Who Should Bear the Risk When Markets Fail? A Deeper Look at Farmer Welfare, Productivity, and Policy Design

A short statement shared recently raises a deceptively simple but deeply structural question. Market failure risk should be borne by the market maker, not by the farmer. Farmers should bear operational and production risk only.

At first glance, this feels intuitively fair. Farmers work the land, manage crops and livestock, and face weather, pests, and yield uncertainty. Why should they also suffer when markets fail?

But agriculture does not operate in a vacuum. Once we look closely at how markets are structured and how power is distributed, the issue becomes far more complex.

 

When Gluts Happen, Who Really Pays?

In Malaysia, staple agriculture exists within a policy-shaped market. Imports are regulated or liberalised by government decisions. Buffer stocks and procurement are often controlled by large institutions or government-linked entities. Contract farming is weak, informal, or absent in many sectors. Prices are influenced by subsidies and interventions rather than pure supply and demand.

When a glut occurs under these conditions, farmers usually end up absorbing the losses. Not because they are best positioned to manage market risk, but because they are the most flexible and vulnerable actors in the system. They are fragmented, cash-constrained, and have little bargaining power. Crops cannot be “stored” indefinitely in the field, and debts do not wait for prices to recover.

This is neither efficient nor fair. It is simply convenient for the system.

 

Do Market Makers Should Bear the Risk?

The instinct to say “yes” is understandable, and partially correct. Those who control imports, procurement, inventory, and access to markets clearly have far greater ability to prevent or dampen gluts. They can adjust timing, volumes, and storage. Farmers cannot.

However, shifting all risk to market makers alone does not automatically improve farmer welfare or raise productivity. Risk removal without proper incentive design can create complacency, dependency, and inefficiency.

The real challenge is not choosing one party to blame, but designing a system where risk, control, and reward are aligned.

The Missing Piece: Assigning Risk Properly

Every node in the agricultural supply chain carries different types of risk and enjoys different forms of power. Farmers control production decisions and on-farm efficiency, so it is reasonable they bear operational and production risk. Aggregators and offtakers influence volume coordination and logistics, so they should carry risks related to mismatches in supply. Processors and wholesalers manage inventories and demand forecasting, so they should absorb risks related to storage and market fluctuations. Those who control imports, buffer stocks, and procurement policies are best placed to handle systemic market failure risks.

What we must avoid is a structure where certain actors enjoy upside benefits during good times, but escape consequences when things go wrong. When an actor has buyer power, policy access, or monopoly-like influence without corresponding downside exposure, moral hazard emerges.

That is when farmers become the default shock absorbers for everyone else’s decisions.

 

Risk, Incentives, and Productivity Are Linked

There is an uncomfortable but important truth in this discussion: completely insulating farmers from all forms of risk does not necessarily improve productivity.

Productivity grows when:

• Roles and responsibilities are clearly defined
• Risks are understood, measurable, and limited
• Rewards scale with effort and efficiency
• Losses are real but survivable

 

When farmers understand exactly which risks they carry and which risks are managed elsewhere in the system, they can make rational decisions. They invest in mechanisation, improve agronomy, adopt data-driven planning, and professionalise operations,because efficiency gains translate into real, retained benefits.

Clarity of risk ownership encourages optimisation. Confusion and arbitrary intervention do not.

This line of thinking may feel almost libertarian, and it may not sit comfortably with the traditional Malaysian policy instinct. But it does not mean abandoning social responsibility.

The Role of Policy: Not Less, But Smarter

This is not an argument for laissez-faire agriculture. Policy still plays a critical role, but its function should evolve.

Instead of suppressing price signals or shifting losses indiscriminately, policy should rebalance risk and reward at each node of the supply chain. Direct subsidies, for example, can support farmers without distorting market prices. They create an additional policy lever,allowing the government to pursue equity, food security, and national values without destroying incentives.

Over time, these choices shape the entire agricultural system. They influence who becomes a farmer, how many farmers remain in the sector, income-risk profiles, investment behaviour, mechanisation levels, and ultimately the productivity-versus-price balance the country is aiming for.

 

A Better Question for Malaysia

The real question is not whether farmers or market makers should bear the risk.

The real question is: who controls which levers, and therefore who must bear which consequences?

Fairness in agriculture is not about eliminating risk. It is about assigning risk to power. When risk, control, and reward finally align across the system, farmer welfare improves not through protection alone, but through productivity, resilience, and dignity.

Without fixing the structure, no amount of subsidy will ever be enough.