The African Innovation Institute
Responding to market opportunities remains a key challenge to commercialization of agriculture in Uganda. Anecdotal evidence suggests that, following liberalization, there is a growing and unfulfilled demand for most food crops in local, regional and international markets. Yet smallholder farmers in Uganda have not been able to respond effectively to market reforms and exploit opportunities because of a number of structural and institutional constraints that limit market participation.
Market failures caused by high transaction costs, imperfect and asymmetric information, risk and problems of contract enforcement are widespread in rural areas. Bottlenecks at one stage of the supply chain depress the incentives for investment and growth at other stages in the supply chain. Traders are constrained by poor quality products, inadequate supply, and high cleaning costs whereas market intermediaries in the supply chain face high assembly costs, high market risk and cash flow problems. These factors undermine private sector incentives for improving markets, and in turn act as a disincentive to farmers to produce and supply quality and differentiated products with desirable market traits.
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