ABSTRACT
This chapter (1) discusses the nature of markets, how and why governments tend to intervene in agricultural markets, and the results of those interventions, (2) explains the importance of efficient marketing systems and describes how marketing systems have changed over time in developing countries, and (3) considers the role that government can play in providing marketing infrastructure, market information, marketing services, and regulations. Food and agricultural prices are major determinants of producer incentives and of real incomes in developing countries. Political leaders devise policies to meet society’s objectives and the demands of interest groups, to generate revenue, and, in some cases, to line their own pockets. Governments can influence agricultural prices by setting price ceilings or floors and enforcing them with subsidies, taxes, manipulation of exchange rates, storage programs, quantity restrictions, and other policy instruments. These interventions influence producer and consumer prices and incomes, production and consumption, foreign exchange earnings, price stability, government revenues, the efficiency of resource allocation, employment, capital investment, technical change, health and nutrition, and marketing margins. Developing countries often have marketing systems characterized by deficient infrastructure, inadequate information, weak bargaining position for producers, and government-induced distortions. The government can help solve marketing deficiencies such as lack of roads and information and provide grades, standards, and other regulations. These contributions can help reduce transactions costs that rise as markets become less personal. Private marketing systems have evolved in developing countries, with supermarkets opening in urban areas and increased product contracting from farmers.
