Agricultural markets and trade, and sustainable development

Agricultural markets are at the heart of the development process. Food and agriculture markets expand consumers’ choices and create incentives for farmers. Well‐functioning markets and trade enable the optimal allocation of resources, diffuse knowledge and technologies, and provide avenues that link agriculture with other sectors of the economy. Thus, the market mechanism is crucial for the structural transformation of the economy and for growth and development. Markets are vital to improving the livelihoods of millions of people and can provide additional benefits, such as contributing to food security by ensuring that food moves from surplus to deficit areas.

The role of well-functioning markets, both global and domestic, is significant in driving economic growth. However, in some cases, markets may not reconcile the interests of individuals with those of society as a whole. Markets may result in negative environmental outcomes or may fail to address social objectives, such as reducing inequality. Such environmental and social benefits are central to the 2030 Agenda for Sustainable Development.

Policies and mechanisms for sustainable markets

Governments have a range of policy tools to help markets and trade contribute to positive sustainability outcomes:

Trade has an important role to play in climate change adaptation efforts, contributing to food security in many countries. In the short term, by moving food from surplus to deficit areas, trade can provide a mechanism to address production shortfalls due to extreme weather events. Global agricultural market integration could reinforce the adaptive role of trade by increasing availability of and access to food in countries that will be negatively affected by climate change.

Trade could also be central in climate change mitigation efforts. If trade could provide the necessary signals to farmers to produce low carbon footprint products, emissions could be reduced globally.

Private sector arrangements and mechanisms can also leverage markets to contribute towards sustainable development:

	Contract farming schemes can help address the constraints smallholders face in price risk, access to inputs and credit, and access to technology. These can improve productivity, raise commercialization rates, increase incomes, and reduce poverty.
	Sustainability certification schemes can harness the market mechanism to also provide information on how food is produced and, on the benefits this brings to the environment and society, thus addressing the trade-offs between economic, social and environmental objectives.