Additional Considerations about Prices and Markets

Investments in infrastructure have not been mentioned in more than a passing way in this section because the main topic of this volume is policies, but it should be stressed that investments in roads are one of the most effective ways of bringing better prices to the farmgate. Not only are transport costs reduced, but in some cases an improved road is necessary to provide any kind of access during the rainy season. If vehicular access to a locality is limited to only half the year, then clearly dairying, for example, would not be an option there. The role of such investments is discussed further in Chapter 9.

Systems of price supports may constitute policy responses to price variability as well as concerns over the secular trend or level in prices. If that is the case, then they can be considered inefficient responses. The set of more efficient policies may include commodity hedging on futures markets. A case for considering these kinds of policies has been made in a recent article about the wheat market in Pakistan.90 More generally, the point needs to be made that a certain degree of price variability is normal and even necessary in grain markets. Without at least some increases in grain prices in the months following the harvest period, there would be no incentive for the private sector to invest in needed storage facilities. Policy concerns should be directed to the possibilities of extreme price fluctuations, and in the first instance try to identify misplaced policies which may in fact be contributing to the fluctuations. Reflexive calls for agricultural policy to adopt the goal of 'price stability' need to be qualified (see Chapter 9 for a further discussion of this issue).

Several of the principal policy options explored in this section, and some additional ones, have been brought out in a paper by Lowell Hill and Karen Bender.91 Pointing out that 'efficiency, equity and growth will be dramatically improved if the government provides the appropriate economic and regulatory environment', they list the following 'requirements for development of private commodity markets', along with provision of infrastructure and others:

Warehouse regulations [i.e. a system of certificates of grain deposit].. . .

Regulated entry. Restricted entry may appear to be counter to the principle of competitive markets, but some restrictions are essential. . .. Licensing of grain dealers and marketing firms are needed to restrict entry by firms or individuals that are either financially or managerially unqualified to buy and sell

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