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    AGRICULTURAL INPUT AND OUTPUT: MARKETING REFORMS IN AFRICAN COUNTRIES Final Project Summary Ousmane Badiane Research Fellow Markets and Structural Studies Division Intemational Food Policy Research Institute (IFPRI) 1200 17th Street, NW Washington, DC (202) 862-5600 July 1997 Research Funded by the Bundesministerium fiir Wirtschaftliche Zusammenarbeit (BMZ) under Project No. 94.7860.3-01.100, Contract No. 1-60133513 CONTENTS 1, PROJECT SUMMARY 2. ANALYTICAL SUMMARY eee feet ee PROJECT CHARACTERIZATION ....... PROJECT BACKGROUND AND RESEARCH OUTPUTS GENERAL CONCLUSIONS VALIDATION OF RESULTS Dubae 3, SCIENTIFIC SUMMARY . . ‘THE NATURE OF POLICY REFORMS AND THE EMERGING PRIVAT SECTOR IN THE STUDY COUNTRIES RESPONSE BY PRIVATE TRADERS AND PERFORMANCE IN THE, MARKETING SECTOR ol PRELIMINARY FINDINGS ON THE ADJUSTMENT PROCESS IN THE FARMING SECTOR, TABLES Table 1.1--Work program, status of project activities according to the work plan, July 1997 0... ....seeeee ce ‘Table 2.1--Project characterization ............ec00eeeeeeseeeeeeeees ii I, PROJECT SUMMARY Agricultural Input and Output Marketing Reforms in African Countries Theme African Market Reforms Objective of Research i) to raise the understanding of the conditions for the successful reform of agricultural input and output markets in African countries and ii) to identify strategies to complete the transition to competitive and efficient output distribution and input delivery systems. Through the survey of the experiences of selected countries, it was expected to help understand the types, extent, and seriousness of obstacles to market reform implementation. Given its short term character, the project did not look in-depth into the implications of reforms at the farm household level, but laid the ground work for a further investigation of these issues by IFPRI's wider program on input and output market, reforms. Abstract Many African countries have initiated programs to reform their agricultural marketing systems. Years after their inception, the progress accomplished by reform programs has been in many cases much less than anticipated. The private sector is very slow in filling the gap created by the dismantling or down-scaling of public marketing parastatals. This has left marketing systems in many reforming countries in a transitory situation characterized by paralyzed parastatals and a constrained private sector, with all the negative consequences for the operations of local markets. Against this background, the present project seeks i) to raise the understanding of the conditions for the successful reform of agricultural input and output markets in African countries and ii) to identify strategies to complete the transition to competitive and efficient output distribution and input delivery systems, Mode of Cooperation Knowledge transfer through joint collaborative research and exchange of advanced analytical techniques. IARC Program Multi-Country Program I (Input Market Reforms) and Multi-Country Program II (Output Market Reforms), Markets and Structural Studies Division, IFPRT IARC Project Coordinator Dr. Ousmane Badiane Collaborating Institutions Bio Goure Soule, Laboratiore d! Analyse Regionale et d’Expertise Sociale, Cotonou, Benin Edward O. Asante, Ghana Institute of Management and Public Adminstration, Accra, Ghana Claude Randrianarisoa, Centre National de la Recherche Applique au Developpement Rural, Anatananarivo, Madagascar Davies H. Ng'ong'ola, Bunda College of Agriculture, University of Malawi, Lilongwe, Malawi Matar Gaye, Institut Senegalais de Recherches Agricole, Dakar, Senegal Matthias von Open and Patrick Kormawa, Institut fir Agtat- und Sozialékonomie in den Tropen und Subtropen, Universitit Hohenhiem, Stuttgart, Germany Project Scientists Ousmane Badiane, Research Fellow, IFPRI Francesco Goletti, Research Fellow, IFPRI Mylene Kherallah, Research Fellow, IFPRI Project Duration July 1, 1995 - July 31, 197 Budget Summary Total Budget: US8S52,052 Share of African Institutions: US$262,080 Share of University of Hohenhiem: US$ 88,195, Share of IFPRI: US$201,776 Status July 31, 1997 (Final Report) Table 1.1--Work program, status of project activities according to the work plan, July 1997 Work plan for current reporting period Work program: outputs- Year** Jan 01 - Dec 31, 1997 activities* Final country reports ) Documentation of the reform process in each study country Final project report 4) Comparative analysis of reform outcomes in the study countries I. ANALYTICAL SUMMARY PROJECT CHARACTERIZATION In terms of its research activities and relative to the CGIAR agreed research agenda, this project is to be located under the area of Strategic Policy and Socio- economic Research. ‘The nature of the research undertaken under the project is 100 percent applied. The project's research orientation, however, is strategic in the sense that it addresses long-term growth issues as they relate to the development of local input and ‘output markets. The project also included non-research activities, that were strictly defined, but which are an essential part ofits contribution. These activities relate to networking, training through hands-on experience, and information creation and dissemination. Table 2.1--Project characterization Characteristics Increase in. Environmental Safeguarding Policy, socio- Consolidation of research productivity protection —_—of biodiversity economic of national research programs Basie-+ strategic x Applied 100 Adaptive - on- farm Networking x Training, x Information x Other PROJECT BACKGROUND AND RESEARCH OUTPUTS The few evaluations of domestic market liberalization efforts that exist indicate that reforms in African countries are confronted with tremendous difficulties: progress is slow