Zero Hunger

Living Edition
| Editors: Walter Leal Filho, Anabela Marisa Azul, Luciana Brandli, Pinar Gökcin Özuyar, Tony Wall

Inclusiveness of Agricultural Markets and Food Security

  • Vesna Mrdalj
  • Hamid El BilaliEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-69626-3_28-1

Synonyms

Definitions

The notions such as inclusiveness, inclusive markets, inclusive agricultural markets, inclusive agricultural value chains, and inclusive agricultural supply chains have been broadly introduced in value chain analyses with aim to improve the competitiveness of different supply channels shifted in direction of increasing possible opportunities for the poor (Altenburg 2007). This shift began in the 1990s, when widespread economic liberalization has opened up the RNFE (rural non-farm economy) to new opportunities and to new threats. Liberalization has reduced direct government involvement in agricultural markets, opened new market opportunities for private sector, and relaxed controls on foreign exchange and foreign investment, enabling foreign direct investment inflow across developing world (Haggblade et al. 2007). According to Haggblade et al. (2007, p. 3), “As a result, large exporters, agribusiness firms, and supermarket chains increasingly penetrate rural economies of the developing world, altering the scale and structure of rural supply chains as they do. These new investments open up opportunities for some rural suppliers to access new markets. But they expose others to new threats by opening up the RNFE to competition from cheap manufactured imports and by imposing quantity requirements and quality standards that risk excluding undercapitalized rural enterprises on which the rural poor often depend.”

Mendoza and Thelen (2008) make a difference between narrower notion of market access and much broader concept of inclusive markets for the poor; “The poor could gain access to markets, but might participate in ways that leave them vulnerable to the side–effects of market failures (for example imperfect information could leave them vulnerable to price manipulation)” (p. 428). According to the same authors, a basic framework for inclusive markets encompasses (1) poor’s access to markets (as consumers or producers), (2) development impact (access by the poor to markets for basic goods and services as well as markets that contribute to their economic empowerment and human development), and (3) financial viability (financial self-sustainability, not necessary profitability).

An information note of EuropeAid (2011, p. 9) includes the following definitions of value chain (VC), value chain analysis, and development of the value chain:
  • Functional definition of value chain: “Value chain describes the full range of activities which are required to bring a product or service from its conception, through the different phases of production (involving a combination of physical transformation and the input of various services), delivery to final consumers, and final disposal after use.”

  • Definition of value chain by stakeholders: “the full range of parties involved, who perform the functions listed above (producers, processors, dealers, distributors, wholesalers, retailers of given product). These chain stakeholders are linked by a series of trade relations which ensure movement of the product from the primary producers to the final consumers” (GTZ 2007).

  • Value chain analysis: “consists in the study of the structure and dynamics of the VC with a view to drawing up a strategy or an approach to VC.”

  • Development of the value chain: “implements of strategy to meet the constraints and/or benefit from opportunities at multiple levels of the VC.”

According to Altenburg (2007) “value chain analysis helps to recognize barriers to entry, to assess risks and opportunities related to different value chains and to identify appropriate strategies for value chain integration which make it possible to achieve pro–poor growth” (p. 22).

In line with the definition of development of the value chain, there are several conceptual aspects of VC analysis and development. One of them is value chain analysis as a tool to combat poverty, whereby “VC analysis was not an instrument intended to combat poverty: it comes from field that aims essentially to maximise profits and retain or increase market share, a very different option from that which generally characterises the production system of the small–scale producers. To adapt it, it is necessary to adopt the idea that is clearly expressed in the premises of GTZ Value Link Manual: the concept of pro–poor growth is based on the conviction that only economic growth and commercial success of the poor are capable of providing a lasting solution to the problem of poverty” (p. 10). Following the abovementioned, in an information note of EuropeAid (2011) is stated the term inclusive development of agricultural value chain with general objectives related to “improving sustainable access by small–scale producers to the markets and increasing the profits that they can obtain from this” (p. 6). Haggblade et al. (2012) highlight that “pro–poor value chain development approaches refer to interventions that aim to overcome challenges and seize opportunities that can benefit the rural poor” (p. 11).

