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Rural market imperfections and the role of institutions in collective action to improve markets for the poor

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  • Bekele Shiferaw
  • Gideon Obare
  • Geoffrey Muricho

Abstract

Many countries in sub‐Saharan Africa have liberalized markets to improve efficiency and enhance market linkages for smallholder farmers. The expected positive response by the private sector in areas with limited market infrastructure has however been very limited. The functioning of markets is constrained by high transaction costs and coordination problems along the production‐to‐consumption value chain. New kinds of institutional arrangements are needed to reduce these costs and fill the vacuum left when governments withdrew from markets in the era of structural adjustments. One of these institutional innovations has been the strengthening of producer organizations and formation of collective marketing groups as instruments to remedy pervasive market failures in rural economies. The analysis presented here with a case study from eastern Kenya has shown that marketing groups pay 20–25% higher prices than other buyers to farmers while participation was also positively correlated with adoption of improved dryland legume varieties, crops not targeted by the formal extension system. However the effectiveness of marketing groups is undermined by external shocks and structural constraints that limit the volume of trade and access to capital and information, and require investments in complementary institutions and coordination mechanisms to exploit scale economies. Successful groups have shown high levels of collective action in the form of increased participatory decision making, member contributions and initial start‐up capital. Failure to pay on delivery, resulting from lack of capital credit, is a major constraint that stifles competitiveness of marketing groups relative to other buyers. These findings call for interventions that improve governance and participation; mechanisms for improving access to operating capital; and effective strategies for risk management and enhancing the business skills of farmer marketing groups.

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  • Bekele Shiferaw & Gideon Obare & Geoffrey Muricho, 2008. "Rural market imperfections and the role of institutions in collective action to improve markets for the poor," Natural Resources Forum, Blackwell Publishing, vol. 32(1), pages 25-38, February.
    • Handle: RePEc:wly:natres:v:32:y:2008:i:1:p:25-38
    DOI: 10.1111/j.1477-8947.2008.00167.x
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    3. Biggeri, Mario & Carraro, Alessandro & Ciani, Federico & Romano, Donato, 2022. "Disentangling the impact of a multiple-component project on SDG dimensions: The case of durum wheat value chain development in Oromia (Ethiopia)," World Development, Elsevier, vol. 153(C).
    4. Malvido Perez Carletti Agustina & Hanisch Markus & Rommel Jens & Fulton Murray, 2018. "Farm Gate Prices for Non-Varietal Wine in Argentina: A Multilevel Comparison of the Prices Paid by Cooperatives and Investor-Oriented Firms," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-14, January.
    5. Manda, Julius & Khonje, Makaiko G. & Alene, Arega D. & Tufa, Adane H & Abdoulaye, Tahirou & Mutenje, Munyaradzi & Setimela, Peter & Manyong, Victor, 2020. "Does cooperative membership increase and accelerate agricultural technology adoption? Empirical evidence from Zambia," Technological Forecasting and Social Change, Elsevier, vol. 158(C).
    6. Maria Costanza Torri, 2012. "Innovative Farmer Institutions and Market Imperfections," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 21(1), pages 59-90, March.
    7. Abraham, Mathew & Verteramo Chiu, Leslie & Joshi, Ekta & Ali Ilahi, Muhammad & Pingali, Prabhu, 2022. "Aggregation models and small farm commercialization – A scoping review of the global literature," Food Policy, Elsevier, vol. 110(C).
    8. Kumar, Avinash & Kumra, Rajeev & Singh, Ramendra, 2022. "Base of the pyramid producers’ constraints: An integrated review and research agenda," Journal of Business Research, Elsevier, vol. 140(C), pages 115-129.
    9. Clifton Makate & Arild Angelsen & Stein Terje Holden & Ola Tveitereid Westengen, 2024. "Smallholder access to purchased seeds in the presence of pervasive market imperfections and rainfall shocks: panel data evidence from Malawi and Ethiopia," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 12(1), pages 1-28, December.
    10. Kampmann, Willi & Kirui, Oliver Kiptoo, 2021. "Role of Farmers’ Organizations in Agricultural Transformation in Africa: Overview of Continental, Regional, and Selected National Level Organizations," Working Papers 309358, University of Bonn, Center for Development Research (ZEF).
    11. Bernard, Tanguy & Dänzer, Pia Naima & Frölich, Markus & Landmann, Andreas & Viceisza, Angelino & Wouterse, Fleur, 2021. "Building trust in rural producer organizations: results from a randomized controlled trial," Agricultural and Resource Economics Review, Cambridge University Press, vol. 50(3), pages 465-484, December.
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