Identifying Market Opportunities for Rural Smallholder Producers › 2009 › 05 › ... ·...

Carlos Ostertag, Mark Lundy, María Verónica Gottret, Rupert Best, and Shaun Ferris

Identifying Market Opportunities for Rural Smallholder Producers

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Carlos Ostertag, Mark Lundy, María Verónica Gottret, Rupert Best, and Shaun Ferris

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Copyright © 2007 Centro Internacional de Agricultura Tropical

Reprint edition published by Catholic Relief Services, Baltimore, 2008.

ISBN 0-945356-42-0

First edition published 2007 byCentro Internacional de Agricultura Tropical(International Centre for Tropical Agriculture)Cali, ColombiaISBN 978-958-694-090-0

For information, addressCatholic Relief Services228 W. Lexington St.Baltimore MD 20201USAwww.crs.org

AGROVOC descriptors in English:1. Markets. 2. Farmers. 3. Small farms. 4. Small enterprises. 5. Rural development.6. Marketing. 7. Value added. 8. Market research. 9. Marketing techniques. 10. Profitability.

Local descriptors in English:1. Agroindustrial development. 2. Productive chains.

AGROVOC descriptors in Spanish:1. Mercados. 2. Agricultores. 3. Explotación en pequeña escala. 4. Empresas pequeñas.5. Desarrollo rural. 6. Mercadeo. 7. Valor añadido. 8. Investigación de mercados.9. Técnicas de mercadeo. 10. Rentabilidad.

Local descriptors in Spanish:1. Desarrollo agroindustrial. 2. Cadena productiva.

I. Lundy, Mark. II. Gottret, María Verónica. III. Best, Rupert. IV. Ferris, Shaun. V. Tít.VI. Centro Internacional de Agricultura Tropical. VII. Ser.

AGRIS subject category: E20 Organization, administration and management of agricultural enterprises or farms / Organización, administración y manejo de empresas agrícolas o fincas

LC classification: HD 9014 .O7

Republication of this report is made possible by the generous support of the American People through the United States Agency for International Development (USAID) Bureau for Democracy, Conflict, and Humanitarian Assistance’s Office of Food for Peace under the terms of Catholic Relief Services’ Institutional Capacity Building Grant Award Number AFP-A-00-03-00015-00. The contents do not necessarily reflect the views of USAID or the United States Government.

Contents

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PagePreface vii

Acknowledgments viii

Introduction and Background to the Guide 1Purpose 1The Guide’s General Structure 2How to Use this Guide 4

Section 1. Marketing Concepts and Forming a Market Research Team 51.1. Marketing Basics—What is Marketing? 61.2. Understanding the Context of the Smallholder Rural Producer 91.3. Meeting the Marketing Challenge 121.4. The Market Chain 131.5. Value Addition 141.6. Marketing Strategies Based on “Risk Assessment” 151.7. Forming the Market Research Team 16Exercise 1.1. Mapping an Extended Product Chain 17Exercise 1.2. Visioning a Value-Added or Processed Product 19Exercise 1.3. Defining Market Growth Strategies for a Project Area 20

Section 2. Designing and Conducting a Rapid Market Survey 222.1. Defining Market Research Objectives 232.2. Defining Market Research Strategies 252.3. Developing a Market Research Plan 282.4. Collecting Market Information 372.5. Analyzing Data and Preparing Product Option Report 41Exercise 2.1. Determining Research Tool Requirements 44Exercise 2.2. Questionnaire to Study Product Purchasing Conditions 47Practice 2.1. Observing Product Categories in a Supermarket 50

Section 3. Assessing and Selecting Market Options 523.1. Establishing Appropriate Evaluation Criteria 533.2. Characterizing Market Options Using Summary Matrices 553.3. Defining the Second Market Option Portfolio 653.4. Final Evaluation of Market Options by the Rural Community 663.5. Defining the Final Market Option Portfolio 713.6. Preparing the Final Report 723.7. Preparing for Enterprise Development 723.8. Conclusions 73Exercise 3.1. Agronomic Characterization of a Crop 74Exercise 3.2. Marketing Characterization of a Product 75Exercise 3.3. Agroindustrial Characterization for a Processed Product 77Exercise 3.4. Designing a Product Card 79Exercise 3.5. Preparing a Timetable for Final Evaluation with a Rural Community 82Practice 3.1. Survey of Decision Criteria for Crop Selection 85

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PageAppendices

1. Format for Preparing a Production System for a Crop 892. Financial Profitability Model for a Product: Example of Lulo 933. Format for Ranking Market Options 97

Glossary 99

Bibliography 109

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PageList of Figures

1. Selection of market options based on three levels of selection/discard 42. The market chain 133. Market links extend beyond the intervention area 244. Planning steps for a rapid market survey 285. Profitability analysis: “gross margin” for beans in Uganda 606. Graphic interpretation of the financial rate of return 637. Format of a product card with information on a market option 678. Product card for uchuva (cape gooseberry) 689. Market facilitator, discussing product options with farmers 68

List of Tables1. Marketing variables or the marketing mix 82. Product-market growth matrix 153. Sources of secondary information 294. Initial survey questions to establish contact information 315. Key questions for each research strategy 326. Quality aspects of grains, fruits and vegetables 327. Matrix format for a questionnaire on purchase conditions 338. Market survey checklist 359. Planning matrix to determine research tools 36

10. Screening procedure for the initial set of market options 4311. Suggested structure for the rapid market survey’s final report 4312. Agronomic characterization matrix 5613. Livestock characterization matrix 5714. Agroindustrial characterization matrix 5715. Marketing characterization matrix 5816. Profitability gross margin analysis for cassava processing in Ghana 6117. Financial characterization matrix 6118. List of activities for planning and conducting an evaluation meeting 6919. Checklist for conducting an evaluation meeting 7020. Example of a table used to present results of an evaluation meeting 71

List of Boxes1. Questionnaire for a supermarket produce manager

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Contents

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About the Authors

Carlos Felipe OstertagCorresponding author, based in CIAT headquarters, Cali, Colombia. Dual Colombian/United States ofAmerica National.Senior Marketing and Business Administration Officer, Rural Agroenterprise Development project.E-mail: [email protected]

Mark LundyBased in CIAT headquarters, Cali, Colombia. United States of America National.Senior Research Fellow, Rural Agroenterprise Development project.E-mail: [email protected]

María Verónica GottretBased in CIAT headquarters, Cali, Colombia. Bolivian National.Senior Research Fellow, Rural Agroenterprise Development project.E-mail: [email protected]

Rupert BestBased in FAO offices, Rome, Italy. British National.Senior Technical Advisor for the Global Forum for Agricultural Research.E-mail: [email protected]

Shaun FerrisBased in CIAT headquarters, Cali, Colombia. Dual British/Australian National.CIAT Project Manager, Rural Agroenterprise Development project.E-mail: [email protected]

Preface

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T his Marketing Guide for SmallholderRural Producers was first published inSpanish in 1999 as a training material for

use in Latin America. The manual wastranslated into English later that year and hassubsequently been used as a training materialfor development projects in both Africa and Asia.

This new English version has been extensivelyupdated based on feedback obtained fromcolleagues and workshop participants. Thisedition is the third title within a series of best“good practice guides” describing thecomponents of “Participatory and Area-basedApproach to Rural Agroenterprise Development”.The series provides a methodological tool kitdeveloped by CIAT’s Rural AgroenterpriseDevelopment Project.

The aim of this set of methods is to meet theentrepreneurial development needs of serviceproviders1, i.e., those institutions and agenciesthat support the development of ruralcommunities. The methods can be used forcapturing and systematizing market informationleading to the development of newagroenterprises and effective local businessservices.

The goal of this work is to enable serviceproviders to empower rural communities withskills to engage more effectively in themarketplace so as to increase their income, their

capacity to innovate and ultimately improvetheir livelihood options. To date, the titles in theCIAT agroenterprise “good practice guide” seriesfor agroenterprise development include:

· Strategy Paper: A Participatory and Area-based Approach to Rural AgroenterpriseDevelopment.· A Guide to Developing Partnerships, Area-based Resource Assessment and PlanningTogether.· Identifying Market Opportunities for RuralSmallholder Producers.· Strategies to Improve the Competitiveness ofMarket Chains for Smallholder Producers.· Evaluating and Strengthening Rural BusinessDevelopment Services.· A Market Facilitator’s Guide to ParticiptoryAgroenterprise Development.· Collective Marketing for SmallholderProducers.· A Guide to Rapid Market Appraisals toSupport Smallholder AgroenterpriseDevelopment.· A Guide to Policy Analysis for SmallholderAgroenterprise Development and Advocacy.

This guide combines market research, productconcept evaluation and business analysistechniques, within a practical, innovativeapproach for identifying market opportunities forrural agroenterprise development projects withina defined area2 or territory. The participatorymethods enable rural producers to make keydecisions in market analysis and evaluation.

2. Area can also be interpreted as a territory and in theFrench and Spanish versions of this text, where theterm territory or territoire is used.

1. The term “service providers” refers to public agenciesfor research, extension and local administration andprivate sector actors and agencies involved in inputs,extension, business planning, finance, marketfacilitation, storage, etc.

Acknowledgments

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The lead author, Carlos F. Ostertag wishesto express particular thanks to thefollowing people for their specific inputs

and support in preparing this guide:Joyotee Smith, Teresa Gracia, Carlos A. Patiño,staff members of CIPASLA, William Edwardson,Jacqueline Ashby and Rupert Best for their

support during the development of themethodologies presented in this guide andduring its production. I would also like to thankthe many colleagues and trainees in LatinAmerica, Asia and Africa who have providedquestions and comments for improving thisguide.