Agricultural value chains involve different stakeholders who play different essential roles within value chain nodes such as farmers/producers, brokers, processors, marketers, importers, buyers, and consumers (EuropeAid 2011). Inclusive agricultural value chains support small-scale producers to access agricultural markets (FAO and INRA 2016).

Beside these concepts, many researchers applied recently the global value chain (GVC) approach, which has proliferated as a novel methodological device for analyzing economic globalization and international trade (Werner et al. 2014; Gereffi 2013; Lee et al. 2010; Fold and Larsen 2008; Larsen 2016). Altenburg (2007, p. 11) points out that “Gereffi coined the global value chain concept (although he used the term “global commodity chains” in earlier studies) on the basis of empirical studies of globalized production of different industrial sectors, including garments, footwear and automobiles.”

Value chains encompass a network of competing vertical supply channels that link input suppliers, farmers, processors, distributors, and final consumers (Haggblade et al. 2012).

Introduction

Different targets of the Sustainable Development Goal (SDG) 2 refer to agricultural markets (Box 1). Besides addressing food price volatility, well-functioning and inclusive markets are of paramount importance to eradicate rural poverty and achieve food security. Markets can also play a vital role in the transition toward sustainable agriculture as they may motivate farmers to adopt more sustainable practices (FAO and INRA 2016).

Box 1 Targets of SDG2 “Zero Hunger” Dealing with the Functioning of Agricultural Markets

Target 2.3. By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment.

Target 2.b. Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round.

Target 2.c. Adopt measures to ensure the proper functioning of food commodity markets and their derivatives and facilitate timely access to market information, including on food reserves, in order to help limit extreme food price volatility.

Source: UN (2015).

Markets refer to places where producers buy agricultural inputs, sell products, and use income for stuff like nonagricultural products (IFAD 2003). Markets can be also viewed as the “collective devices that allow compromises to be reached, not only on the nature of goods to produce and distribute but also on the value to be given to them” (Callon and Muniesa 2005, p. 1229). The main function of markets is the exchanges of value based on context-specific rules that can come from public regulations, civic norms, cultural customs, or private contracts (Callon 1998).

Modern markets “are the markets associated with today’s large scale supermarket retail and wholesale operations. The demand in such markets is for large volume and low price produce that meets stringent quality and safety standards” (Vermeulen et al. 2008, p. 15). The characteristics which distinguish modern from traditional markets are quality and food safety as key drivers of vertical integration, private standards and product traceability, reliability of supply in terms of quality and quantity, formalized contracts, centralized procurement and specialized wholesale and logistics companies, physical infrastructure, and increasing interest in responsible and/or sustainable sourcing aspects linked to corporate social responsibility (CSR) strategies (Vermeulen et al. 2008).

Agro-food markets have been transforming rapidly in the past decades under the confluence of several factors (e.g., policy change, urbanization, dietary changes). This transformation has had implications also in terms of the inclusiveness of these markets to asset-poor categories such as small-scale producers (farmers, processors, traders, sellers) and women.

To understand the relevant issues regarding the inclusiveness of agricultural markets, in this chapter are described processes that influence the dynamics and functioning of agricultural markets, with focus on global drivers and trends, factors that affect access and inclusiveness of markets, competitiveness and access of smallholders to markets, inclusiveness of women in agricultural markets, strategies or innovations to make more inclusive agricultural markets, and policies for fostering agricultural markets inclusiveness and their contribution to food security.

Inclusiveness of Agricultural Markets

Modern markets can provide a lot of opportunities for those who are able to access and successfully participate in them. On the other side, there are many barriers, which limit the poor categories, such as small-scale producers (farmers, processors, traders, sellers) and women across developing countries, to gain access to the modern markets. According to Mendoza and Thelen (2008), many barriers prevent access to markets by the poor, both as producers and consumers: “As producers they can be excluded from labour and various products markets due to lack of access to credit, and limited investment in their human capital (including skills and entrepreneurship training), as well as geographic obstacles, such as their location in remote rural areas. As consumers, they can also find it difficult to engage successfully in markets owing to many of the same geographic factors, compounded by number of other barriers, including the unfamiliarity of many non-poor business actors with the low–income environment and the possible opportunities it offers” (p. 1).