and the number of successful cases very limited. The main reasons behind the slow progress are: i) structural weaknesses and institutional deficiencies of domestic markets, strong skepticism and lack of commitment on the part of national policy makers, and iii) weaknesses in the design and implementation of reform programs. The present project has sought to contribute to the understanding of the conditions for the successful reform of agricultural input and output markets in African countries and the identification of strategies to complete the transition to competitive and efficient output distribution and input delivery systems. Its approach has been to use in-field surveys to generate good quality data and apply appropriate analytical techniques to these data to produce policy-relevant information that highlights the obstacles as well as the facilitating-factors that determine the success of reforms. The project has been implemented in collaboration with scientists in the individual study countries. A key contribution of the collaboration with country scientists, all of whom have spent time at IFPRI to participate in the final analytical phase of the project, has been to keep the research focused and ensure the policy-relevance of the research results. Given its short term character, the project has not looked in-depth into the implications of reforms at the farm household level, but has laid the ground work for a further investigation of these issues by IFPRI's wider program on input and output market reforms. The solutions that are proposed to address the problem identified above are presented in part III of this report (Scientific Summary) GENERAL CONCLUSIONS The main findings and conclusions of the project's research activities are presented the scientific summary. This present section of the report places the project within the context of IFPRI's mandate and the CGIAR's priorities, and highlights some of the lessons leamed and makes recommendations on policy and research management issues that may be of interest to local decision makers, development agencies, donors and other stakeholders that are involved in or affected by the process of reforms. ‘The project has been carried out under two of IFPRI's main Multi-country Programs (MPs): the reform of input markets (MP1), and the reform and promotion of output markets (MP2). The operation and performance of domestic markets are critical to the attainment of the objective of short as well as long term food security and poverty alleviation through their impact on the cost of accessing food and productivity growth in the food and other sectors of the economy. The implementation of the present research project is well within IFPRI's mandate. IFPRI not only has a comparative advantage within the CGIAR system for this line of research but also has over the years established & broad network of qualified partner scientists which allows it to implement such a program in close collaboration with experts in the each of the study countries In terms of lessons and recommendations, the following three aspects have attracted our attention during the implementation of this project. A first key lesson is the realization that the reform of domestic agricultural markets is not a one-shot issue but rather a potentially lengthy process. It is not sufficient to dismantle parastatals and eliminate distorting policies, which in itself can be quite demanding in terms of design and implementation. The most difficult part of the reform process and the source of failure and resistance to the process is the completion at the lowest-cost possible of the transition from a public sector driven to a private sector based marketing system. A prolonged transition is likely to put domestic markets in a situation that is worse than before the introduction of the reforms. Furthermore, a prolonged transition tends to raise the perceived and real costs associated with the reform process and can lead to policy reversal A second lesson is that a partial approach to reforms, by keeping a significant presence of parastatals in the marketing system or by excluding certain market segments or regions from the reform process can be a serious obstacles to the success of reforms. The coexistence of a weak and emerging private sector with an often better endowed and protected parastatals is a major factor in slowing down the process of reforms. The exclusion of certain parts of the domestic markets, often reserved for parastatals in the post-reform era, weakens the credibility of the reform process and discourages private trader entry and investment in marketing services. A third lesson is that the entry of private traders is a relatively less significant, problem in the transition to a private sector based marketing system. Entry can be immediate and massive. It is, however, critical that after private traders have entered the system, that they undertake the necessary investment to expand their activities to cover wider areas and ensure sufficient market inter-connectedness. It is therefore of critical importance that reform programs do not only encourage broad-based entry, but also facilitate the expansion of existing trading businesses. The problem here is less one of ‘market power and competition, that is the emergence of monopolies and oligopolies, than one of a complete breakdown of the marketing system in certain regions or segment. VALIDATION OF RESULTS The implication from the above lessons is that policy research on market reforms and development has to be locally-based and focused on understanding the transition process. The scareity and poor quality of available market data, which itself is a legacy of the marketing-board era in which decision was centralized and demand for accurate ‘market information