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Introduction and Background to the Guide


This guide is the third in a series designedto support agencies implementing aparticipatory approach to rural

agroenterprise development. These guides aredesigned for use by service providers inassisting farmer groups and local entrepreneurswithin a community or “area” to develop skillsin agroenterprise development.

The aim of this guide is to provide a simple andsystematic participatory method for gatheringmarket information to identify products andservices for agroenterprise development. Thisapproach enables local producers to undertakemarket studies and identify investment optionsbased on their local knowledge and on marketdemand, rather than relying on pre-selectedproducts that have been decided by externalexperts.

The starting point for this guide is an analysisof the client group and the establishment of aresearch team to identify new marketopportunities. This process enables serviceproviders and farmers to take a fresh look attheir existing production portfolio and also toexplore options for diversification based on theagronomic, marketing and financial merits ofselected products.

The main output of the work from this guide is a“short list” of prioritized demand-based marketopportunities. This list of products will bereviewed by farmer groups to select a product (orproducts) for immediate investment in the case ofexisting products, or for more detailed marketanalysis leading towards the development of newagroenterprise opportunities.

For those actors who are following the full CIATprocess, this guide is the second step in theprocess. At this point you will have completed thefollowing tasks:

From the work in Good Practice Guide 2 youwill have:1. Selected an area.2. Undertaken a biophysical and

socioeconomic analysis of your area.3. Developed a vision for your community and

defined the rules of engagement.4. Identified partners who will constitute the

agroenterprise working group.5. Identified farmer organizations interested in

adopting an agroenterprise approach.

PurposeThis guide aims to promote a greater marketorientation when working with ruralsmallholders. The specific purpose of this

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approach is to enable service providers andfarmer groups to evaluate their marketingopportunities based on market DEMAND. Thismethod aims to promote diversification and findways to add value to agricultural products.

This method will also help in the identificationof better market opportunities for existingproducts but with emphasis on finding ways ofincreasing income through collective or groupmarketing, and by evaluating current practiceand finding ways to upgrade methods forproduction, marketing and business relationsin order to be more competitive in themarketplace.

The guide proposes a participatory procedurethat involves smallholder rural producer fromthe beginning of the research process to thefinal selection of products for enterprisedevelopment. Service providers are alsoencouraged to use this approach to support theneeds of more vulnerable groups within theirtarget communities such as women’s groups,the youth and elderly, who may require specialconsideration in making suitable productselections.

Within the context of rural agroenterprisedevelopment, the aim of a market opportunityidentification process is to:

(i) Evaluate market demand and buyingconditions for existing products with

reference to collective marketing within agroup.

(ii) Evaluate market options for new productsto encourage diversification, with anemphasis on higher value goods.

(iii) Evaluate the market options for valueadded products, so that service providerscan assist farmers in shifting from raw toprocessed goods.

In each case, critical marketing information isgathered on products and buyers to gain abetter understanding of product supply anddemand characteristics. It is important toclarify from the beginning that the purpose ofthis market opportunity identification methodis not to replace existing smallholder crops,products or production systems, especiallythose that are critical for food security, butrather to offer options for increasing farmerincome through increasing marketcompetitiveness, diversifying products oridentifying more lucrative markets. This isimportant given the relatively small risk-taking capacity of most smallholder ruralproducers.

The Guide’s General StructureThe guide is divided into a series of stepwisesections which can be used by the serviceprovider to facilitate market linkage forsmallholder producers.

Understand marketingconcepts

Designing and conducting arapid market survey

Assessing and selectingmarket options

First market optionportfolio (long list)

Defining selection criteria

Characterizing marketoptions

Evaluation of market optionswith the rural community

Design process for filteringproducts

Discard obviously unsuitableproducts

Prioritize 3-5 market optionportfolio (short list)

Final market optionportfolio

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Section 1. Marketing Concepts andForming a Market Research TeamThe guide starts by explaining key concepts thatare useful when designing a market opportunityidentification (MOI) process for smallholder ruralproducers in a given area. These conceptsinclude the marketing function, market research,the social and economic context of smallholderrural producers, basics of the production chain3

concept, basics of rural agroindustry, Ansoff´sproduct-market growth matrix, and key macrofood consumption trends. The guide alsoexplains how research teams can be organized tosupport the participation of smallholder ruralproducers.

Section 2. Designing and Executing aRapid Market SurveySurvey objectives and strategies are initiallydefined to evaluate preferred scales of marketanalysis including local, national, and evenregional/international markets. The guideexplains how to design research instruments andhow to develop a questionnaire or checklist.Potential market options are discovered throughgathering secondary and primary data from arange of market sources. This work will develop a“long list” of market options.

The options in this list will be based on marketdemand and the type of “research strategy”4 thatwas selected by the market research team inconsultation with farmer group(s) prior toundertaking the rapid market study. Dependingon the suggestions of the local community andprevious resource assessment, a “research

strategy” may require a focus on specific productgroup(s), such as livestock, non timber forestproducts, agroindustrial products, or handicraftproducts.

The rapid market survey will generate a “long list”of potential products with market prospects.However, this list is likely to be too long for moredetailed studies. Therefore a first level of discardis applied to this first product portfolio.

Filter 1. Obvious discardsThe first level of discard removes products thatare not suitable for further consideration. In thiscase, the research team will review the list ofproducts that have been included in the productportfolio, prior to any further systemization orcollection of information, to eliminate productsthat clearly cannot be grown in the area foragronomic or environmental reasons. This willinclude products that are unsuitable forsmallholder producers, that require too high alevel of investment, sophisticated productionmethods, or are culturally or sociallyunacceptable.

Section 3. Assessing and SelectingMarket OptionsThis section deals with establishing a series ofevaluation criteria by which the “long list” ofmarket options identified in the previous phase,can be distilled down to an objectively verified“short list” that will be reviewed by the farmergroup. The discard process is based on feasibility,business attractiveness, viability on small farms,risk and contribution to production sustainability.The three levels of product filtering are listedbelow and schematically represented in Figure 1.

Filter 2. Market Option CharacterizationThe second level of discard is based on anobjective analysis of agronomic, agroindustrial,livestock, commercial and economiccharacterization. Summary tables/matrixes areused to systematize information based oneconomic characteristics, marketing requirementsand profitability.

Filter 3. Final Evaluation of Market Options with theRural CommunityThe final selection of products is based onproducer preferences. This process can be donefor mixed groups or through a series of meetingswith producers being associated according to theirwealth ranking so that investment options can bemade according to the levels of risk thatproducers want to take on.

3. The terms production chain, market chain, supplychain are used synonymously, to refer to thebusiness links that allow the flow of goods, servicesand finances between producers, intermediariesand consumers. The market chain is differentiatedfrom the value chain in the sense that businesstransactions and investments in production chainsare mainly conducted on an informal basis,whereas value chain approaches focus onstrengthening business relationships and productquality standards between market actors.

4. “Research Strategy” is a term used in this text todefine a product or group of products, such ascereals, pulses, temperate fruits, livestock, that areidentified by farmers as products which they wouldlike to learn more about in terms of their marketpotential. Generally a “product group” is based onwhat farmers are already producing or are interestedto invest in due to a local comparative or competitiveadvantage in the selected project area. The “productgroup” is used so that market studies ensure dataon specific products is collected as part of themarket survey.

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How to Use this GuideThis guide is for rural development practitioners(professionals and technicians) in the public andprivate sectors, who are dedicated to research,development or training. The guide can be usedto facilitate field work or as a training material.The guide contains exercises, practices and aglossary to facilitate training processes. Thisguide could also be used by high school, collegeand university professors teaching subjectsrelated to agricultural sciences, ruraldevelopment, agroindustry, and participatoryresearch.

Use of content and level ofparticipationThis guide is designed for use in its entirety,because it describes a logical process. The firstsection provides important concepts that canenrich the subsequent research and analyticalprocess. The second section, the Rapid MarketSurvey, generates the first product portfolio,

Filter 1: Obvious discardCriterion: Can be grownin area, investment limit

Filter 2: Selection matricesCriterion: Production,marketing, financial/

profitability

Filter 3: Farmer decisionsCriterion: Farmers have

casting vote onfinal selection

Initial longlist of

products

Finalselection of

marketopportunities

by farmers

Filter 1: Obvious discardMany options: 10–15

Filter 2: Selection matrices10–15 down to 3–5

Filter 3: Final selection3–5 down to 1–2 for

investment and/or marketchain analysis

Figure 1. Selection of market options based on three levels of selection/discard.SOURCE: Adapted from Abele et al. (2004).

Selectionrates

while the third section provides a two-stagescreening procedure to select an appropriatemarket product for smallholder producers. Theexecution of the complete methodology will resultin a solid data that can be used for soundbusiness decision making that will reduce risk.

The full process can take several weeks toimplement, analyze and formulate a report. In thecase of timing or funding constraints, the processcan be reduced and some parts such as theRapid Market Survey, can be executed with alesser degree of participation and include fewermarket visits. Although a higher degree ofparticipation by farmers will either increase costsor take more time, we believe that this iswarranted as the local actors will gain newmarketing skills through a “learning by doing”interaction. The service provider should discussand negotiate this practical element with theclient groups so that information is gatheredwithin an agreed resource allocation.

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Marketing Concepts and Forming a Market Research Team

SECTION 1

Marketing Concepts and Forming a MarketResearch Team

General ObjectiveTo gain a better understanding of the keybackground concepts to marketing and how toapply this knowledge in planning a marketopportunity identification study.