Market failures, compounded with government failures, can be barriers preventing the poor from actively participating in markets (Mendoza and Thelen 2008). Narayanan and Gulati (2002) “... have highlighted structural and institutional factors that result in high transactions costs often constraining the smallholder from exploiting opportunities opened by trade or intensify the adverse impacts” (p. 43). The same authors pointed out several important issues that have been raised in the context of liberalized agricultural markets such as access to modern inputs, credit, insurance, and market information. In case of their limited access by smallholders, they can be barriers to actively participating in markets.

Limited access to modern inputs, credits, insurance, lack of reliable market information, as well as poor quality of physical infrastructure, lack of social infrastructure (literacy, health), limited access of assets, technology, and legislative framework (land ceiling laws, tenancy laws) are constraints for smallholders to access to and participate on market and finally to exploit opportunities opened up by globalizations’ process. To make agricultural markets more inclusive for the poor, it is necessary to remove abovementioned constraints in order to change and improve of smallholders’ environment. In achieving this, the role of governments (cf. institutions and policies) that have to invest in infrastructure and services for farmers to access markets and to ensure policies that encourage agri-food business to work with small-scale producers is very important (Vermeulen et al. 2008). Provision by governments of the necessary asset base and infrastructure, that reduce high transaction costs that constrain smallholders, as well as an appropriate legislative framework, are effective mechanisms to foster their participation in the food industry (Holloway et al. 2000; Delgado 1999; Escobal et al. 2000; Narayanan and Gulati 2002). Smallholders that are vertically integrated with agribusiness sector, organized in producers’ organizations, have access to physical and social infrastructure, credits, insurance, and technology, have market information and benefit from the role played by the government and private business sector, and are in position to capitalize the opportunities that globalization presents (Narayanan and Gulati 2002).

Agro-food market transformation has important implications for rural social inclusion of small-scale farmers. In fact, the pattern of agro-food market consolidation has as a side effect exclusion of different small-scale actors (farmers, processors, traders). Modern agro-food supply chains are more competitive and demanding than their traditional counterparts (IFAD 2016). For instance, there have been some concerns that the structural changes in agro-food value chains (e.g., tightening safety and quality standards) may induce the exclusion of small-scale farmers from contract-farming schemes (Key and Runsten 1999). This market exclusion is a particular challenge for asset-poor and hinterland-based actors (e.g., women farmers) that lack resources as well as financial and technical capacity to participate in modern markets (IFAD 2016). According to Barrett (2008), infrastructure and distance to market are much more influential than trade and macroeconomic policies on small-scale farmer access to and participation in markets. Transformation also creates new opportunities that some small-scale farmers can derive benefits from. In fact, agro-food sector expansion has allowed for involving an increasing number of the poor as workers in processing and logistics activities. Therefore, in general, agro-food market transformation increases rural economy size, even if it may negatively affect some old market occupations (IFAD 2016).

The evidence on the impacts of agro-food markets and value chain modernization on small-scale farmers is mixed (Reardon et al. 2009); processors and supermarkets tend to buy from large-scale farmers, but they also buy from small-scale farms when it is the best option. For instance, exporters and supermarkets might prefer to contract with small farms in case of labor-intensive production with relatively small economies of scale, e.g., fresh fruit and vegetables (Swinnen 2015). Some studies report gains in incomes of small-scale farmers selling to supermarkets or large agro-processors (IFAD 2016). Moreover, it might be even argued that such a market transformation opens up agro-food markets for some of those excluded by old market structure and conduct practices.