minimal, raises the importance of cost-effective data collection Programs, Data is not only needed to conduct good quality research but to generate benchmarks against which progress can be measured. Once obtained, this would facilitate continuous monitoring and regular evaluation activities, primarily by NARS and other collaborating institutions, which are necessary to guide policy makers through the transition, The project has made significant contributions in this area by sharing with country scientists available analytical techniques and providing the opportunity for extensive professional interaction and on-hand experience with research and data collection methodologies. ‘The ultimate objectives of policy reforms in the marketing area is to accelerate growth in the production sector. The impact of reforms at the farm-level and the adjustment of farm households to these changes should be a critical part of the monitoring and evaluation process. It has not been possible under the current project, which, because of resource and time limitations, has chosen to focus on a comparative analysis of the adjustment process with the marketing sector, to carry out an in-depth analysis of the impact within the production sector. Future research by IFPRI as well as monitoring and evaluation programs in reforming countries would need to cover this aspect of the reform process. I. SCIENTIFIC SUMMARY THE NATURE OF POLICY REFORMS AND THE EMI IN THE STUDY COUNTRIES ERGING PRIVATE SECTOR The Nature and Extent of Marketing Policy Reforms ‘The review of the policy environment in the five selected countries suggest that in ‘most cases market liberalization has been partial and the transition to a private-sector based marketing system is not yet complete. The government still intervenes in many aspects of agricultural marketing, and in areas where the government has withdrawn its activities, the private sector has not always been able to effectively replace the role of the state due to various constraints which are discussed below. Further progress in market reform will require not only further liberalization, but a more concerted effort to go beyond the withdrawal of the public sector from agricultural marketing. While previous reform efforts led to government savings and a reduction in the budgetary burden of the state, progress in market reform will require both more costly investment and a partnership between the government and the private sector to promote the development of markets and the institutions that support them. The analysis of output markets in the five African countries included in the study suggest that the extent of government involvement in agricultural output marketing varies from country to country. In Ghana and Benin, for example, marketing boards for cereals still exist, but their share of the market is very minimal and the private sector has taken over most of the marketing activities of cereals. The marketing boards in these countries have reduced their activities to holding buffer stocks or strategic reserves and insuring food security in periods of shortage. In contrast, in Malawi, although a lot of informal ‘trading does occur, the marketing board, ADMARC still absorbs a lion share of the official maize market. Therefore, private sector traders find themselves competing with a giant that dominates in terms of distribution networks, storage and transportation infrastructure and financial facilities. In Senegal, on the other hand, the trade marketing board for rice has been completely dismantled and the country has witnessed far reaching economic reforms in just a couple of years. The rice market in Senegal (whether imported or domestic) is now operating fully and successfully in the hands of the private sector, without any need for government intervention. The survey of the input sectors in the selected countries shows that the presence of the government is much more pronounced than in the food crop sector. Historically, fertilizers, seeds and agro-chemicals were more heavily controlled by government parastatals than cereal trading and distribution, In all five countries, small-scale cereal trading always co-existed with official trading activities by marketing boards and parastatals, Moreover, in most eases, input markets were liberalized after output markets nd until recently were heavily subsidized by the state. In Benin, the marketing board, SONAPRA still regulates the entry and activities of private fertilizer companies. “Although multi-nationals have penetrated the fertilizer market, a few national companies ‘till dominate fertilizer marketing activities. For example, in Malawi, the SEFRFM is the tain importer of fertilizer into the country and in Senegal, SENCHIM is the major player in fertilizer production and distribution. In Ghana, the government has removed itself from the procurement and distribution of fertilizer and taken on the role of facilitator of a competitive, private fertilizer marketing system. The system is functioning fairly well, although the government must continue to be vigilant to check the creation of private monopolies. In Madagascar, Malawi, and Senegal, official seed distribution is also heavily controlled by SE's. A parallel private sector seed market has emerged along the official channels, however, many farmers complain about the low quality of these seeds and the legal framework for producing and distributing certified seeds is not well controlled by the government. Although the extent of liberalization may vary from one country to another, we can distill a few common trends and problems that all these countries face and that need to be addressed in further reform efforts Operation of the Emerging Private Sector Although liberalization has led to the emergence of a fairly competitive private