Specific ObjectivesAfter completing this section of the guide, thereader or trainee will be able to:

· Understand marketing basics and themarketing mix.· Recognize the social and economic context ofsmallholder rural producers.· Be aware of the major trends in foodconsumption.· Grasp the basics of a market chain.· Understand how to assess risk, related toproducts and market growth strategies.· Establish a research team to plan andexecute the market study.

Orienting Questions1. Why are most smallholders in developing

countries finding it difficult to compete inthe marketplace?

2. Describe a possible route travelled by abanana from a small farm to the finalconsumer.

3. Make a list of five products that can bederived from potatoes, and for each productdescribe the type of processing that would berequired.

4. What modifications can you think of, relatedto your personal or family’s foodconsumption trends in the last 10 years?

5. Describe possible growth strategies for aproject area in terms of products offered andmarkets targeted.

6. Why do you think it is important to includerepresentatives of smallholder ruralproducers in the team that will plan andexecute a market opportunity identificationprocess for them?

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1.1. Marketing Basics—What is Marketing?

This section of the guide presents theory andconcepts useful for members of a researchteam, when planning and executing a marketopportunity identification study. Theinformation is especially pertinent for serviceproviders who lack a solid business andmarketing background. The following theoryand concepts aim to enrich the researchprocess. If you already have a goodunderstanding of marketing, skip thissection and go to Section 2.

In today’s ever more commercial world, successin the marketplace is based upon the ability ofindividual producers and companies to offernew and improved products at ever morecompetitive prices. They should also developand maintain an expanding base of long termcustomers. Within this environment themarketing function is a powerful business tool.It is used to identify, quantify and meet theneeds, wants and desires of people, people likeyou.

Marketing is often described as the “delivery ofcustomer satisfaction at a profit”, however,there are many elements to the marketingfunction. As consumers have become morediscerning, marketing has also become a moresophisticated area of research and social

interaction. As markets have become a vitalelement of our lives, attitudes towardsmarketing have changed and businessmanagement has become a more central part ofthe supply of goods and services. The emphasisof marketing has also changed dramaticallyover the past 50 years taking on new prioritiesto meet changing consumer needs. Whereasbusiness’s in the 1950-60’s focused onproduction, changes in consumer attitudes andpurchasing patterns, meant that greateremphasis was required in the area of productquality to retain customers. Sales teams duringthe 1970s-80’s adapted from the “hard sell” andreaching new customers, to placing moreattention on understand how buyers needs,attitudes and trends affect buying patterns,with new products being developed to suitconsumer trends. Most recently greaterattention has been placed on social marketingin order to retain customers, based on theirdesire for products that are environmentallysustainable, have greater food safety and arenot based on exploitative working conditions.

This rapid evolution in marketing has beendriven by the need to remain competitive in themarketplace, to attract new customers with thepromise of better value and retain existingcustomers, by delivering long term satisfaction.

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The role of marketing is therefore not only tocapture “our hearts and minds” today, but alsoto identify what we will be needed tomorrow.

Due to the increasing exposure to marketing,and its concerted effort to sell things to people,there are differing views of marketing rangingfrom “an essential component of soundbusiness practice” to “a fraudulent activity usedto persuade people to buy goods they don’t needat inflated prices”. Like it or not, marketing isan ever more pervasive element of our dailylives. According to Kotler and Armstrong (2001),marketing is defined as “a social andmanagerial process by which individuals andgroups obtain what they need and want throughcreating and exchanging products and valuewith others”. The process providing goods andservices that are essential to function or simplyimprove people’s well-being.

There are two distinct categories of need thatmarketing aims to service. The first areaincludes basic physical requirements, such asfood, clothing, shelter and safety; social needs,related to belonging and affection; andindividual needs for knowledge and selfexpression. The second area includes wants ordesires, which go beyond immediaterequirements for basic human operations andsocial interactions. Desires are a seeminglyunlimited set of ideas, products, services thatpeople seek in order to satisfy perceived need.The main limitations to satisfying perceivedneeds are the resources to pay for them.Whichever category, the consequences aresimilar in the marketplace, in that, when wantsare supported by the ability to pay, these wantscan be translated into demands.

If we consider products and services as benefits,consumers will choose products and servicesthat provide them with the best value formoney. As value is based on an individual’sestimation of satisfaction, there are manydegrees of fulfilment when making a purchase,and decisions are based on a multitude ofcultural, ethical, moral, climatic and wealthrelated dimensions. To address the valueprinciple in an exchange, producers andmarketing agents have developed a mesmerizingrange of quality, price and emotionally loadedoptions. Even in the case of buying what mayseem to be an innocuous pair of sports shoes;consumers face an incredible range of options.Given the choice, at one end of the spectrum

some consumers will seek a simple pair ofunbranded shoes that will provide thenecessary protection for playing a sport at lowcost. Whereas at the other end of the spectrum,other consumers will select the latest “Nike”sports shoes, endorsed by a world renownedsports hero; these shoes apparently offer morethan the regular shoe, they will provide ultimatelevels of protection, comfort, luxury and equallyimportant they offer the less tangible but highlyvalued added aspects of style, glamor and peerstatus. Therefore marketing is also based on theidea of matching a range of products at differentprice-value levels with consumer needs, desiresand their ability to pay.

Given this somewhat globalized, view ofmarketing, how does this relate to smallholderfarmers located in remote rural settings?Perhaps at first glance, not much, however,when we analyze the situation of smallholderfarmers, we recognize that they have all thesame elements of a commercial company.Farmers have valuable assets in their land andlocation, they have knowledge about what isgrown or produced in their locality and theyhave access to labor and natural resources. Aswith any other business, they produce a rangeof goods and services for others in thecommunity and they know what the communitylikes to buy, in general, and have an idea ofwhat they can afford. Therefore farmers makedecisions on what they produce to meet localconditions, using the resources that areavailable to them.

Although farmers may face difficulties in regardto infrastructure, social organization, marketaccess and income levels, all farmers sell aproportion of their goods and services. Thereforeall farmers have a sales and marketingchallenge and could benefit from increasingtheir knowledge about marketing functions andhow to engage in the marketplace.

This guide aims to assist service providers togain a better understanding of the marketingoptions and relationships that a selectedfarmer/client group can develop in order to selltheir goods and service more profitably and on amore sustainable basis. Given this introduction,the first rule of marketing for smallholderfarmers is to:

Produce what you can sell, rather than tryingto sell what you have produced.

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Table 1. Marketing variables or the marketing mix.

Marketing Definition Aspects of this variable includevariables

Product Everything that we sell. That which can satisfy a Variety, quality, design, characteristics, brand,need or a want; includes material objects, services, packaging, sizes, services, guaranteespersons, places, organizations and ideas

Price The monetary value that a seller seeks from a Price lists, discounts, price margins, creditbuyer conditions

Place Distribution and marketing channels A series of Market sales points, spatial coverage of marketindependent organizations involved in the process of sales points, locations within markets,allowing the consumer or industrial user to use or inventories of products, transportationconsume the product or service channels

Promotion The aspect of the mix that consists of convincing or Promotion includes advertising, personal sales,persuading the audience of the quality or features of trade and consumer promotions and publicthe products or services offered by the organization relations)

Policy Developing an enabling political and administrative Local policy, national policy and internationalenvironment, such that smallholder rural policies related to business development,businesses can develop in a sustainable manner entrepreneurship and trade

Whilst, this appears to be obvious advice, toachieve this goal in the agricultural contextmeans that farmers and service providers needto know what consumers are demanding in themarketplace and how the laws of demand andsupply affect prices, price trends, volumes beingsold, and what is required to meet these marketopportunities.

The marketplace generally operates on the lawsof demand and supply with the basic principlethat as supply increases, prices fall and vice-versa. To make informed decisions, clients(farmers, processors and traders) need to knowhow their production fits within this law in themarketplace.

We must clarify our terminology with thefollowing definitions:

· Supply: the quantity of products thatproducers can offer for sale.· Demand: the quantity of products that theconsumers can buy.

Although the law of supply and demandappears to be simple, in reality the dynamics ofthe marketplace are extremely complicated.This section aims to provide some insight intothe many factors that affect conditions withinthe market. However, before we consider thesefactors, let us further define what marketingencompasses.

The marketing function is one of the mainbusiness activities of an enterprise, it can bedefined as “a business activity that focuses onidentifying and satisfying market needs, through aprofitable and socially responsible production andsupply of products in the form of goods and/orservices” (Kotler and Armstrong, 2001). Thisbroad definition encompasses market research,new product development and the planning andexecution of marketing strategies.

Marketing plans or strategies often refer to themarketing variables or the marketing mix(Table 1). In many marketing reference books, themarketing plan is based on what is commonlyknown as the four, or more recently the five, Ps:product, price, place, promotion, policy.

Marketing variables are aspects that are under thecontrol of the enterprise and managed to obtainthe desired response from the marketplace. Themarketing plan is used by the enterprise team todesign and implement a marketing strategy, andthis aspect is generally the key component to anybusiness plan.

The methodology in this guide includescomponents of market research, business andmarket analysis, and financial profitability models.The rapid market survey is an example of marketresearch. Readers who are interested in moredetailed information with regard to the marketingtopic should consult marketing textbooks; thoseby Kotler and Armstrong are highly recommended.

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1.2. Understanding the Context of the Smallholder RuralProducer

Traditionally, smallholder rural producers indeveloping countries of Latin America, Africaand Asia have focused their efforts onproducing sufficient amounts of food to supporttheir families and thereafter to sell smallamounts of surplus. This subsistence approachis risk adverse and whilst it can assist acommunity to avoid famine, it is not a rapidladder out of poverty. It was hoped that withtime, the farming community would progressfrom a focus on food security into morecommercial farming systems; however, for manyfarmers in the developing world this has nothappened. The majority of farmers in developingcountries perpetuate system of low input, lowoutput, low income.

