<!-- Start of picture text --> Policy Research<br><!-- End of picture text --> <!-- Start of picture text --> Agricultural Policies<br><!-- End of picture text --> WPS 823

- This paper a product of the Agricultural Policies Division, Agriculture and Rural Development - Department is part of a larger effort in the Department to assess the division of responsibilities between the public sector and the private sector in the provision of agricultural services and in agricultural<sup>marketing</sup> activities. Copies are available free from the World Bank, 1818 H Street NW, Washington<sup>DC 20433.</sup> Please contact Cicely Spooner, room N8-035, extfnsior- 30464 (44 pages). January 1992.

Does liberalization of agricultural markets and an expanded role for the private sector result in a competitive market structure in Africa? Jaffee empirically investigates the organization and development of a dynamic African exportoriented sectorKenya's horticultural exports - in which the private sector has long had a dominant role.

Jaffee highlights the sector's impressive pattem of growth over the past two decades and examines the (ovwnership) characteristics of participating private firms, the competitive pattem among those firms, and the institutional means by which they procure raw materials for processing and export.

.-He finds that despite the Kenyan government's direct investments in processing and trading activities and its application of regulations and targeted support measures to strengthen the role of Kenyan Africans in the horticultural trade, most of this trade remains controlled by foreign-owned companies or members of Kenya's small minority Asian and European communities.

Various foreign and local investments have incorporated Kenyan Africans (as shareholders, employees, or suppliers of raw materials), or have stimulated the suppliers to invest in horticultural production or tradc - but the basic pattcrns of o nership anri f ontrol pose potential political problems, as the sector is now the fastest-growing component of Kenyan agriculture and trade. Concems are growing about who is benefiting from this expanding trade.

Mluch of Kenya's horticultural trade is based on contracted or vertically integrated supply arrangements for raw materials, rather than open market ties between producers and processors/ exporters. Open market procurement of raw materials would **prc** "ably entail high transaction costs and risk, but the importance of integrated, contract-based links between producers and marketers calls into question the often-expressed assumption that liberalizing Africa's markets will produce competitive, decentralized private market structures.

Various forms of centralized private control may indeed be preferable to centralized public control, but Kenya's experience with horticultural exports suggests that when an African country such as Kenya privatizes agricultural processing and (export) marketing, the government must find a better way to monitor and control dominant firms, to get companies to involve smallholder farmers in raw material procurement operations, and to improve the farmers' bargaining position with centralized contracting firms.

Thc Policy Rescarch Working Paper Series disseminates the findings of work under<sup>way inLhcBank. An objective of the series</sup> is to get thesc findings **out** quickly, even if prescniahions are less than fully<sup>polished. The findings, interpretations, and</sup> conclusions in these papers do not necessarily represent ofricial Bank policy.

Produced by the Plolicy Research Disscniination Center