decisions concerning short- and long-run resource allocations. Governments need to strike a balance. A “need to pay attention simultaneously to efficiency and equity aspects of the problem remains, since equity-motivated interference with the working of the market mechanism can weaken efficiency achievements even as it promotes equity” 4.
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Who should take action?
Nowadays, state involvement is generally smaller than and different from what many development economists argued for in the 1950s, but it is nonetheless critical. Rather than being directly involved in producing goods and services, governments have an important role in implementing constructive policies, creating a regulatory environment, developing institutions and providing public goods.
Governments have access to numerous policy levers. They set tariff rates, implement trade policies, and establish expenditure levels and exchange rate regimes. All these measures have impacts on national and international food availability. Actions to improve food security locally and nationally can have consequences for regional trading partners and, in some cases, international markets. Governments may not have the capacity to act effectively, however, and their interferences may fail, or weaken markets5. udgetary shortfalls, lack of information or capacity, internal shortcomings and corruption may all limit the efficacy of government actions.
Although non-governmental organizations (NGOs), the private sector and other actors, such as United Nations agencies, may not have direct access to national policy levers, they can influence local or regional markets and advocate for government policy changes that may eventually enhance food security, such as lifting trade barriers. Beyond this, the private sector has applied innovations that have improved access to various markets and products6, such as contract farming and making durable and affordable mobile phones accessible to illiterate people.
The role of non-state actors in development has increased dramatically in recent decades as a result of globalization, technological innovations and political and economic liberalization. For example, public–private partnerships have become increasingly prominent in recent years, partly because the markets versus- governments divide has evolved into a markets-and-governments approach. Public–private partnerships have become particularly important in the fields of nutrition, microfinance and market information systems. Opportunities are plentiful.
Public–private partnerships recognize that many of the world’s problems are too big, too complex and too interdependent for one actor to solve alone and that actors can be more effective when they join forces. Various forms and divisions of labour among partners exist regarding financing, risk sharing, standard setting and production. Critical factors for success include common objectives and indicators against which joint performance can be measured, clear roles, expectations, capacities and decision-making among all partners, and open communication and accountability.
Governments are still ultimately responsible for ensuring food security and the right to adequate food, but they can be more effective if they work with partners. Where national governments are unable or unwilling to ensure food security, the international community can assist.
How to take action in markets
Actions depend on the contexts and capacities of local markets and households. Policies may be relatively easy to define, but they can be executed in numerous ways, leading to very different outcomes. Some incentives are directly operationalized in food markets; others indirectly influence complementary markets and even non-market arenas. Direct actions that modify the supply and prices of food can address access, availability and utilization failures. Indirect actions in complementary markets include strengthening markets, adjusting trade policies, supporting access to agricultural inputs and improving purchasing power through minimum wage laws and access to credit. Such actions are “indirect” because their impact on food security tends to emerge through the improved performance of market forces. Safety net programmes to enhance food utilization/access are often important components of food security strategies and can be targeted to reach needy households.
A single action may have impacts on several aspects of food insecurity. In particular, actions to strengthen markets through improved infrastructure, institutions and competition may simultaneously improve access, availability and utilization. In other cases, several policy levers may need to be coordinated to nudge markets to respond and to ensure that households receive what they need.
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Market-based priority actions
Action 1: Take market dynamics into consideration for sound hunger alleviation initiatives.
Action 2: Support markets through investments in institutions and infrastructure.
Action 3: Improve access to complementary markets.
Action 4: Use the power of markets to transform market dependency into opportunities.
Action 5: Reduce market-based risks and vulnerabilities, and safeguard markets.
Action 6: Invest in social protection.
Action 7: Invest more in nutrition, and differently in agriculture.
Action 8: Ensure that trade supports food security.
Action 9: Engage domestic and international actors in the fight against hunger.
Action 10: Create and leverage knowledge.
1 Timmer, CP., 2008. Rural changes stimulate rising giants. Science, 321(5889). Posted at: www.sciencemag.org/cgi/content/summary/321/5889/642
2 Ravaillon, M., 2008.
Are there Lessons for Africa from China’s Success against Poverty? Policy Research Working Paper No. 4463. Washington, DC, World Bank. Posted at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1080478
3 Sen, A. 2000. Development as Freedom. New York, Anchor Books.
4 Ibid.
5 Barrett, C.B. 2002. Food security and food assistance programs. In B.L. Gardner and G.C. Rausser, eds. Handbook of Agricultural Economics. Amsterdam, North Holland.
6 Mendoza, R.U. & Thelen, N. 2008. Innovations to make markets more inclusive for the poor. Development Policy Review, 26(4): 427–458.
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