Different types of actors are taking on a wider range of roles in linking farmers with markets for their produce (Vorley 2013). These intermediaries are part of local infrastructural and institutional environments and include a range of organizations that provide support for producers. Examples of these innovative institutional arrangements include the participatory guarantee systems (PGS) and farmer field school (FFS). These examples suggest that the strengthening of local institutional infrastructure is important for enabling small producers to access market (FAO and INRA 2016). Institutional innovations can be described as new rules and forms of interactions. They help bringing together actors in food systems who have not traditionally worked together. Doing so, institutional innovations help linking sustainable agricultural practices with markets. Many claim that innovations in the field of institutions are as important as technological/agronomic innovations to support transitions toward sustainable agriculture (FAO and INRA 2016). Policy pressures to urge sustainable agricultural solutions and the rise of consumer demand for “sustainable” products (e.g., organic, fair trade) have created market outlets for sustainable food (FAO and INRA 2016) and led to the development of many forms of alternative agri-food networks (e.g., Goodman et al. 2012). This demand has provided opportunities for some small-scale producers to become included in global value chains for sustainable products (FAO 2014). Many studies show that access to global value chains can incentivize the adoption of good and sustainable agricultural practices. FAO (2014) found that institutional arrangements and innovations were most often the determining factor in whether or not small-scale producers gained access to these markets.

Broadly speaking, inclusion of small-scale producers into modern markets is achieved through value chains. Global and domestic drivers, as well as trends they create, have resulted in increased attention being given to access to modern markets through value chains (Vermeulen et al. 2008).

Processes and Factors Affecting the Agricultural Markets

Previous efforts on value chain analysis were focused more on increasing and improving their competitiveness in agri-food sector (Porter 1998; Hawkes and Ruel 2011; Haggblade et al. 2012). With the beginning of the process of economic liberalization, these efforts centered on making markets more inclusive for the poor, especially in developing countries (Altenburg 2007; Reardon 2007; Haggblade et al. 2012).

A good understanding of the dynamic or evolution of the structure of agri-food sector and agricultural markets requires in-depth consideration of global and domestic drivers, as well as the trends they create. Broadly speaking, drivers are the factors that cause change in value chains and the institutions and policies that affect markets, while trends are the directions of changes caused by drivers (Vermeulen et al. 2008). One of the most important processes affecting the development of agri-food sector and functioning of agricultural markets worldwide, and especially in the developing world, is the process of globalization. Globalization is a multidimensional process, whereby economic dimensions, in first line of trade liberalization, are considered as main drivers of this process. Regarding the agricultural sector, “this process got a shot in the arm with explicit inclusion of agriculture under the Uruguay Round Agreement on Agriculture (URAA)” (Narayanan and Gulati 2002). During the Uruguay Round negotiations, all countries have agreed on inclusion of agriculture in the regime of the General Agreement on Tariffs and Trade (GATT), which implied commitment for reform of policies in agricultural sector. The URAA defined the obligations regarding the market access, reduction of domestic support to agriculture and export subventions. Reforms in these three priority areas of URAA were binding for both developed and developing countries. Apart from defining the rules that led to further liberalization of trade in agricultural products, URAA considered the issues related to non-tariffs barriers, including food safety and environmental protection.

Generally, the process of globalization, precisely of trade liberalization in agricultural products, initiated through Uruguay Round negotiations, has had significant impact on the development of agricultural sector and functioning of agricultural markets in developed and developing countries. More precisely, trade liberalization has had huge impact on all stakeholders, especially on smallholders in value chains of the agri-food sector. There are two important issues regarding the impact effects of the process; price changes with trade liberalization and price volatility. Narayanan and Gulati (2002) argue that “the direct impact of trade liberalisation is usually through change in prices of commodities that have been liberalized – or the impact effect. However, it also triggers a whole range of second–round effects through factor prices, income, investment, employment and demand linkages.” Price volatility is considered as one of consequences of trade liberalization. How much world prices will be transmitted to domestic agricultural markets depends on the level of its inclusion and integration in international markets. According to a policy report on price volatility in food and agricultural markets (FAO et al. 2011), “measures such as import duties, export taxes, non-tariff barriers or domestic policy such as support, all influence the extent to which price changes in domestic markets mirror those on international markets.” Also, there are other reasons for volatility of agricultural commodity markets. One of them are production risks in the form of drought, floods, pests, and diseases causing variation of agricultural outputs from period to period, leading to high degree of price volatility on agricultural markets. The specificity of agricultural production relating to the fact that “production takes considerable time in agriculture, supply cannot respond to price changes in short term, though it can do so much more when the production cycle is completed” (Tangermann 2011:3), causes price volatility on agricultural markets.

