Factors that affect the supply of a particular commodity in the food system are production
variability due to weather, technology, availability and access to productive resources (land
and inputs), stock levels, net imports, food assistance, and government regulations. Factors
that affect the demand for a particular commodity are income, tastes and preferences, and
population issues (level, growth rate, and rate of urbanization).
2.3.2 What is a market?
Markets are where buyers and sellers come together to trade. Although most markets have a
physical location (e.g., Soweto Market in Lusaka), this is not always the case. In some
countries, markets even include the
. In the absence of government set prices
(administered prices), markets are where prices are determined. Markets also coordinate
transactions between the original producer through to the final consumer. It is the structure
and behavior of the different participants in the marketing system that will determine the
efficiency of movement of commodities through the system, and the level of distortion that
is incorporated in a price.
2.3.3 How are markets organized and what is the impact on prices?
Markets are organized in a variety of ways, all of which have an impact on the resulting
price signal that generated. The structure of a market or subsector
(how it is organized)
strongly influences the behavior of participants in the marketing aspects of that subsector,
which in turn strongly influences the performance of that subsector. Knowing how the
marketing of a particular commodity is structured will help in understanding and
interpreting prices. The structure of a subsector includes the number and size of buyers
and sellers, the ease (or difficulty) that buyers and sellers can enter the market, the size of
the market, the degree of specialization required for the specific subsector, and the degree
of coordination between the different levels of the marketing system. A market is
competitive when there are numerous buyers and sellers, there are few impediments to
market entry, there is a high degree of coordination between different levels of the
marketing system, and the degree of product specialization is low. In this situation prices
are relatively free of distortions.
When there is active competition in markets and few distortions, it is easier to understand
the signal being sent through prices. In this situation the simple forces of supply and
demand tend to apply.
2.3.4 Some key marketing concepts
This section introduces a series of key market concepts that will be useful in price analysis.
Concepts presented here include the role of marketing agents, marketing margins, market
distortions, thin markets, market failure, and market sheds.
A subsector in this context is all aspects of the production through to consumer of a particular commodity.