Despite their production potential, smallholdersconfront serious constraints in profiting fromtheir resources due to lack of investment inbasic infrastructure, limited access to newtechnologies and services and unfavorablegovernment and global policies. Major globaltrends are also rapidly changing the ruraleconomic environment and communities needto devise ever more innovative ways of usingtheir labor, resources and skills to takeadvantage of new business opportunities.

In many cases, current socioeconomic trendswill continue to marginalize increasing numbersof smallholder rural producers with particularlynegative effects on those that are least organizedand distant from markets. To address thesechanges, rural communities are adoptingvarious strategies, including agriculturalextensification, intensification, diversificationand using a combination of on and off-farmactivities to achieve a living wage. When theseoptions fail, communities fall into chronicpoverty situation and increasingly under orunemployed youth are migrating from poor ruralareas into poor urban areas.

Some of the key trends that are affecting themarketing environment for smallholders include:

Population growthOne of the more positive trends for agriculturalproduce in developing countries is due to rapidlyrising numbers of people, who create increasingdemand for volumes of agricultural productsand agricultural support services.

GlobalizationThe effects of market liberalization across theworld coupled with innovations in finance,

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5. Fair Trade = A small segment of the global market inwhich socially-sensitive traders and consumers offerhigher prices and better conditions to poorsmallholders and other marginalized actors in thechain.

6. EBA–EU = Everything But Arms initiative, waivestariffs for virtually all products for least developedcountries.

7. AGOA–African Growth and OpportunitiesAgreement, offers tax exemption for fibre productsinto US markets.

8. LDCs least developed countries, DCs developingcountries.

communications and transport, has led toopportunities for global trade of products andservices. This new global market is havingprofound effects on how business is done, withplayers from across the world now competingwithin local, regional and internationalmarkets. To remain competitive in thisenvironment requires strategies that increaseefficiency and this is generally achieved throughincreasing economies of scale. One of the majoreffects of globalization has been a shift inmarket power away from the producer end ofthe market towards the wholesalers and thishas placed great pressure on the marketprospects for smallholders.

World trade negotiationsThe World Trade Organization (WTO) wasdesigned to support greater equity of tradeacross nations. However in the agriculturalsector, there has been limited success inopening new markets in the industrializedcountries for rural producers in the developingworld. Attempts in the 1980’s, to developinternational commodity agreements failedwhen importing countries opted out of theseprotocols. Alternative channels such as FairTrade5 show promise but have been slow tohave widespread impact. New trade initiativessuch as, EBA6 and AGOA7, which offer zero orreduced tariffs from LDCs8 have not beenexploited effectively as most developingcountries lack the finances and infrastructureto access these new market options. The latestfailure of the WTO Doha round has led to animpasse between developing countries whowant more access to markets and industrialcountries who are maintaining their subsidysystem to support their farming community.

Longterm decline in commodity pricesReal prices of commodities have steadilydeclined over the past 100 years. Thisdownward trend has also accelerated with the

collapse of the commodity agreements in the1980’s and the effects of globalization.Commodities from the mid 1990s have beentrading at all time low levels. The effect of theselow prices has had a seriously negative impacton economic growth in many developingcountries, particularly those most dependent onthe trade of a narrow range of primarycommodities, such as coffee, tea, rubber, riceand milk.

Market formalization and the rise ofthe supermarketAt the same time that global markets havebecome more liberalized, the food markets in theindustrialized countries of Europe, NorthAmerica and Asia have maintained a steady shiftfrom informal to formalized market channels. Theformal markets are characterized by standardizedbranded products and the use of integratedmarketing, logistics and financing processes. The“rules of the game”, in terms of product types,methods for production, processing, procurementand payment are typically set by internationalsupermarkets, such as Carrefour, Tescos andWalmart. The goods and services offered by thesemodern market chains are closely tied to thelifestyles of urban consumers who want yearround access to high quality, trustworthy goods,at consistent prices. Similar principles apply toother modernized food outlets, such as fast foodrestaurants, hotels, institutional buyers, tourismand travel companies, essentially all markets,where international food standards are indemand.

Food safety regulationsConsumers and processors are increasinglydemanding agricultural products with greaterquality, safety and traceability. Demands forhealth foods, particularly fruits and vegetables,are increasing and the market for organicproducts continues to show growth, above 20%per annum. However, trends even in thesemarkets indicate that mainstream producers areincreasing their production size to supply largerretail markets. Traceability issues offer someproducers an opportunity to protect particulargenetic, location- or process-based products,through appellation schemes, but there can beconsiderable cost implications to suchidentification systems.

Food consumption trendsIn addition to the global trends there are specifictrends to food consumption that researchers

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should be aware of when seeking new optionsfor farmers. This knowledge can help identifymarket opportunities for both traditional andnew potential products.

Convenience productsAs a result of urbanization and increasedfemale employment, consumers are increasinglyattracted to foods that are practical and quickto prepare. New cooking technologies such asthe microwave cooker have stimulated thisarea. Convenience products are generallyprocessed, or transformed, and are packagedand labelled. Some examples of convenienceproducts are: packaged, dried, refrigerated, pre-cut vegetables for home-made salads, bottledfruit juices, dairy products; beverage, soup andcake mixes; pre-cooked, frozen foods, pre-cooked, frozen meals; packaged snacks; cannedfood; bottled fruit and vegetables; processedmeats, etc.

Consumer demands for healthy foodsConsumers are increasingly aware of thebenefits of eating healthy, balanced andnutritious diets, including natural and organicproducts. The following consumer trends areshowing rapid growth:

· Health foods, including fresh produce,dietary fiber, fruits and vegetables.· In industrialized countries the organicmarket is growing at 20% per year.· There is increasing interest in eating low-calorie (light) foods.· There is renewed interest in naturalmedicines, based on the use of naturalmedicinal plants.

Exotic/novelty foodsConsumers in developed countries are showinggreat interest in exotic tropical products, suchas fresh and dried fruits, vegetables, nuts,herbs and spices.

Off-season purchasingConsumers in developing countries andincreasingly in urban areas of developingcountries want to buy the full range ofagricultural products out of season. This hasdeveloped huge demand for food, fiber andflower products, particularly the higher valuegoods on a continual year round basis.

Ethnic marketThe so-called “ethnic market” is expandingrapidly, stimulated by domestic andinternational migrations, which means largernumbers of people living in developed countrieswant to buy their traditional products locally.

New applicationsResearch into new applications andtransformed plant and animal products haveopened the possibility of new markets includingbiofuels, biomedicines, i.e., harvestingchemicals and drugs and bioplastics. Inaddition, the agricultural industry has showninterest in renewable raw materials, includingstarch-based products and fuel options, whichmay have significant effects on the productionof traditional commodities.

All of these trends and options offeropportunities for sales of agricultural productsand market research teams should be alert tothe prospects of smallholder farmers producingfor these emerging markets.

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1.3. Meeting the Marketing Challenge

Given these changes, it is clear that newapproaches need to be used to supportcommunities to take on the opportunities andchallenges that result. Strategies to meet thechallenges of these changing marketingconditions include initiatives that seek to buildthe marketing capacity of producer groups andthe effectiveness of rural service providersthrough a bottom-up approach and alternativestrategies that seek to build marketing linksfrom corporate buyers with smallholderproducers in an equitable manner.

Whichever approach is adopted, the review ofmacro-trends in the agrofood sectors suggeststhat rural business development needs toaddress two major challenges which:

1. Develop competitive rural enterprises at themicro level.

2. Create an enabling policy environment at themacro, meso and micro levels.

To address these rural business challenges, thefollowing strategies are recommended:

(a) Promote participatory methods that directlyinvolve local chain actors in decision makingand develop local capacity for businessdevelopment and more competitive supply ofgoods.

(b) Stimulate collective action and organizationof rural economic organizations with a solidbusiness and market orientation.

(c) Promote intensification, diversification andvalue adding in rural areas.

(d) Strengthen the market for rural businessdevelopment services and its coordination.

The emphasis of this guide is to find ways ofidentifying market opportunities that are linkedwith growing high volume and high valuemarkets. The methods will enable serviceproviders and farmers to evaluate marketoptions for existing products and to identifynew products. It should, however, be recognizedthat any change in a marketing system andinvestment in new market chain options tendsto increase risk and therefore it is important tounderstand the relationship between thepotential gains by investing in an identifiedmarket, against the potential risks.

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Consumption

Retailing

Trading

Processing

Trading

Post harvesthandling

Production

Research

Transportation

Government policy regulation

Communications

Technical & business training & assistance

Financial services

Market information and intelligence

Figure 2. The market chain.

Production input supply

1.4. The Market Chain

The market chain refers to the actors andorganizations that enable the transfer of goodsand services from the producer to the finalconsumer. A production chain is made up ofinter-related links, which are generally basedon pre-production, production, post harvest,trading processing, marketing and consumption(Figure 2).

Traditionally, rural development practitionershave placed emphasis on the first link in thechain, i.e., the production phase, because itdeals directly with smallholders. Focusing onproduction has enabled communities to gainfood security. Less attention has been given tomarketing and this has led to problems withover or under supply of products and lack ofproject sustainability.

Taking a more systemic approach to the marketchain can assist in developing strategies thatenable producers to understand their marketoptions more effectively and for interventions tobe designed that match product supply withmarket demand and take into account the rolesof the various actors and services that make upa functional market chain.