Apart from trade liberalization, other factors that have been driving forces of globalization and brought changes in food and agricultural markets, according to Narayanan and Gulati (2002), are Intellectual Property Rights under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the Agreement on Sanitary and Phytosanitary Measures (SPS), and liberalization of capital flows, which led to increase of cross-country investment in agro-food industries and based on it, in part, larger scale of operations and growing concentration in the agri-food chains. Vermeulen et al. (2008) highlighted that “liberalisation has contributed to concentration of market power through expanding horizontal and vertical integration by market players.” Global drivers create certain global (and local) shifts, the so-called meta-trends (Reardon and Barrett 2000; Narayanan and Gulati 2002) urbanization, increase of incomes, population pressure, technological changes, shifts in food consumption patterns, and environmental degradation which significantly affected agroindustry systems worldwide. On the other hand, the main domestic drivers shaping the agri-food sector and markets are foreign direct investment and supportive taxation policies, national trade policies, domestic regulations in food sector, traditional wholesale and retail outlets, and types of retail outlets (Vermeulen et al. 2008).

According to IFAD (2016), transformation of agro-food markets over the last decades was induced mainly by two changes, i.e., policy changes and dietary changes. Policy changes are related to liberalization and privatization processes that reduced state control over markets. To these processes should be added also public investments in infrastructure and market structures. Meanwhile, diet changes were mainly driven by urbanization (urbanization triggered increases in demand for high quality and processed products in urban areas, especially in emerging and developing countries) and income increases, especially in developing countries. Improvement of transport infrastructure and urbanization induced de-seasonalization and spatial lengthening of agro-food value chains. These market changes affected the structure and conduct of agro-food value chains. As for structure change, agro-food supply chains shifted from fragmented and local chains to geographically longer ones. Meanwhile, the importance of traditional traders decreased, while that of urban wholesale markets and modern logistics increased (IFAD 2016). Modern agro-food value chains are organized with increasing vertical coordination levels and increased dominance of multinational agro-food companies (McCullough et al. 2008). In market expansion context, there has been first a proliferation of SMEs then concentration (this process is particularly evident in the retail sector and led to the so-called supermarket revolution in developing countries), consolidation, and “multinationalization” in downstream, midstream, and upstream market segments (retail, processing, wholesale/logistics). These changes profoundly affected food production, processing, wholesale, transport, and distribution. Regarding market conduct change, there has been technology change in food retailing, processing, and logistics as well as the emergence of private quality and safety standards and increase in the use of contracts in market transactions (IFAD 2016). In fact, agricultural and food standards (both public and private, such as Global GAP) have significantly affected global value chains (Henson and Reardon 2005).

Competitiveness of Small-Scale Farmers in Agricultural Markets

According to FAO (2012), smallholders are small-scale farmers, pastoralists, forest keepers, and fishers who manage areas varying from less than 1 to 10 ha. Smallholders are characterized by family-focused motives such as favoring the stability of the farm household system, using mainly family labor for production and using part of the produce for family consumption. Narayanan and Gulati (2002) “characterize the smallholder as a farmer (crop or livestock) practicing a mix of commercial and subsistence production or either, where family provides the majority of labour and the farm provides the principal source of income. It could happen that a considerable number of farmers who fit this description actually possess little land and only a few livestock as compared with the regional average” (p. 17).

Smallholder-dominated systems are home to more than 380 million farming households (with less than five hectares of agricultural land per farming household), make up roughly 30% of the agricultural land and produce more than 70% of the food calories in Latin America, sub-Saharan Africa, and South and East Asia (Samberg et al. 2016).

The increased globalization and trade liberalization influenced the agricultural markets worldwide, especially in developing countries. As put by Altenburg (2007, p. 23), “Liberalization of global markets increases competitive pressure and enhances the role of economies of scale. This has furthered concentration processes, e.g. in manufacturing and retailing.” According to Hazell (2003, p. 105), “The small farmer is increasingly being asked to compete in markets that are much more demanding in terms of quality and food safety, and which are much more concentrated and integrated. These changes offer new opportunities to small farmers who can successfully access and compete in these transformed markets, but they are also serious threats to those who cannot.” One way to overcome the threats and exploit new opportunities, which market change offer, and effectively compete in modern markets is organizing producers in producer organizations. These producer organizations of several types are the major mechanism to link small-scale producers to markets (Vermeulen et al. 2008) and can improve the quality and timeliness of small farmers’ production and their access to services such as agricultural extension, input supplies, credits, and research (Hazell 2003). Producer organizations offer potential for economies of scale, reduce transaction costs, reduce risk in financial transactions, and secure voice to producers in policy design and implementation (Vorley et al. 2012).

