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Chapter 4 Agricultural markets for increased incomes 143
stable opportunities for smallholder producers in most cases, this does not constitute
the rule. Smallholders need to be in a better position to identify the costs and benefits of
participating in modern and/or traditional, domestic and/or international markets on a
case-by-case basis, and to respond accordingly.
Fourth, reducing risk and transaction costs along value chains is critical for
determining whether or not smallholders can engage profitably in modern
agricultural markets. Strengthening their capacity to organize collectively to participate
in markets more efficiently and reduce the transaction costs to those they do business
with, is a key requirement. Infrastructure is important – particularly transportation
and communication infrastructure and technology, including ICTs – to reduce market
transaction costs and ensure better knowledge of market conditions. Contracts can
help, by managing risk, reducing transaction costs and building trust between
smallholder farmers and agribusiness; and they can also facilitate improved access
to financial services, particularly with input credit, which can help farmers increase
their productivity. The changing engagement of the global corporate sector in
agricultural value chains can play a positive role in this regard. All these factors need to
be part of a more robust public policy agenda to improve the market environment and the
ability of smallholders to engage in it. The precise nature of the agenda, however, needs to
be defined in context, and from a perspective not only of pro-poor market development but
also of economic and institutional sustainability of policies.
Finally, whether or not smallholders can engage profitably and with low risk in
modern agricultural markets also depends on the willingness of the private sector to
engage with them – and vice versa. This is partly a function of the factors just listed,
and partly a function of the possibility of setting up marketing arrangements between
smallholders and other value chain actors that are beneficial and low risk for all
parties. Both of the latter conditions are increasingly, although unevenly, present in
many parts of the world, and in both domestic and international value chains.
However, there is a need for policymakers, civil society organizations, NGOs and donors to
work together and with these market actors in supporting the development of innovative and
sustainable contractual arrangements, in developing complementary and supportive
institutions, in providing adequate incentives around these arrangements, and in
strengthening and replicating those that prove successful.