Institutional Architecture

Formal-informal institutional linkages in the Nigerian agribusiness sector and implications for pro-poor growth

Aderibigbe S. Olomola, Nigerian Institute of Social and Economic Research (NISER)

High transaction costs in agribusiness operations and the generally high production costs in Nigeria have had adverse consequences on profitability and competitiveness in the agribusiness sector. The link between agribusiness firms and farmers at the local level is one of the institutional mechanisms which can serve as remedy if properly articulated and operated effectively. Although linkage in the form of contract farming has a long history in Nigeria, its role as an instrument for fostering pro-poor growth has not been substantiated and the desired policy context for its widespread application is conspicuously missing. Yet it has been argued that institutional interventions aimed at reducing transaction costs and risks are crucially important for farmers, traders and financiers to invest in smallholder agriculture; and to enhance pro-poor growth, policy actions must include promoting strong links between farm and off-farm sectors, outsourcing of administrative tasks and establishing longer-term contractual relationships. The institutional arrangements linking agribusiness firms (in the organised private sector) and farmers (in the informal sector), if thoroughly researched and well understood, can be greatly improved upon and subjected to policy actions capable of re-directing the economy towards rapid growth and poverty reduction. These links manifest in various forms of contract farming arrangements in the agribusiness sector involving firms and producers of food and non-food crops, though the ways in which their operations are supportive of pro-poor growth are yet to be fully understood. Thus, this study seeks to unravel the following key questions:

1. What is the nature of the links between key players in the agribusiness sector – processors and farmers?
2. What are the strengths and weaknesses of these links?
3. What factors influence the performance (success or failure) of the established links?
4. What are the roles of the various actors or facilitators in the links (government, private sector organisations, farmers' organisations, NGOs, etc.)?
5. What are the benefits and constraints?
6. How are contracts organised and enforced?
7. How are costs and risks shared and what incentives do they provide for all parties to the contract?
8. What are the sources of conflict and how are the conflicts resolved?

Delegation, contracts and enforcement in post-reform India: an institutional approach

Dibyendu Maiti and Sugata Marjit, Centre for Studies in Social Sciences

During the last two decades India has vigorously pursued economic reforms, including large changes in industrial and trade reform, in order to foster economic growth. These reforms have affected the organisation of production both within and across firms and especially between formal and informal sector firms. The Indian economy has moved to a higher trend rate of economic growth in the post-reform period, however, it is not clear whether the current growth phase will lead to significant poverty reduction in the long term; this will depend on the impact of the reforms of the competitiveness and growth of firms in the formal and informal sector firms in the organisation of production. In this context, this study sets out the following questions to be investigated:

1. What has been the effect of industrial and trade reforms on patterns of contracting between the formal and informal sectors?
2. How are the emerging contractual patterns shaped and influenced by economic, political and social factors?
3. What has been the impact of emerging contractual patterns on poverty?

In our study, we will investigate how social factors (caste and ethnic networks) and political factors (patron-client relationships and the behaviours of trade unions) in addition to economic factors such as reforms in trade and industrial policy, help to explain both the nature of the delegation of production from formal to informal units – who delegates, under what conditions and to whom? – and the impact of the out-sourcing of production on the productivity and competitiveness of firms – particularly those in the informal sector – and on the earnings of their employees. Our study will shed light on the dynamics of economic, political and social institutions being influenced by the reform process, which has, in turn, important implications for the growth and survival of small and marginal producers operating largely under informal contracts and competing with their formal counterparts in post-reform India; the study will be based both on primary and secondary data, and will involve the use of econometric and case study methods.