Inclusiveness of Agricultural Markets for Women

Inclusiveness of agricultural markets for women is still an issue in many countries. Women play a vital role in food production and processing in many parts of the world despite having limited access to agricultural inputs and services (Ngomane and Sebola 2016). There is a low representation of women in decision-making structures, which makes it difficult for them to have their needs articulated (UN 2009). Women also need access to markets in order to be able to sell their produce. Access to agricultural markets by rural women has the ability to reduce poverty and malnutrition and ensure food security in rural communities (Ngomane and Sebola 2016). Markets are said to be male dominated, and this has a negative impact on the participation of women (Baden 1998). Therefore, it is argued that women play a lesser role than men within agricultural markets and value chains (World Bank et al. 2009).

Most markets especially in rural areas are situated far from home and may entail a lot of traveling. Therefore, most women prefer trading in local markets. The drawback with the localization of women in local markets is that there is often serious competition, which lowers prices and affects profit. Transport infrastructure is crucial in decreasing women isolation from markets by increasing access (World Bank et al. 2009). Women’s low literacy levels hinder access to markets since it makes it difficult for them to understand market information (e.g., consumer preferences, standards and market requirements, marketing strategies). All in all, issues such as the location of markets and lack of transport infrastructure act as barriers for women to access markets on equal footing with men. The lack of access to market information by women, compounded by poor access to agricultural inputs and services, exacerbates the inability of women to access markets.

Ngomane and Sebola (2016) put forward the following recommendations to enable women to participate in agricultural markets: promoting access to extension services to assist women to move from subsistence to commercial farming, promoting gender equitable market information systems that benefit both men and women, formalizing women’s informal businesses, and monitoring and evaluating sex desegregated data in value chains.

Agricultural Markets Inclusiveness and Food Security: Some Policy Interventions

According to Swinnen (2015) “there have been major growth and structural changes in global agri-food value chains with major implications for international trade and food security.” Inclusive development of agricultural value chains makes an essential contribution toward food security, for both rural producers and consumers of developing countries (EuropeAid 2011). Jaud and Kukenova (2011) suggest that agro-food value chains, including high-value agricultural exports, entail the potential to reduce rural poverty and increase rural incomes thus contributing to the achievement of food security in rural areas. Markets affect all the four dimensions of food security (availability, access, utilization, and stability). However, considering the suite of food security indicators (FAO et al. 2014), the impact of the functioning of markets is particularly significant on domestic food price index (see, access dimension of food security) and domestic food price volatility (see, stability dimension).

Agricultural markets and value chains are embedded in broader production systems and affected by a number of general policies (e.g., human capital, technology, competition, SMEs, tax) that shape investment conditions, transaction costs, production factors availability, etc. These conditions strongly influence the behavior of value chain actors, which, in turn, determine the inclusiveness of the value chain. Moreover, there are also specific value chain policies and programs. These policies and programs relate to awareness raising and matching (e.g., subcontracting exchange schemes, supplier fairs, and exhibitions), supporting spillovers from lead firms (e.g., grant schemes for private sector-led initiatives), access to value chain finance (cf. access to credit), promotion of inclusive standards (e.g., labor standards, good agricultural practices), and franchise development (cf. outsourcing of distributional and after sales services). However, it should be highlighted that the inclusiveness of agricultural markets and value chains is also affected by the coherence and coordination of these policies that may have synergies as well as trade-offs. Therefore, it is critical to take the interfaces between policy interventions into consideration (Altenburg 2007).