trading sector, in a few countries, trading in certain markets is monopolized or restricted through local trader associations or an informal network of traders which create barriers to entry in the market. In Benin, for example, an established network of traders regulates the entry and the activities of new traders in their markets. In Ghana, transporters’ unions regulate the transport industry and have a noticeable influence on transportation charges for maize. The government should make sure that pockets of monopoly or oligopoly power do not develop in certain areas and that access to markets follows a set of clear and transparent rules which do not impede free entry and exit. A common feature in all countries, is that although a lot of private traders have entered agricultural markets, expansion of area coverage and quantity traded has been very limited. Traders are not able to go much beyond entry into large-scale trading either in terms of geographical or volume expansion, Traders are often limited by unavailability 10 of credit, limited storage and transportation facilities, and various restrictions by existing organizations ot parastatals. Most countries, especially those in Southern Africa, suffer from very poorly developed transportation and communication infrastructure which limits long-distance trading, movement of information, and overall market efficiency. Many remote areas and regions remain isolated from the rest of the country and become almost self-sustaining entities. Transport costs in most of these countries constitute up to 50 percent of total operating costs and need to be reduced to promote inter and intra-regional trade and better integration of markets. More investments in roads, rail, port infrastructure, and telecommunications networks (telephone and fax networks, internet access, etc.) are needed between and within countries to facilitate trade and access to market information. Use of storage facilities is not very common and traders store very small quantities. The limited propensity to store stems from the uncertainties regarding movement of prices and government interference, unavailability of storage infrastructure, lack of access to credit, inefficient knowledge about storage technologies, limited area coverage, etc. Beyond the commitment to policies that provide an incentive to store, the government and the private sector need to invest in storage and market infrastructure and provide extension services to teach farmers and traders about storage technology. Access to formal credit is very limited. This problem is pervasive in all five countries. Not many rural credit and financial organizations have emerged to replace previously subsidized credit from the government. Credit availability is biased to large export producers and trading companies and is not readily available to small-scale farmers or traders. Access to credit is limited due to high interest rates, lack of collateral, complex administrative procedures, and the short term nature of the loans, Most traders that use credit obtain it from relatives, friends or money-lenders. The government and the private sector should devise a strategy to promote the development of rural financial organizations that work and that are sustainable. In countries where pricing policies still exist such as fixed fertilizer prices in Benin and the maize price band in Malawi, complete removal of these price interference mechanisms would promote more efficient participation of the private sector. For example, the price band in Malawi is a disincentive for private traders to conduct trading over longer distances or to store maize for later sale in leaner periods. Similarly, the ‘banning of trade should be eliminated to allow countries to adjust more quickly to changes in prices and supply and demand conditions within and between countries. __ The development of market information services that traders can use for their business is still in its infancy and not well targeted to the business sector. It is currently W mainly used by donor organizations and government statistical offices. More needs to be Invested to develop market information networks that are accessible to the business ‘community, Market information networks should include not only information on local prices and supply and demand conditions, but also information on trade and prices neighboring countries and international markets. This information will help reduce uncertainty about price movements and accelerate the response to changes in supply and demand conditions. RESPONSE BY PRIVATE TRADERS AND PERFORMANCE IN THE MARKETING SECTOR The Investment Response of Private Traders to Marketing Reforms Private traders have responded to the changes in marketing policies through higher investment in trading activities. There are, however, quite important differences actoss countries in terms of the value, composition, and the distribution of asset ownership among private traders. The average value of assets per trader range from US$150 in Madagascar to US$3,500 in Ghana. Furthermore, equipment represents the largest category of assets, making up between 60 and 90 percent of the average value of assets, per trader. As expected from the limited storage activities in most countries, the average values of accumulated investments in buildings and storage facilities are quite low. The ownership of this category of assets is also less broadly distributed than that of equipment, More specifically, private traders appear to be responding to policy changes with higher investments, For instance, the share of assets acquired within the first 2 and 5 years after the reforms reaches 30 percent in Senegal and Benin, respectively. In Benin, about one third of traders made investments during the first 5 years