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

• a legal, regulatory, and enforcement authority to ensure stability of returns and justify
investments in new technology;
• a formal system of grades and standards to reduce transaction costs and eliminate one
major source of dispute between sellers and buyers;
• an agricultural marketing development council to find solutions to the various
problems of the central market through participation of all stakeholders;
• an association of regional traders, brokers, and other participants to lobby for more
public investment and legal protection;
• an agricultural marketing research institute to collect and analyze market information;
and
• market information to reduce risk in producing and handling grain.
A well-functioning legal and political framework for market activity is critical given the
conditions of market failure and the imperfect information system. Strengthening the
regulatory capacities of the state and establishing the various market institutions would
ensure modernization and specialization in wholesaling, retailing, and brokerage activities.
Second, the system of price discovery favors the buyer, especially at times of surplus
production. There is downward pressure on prices at all levels of the market chain, and the
ultimate loser is the producer (the small farmer). This has been the case partly because traders
do not have the financial resources and storage facilities to buy when prices are low and sell
when prices are higher. Moreover, market prices have never favored small rural producers,
who have no political power. According to the pluralist view of policy formulation,
governments do not pursue transcendent (inspiring) social interests; rather they respond to
private demands. Public policy is regarded as an outcome of political competition among
organized groups. Organized urban consumers press for low-priced food, while rural
producers demand higher prices. Since the cost of organization for farmers is high, pricing
policies adopted in Africa are not favorable to farmers (Bates 1990). The bargaining power of
farmers in Ethiopia needs to be strengthened through the formation of farmers’ unions at all
levels (from district to national level), and various associations representing different group
of producers must be encouraged. Marketing cooperatives should also be encouraged as part
of the effort to empower small producers.
Third, there is a need to improve the marketing system at the central grain market.
Introducing trading based on organized exchange or auction would greatly improve the
efficiency of the market. A futures contracts market, which specifies the minimum grade that
must be delivered in fulfillment of the contract at some future date, would transform the
marketing system. The existing spot or cash market has imposed significant transaction costs
and created enormous uncertainty.
Fourth, the marketing facility at the central market is overcrowded and extremely unsuitable
for regional traders. The regional traders have access to the marketplace only three days each
week and for only three hours on each day. It would be appropriate to create a separate center
and adequate space for regional traders so that they can operate for the whole day and at least
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