IFAD (2016) reviews three categories of strategies and policies used to foster the inclusiveness of modern agro-food markets and value chains. The first strategy focuses on increasing equity within the supply chain and includes fair trade, organic agriculture, and short supply chains (cf. direct selling to consumers). Organic and fair trade markets account for about 3.1 million farms in the developing world; there are 1.4 million fair trade farmers in the world, of which 80% are small-scale farmers. In short supply chains, the number of intermediaries between farmers and consumers is minimal or nil (IFAD 2016). These three types of markets (fair trade, organic, short supply chains) often offer more fair and favorable conditions for small-scale producers (Ruben 2008).

The second strategy focuses on linking small-scale farms with large multinational and domestic companies. It is based on contracts with large food retailers and processing companies to source from small-scale farmers (IFAD 2016). In fact, a way through which small-scale farmers in developing countries can benefit from modern agro-food value chains, especially agro-food export, is through contract-farming schemes with overseas companies or domestic exporters (Swinnen 2015). Examples of this strategy include the UTZ certified label, a global multi-stakeholder program led by Walmart, Metro, and other global retailers and processing firms; the Alianzas Productivas (Productive Alliances) approach used in many Latin American countries to promote market access for smallholders; Grow Africa initiative, a joint initiative of the World Economic Forum, the African Union, and the New Economic Partnership for African Development (NEPAD) involving 800,000 small-scale African farmers; and IFAD’s “Four Ps” program (Public-Private-Producer Partnerships in agricultural value chains) that seeks to improve the participation of small-scale farmers in value chains. Endean and Suominen (2014) point out that despite the significant resources invested and the unparalleled capacities of the firms involved in these linkage schemes, collaboration with the private sector has proven to be challenging. Nevertheless, Michelson et al. (2012) show that farmers involved in these linkage schemes benefit through not only better prices but also more access to technology (e.g., contract-farming typically involves input and technology transfers since local producers often lack appropriate access to the required capital, technology, inputs), better risk management, and less market uncertainty. Ion et al. (2014) add that private-public partnerships in the agro-food sector are most effective when used to promote whole sectors or clusters.

The third strategy focuses on using public policy and investment to raise the asset base of small-scale producers in order to allow them to participate in changing domestic markets. Actions include also public procurement initiatives. The importance of this strategy owes to the fact that more than 80% of the world’s small-scale farmers operate in domestic food markets. The success of this strategy depends on the convergence of factors that help upgrading small farms and agro-food firms. Moreover, it is important to enhance transparency and reduce transaction costs of domestic markets as well as to upgrade the market infrastructure (IFAD 2016). It is also crucial to improve the bargaining power of small-scale farmers, e.g., by supporting the creation and development of farmers’ organizations (Biénabe et al. 2011). In fact, consolidation and vertical coordination mechanisms in modern agro-food value chains displace bargaining power from small-scale farmers to downstream companies and strengthen the capacity of large firms and multinationals to extract rents from the chain to the disadvantage of contracted small-scale agro-food producers and suppliers (Warning and Key 2002).

Conclusions

Global and domestic drivers, as well as trends they create, induced deep changes in the functioning and structure of agri-food markets. The transformation of agri-food markets brings about challenges as well as opportunities for supply chains actors (e.g., producers, processors, traders, consumers). The impacts of this modernization on small-scale producers are mixed and context-specific. The functioning of modern agricultural markets has a high impact on food security, but it is particularly relevant in determining both access of farmers and producers (especially small-scale ones) to markets and access of consumers to sufficient, safe, and nutritious food as well as the volatility (or stability) of food prices. Therefore, improving agricultural markets functioning and governance as well as their inclusiveness is crucial for achieving food and nutrition security for all. Improving markets inclusiveness implies facilitating timely access to market information by all value chain actors, including small-scale farmers and women. The challenge ahead is to develop inclusive and competitive agricultural value chains. In this regard, higher attention should be paid to the development of accessible, performing, and inclusive domestic agro-food markets.

Cross-References

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Department of Agricultural Economics and Rural Development, Faculty of AgricultureUniversity of Banja LukaBanja LukaBosnia and Herzegovina
  2. 2.Centre for Development Research (CDR)University of Natural Resources and Life Sciences (BOKU)ViennaAustria

Section editors and affiliations

  • Mohammad Sadegh Allahyari
    • 1
  1. 1.Dept. of Agricultural ManagementRasht Branch, Islamic Azad University, RashtRashtIran