Having a market chain perspective assists inunderstanding the types of constraints andopportunities that can be addressed at variouspoints in the system and where investmentsmay have greatest effect, which means thinkingbeyond the farm level. The market chaingenerally includes three components.

Market chain actorsThese are the people directly involved in theexchange of goods; they include inputsuppliers, producers, rural traders orassemblers, processors, urban wholesalers,retailers and consumers.

Business development servicesThese services support business developmentand enable the marketing process to proceed inan efficient manner. These services includetechnical inputs from research, such as newproduction technologies and varieties, financeboth formal and informal, information onmarket conditions, marketing rules andregulations, basic infrastructure such asroads, communication systems and marketstructures.

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Business organizationA third aspect is the level of organization thatintegrates market actors and business supportservices. Business organization throughout thechain refers to the social links between thedifferent actors including informal farmergroups, farmer cooperatives and associations,traders or intermediaries, technical services,processing enterprises, financial services and

1.5. Value Addition

This aspect of marketing deals with practicesthat change or transform a primary product intogoods that have additional value. At the simplestlevel, adding value includes operations such aswashing, cleaning, grading, bulking and storage.These processes are generally within the controlof farmers groups and attention to theseprocesses can have considerable effects onimproving income.

More complicated processing may includeginning, roasting, refrigerating, milling, cutting,mixing, dehydration, cooking and packaging.Higher level value adding involves operationssuch as extraction, distillation, freezing,fermentation, extrusion and enzymatic processes.These activities are generally undertaken byspecialist market chain actors or service

retail outlets such as supermarkets, cornerstores and wholesale markets.

This extended chain concept is useful becauseintegrating interventions that strengthenmarket chain actors and local support servicesis key to improving both competitiveness andbusiness organization, which makes for a moresustainable development.

providers. Whilst, some of these functions can bedone on-farm, there is often a high investmentrequired to achieve this level of value added.

The promotion of rural agroindustry is importantin rural development for the following reasons:

· Agroindustrial products, in contrast to basiccommodities, do not exhibit a long-term real-price decline so they are more effective inincreasing local income (Figure 2).· Adding value in rural areas increases localemployment and income and has a positiveimpact on the local economy due to forwardand backward linkages.· Product differentiation is easier for goodsthat have been processed, transformed,packaged and labelled.

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· Consequently, agroindustrial productstend to enjoy a higher profit margin thanbasic commodities.

As markets become more competitive, it isimportant to seek ways that taking advantage ofvalue adding opportunities to increase the

incomes of rural producers. Market researchteams should be sure therefore to investigateboth fresh and processed markets. Value addedproducts can be traditional and already exist inthe area or can be new products, which can beprocessed using new, low cost technologies.

Given the range of market opportunities,making decisions on the most appropriateproducts and market types that a farmer groupor entrepreneur should target is clearly animportant decision. One of the tools to assist inthe process of assessing market risk strategiesis the Product-Market Growth Matrix, developedby Ansoff (Table 2).

The marketing strategy9 is the method that abusiness or enterprise will use to increaseprofitability and competitiveness within amarketplace. Selecting the appropriatemarketing strategy is important, as the type ofproduct and selection of marketplace will havea considerable bearing on the level ofinvestment, profit and risk. An important role ofthe service provider/NGO or market facilitator,working with rural producers or entrepreneurs,is to gather sufficient information to be able tomatch a suitable level of risk with the assets,skills and business opportunities of the client.

Based on two variables, product and market,the matrix proposes four main product-marketgrowth strategies, as explained below.

1. Market penetration means increased sales ofproducts to current market segments,

1.6. Marketing Strategies Based on “Risk Assessment”

without changing the product offered. Thiscan be achieved by reducing prices,maintaining price but improving quality,improving distribution and increasingpromotion.

2. Market development means identifying anddeveloping new market segments for currentproducts. These new market segments canbe represented by institutional markets,other geographical areas including exportmarkets or buyers using the product in newways.

3. Product development refers to the offer ofinnovative products, new products for theregion, or modified products to currentmarket segments. Products do notnecessarily have to represent an innovation,but can be existing products that areimproved or packaged and labelleddifferently.

4. Diversification is the production of newproducts for new markets.

Each of these growth strategies represents adifferent risk level. Risk is an essential aspect toconsider when working with smallholder ruralproducers, because they tend to be risk-aversedue to their weak economic context. Riskincreases in direct proportion to the level ofchange. For example, the market penetrationstrategy implies the lowest risk level because itdemands the least change, the diversificationstrategy signifies the greatest risk because itrequires most change. According to the Ansoffmatrix, risk increases from strategies 1 to 4 asindicated in Table 2. However, it should be notedthat risk is always present in business and

9. Marketing strategy based on the Ansoff matrix is aplan for engaging with a specific type of product andmarket type. There are four types of marketingstrategies in this context, which offer increasinglevels of profits that are associated with increasinglevels of financial risk.

Table 2. Product-Market Growth Matrix (Ansoff, 1957).

Existing products New products

Existing markets 1. Market penetration 3. Product development

New markets 2. Market development 4. Diversification

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1.7. Forming the Market Research Team

The research team conducting the marketopportunity identification study can be small,from three to five persons, and should combineone to two technical personnel with two to threerepresentatives of smallholder rural producersfrom the area under consideration.

The facilitator or coordinator of this teamshould be a professional with a business andfinancial background, or a rural developmentpractitioner with basic training in businesstopics. This background is essential given theobjectives and content of the marketopportunity identification procedure.

Smallholders should be in the team for severalreasons.

· It is important to have the point of view ofthe rural producers as they are the clients ofthe research. They should participate indecision making when selecting and

discarding market options, because they arethe investors and may have a differentrationale or “way of thinking” compared witha technical person.· The research team will gain more credibilityfrom the rural community if the finalresearch results are presented by equals orfriends, and not by technical people.· Commitment from the rural community willbe enhanced if they are aware that two orthree of their equals are participating in theresearch team. In this manner, theprobability of implementing research resultswill increase.

The members of the research team should be ableto speak, read and write fluently, as this will berequired during the research procedure. Personalbusiness or sales experience will be an asset. Therural community should be aware of theserequisites ahead of time, if they decide to selecttheir representatives in the research team.

marketing activities and therefore marketinginterventions should seek to gather informationso as to manage risk effectively.

The Rapid Market Survey is a process that willidentify many new products for a given region,

regarding both traditional and new, potentialproducts. The Ansoff matrix is a simple toolto enable the research team to be in aposition to prioritize products based on theirlevel of risk.

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Exercise 1.1Mapping an Extended Product Chain

Objective· The trainee will be able to identify key links, actors and organizations, functions, price formationand local support services along a selected production chain.

Instructions for the Facilitator and Trainees1. Form groups of four participants, by area if possible, and select a coordinator.2. Choose a product or product chain from the area with which at least one member of the group is

well acquainted.3. The group can use the Worksheet for this exercise. The Worksheet has two parts: the upper section

(A) can be used to map the production chain and the matrix appears in the lower part (B).4. Information for this exercise is found in Section 1.3.5. In Worksheet A, the group will draw (using symbols, figures and arrows) the production-to-

consumption route of a selected product. The map or route should include the different chain links,plus the actors and main functions in each chain link. If the group has sufficient information, priceformation along the chain can also be mapped.

6. In Worksheet B, the group will complete the matrix with information on the chain links, functions,actors and organizations, and local support services (informal and formal).

7. When finished, the group will copy the map and matrix onto large sheets of papers or onto aPowerPoint presentation, so that their work can be seen by all the participants in a plenary session.

8. The group coordinator will present the results in a plenary session.

Resources needed1. Section 1.3 of the guide.2. Worksheets A and B for Exercise 1.1.3. Paper and pencils.4. Flip chart or overhead projector and transparencies.5. Magic markers or markers for transparencies.

Time required: 1.5 hours.

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Exercise 1.1Mapping an Extended Product Chain – Worksheets A and B

Production Chain MatrixProduction Chain: Area:

Chain link Functions Actors and Local support servicesorganizations

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Exercise 1.2Visioning a Value-Added or Processed Product

Objective· If a trainee does not have information on a value added/agroindustrial product s/he will be able touse “visioning” to provide an outline of a possible agroindustrial products derived from a basiccommodity and then think of its corresponding use, markets and the type of processing required.As an example, sausages from pigs.

Instructions for the Facilitator and Trainees1. Form groups of four participants, by area if possible, and select a coordinator.2. Choose a basic commodity or staple food product from the area with which at least one member of

the group is well acquainted.3. The group can use the matrix in the Worksheet for this exercise.4. Information for this exercise is found in Section 1.4.5. The group will complete the matrix in the Worksheet with a list of potential agroindustrial products

(real or imagined) derived from the chosen commodity, together with its corresponding use, targetmarket and required processing or transformation.

6. When finished, the group will copy the matrix in a large paper or transparency, so that their workcan be seen by all of the participants in a plenary session.


Resources needed1. Section 1.4 of the guide.2. Worksheet for Exercise 1.2.3. Paper and pencils.4. Flip chart or overhead projector and transparencies.5. Magic markers or markers for transparencies.

Time required: 1 hour.

Exercise 1.2Visioning a Value-Added or Processed Product – Worksheet

Agroindustrial Product MatrixBasic commodity: Area:

Derived agroindustrial Use Target market Processing requiredproduct

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Exercise 1.3Defining Market Growth Strategies for a Project Area

Objective· The trainee will be able to use the Product-Market Growth Matrix or the Market Risk Matrix todefine possible growth strategies in a area, based on existing and potential agricultural andagroindustrial products.

