Agricultural markets play a key role in the lives of poor people in developing countries. More than half the population in developing regions (58 percent) and more than three-quarters of the poor—defined as those living on less than US$1 per day—live in rural areas where agriculture typically constitutes 50–90 percent of household income. As a result, the development of efficient agricultural markets has a large impact on the economic opportunities of rural households. Rural households, however, are subject to a number of constraints that make their participation in the market both costly and risky, often leaving them “unconnected.” This brief summarizes these constraints and examines policy interventions to address them.
Enabling farmers to sell their crops provides significant benefits: when constraints are removed, farmers can earn more by specializing in crops for which they have a comparative advantage and purchase commodities that are relatively costly for them to grow. Indeed, those who produce mainly for their own consumption are the poorest, while those who are well integrated into markets and specialize in a smaller number of crops are better off. Cases where commercialization coincides with the loss of farmer income certainly exist—as in the Philippines, where expanded sugarcane production meant that tenant farmers lost access to land for maize production—but in most cases markets provide opportunities for smallholders to improve their incomes and livelihoods. Higher income and/or nutritional status has been associated with the adoption of commercial farming in Guatemala (vegetables), Malawi (tobacco), India (dairy), and Kenya (sugarcane).