Market and Trade Policy for Staple Foods in Eastern and Southern Africa
Edited by Alexander Sarris and Jamie Morrison
Chapter 3: Smallholder Market Participation: Concepts and Evidence from Eastern and Southern Africa
* Christopher B. Barrett1 INTRODUCTION 1 Why is smallholder market participation so important to economic growth and poverty reduction? The answer traces its origins at least to Adam Smith and David Ricardo: given a household’s desire for a diverse consumption bundle, it can either undertake production of all such goods and services for autoconsumption, or it can specialize in production of those goods in which it is relatively skilled, consuming some portion and trading the surplus for other goods and services it desires but for which it holds no comparative advantage in production. The welfare gains that result from choosing market-oriented production and exchange emerge not just from the one-off, static welfare effects of trade according to comparative advantage, but perhaps even more from the opportunities that emerge from larger-scale production in the presence of nontrivial fixed or sunk costs of production (Romer, 1994) and from dynamic technological change effects associated with increased flow of ideas due to regular trade-based interactions (Romer, 1993), leading to more rapid total factor productivity growth (Edwards, 1998). Hence economists’ appropriate preoccupation with trade and market-based exchange. So why do so many smallholders in low-income rural areas opt out of markets? Surely this reflects something more than just widespread error. Instead, the problem is that market participation is a consequence as much as a cause of development. Just ‘getting prices right’ does not induce broad-based, welfare-enhancing market participation. Farm households must have access to productive technologies and adequate private and public goods in order to produce...
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