Instructions for the Facilitator and Trainees1. Form groups of four participants, by area if possible, and select a coordinator.2. Choose an area or region with which at least two members of the group are well acquainted.3. Make a list of the main three agricultural or agroindustrial products in that area.4. Then make a list of the principal two geographic and industrial markets for the regional products

selected in Point 3.5. The group can use the matrix in the Worksheet for this exercise.6. Information for this exercise is found in Section 1.5.7. The group will complete the first matrix and the second Product-Market Growth Matrix in the

Worksheet. In the latter matrix, the group will place a short list of existing and potentialagricultural and agroindustrial products in each of the four growth strategies. The group willattempt to complete both matrices based on real information and logical decisions, but may inventor formulate information as required.

8. When finished, the group will copy the matrix onto a large paper or PowerPoint, so that their workcan be seen by all of the participants in a plenary session.


Resources needed1. Section 1.4 of the guide.2. Worksheet for Exercise 1.3.3. Paper and pencils.4. Flip chart or overhead projector and transparencies.5. Magic markers or markers for transparencies.


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Proposed Regional Growth StrategiesExisting products New products

Market penetration Product developmentProducts: Products:

Market development DiversificationProducts: Products:

Existing markets

New markets

Exercise 1.3Defining Market Growth Strategies for a Project Area – Worksheet

Preliminary Matrix Area:

Three most important products in the area Two most important markets for the area’sproducts

1 1

2 2

3

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SECTION 2

Designing and Conducting a RapidMarket Survey

General ObjectiveAfter studying this section, the participant willbe able to facilitate or coordinate a marketresearch team. This team will then plan andexecute a Rapid Market Survey for a given areaor region, with the participation of smallholderproducers. At the end of the process, the serviceproviders should be confident in identifyingmarkets for other stakeholders, and the clientgroup should have the ability to conduct theirown future marketing studies.

Specific ObjectivesThe participant will be able to:· Explain the objective and strategies of a

Rapid Market Survey.· Describe the aspects to be considered whendeveloping a research plan.· Determine the number of research toolsneeded.· Define the key research questions for thesurvey.

· Develop a questionnaire.· Explain how to collect primary andsecondary information.· Explain how to obtain the first productoption portfolio.· Explain how to organize the Rapid MarketSurvey report.

Orienting Questions1. What is the purpose of market research?2. How can we focus market research in an

area-based approach?3. Who should perform market research for a

given area or region?4. Can secondary information be sufficient for a

Rapid Market Survey?5. What essential information is needed to sell

or market a product?6. What kind of information can traders and

retailers provide on products they sell?

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Defining and Conducting a Rapid Market Survey

2.1. Defining Market Research Objectives

Market research is used to identify currentmarket trends and opportunities. This type ofresearch is often associated with largecommercial companies, but the method is alsoof great value to rural development agencies,rural communities and farmer organizationsinterested in playing a more effective role in themarketplace. This section focuses on how todevelop a market research plan that isappropriate to the economic conditions andcapacities of smallholder farmers client group,with a focus on service providers workingalongside farmers.

The typical sequence of events to developmarket research is as follows:

· Define objectives.· Establish a market research plan.· Collect secondary information.· Evaluate gaps in information and collectprimary data.· Process data.· Analyze and interpret results.· Prepare final report.· Provide feedback to clients.· Make amendments to report based onfeedback.

The objective of a Rapid Market Survey is toidentify market opportunities for a client

group living in a defined area. This type ofstudy includes methods to identify produce thatis in highest demand, and also to studyproducts that are known, and are of interest tothe producer groups. The information gatheringshould target their needs and abilities, andprovide sufficient information to enable them tomake sound decisions on which productsshould be selected for enterprise developmentplans.

Client selectionOne of the most important decisions in anymarketing or business support activity is toclearly define the clients and their needs. Theservice providers must have total clarityregarding who the work is being done for, thesocioeconomic status of the client(s), and whatis expected of the client group when the workhas been completed.

Role of the service providerThis methodology has been developed to be ledby a service provider. The aim of following thisprocess is first to enable the staff of a serviceprovider, such as an NGO, a governmentextension officer, researcher, etc., to build theirown marketing competency and, throughparticipatory means, to pass on these skills tothe client group.

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Area selectionThe starting point for this method is theselection of a defined area of operation. An areacan be small, i.e., a village or scaled up to acountry. Options therefore include a:

· Village or community.· Cluster of villages (or parish).· Cluster of parishes (or diocese).· Smallest administrative/political boundary.· Agroecological zone.· Watershed or Market shed.· Country.· Region

Why take an area-based approach? Theadvantages of a defined area of operationinclude:

· Linking a spatial demarcation of interventionto a specific community or localadministrative geographic area assists infocusing information gathering and analysis.· Better targeting can allow the serviceprovider to take into account special needsgroups, such as existing associations offarmers, women’s groups, orphans’ groups,food insecure farmers, etc.· An area, assists with establishing a spatialreference for baseline analysis andsubsequent impact analysis.

Figure 3. Market links extend beyond the intervention area.

· To foster partnerships with other serviceproviders and local government who aregenerally bound by a geographic area.· To link local assets and comparativeadvantages to the geographic zone, andparticularly to appreciate the range ofpossible products and value addingpossibilities that could be achieved withinthe target zone.

Size of the areaDecisions in regard to the size of the area beinganalyzed are generally based on resources suchas budget, time, and coverage of the serviceprovider. This method was designed for marketidentification within a localized area, so thatmore participatory methods can be applied witha farming community. This method can howeverbe applied to a cluster of districts, national orinternational markets. As a general rule, thelevel of participation will decrease as theterritorial size increases and the duration of theexercise will increase with size.

Whilst the area defines the agroenterpriseintervention zone, the reader should appreciatethat marketing chains, investment links andinformation flows go beyond this area(Figure 3). The key point is that the marketopportunities being investigated are dependenton the possibilities of a particular area, and onthe requests of the target community.

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Basic data setThe minimum information set that the researchteam should determine per product includes,buyers’ contact details, product price, pricetrends according to season, minimum volume/

consignment being purchased, terms of sale,(cash, cheque, credit, mix), minimum qualityrequirements, frequency of supply, packagingrequirements, level of interest of buyer inworking with client farmer groups.

2.2. Defining Market Research Strategies

Once the client group and areas have beenselected, the next task is to establish researchstrategies for gathering information to prioritizeproducts based on (i) market demand, and(ii) specific interests of the client group. Productscan include agricultural crops, livestock,forestry, handicrafts, and agroindustrialproducts. These products can be existing or newproducts for the region of interest.

To evaluate products this method uses “researchstrategies” to guide the analysis and collection ofmarket information. The following list providesexamples of research strategies.

1. Products in high demand.2. Products in scarce supply.3. Products being imported into the area.4. Products which have a competitive

advantage over others in this area.5. Products being grown by farmers.6. Specific product groups, such as fruits or

vegetables.

7. Products associated with the conservation ofnatural resources.

The first two “research strategies” arerecommended for all studies. This approach willenable the survey team to gather informationbased on market demand. When using theseresearch strategies, the outcomes or productlists that are created will be unknown. Thisapproach is particularly useful to encouragediversification.

The other research strategies aim to investigatemarket characteristics for known products orproduct groups that farmers are interested tolearn more about, as they have an interest ininvesting in these products themselves. In somecases, an external investor may also want tofocus the market study into a specific area ofinterest.

To limit the workload, the research team shouldconcentrate on one or two research strategies

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and limit the number of products within eachstrategy, before developing the research plan.The following section provides greater detail onthe rationale for each research strategy.

Identifying products in high marketdemandThis research strategy is perhaps the mostimportant and is particularly useful indeveloping ideas for diversification andinnovation at the farm level. When evaluatingdemand (which may be highly variable), themarket team should take care to captureinformation about specific events that influencedemand, such as seasonality, or culturalevents, such as “turkeys at Christmas”. Marketgrowth for a product is usually measured as apercentage of annual increase in sales for aproduct; this percentage is compared to thelocal annual population growth rate to classifyit as high, medium or low. Growth can be high(more than 6% per year), intermediate (from 4%to 6%), low (from 0% to 2%, which is similar topopulation growth rate). Some interviewees mayfind a percentage concept difficult tounderstand. Therefore, the interviewers mayneed to resort to low, medium and highcategories based on volume numbers, i.e.,numbers of items, sacks, truckloads, boughtand sold.

The research team should concentrate effortson detecting products with a high orintermediate growth. This type of growth isusually characteristic of innovative products orof traditional products that respond well tocurrent trends in consumer habits andindustrial preferences.

The research team should focus on studyinggrowth rates for product categories that areappropriate for smallholder rural producers inthe area under consideration. Products such asfruits, vegetables, livestock- and fish-derived(meat, dairy products, etc.), fresh and processedroots and tubers and basic grains should beconsidered. If pertinent, biodiversity-relatedproducts such as spices, aromatic andmedicinal plants, essential oils and naturalcolorants should also be taken into account.

This research strategy offers the opportunity to“open the box” and think freely. The teamshould take all options into consideration. Asthis strategy may throw up products that are

unknown or less known to the group, theresearch team needs to concentrate on collatingthe necessary information on buying conditionsas these can highlight important areas ofchallenge for the client group.

Identifying products in scarce supplyA product may be scarce because demand hasoutstripped product supply, it may be “off-season” at the time of market analysis, or theproduct may suffer from problems such asdiseases, pests, and drought. Although theseproducts can represent an opportunity,identifying the underlying causes is importantbecause these can be related to high investmentneeds, such as irrigation to overcome drought.

It is important to examine when productshortages occur during the year. Some productspresent consistent annual shortage patterns. Ifavailable, the research team should consultprice series to identify these possible patterns.In months of shortage, product prices increaseand off-season production can be a good marketopportunity for the area.

