Trade and markets

About our work

Background and rationale

The pathways through which smallholders’ contribution to economic growth and processes of structural transformation is played out are diverse. Some smallholders will benefit from increased productivity within the existing product mix, others from shifting to higher value products, others from reducing on-farm activities in favour of “selling” their labour into local labour markets, others from exiting agriculture altogether

The pathways taken will be key determinants of the impact of processes of agricultural transformation on key food security and poverty indicators at the household, local and national levels. However, the pathways that are open to different categories to smallholders during processes of structural transformation are critically dependent upon their ability to participate in agricultural and non agricultural input and output markets. The constraints to smallholder participation in these markets are multifaceted and while there are some commonalities, the relative importance of the constraints differs widely across both product type and smallholder categories.

Ensuring broad based smallholder participation will necessitate a more active role for the public sector, with interventions broadly conceived to include direct interventions in input and output markets, public-private partnerships through which public sector actions can be used to leverage greater private sector activity, and capacity building activities.

EST work on smallholder market integration

Set in the context of a broader understanding of processes of structural transformation and the contribution of smallholder agriculture to improved food security, poverty reduction and economic growth, the work of the team is focused on : (i) understanding the determinants of market/value chain functionality and patterns of participation; (ii) identifying constraints to participation; (iii) the promotion of market/value chain- specific policy interventions and institutional innovations.

A. Enhancing the evidence base
FAO has a critical role to play in further enhancing the understanding of how smallholders participate in markets, the functionality of those markets, and how these combine to determine the pathways open to small producers. Improved understanding of these processes is essential in underpinning improved policy formulation and in the promotion of institutional innovations, including public-private partnerships for the delivery of key services, and strengthened contractual arrangements between value chain stakeholders.

1. Patterns of smallholder market participation
An improved understanding of the characteristics of smallholder households in affecting decisions regarding the intensity of their participation in different markets is requiredParticular attention is given to identifying the benefits to smallholder participation in different markets and through their inclusion in processes of value chain development.  Key questions to be addressed include: Which farmers are participating in which market and how?; What is the propensity of smallholders to participate?; How do firms/value chain operators “select” farmers?

2. Constraints to market participation
There has been a tendency to treat smallholder households as an homogenous group when attempting to identify policies seeking to alleviate constraints to market participation.  In reality, smallholders are highly heterogeneous both within and across locations, and policy interventions will need to reflect this.  This component seeks to determine critical constraints to smallholder market participation in different markets.  It focuses on the characteristics of the market (and/or policy) failures behind these constraints and the sequence in which they should be alleviated.

3. Overcoming constraints: institutional innovations and policy interventions
An examination of case study examples of success in the development of product specific value chains reveals that their development has often been possible only following the sequential alleviation of key constraints, generally underpinned by appropriate public sector support. In many cases where development has been short lived, or confined to a subset of stakeholders, appropriate support was absent.  The cases also reveal that the mechanisms through which support is delivered vary widely, and are generally chain and context specific.

The need for a more active role for the public sector that goes beyond creation of basic enabling environment (supportive legal framework, infrastructure etc) has been acknowledged.  This has allowed greater focus on the identification and design of mechanisms through which public support can be used to leverage greater private sector participation. These include examples whereby the state seeks to align incentives facing private sector actors with public policy goals such as service provision to poor groups, and/or where the public sector takes on a risk sharing role to encourage greater participation and investment by the private sector.

In this component, appropriate policy interventions and/or institutional innovations to overcoming the constraints through addressing the failure of markets to deliver specific goods and services to different categories of smallholders will be articulated.

B. Dissemination/capacity building
The enhanced evidence base on smallholder market participation and their inclusion in processes of market development, and on the associated institutional and policy recommendations is used in guiding interventions in support of increased market participation.

Activities focus on strengthening the capacity of stakeholders to implement policies for small-scale agriculture in order to promote sustainable growth, improve rural livelihoods, diversify food supplies, facilitate smallholder transition and reduce their vulnerability.

Recent and ongoing activities

Although normative in nature, the programme of work outlined above builds on experience from a series of regular programme and project related field activities. Recent examples include:

1. EU funded All ACP Agricultural Commodities Programme (2007-2011)
FAO is collaborating with the World Bank, UNCTAD, International Trade Centre and Common Fund for Commodities in an EU funded programme covering all ACP regions with the objective of building the capacity of stakeholders to diagnose commodity chain problems, design and implement solutions. The Trade and Markets Division is particularly concerned with ensuring beneficial smallholder participation in these processes through analysis, capacity development and piloting activities. Examples of support include that given to the Fruit and Vegetable sector strategy development in Samoa and the Cassava sector strategy development in Zambia. 

2. FAO Multidisciplinary funded project on “Policies to address constraints facing small scale farmers in Kenya”
In collaboration with five FAO technical divisions, EST is implementing a project with the objectives of better understanding the participation of smallholders in different markets, policy approaches to facilitate their integration and capacity development in the design and implementation of policies

3. Workshop on “Institutional innovations and policy interventions in support 
of smallholder market participation”. FAO Trade and Markets Division. 3rd – 4th June 2010
Involving experts currently addressing the issue of smallholder market participation, this workshop was designed to highlight key areas where evidence is lacking, or unclear. Commissioned case studies examined a series of value chains: Shea nut (Ghana); Horticulture (Senegal); Cassava (Zambia); Rice (Senegal); Mango (West Africa). Review papers investigated: Smallholder market participation, Public-Private Partnerships; Linking credit with insurance.



Jamie Morrison
Team leader: Smallholder Market Integration
+39 06 57056251