The Future of Smallholder Farming in Eastern Africa - Uganda ...

Grain Marketing in Addis Ababa, Ethiopia
1. INTRODUCTION
Following decades when the state was widely assumed to be central to any development
effort, the development community advocated a move away from state intervention in
economic activity and a freeing of markets. The aim has been to unleash the creative forces of
private entrepreneurship, in particular within smallholder agriculture and indigenous trading
systems. A substantial effort in development policy analysis focused on “getting prices right”
within the broader framework of structural adjustment programs (SAPs).
The production response to liberalization was, however, somewhat disappointing in Sub-
Saharan Africa. The reasons for the lack of adequate response can be classified into three
main groups (Dorward, Kydd, and Poulton 1998). The first explanation is that reform
measures rarely went far enough to achieve the desired impact. The “market optimists–state
pessimists” such as the World Bank (1994) argued,
A top priority for reform in Africa is to increase competition through domestic
deregulation, trade reform and the privatization of public enterprises. For example,
marketing boards should be abolished, public enterprises privatized and import
restrictions replaced by tariffs
A second explanation for the apparently disappointing response to market liberalization was
that the African private sector had only weak potential to provide the services previously
provided by state organs. The “market pessimists” noted that the observed vitality of smallscale,
informal sector activity was insufficient evidence to prove the existence of private
entrepreneurs who could assume roles of national economic importance—for example, in the
marketing of staple foods to feed rising urban populations. Private traders, often
discriminated against and harassed for decades, did not possess the managerial skill, business
experiences, or capital to move straight into large-scale activity. In many places, indigenous
entrepreneurs had never fulfilled these roles, even prior to Independence. Rather, these roles
had been carried out by ethnic minorities, such as South Asians and Lebanese. One of the
aims of nationalist, post-independence governments had been to prevent such groups from
achieving economic dominance, given the weakness of indigenous entrepreneurs.
Besides this ethnic angle, there were other reasons why private enterprise alone might be
reluctant to take on some of the former activities of parastatal organizations. In rural areas,
for example, smallholders are often geographically dispersed, roads and communications are
poor, and the volume of business is insufficient to encourage private service provision.
Moreover, services such as research and extension have clear public good properties, which
will tend to discourage private sector involvement. There are, in other words, high
probabilities of market failure in key liberalized markets. Other services, such as wholesale
grain trade and some agricultural processing operations, exhibit significant economies of
scale, such that, even where private operators provide services, the market may not be
competitive and prices offered to farmers may be depressed because the traders are very
small.