IFPRI Report
Volume 20, Number 1
February 1998
Commentary
Agricultural Market Reform in Sub-Saharan Africa
The independence movements in Sub-Saharan African countries in the 1950s and 1960s generated rising hopes that broad-based prosperity would ride in on the tide of socialism then fashionable in the developing world. Consequently, a regime of state-owned enterprises known as parastatals, accompanied by a vast array of government rules and regulations, proliferated in the agricultural markets of Sub-Saharan Africa. But two decades of experimentation with this development strategy produced only stagnation and frustration. A vision for a change of course first formulated by the World Bank in 1981 and articulated in “An Agenda for Action” was followed by extensive macroeconomic and sectoral reforms known as structural adjustment programs. What is the current state of market reform in Sub-Saharan African agriculture? Does the current strategy of privatization hold out hope for the economic future of Africa?The International Food Policy Research Institute has recently completed a multicountry research project on agricultural market reforms in Benin, Ghana, Madagascar, Malawi, and Senegal. These and similar studies provide a basis for making some definitive statements on market reform in Sub-Saharan Africa. (Macroeconomic reforms, though relatively successful, are not considered in this short commentary.) The standard regime for reform of agricultural markets has focused on elimination of subsidies, privatization of public parastatals, and deregulation of various controls on markets imposed during the era of socialistic policies. Ostensibly the purpose of these reforms is to develop a competitive market environment for the supply of agricultural inputs and outputs.
However, market reform experiences to date have not been as positive as one would have liked. In some cases, public subsidies on agricultural inputs and outputs have been substantially reduced and parastatals have been rendered ineffective. In other cases, direct subsidies have been eliminated but have re-emerged in indirect forms, partially offsetting the effects of reform and retaining some of the roles of parastatals. Deregulation has opened the door for private traders, but numerous problems must be solved before they can grow. Problems in the agricultural input markets have been worse than those in the output markets. Without government participation in the distribution of fertilizer—the key agricultural input in the nutrient-poor soils of Sub-Saharan Africa—the use of fertilizer has atrophied, particularly on small farms and in remote locations. Farmers growing export crops have managed to obtain fertilizer, often with the help of special organizations set up for that purpose.
Poor performance in market reform can be attributed to three factors: institutional weaknesses, lack of political commitment, and weaknesses in the design and implementation of reform plans. Calamities—natural and manmade—and ethnic considerations have often reinforced vested interests and dulled the political enthusiasm for reform.
A partial approach to reforms is hardly an effective means of promoting the entry of private traders. Where countries have maintained a significant state presence in the marketing system, often reserving lucrative segments of the market for parastatals and allowing private traders the rest of the market, this dyarchy of private and public trade has weakened the credibility of the reform process, discouraged the entry of private traders, and inhibited investments by traders in the market.
Another serious implication of the coexistence of public and private trade is its effects on economies of scale and associated marketing costs. African markets are generally thin, and public–private coexistence further reduces the scope of private trade. This means that economies of scale in marketing cannot be exploited in order to reduce the high cost of marketing in Africa. Take transport of goods as an example: the cost per kilometer for hauling goods long distances is always lower than the cost per kilometer for short distances. Before liberalization of trade, parastatals provided long-distance transport and private enterprises did short-distance hauling. When trade was liberalized and parastatals withdrew, private enterprise moved into long-distance transport as well. The average cost per ton per kilometer decreased. With liberalization, markets also became more accessible and integrated, which increased price stability across regions.
Market reform often engenders a feeling of helplessness in governments, but in fact governments have an important new role to play in monitoring reforms. Such monitoring institutions should focus not only on tracking the progress of reform and detecting emerging problems, but also on formulating institutional solutions to the probable emergence of concentrations of market power in the hands of a few traders.
Although progress in market reform has been slow and sometimes chaotic and the number of success stories limited, the direction of change is correct. Instead of reversing direction, the countries of Sub-Saharan Africa should continue the process with intensity, care, and tenacity. A major challenge to the development of competitive markets lies in creating positive conditions for private entrepreneurs to enter the market. Once the right conditions prevail, entry will be brisk.
Raisuddin Ahmed
Raisuddin Ahmed is director of the Markets and Structural Studies Division of IFPRI.