In this strategy, the research team will identifyproducts with supply constraints and, as in theprevious strategy, researchers should focustheir efforts on product categories that arecurrently important, or viable, for smallholderrural producers in the area underconsideration.

Why are strategies 1 and 2 consideredto be important?As indicated in the first chapter, we believe thatan important strategy for smallholder producersis to seek ways in which to diversify theirincome streams. Farmers and service providerscan be highly conservative in selecting businessoptions. This is normal, given their limitedinvestment capital and aversion to risk.However, there is also ample evidence to showthat if farmers continue to rely on traditionalproducts they will remain poor. Therefore iffarmers and their service providers are to findnew income areas, it is most likely that they willneed to try new marketing options. Strategies 1and 2 are ways in which farmers and serviceproviders can start to gather information onpossible avenues for developing new businessoptions that are based on market demand.

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Traditional products being grown byfarmersThis strategy refers to products already existingin the target region. This strategy can also beconsidered as a pilot approach to test themarketing approach and in many cases,especially for the poorer, more remote farmers,the first round of enterprise development canfocus on improving the marketing of existingproducts.

Analyzing known products is also somethingthat appeals to farmer groups, as the farmersare familiar with these products and have moreconfidence in applying new ideas to currentpractices. This is sensible as there is often agreat deal that can be done to improve value,through simple methods such as grading,bulking and improving business relations withtraders.

Products imported into the areaSubstitution of imports can represent a goodgrowth strategy for an area, given that localproduction usually represents savings intransportation and post harvest losses.Tropical, mountainous, regions generally offerdifferent climates at various altitudes which canbe exploited to grow a range of products thatmay otherwise be imported.

For this strategy, the research team should firstprepare a list of key products that are beingimported and which can be produced in thearea. This type of information can be obtainedusing secondary information in agriculturalwholesale centers, government statistics or byinterviewing key informants. Afterwards,demand trends will be examined as well aspurchasing requirements.

Products that enjoy a comparative orcompetitive advantageThe difference between a ‘comparative’ versus a‘competitive’ advantage is that the former termincludes only the biophysical aspects of a area,such as climate, soils, roads, location, etc.,whereas the latter also comprises the humanand social factor (local knowledge, skills,organization). In this guide we refer to‘competitive advantage’, which combineshuman, social and organizational factors withthe region’s biophysical characteristics. Theinhabitants of a region will have a competitiveadvantage when its products offer higher

quality, a lower selling price, or a uniquedifferentiating characteristic.

The research team needs to develop a list ofproducts that have a competitive advantage andmay require the support of an expert for this.Examples include exotic, native products(fruits, medicinal plants, nuts, and rawmaterials) found in an area that are notproduced in neighboring regions. In this case,the presence of a comparative advantage isclear, but only after the effective intervention ofthe human and social capital, will it reallybecome a competitive advantage.

Smallholder rural producers have the potentialof reaching competitive advantages for somelabor-intensive agricultural products, that canonly be grown in high altitude locations such asfruits, vegetables, spices, medicinal andaromatic plants, roots and tubers, organicproducts or fibers. For example, 80% of fruitproduction in Colombia is estimated to comefrom smallholder rural producers (Asohofrucol,personal communication, 1998). Competitiveadvantages may also exist for woven fabrics,handicrafts, and other similar items.

Specific commodity groups, i.e.,cereals, fresh fruit and vegetablesThis strategy is designed for service providerswho are working on projects in which anagreement has already been made on whichcommodities or products will be developed. Inmany cases, large development projects focuson 3-5 products or commodities that requiresupport in terms of productivity and marketlinkage.

Under these conditions, the farmer group andservice provider should develop marketingstudies that focus on ways to increase valueand income through sales of the selectedcommodity. This may include investigatingprocessing options and sales into industrialapplications for the product.

Products associated with conservationof natural resourcesThis strategy is closely related to naturalresource management. A large percentage ofsmallholder rural producers worldwide inhabitfragile ecosystems such as hillsides and tropicalrainforests, where the probability of erosion andenvironmental degradation is high. If productsdirectly or indirectly related to conservation

28


(e.g., live barriers, grasses and cover crops) areavailable and represent a market potential, thenthe adoption of conservation practices bysmallholder rural producers is viable. Manyproduction systems have been proposed in thepast, but their economic feasibility is generallynot well studied.

To implement this strategy, a list should bemade of the products directly or indirectlyassociated with the conservation of naturalresources. For example, if the communityprefers live barriers of forage grass, the local orregional demand for related products, such asmilk and dairy products, should be studied.

2.3. Developing a Market Research Plan

Once the strategies have been defined andselected, the research team should proceed toplan the market opportunity identificationsurvey, as shown in Figure 4. This includes the

Figure 4. Planning steps for a rapid market survey.

Determiningsecondary information

requirements

Defining methodsof contact

Devising thesampling plan

Determining primaryinformation

requirements

Defining the researchapproach

Design of the researchinstruments

collection of both secondary and primarymarket information.

Secondary information requirementsSecondary information is data that alreadyexists. This information is usually cheaper tocollect than primary data and provides a meansof prioritizing where there are gaps that shouldbe filled by direct primary data gathering. Aserious effort to gather secondary data can saveconsiderable time and effort, as previousstudies may have undertaken the work thatyou want to do.

Secondary information is especially importantwhen studying the larger, national, regionaland international markets, especially in thecase of selling into developed countries. In mostcases, localized market information will not beavailable. Researchers should aim to collect

29


only the most up to date information becausemarket processes are dynamic and informationgrows old rapidly. As a rule of thumb, markettrend information should not be more than2 years old. A list of possible sources ofsecondary information is given in Table 3.

Furthermore, secondary information related toprice series at either the wholesale or retail levelshould be sought for target products. Suchseries can be used to determine the degree ofstability of a product’s prices, essentialinformation for the smallholder rural producerwho, because of his/her economic fragility, mayhave low risk capacity. Monthly price series canalso suggest times of scarcity, when prices tendto be higher.

Primary information requirementsAlthough secondary information contributesgreatly to market surveys, markets aredynamic and therefore primary information isessential to understand current marketconditions. Primary data is gathered directlyfrom people involved in the area of research.In the case of market research, primary datais collected from key informants, i.e., peoplethat are actively engaged in the market chainor providing business service providers andkey observers. Key observers are those peoplewho are knowledgeable about the marketchain of interest by are not actively involvedin any business operations.

Table 3. Sources of secondary information.

Local market · Market information centers (telecenters)

· Wholesale supply centers and marketplaces

· Local development agencies

· Nongovernmental organizations (NGOs)

· Trader associations

· Local governments

· Local press

· Private-sector companies

· Internet

· Service providers, local consultants

Domestic market · Information centers of wholesale supply centers and marketplaces

· Chambers of Commerce

· Development agencies

· Trade associations

· National, departmental, provincial, or municipal governments

· Press, specialized and standard publications, and journals


· Internet

· Consultants

Markets in neighboring countries · Foreign trade agencies

· Agencies promoting exports






· Internet

· Consultants

Markets in developed countries · Foreign trade agencies

· Agencies promoting exports

· State agencies of developed countries






· Internet

· Consultants

30


Research approachSurveys are used to gather market informationusing either structured or semi-structuredsurveys. Structured surveys use questionnaireswith lists of questions that are asked in thesame sequence and manner for all interviewees.This approach is preferred for large quantitativestudies but usually require statistical analysisfor interpretation.

Semi-structured surveys or checklists,consisting of a list of topics that need to becovered by the interviewer, are more often usedin qualitative studies. Checklists are flexible asthey allow the interviewer to direct questionsaccording to the replies. Generally peopleprovide more commercially interestinginformation if they are interviewed in this lessformal manner.

RecommendationFor first time survey work, interviewers shouldprepare a more structured questionnaire, whichshould be pre-tested. As interviewers gainexperience and confidence, the team can shift tothe use of less structured checklists.

Methods of contactInformation can be requested by traditionalmail, electronic mail, phone, or in person. Thetwo last alternatives are recommended. Amailed questionnaire is inflexible and the replyrate is relatively low. Phone interviews can be agood way of contacting those who cannot beaccessed in person. Personal interviews are thebest method of contact. Interviews can beconducted individually or as a group. Individualinterviews are recommended when moresensitive information is required, such ascommercial data on prices and volumes of sale.When interviewing people about sensitiveinformation, it is recommended that this type ofinterview be on a one-to-one basis. Groupinterviews are also useful and these types ofinterviews are particularly effective whenattempting to evaluate less sensitive data at thecommunity level.

Sampling planBecause the Market Opportunity IdentificationSurvey is rapid, it does not focus on contactingconsumers directly but rather on surveying alimited number of well informed actors in themarketing channels and from industry. When

designing the sample, the following decisionsmust be made:

(a) Who should be interviewed (sample unit).(b) How many people should be interviewed

(sample size).(c) How will they be selected (sampling

procedure).

Selection can be done at random among theentire population (probability sample) oramong people from whom it will be easy toobtain information (convenience sample). Aspecific number of people from differentcategories or groups (quota sample) can also beinterviewed.

For our purposes, the sample should consist ofa list of contacts that includes local anddistrict/provincial traders, wholesalers andretailers in wholesale supply centers, heads ofpurchases for supermarkets at the district ornational level, officials of agroindustries andother companies, and retail stores. If contactsare few and relatively close to each other, thenall can be interviewed. But if they are numerousor distant, then a representative sample shouldbe chosen; for this case, a quota samplingprocedure is recommended.