following the reforms. The corresponding figure for Senegal is 15 percent for 2 years. ‘The quantitative analysis of the relationship between investment by private traders on the one hand, and on the other, several factors that, next to the direct changes in policy, are expected to influence investments, such as market location, area coverage, profitability, and managerial skills, confirms the strong response of traders to the liberalization of marketing policies. Among the above variables, only the profitability variable appears to have a higher impact on the decision of traders to invest in marketing activities than the change in policy. The comparison of the results across countries and regional markets within individual countries reveals that the extent to which private traders respond to market reforms with higher investment is affected by factors such as the quality of infrastructure, the level of integration across local markets, and the thinness of these markets. Trader investment response also seems to depend on whether the private Sector is predominantly in the entry or expansion phase. The response tend to be higher at 12 the beginning (entry phase) of the reform process than at later stages, when most expansion-minded traders tend to be at the limit of the financially and technically manageable size of their businesses, More importantly, the analysis of the determinants of trader investment behavior indicates that the effective transition to a viable private marketing sector depends, beyond key sector specific factors, on a variety of other factors that often are specific to a given country or even region. A factor that seems to be specific to the emerging marketing sector is the apparent inability of private traders, after the initial entry phase, to continuously and significantly expand their business activities to cover wider areas. It might therefore be necessary for reforming countries to encourage broad-based entry into local markets by private traders, not only in the remote regions, as has been emphasized so far. The apparent constraints to business expansion means that a situation with few market entrants would not lead to oligopoly situations as often feared, but rather to a breakdown in the marketing system for certain regions. Some of the factors that may be country or region specific and that may interfer with the transition to a comprehensive private marketing system are market segmentation and thinness. The results above indicate that, even though traders may feel good about the reforms and may have adequate access to credit, they may still lack the incentives to invest in expanding marketing activities ,due to segmentation and thinness of the local markets. In other words, the local characteristics of the marketing system itself may end up being a obstacle to the transition process. It would seem, therefore, that reforming countries would raise the ability of the emerging private sector to satisfactorily fill the gap left by the dismantling of marketing parastatals by adopting measures to alleviate localized market segmentation and thinness. Marketing Reforms, Price Behavior, and the Performance of Local Markets Local markets in the study countries have adjusted to the changes in marketing policies, albeit at greatly varying degrees. In most cases, changes have occurred as expected and are observable quite early in the reform process. One finding that seems to cut across all study countries is the continuous decline of real local prices over the study period. It is unlikely that the downward trend in prices is the direct impact of the changes in the countries’ marketing sectors, at least in the post reform period. It is true that direct price control may have prevented food prices to rise as fast as the general price levels in ‘most of these countries. For the post-reform period, on the other hand, it is probable that Prices have fallen in real terms, due to the strong inflation pressures that have been Associated with overall economic reforms, which most of the study countries have 1B implemented along with the liberalization of agricultural markets. For instance, all ofthe ‘study countries have bad to repeatedly or atleast significantly devalue their currencies Local markets have also adjusted in terms of price seasonality. With the transition from a centrally controlled marketing and pricing system to a decentralized private sector based system of distribution, prices in local markets are more likely to reflect local supply and demand conditions. They should be expected to exhibit temporal patterns that are more in line with the cost of carrying supply quantities over time. In Benin, for instance, local prices exhibit distinctly less seasonal variability, with the seasonality patterns converging between groups of markets. The convergence of price patterns across certain sub-sets of markets suggest that the change in seasonality patterns is, at least in part, due to greater interdependence between local prices. In Malawi, on the other hand, local prices display little seasonal variability during the pre-reform period. This has changed slightly during the post-reform period, where one notices greater seasonal price variability in individual markets and greater dissimilarity in patterns across markets. Price instability has also decreased quite significantly across local markets after the introduction of reforms. A key motivation behind the adoption of market reform programs is that the decentralized mode of operation of a private-sector based marketing, system is more flexible and therefore responds better to changes in market conditions than under the usually centralized system of marketing boards. The expected improved response by private traders to changes in supply and demand conditions across local