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Agricultural Markets and the Rural Poor I have just completed a draft paper on "Agricultural Markets and the Rural Poor" with two colleagues at IFPRI. To contribute to the DFID electron consultation, I will summarize it here. I'll be happy to send a copy of the full paper to anyone requesting one (<address removed>). The draft paper examines multiple aspects of the linkages of poor rural households to national and international markets and how to improve these linkages to sustain improved rural livelihoods. Supportive government investments and well-functioning private and public market institutions, together with foresight in the design of agricultural policies, are required to take advantage of market opportunities to sustain increased agricultural output and raise rural incomes. We highlight two overarching questions faced by policymakers and the research that is needed to address these questions: 1) how can innovative public and private roles to create infrastructure and institutions be enhanced to reduce internal transaction costs and risks and to diversify sources of livelihood to benefit smallholders, and 2) how can multilateral disciplines be strengthened to create international market opportunities. The conceptual framework of the analysis focuses on these issues as they affect three "rural worlds" being discussed recently in the OECD POVNET group on agriculture. Agricultural production of the most marginalized poor farmers (denoted rural world 3) is primarily for self-consumption. These farmers are living at a subsistence level and lack market access or the physical and human assets to compete successfully in market production. A second group of smallholders (rural world 2) are engaged at least marginally in production for domestic or international markets, or might become so if propitious conditions were created by well-designed policies. A third group of smallholders (rural world 1) are globally-competitive, market-oriented producers of cash crops. The key constraints that need to be addressed to enhance market participation differ among these three groups. But the basic issue is to increasingly integrate smallholder farmers into markets at the domestic local, sub-national and national levels and at the international bilateral, regional and multilateral levels. The efforts to do so will take many forms. Examples relevant to the three rural worlds are discussed in the paper. In linking the poor to markets at the national level, we emphasize the roles for the public and private sectors in creating the infrastructure and market institutions needed to lower transaction costs and risks and enhance income-generating opportunities for the three rural worlds. There is significant evidence relating rural capital-intensive infrastructure that links smallholders to markets to poverty alleviation and provision of a more equitable set of opportunities for rural citizens. Evaluations of benefits and costs are needed to rank alternative investment options and assess their complementarity. Policies also need to be designed to foster institutional innovations to enhance infrastructure investments in those rural areas where costs, lack of information, or risks prevents private initiatives from being undertaken. Institutions, defined as the rules of the game and the players, also play multiple roles strengthening markets for agricultural commodities and production inputs. Appropriate roles of government and the private sector need to be defined to maximize benefits to smallholders from such innovations as vertical integration of domestic or international supply chains for food. At the international level, disciplines on agricultural support and protection policies are at the center of the WTO Doha Development negotiations. Regional trade agreements are proliferating. Overarching policy issues are whether agriculture will be brought more fully under liberalized trade rules through either of these venues and how the outcomes will affect the rural poor. One dimension of the possible disciplines are their effects on food aid: the subsidy component has been criticized, but food aid also provided emergency relief and can protect the poor from long-term vulnerability to short-term shocks. Attention needs to focus on how the effectiveness of food aid can be maximized and its potential harms mitigated. Agricultural trade opportunities are also increasingly affected by technical regulations and standards, simultaneously with domestic markets seeing growth of vertically integrated firms. In each case, the technical regulations and standards pose challenges to market participation by smallholders just as high-value demands are creating potential new income streams. Assessments are needed of the costs associated with meeting domestic and international standards and how benefits derived from international guidelines for regulation can be enhanced. Our analysis supports a multi-dimensional agenda to address the constraints that keep markets from serving the rural poor and to enhance their participation in the domestic and global economy. Key policy issues and research needs are identified for effective policy design of domestic infrastructure and institutional development and for the performance of international agricultural and food markets. Complementary analysis is also needed addressing a wider set of markets affecting the poor, particularly those for labor, credit and land. David Orden Senior Research Fellow Markets, Trade and Institutions Division International Food Policy Research Institute 2033 K Street N.W. Washington D.C. 20006-1002 USA Phone: 202 862-8160 Fax: 202 467-4439 Email: <address removed> www.ifpri.org ============================================================= To send a reply to this message that goes to all list members, make sure that you send your reply to <address removed> To unsubscribe from this list, send an email to "<address removed>", with the message body: unsubscribe global-trade <your-email-address>
Please visit dfid-agriculture-consultation.nri.org.