Chapter 4


infrastructure, etc. Only some of these factors can be improved by policy interventions, and
some factors may even deteriorate during the transition period of adjustment (infrastructure,
social/political stability). If, due to such factors, a country fails to attract additional foreign
investments, the easing of restrictions on capital transfers may result in additional outflows
of foreign exchange and a worsening balance of payments situation.

7. Agricultural Market Reforms and Sectoral Adjustment

Markets in many developing countries have been subject to substantial government
intervention. Although intended to achieve higher stability and efficiency in marketing
operations by ruling out speculation of middlemen and by making use of economies of scale,
direct government interventions in the process of price formation and marketing operations
have proved to be often highly inefficient and ineffective, undermining what they were
intended to achieve. The market rigidities and high marketing costs, typically associated with
officially regulated marketing systems, have prevented markets from fulfilling their basic
functions of

* providing an efficient and effective link between producers and consumers,

* establishing marketing margins which cover the marketing costs.

* giving sufficient incentives to the producers,

* allocating production according to existing potentials,'

* indicating the appropriate prices to consumers, as far as relative scarcity and costs of
 production are concerned,

* finding an equilibrium between supply and demand.

Altogether, these factors have contributed to the growing structural imbalances as shown on
the right side of Figure 4.2 (see page 116), Box 4.5 illustrates a typical case of market and
price distortions from the Zambian food sector during the eighties.

In consequence, market and price reforms constitute one, often the. major element of
structural adjustment programmes. They comprise measures of price and market
liberalisation, including reforms of the marketing institutions (see section 8.1 below).
Although these are fundamental issues for all sectors and for the economy as a whole, they
are usually embedded in sectoral adjustment policies and programmes, in order to give
proper attention to the relative importance and the specific problems and conditions of the
various sectors of an economy.

According to the relative importance of the agricultural sector, agricultural sector policies
form the core of most structural adjustment programmes. The major elements of agricultural
sector reform are:

* agricultural pricing policy;
* reforms of agricultural marketing institutions;


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