markets would lead to less instability as a more responsive flow of commodities would spread local price shocks to other markets more efficiently. Again here, the results for Malawi appear to be different. Price instability in local markets signals an upward trend afier the introduction of reforms. It seems, however, that the higher levels of price instability in the post-reform era in Malawi are due to the series of droughts that occurred in that country during the first half of the nineties. If only the period between the introduction of reforms and the onset of the droughts is considered, one indeed observes a decline in market price variability. The temporary decline in price instability between the onset of reforms and the drought years can hardly be directly attributed to the entry of private traders into the marketing system, knowing their activities cover on average a distance of merely 15 km. It is, however, possible that the changes in ADMARC's operations due to the increasing competition with private traders following the liberalization of markets have had a stabilizing effect on local prices. Marketing Reforms and Market Performance Unit costs of marketing per ton/km are within the 45 to 60 US Cents, except in Benin, where they are about two-thirds lower. The comparison of the costs in Benin and 14 the other study countries indicate the existence of cost savings in the marketing sector related to area coverage. For instance, private traders in the Senegal sample have ‘marketed one-third less quantities and have traveled on average about one-third of the distance covered by traders in Benin. Their unit costs per ton/km is, however, about three times as high as that of traders in Benin, It is true that fuel and vehicle prices are all lower in Benin, but they can not explain the large difference in marketing costs, especially aiven the much better infrastructure in Senegal. Similarly, traders in Malawi market on average quantities that are comparable to that of their counterparts in Benin, but have average costs that are four times higher, because, they cover on average only about one- tenth of the distance covered by traders in Benin, Furthermore, traders in Madagascar market about 50 percent less quantities and for 50 percent of the distance covered by traders in Benin. But, their average unit costs are three times higher than in the former country. In regard to the last two countries, it should be noted that both Malawi and Madagascar have poor infrastructure compared to Benin, and this plays a role partly in explaining the differences in costs. The disparities in the performance of the transport sector in the study countries is reflected in the unit costs of transport, which are 3 and 14 times higher in Madagascar and Malawi, respectively, compared to Benin. No data were available to compare the level of marketing costs in the study countries before and after the introduction of reforms. The approach chosen is therefore to use the changes in spatial and temporal price spreads as indicators of changes in the performance of local marketing systems in moving goods across space and over time. Although an analysis of price spreads before and after reforms could not be carried out for Madagascar and Senegal, the analysis of price data from the other 3 countries indicates that effective market liberalization has been associated with lower spatial price spreads across local markets. Both absolute and relative price margins between local markets have declined considerably in the two countries, Benin and Ghana, where effective reforms have been carried out. In contrast, no significant change has been observed among markets in Malawi. Furthermore, market liberalization is expected to lower the cost of carrying supplies over time and thereby reduce the temporal spread of prices in local markets. Greater movement of commodities between markets also contribute to lowering temporal price gaps, as periodic price pressures are spread across a larger number of markets. Here again, the data show a significant decline in temporal price spreads, particularly in Benin and to a lesser extent in Ghana. Temporal price spreads seem to have inereased in Malawi in the later years of the study period, most likely due the several droughts that have ccurred in that period. But even if this period is excluded, temporal price spreads in Malawi, if not constant, exhibit an upward trend, ‘The last aspect of market performance that was examined is the extent of market integration in the cereal sector of the study countries. The data did not allow for an effective comparison of the situation before and after the introduction of reforms in order to document eventual changes that have been associated with the latter. Instead, the analysis has focused on a comparison of the behavior of local markets in the study countries during the last few years. The case of Benin stands out one more time, where markets seem to be much better integrated than in the comparator countries. The lowest level of market interdependence amongst the maize countries was observed in Malawi: ‘The analysis of daily price data involving a limited number of markets in the two rice countries, Madagascar and Senegal, suggest that local markets in these countries were not that well integrated. The higher degree of market interdependence in Benin and Ghana, which also have liberalized their markets more completely, suggest that the reforms have resulted in improved integration amongst local markets. ‘The preceding discussion indicates that there is clear evidence of adjustment, in the expected direction, of local markets and private traders to the changes in policies. Market reforms, where effective, have been associated with desired changes in terms of price seasonality and instability