Local and Regional Procurement 3. Introduction To Markets: LRP Market Monitoring Training

LOCAL AND REGIONAL
PROCUREMENT
3. Introduction to Markets
LRP Market Monitoring Training
Why are markets important?
Markets are a part of everyone’s lives
Most people – especially the poor – rely on
markets to provide food, essential goods and
services
Markets also provide access to paid work and
mechanisms for selling commodities and services
Strengthening markets can improve everyone’s
lives and livelihoods
Harming markets can have serious negative
impacts, particularly on the poor
Important to understand markets, so we know if
our programs are strengthening or harming
markets
What is a market?
Markets are composed of:
 Buyers
 Sellers
 Institutions and infrastructure
 Others behind the scenes: importers, processors,
storage owners, wholesalers, credit suppliers,
government officials and policies
Markets are where buyers and sellers come
together to obtain information and exchange
commodities.
A commodity is something tangible, that has
value and can be exchanged.
A market chain includes all levels of the market
and actors that have a role in the distribution and
transformation of the commodity.
Custom
er
Retailer
Wholesal
er
Processor In a Market
Chain
Farmer commodities
flow from
producers to
Types of Markets
Along a market chain, each trader buys and
sells at different prices.
Source: FEWs (2008) Market Analysis and Assessment. Lesson 1, p. 5

The Market Chain
& Business Support Services
Consumption
Retailing
Trading Research
Transportation
Processing
Govt. policy regulation
Communications
Trading
Production input supply
- -
Post-harvest
handling Tech. & business training & assistance
Production Financial services

Market information and intelligence
Commodity Supply Chain
Intermediary
“wholesale”
Farmga Retail
prices paid
te prices
between
prices*
brokers,
aggregators,
wholesalers
*USDA refers to wholesale prices as “producer
prices.” USDA does not require the collection of
farmgate prices.
Market Definitions
Source: FEWs (2008) Market Analysis and Assessment. Lesson 1, p. 12

Market Characteristics and
Efficiency
 A market is said to be functioning well when
goods flow into the market in times of deficit and
out in times of surplus, via private trading.
 A market is said to be functioning inefficiently
when the costs of moving commodities in and out
of markets are greater than the marginal profit
received to do so.
 Relative functioning of a market depends on:

Number, size, independence of buyers and sellers
Formation of prices
Availability of information on prices and costs
Ease of entry and exit
Reliability of contract enforcement
Integration across markets
Institutional framework (infrastructure, government
policies, etc)
Market Integration
 Markets are integrated when price shocks from
one geographic market are transmitted to other
markets through the trading of goods.
 When markets are integrated, the supply of food
adjusts spatially to meet demands.
 In integrated markets, an increase in prices due
to a large local purchase of food would signal
traders to bring in more supply, bringing prices
back down.
 If market integration is poor due to weak
information and infrastructure and high transport
and marketing costs, supply will not flow into the
market, increasing prices for the population. In
such cases, the local procurement of food can
have significant effects on local prices.
Market Information
What is market information?
Who does market information help?
What effect does market information
have on market efficiency and market
integration?
Why is market information important
to LRP projects?
References
Barrett, C. and E. Lentz (2010). Draft AEM
6940 MIFIRA Lecture Notes: Lecture 4.
CRS (2009). Linking Farmers to Markets.
Module 1: Marketing Basics. Draft.
FEWs Net (2008) “Market Assessment and
Analysis: Learners Notes.” FAO.

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LOCAL AND REGIONAL

Source: FEWs (2008) Market Analysis and Assessment. Lesson 1, p. 5

Production Financial services

Source: FEWs (2008) Market Analysis and Assessment. Lesson 1, p. 12

 Relative functioning of a market depends on:

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