patterns. Similarly, reforms have lead to lower unit costs of ‘marketing and a reduction of price margins between markets and seasons. There is, however, considerable variation in terms of adjustment and changes in individual countries, For instance, the level of integration among local markets is much higher in Benin and fairly limited in the other countries, especially in Malawi and the two rice countries, Madagascar and Senegal. Similarly, area coverage by private traders is still limited in the late-reforming countries, such as Senegal and to some extent Madagascar, as far as the main supply and marketing region of Lac Alaotra is concerned. Marketing costs are also still relatively high in countries with poor infrastructure (Madagascar) ot with still significant state involvement in trading sector (Malawi), both of which limit area coverage and raise unit costs of operations. Generally, the response in terms of improved market performance seems to be more positive in countries where i) there has been a sizable private trading sector before the reforms; ii) market reforms have been introduced earlier; and ii) partial liberalization in terms of continued presence of marketing parastatals or continued intervention in certain market segments or regional markets has been avoided. ‘The absence of partial liberalization as defined above improves market Performance in the post-reform period for two reasons. The first one is that such an environment present private traders with greater opportunity and reinforce their confidence in the change in policy direction. The second is that the survival of parts of the pre-reform marketing parastatals is more often than not a sign of insufficient ‘commitment on the side of policy makers to the reform process. The process in such cases does not only lack consistency and credibility, it also carries some of the same 16 obstacles from the pre-reform period and often breeds new types of restriction to aceompany the adopted policy changes. The examples of partial liberalization in the study eountries include the continued dominance of ADMARC in maize marketing in Malawi, the exclusion of the main production and marketing region of the Lac Alaotra for years from the reform process in Madagascar, and the control ofrice import activities as ell as the attempt to dictate rice prices in Senegal long after the liberalization of Yomestic markets. In spite of the changes described above and which point to improving market conditions following the adoption of effective marketing reforms, the study data also show falling real prices throughout the sample, Although the focus of the study has been on the process of adjustment of the marketing system, due to resource and time limitations, a quick review of the marketing and input demand conditions of farm households has been carried out to gain preliminary insights as to the impact of reforms on the smallholder farming sector. PRELIMINARY FINDINGS ON THE ADJUSTMENT PROCESS IN THE FARMING SECTOR The preliminary analysis of the effects and reactions on the side of farmers with respect to market reforms indicates that they have only modestly improved the access of smallholder farmers to agricultural input markets. Although market reforms have been associated with improvements in the local input and output distribution systems, it appears that they have not raised the effective demand for modem inputs to levels that could lead to substantial increases in production and productivity. The partial approach to reforms in the input sector, which is reflected in continued government control, as well as the cut in subsidies and extension services that have accompanied the reform programs are the main factors behind the lack of significant and positive impact on the production side. In fact, there is a great risk that smallholder farmers would lose in the reform process, unless market reforms are carried out consistently. It will also be necessary to complement the reforms in the input and output marketing sectors by institutional reforms in the rural finance and extension systems, and by improvement in the quality of local infrastructure for production and productivity to increase considerably. More specifically, the following main conclusions can be drawn from the country studies: i) ‘modern input use throughout the five countries in the study remains low in spite of increasing efficiency in marketing system for inputs. Farmers have found some improvement in the efficiency of input and output distribution system, mostly resulting from the increasing competition within emerging private sector and between the latter and the still active but less powerful state agencies; ii) there is no conclusive support that reforms have either benefitted or negatively affected farmers. The increased cost of inputs after market reform has not resulted in lower profits in all cases, The simultaneous increase in output prices and the improvement in input distribution system have partly 7 compensated for higher costs of snodem inputs. The overall impact on profitis difficult commatate, however, on the basis of OFF Tried farm-level data; if) the main constraint Team the point of view of smallholder farmers seems to be access to credit. ‘The mination of subsidies and inefficient ‘financial institutions has not been accompanied by inoreased availability of credit 0 ‘farmers, Asa consequence, many smallholder emer still face tremendous financial constraints to accessing modern inputs. ‘The preliminary analysis conducted under the present study indicate that reforms are sil incomplete, ess so in the case of output than input markets. Furthermore, further ar aptementary measures ae require in order {0 ensv® the creation of efficient and

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