The research team may, for example, decide tocontact, in the area covered by the survey, all ofthe supermarket chains, five processingenterprises, 10 corner stores, 10 traders, and15 market retailers. Identifying pertinentpopulation segments can stratify the quotasample; for example, corner stores can becategorized according to income level of theneighborhoods where they are located.

In addition, a list of contacts for obtainingrelevant secondary information should bemade. The list usually includes public orprivate sector officials involved in foreign trade,export promotion, or economic development;staff of pertinent trade associations; andchambers of commerce.

Identification of key informants andobserversWithin any community there are often wellknown people that have a major stake orknowledge about the production and trade of aparticular product. The research team shouldidentify these personalities before starting asurvey. These people can be a rich source of

31


information, but equally importantly, thesepeople can guide the research team to otherpeople to accelerate data gathering. Ideally theresearch team should identify “key informants”at each stage in the market chain.

Focus groupsThis type of interview is used typically tointerview communities or farmer groups, orspecific types of consumer groups. This methodis cost-effective but requires good facilitationskills, as the person undertaking the interviewhas to be able to work with numbers of people.The focus group is particularly good forgathering information on issues such as:

· Production and post harvest technologiesand practices.

· Seasonality.

· Access to inputs and services.

· Local buyers/market channels.

· Organization of farmers.

· Trends in local prices.

· Major changes/innovations.

· Trends in production and marketing,

· Key constraints in production, post harvestand marketing.

The focus group approach does not work wellwith market chain actors or key informants. Forthese market actors, questionnaires orchecklists are more effective.

Designing questionnaires/checklistsThe questionnaire and interview checklist arebasic tools for a market survey. A questionnaireconsists of a series of carefully preparedquestions in a logical sequence, which theinterviewee should answer. A checklist is a lessformal guide to questioning an interviewee.Some basic rules for both approaches include:

· Questionnaires and checklists/survey toolsshould have a name or title identifying it, forexample, ‘Questionnaire for Bean Trader’,and a code if necessary, e.g., Q1BT.

· Survey tools should be separated intosections that can be clearly identified.Sections may correspond to (i) specificproducts/marketing topics (Table 4), and(ii) survey strategies (Table 5).· The first part of a survey tool should identifythe contact or source of information; his/herposition; the company’s name, address,phone and e-mail; date of interview; andname of interviewer. This information is notonly important for data processing but alsofor monitoring the survey.· All survey tools should include questionswith respect to basic purchasing conditions,such as quality requirements, quantitypurchased, frequency of purchase, prices,required varieties and packaging.· Sufficient space should be left below thequestions so that the interviewer can writethe answers.· The questionnaire should include preciseinstructions in bold type to avoid confusingthe interviewer. Sometimes Yes or Noquestions will help the interviewer determinewhether he/she should skip a question orset of questions.· All the tools should be pre-tested with atleast two contacts before the full survey iscarried out.

Developing questionsAs this maybe the first time that you aredesigning a questionnaire, it is important toremind the research team to have the objectivesof the survey clearly defined and then build listsof questions to ensure that information can begathered to answer major issues.

The teams should be aware that there are nopreliminary product lists for Market Strategies1 and 2. This means that in these two cases,the questions have to be formulated with noproduct in mind. In contrast, Strategies 3 to7 have preliminary product lists, and thereforequestions can be prepared for a specificproduct. The team should work to develop aseries of questions that are simple and logically

Table 4. Initial survey questions to establish contact information.

Section 1: Information on contact and interviewer

Name of person interviewedPosition in market chainBusiness nameContact informationInterviewer(s) date

32


ordered. This is not difficult, but neither is itas easy as one may think. When planning aquestionnaire, make the questions short, simpleand to the point.

Examples of how to formulate and testquestions are proposed in this section. The firstquestions in an interview should define who youare interviewing, their position in the marketchain and their contact information (Table 4).This information is essential to know where theinformation is coming from and may be usefullater for any follow up.

Subsequent questions should be developed toanswer key issues in the survey. In Table 5,

questions have been developed for detectingproducts in high demand and scarce products.The questions may be asked for categories ofproducts (such as fruits and vegetables) orspecific products (such as banana, beans, ormaize flour).

In Table 6 more detailed questions have beendeveloped to evaluate specific quality aspectsfor grains, fruits and vegetables. The researchteam should be aware that quality requirementsare more stringent for fresh produce to be solddirectly to final consumers, than for products tobe used as raw materials for transformation inagroindustries.

Table 5. Key questions for each research strategy.

Market research strategy Key questions

What is the annual Is it ever scarce? Which are the purchasegrowth in demand? When? Why? conditions?

1. Products in high demand2. Scarce products3. Selected existing products

(e.g., blackberries)Buying conditions Highest demand Scarce supply Blackberries

Product 1 Product 1PriceVolume of salesQualitySourceMinimum purchaseWould you be interested in yes no yes no yes nobuying beans from a farmer’sgroup

Table 6. Quality aspects of grains, fruits and vegetables.

Grains Fruits Vegetables

· Moisture content · Size · Size

· % broken · Color · Color

· % insects · Pest damage · Pest damage

· Color · Disease damage · Disease damage

· Odor · Maturity · Cleanliness

· Milling yield · Cleanliness · Maturity level

· Freshness · Freshness

· Juiciness

· Sweetness or Brix grade

33


The information in Table 7 presents a practicallayout for questions (in matrix format) toidentify the key purchasing conditions orrequirements for products of interest. Thismatrix is more convenient and easier to use forthe interviewer.

Based on the needs of the survey, the teamshould compile a list of the most usefulquestions to develop the survey tool. Thefollowing sections provide information onquestionnaires and checklists:

QuestionnaireIn this type of research tool, questions may beopen or closed. Open questions allow theinterviewee to answer the question with his orher own words. Closed questions include allpossible responses to the questionnaire, whichare chosen by the interviewee. Examples ofclosed questions are those of multiple selectionsor of scoring against a scale. Questionnaireswith closed questions are easier to process, butopen questions are widely used because it isimpossible to anticipate all possible answers toquestions. In general, questions should be easyto understand, so wording has to be keptsimple. An example of a simple questionnairedeveloped for a supermarket produce manageris given in Box 1.

ChecklistsInterview guides/checklists are used inunstructured surveys, which seek to direct theinterview according to the replies. They usually

consist of a list of issues that the interviewershould cover, but with few details. This toolallows great flexibility and is very useful forqualitative surveys, and for extracting sensitiveinformation through a more informal process.See Table 8 for example of a marketingchecklist. In this case, formal questions arecondensed into vital information needs andthen summarized to a mental reminder of thearea of questioning to pursue. Wheninterviewers have gained experience, theresearch team can use only the points in theshaded left hand column to lead thediscussion.

It may be necessary to prepare different tools(either questionnaires or checklists), for eachtype of actor to be interviewed. For example,interview checklists may be more practical fortraders, while short questionnaires should beprepared for heads of purchases of supermarketchains and food-processing companies oragroindustries.

Planning matrixTo assist the research team to develop specificsurvey tools for specific contacts, a matrix canbe developed as an aid for determining thenumber and types of questionnaires orinterview guides required for the Rapid MarketOpportunities Survey (Table 9). Before buildingthis matrix, the research team should prepare alist of products for investigation according to aselected research strategy and a list of types ofpeople that should be interviewed.

Table 7. Matrix format for a questionnaire on purchase conditions.

Product Purchasing conditions or requirements - 1

Required quality Preferred variety of Preferred presentation Unit purchase priceaspects product or packaging

Product Purchasing conditions or requirements - 2

Method of payment Minimum volume Preferred frequency of Minimum acceptablepurchased per purchase supply continuitysupplier

34


The columns in Table 9 indicate the researchstrategies and the rows indicate the contactsthat should be interviewed. This matrix isuseful to help the research team visualize whichcontacts should be interviewed for eachstrategy. The research team should aim togather information with the least number ofquestionnaires or checklists.

The research team should be aware that somecontact types, such as traders and wholesalers,will probably have information on only a limitednumber of products, because they tend to

specialize. Other contact types, such as headsof purchases for supermarkets andmarketplace retailers will probably haveinformation on a wide range of products.

This implies that the latter contact types wouldbe ideal interviewees for Strategies 1 and 2. Inthe case of processing firms, if they market awide range of products, they will be able toprovide information on many different products.However, this will not always be the case, sincesome processing firms specialize in one or twoproducts.

Box 1

Questionnaire for a supermarket produce managerSection 1. Information on contact and interviewer1. Person interviewed: 2. Position: 3. Business name: 4. Interviewer(s): 5. Which agricultural products do you trade in?

Fruit Vegetables Red Meat Poultry Dairy

Spices Processed Cereals Fish Other

Name others:

Section 2. Strategy 1: Products showing a good growth rate in sales6a. Was the volumes of sales of (example product) in your business?

Greater Equal or Less than last year

6b. How would you describe the changes in sales? Small change Medium change Large change

Do you know why demand has changed?

7. Which products have had the highest increase in demand?

a. b.

c. d.

Section 3. Strategy 2: Products in scarce supply but in high demand8. Do you find difficulties in obtaining any particular products?

9. If yes, what specific product(s) are in scarce supply?

a. b.

c. d.

10. Why is this product (or these products) scarce? (keep in same order)

a.

b.

c.

35


Table 8. Market survey checklist.

Topic checklist Subtopics/Information Questions/Commentsrequired

Personal information Name For established firms try to get a business card or mobilePhysical address phone no. for purposes of future referenceTelephone

Type of business Value addition How does the respondent add value along the marketchain?

Physical functions Does he change the form of product (processor)? move theExperience product (transporter) or store the product (wholesaler) or

is he a retailer or consumer. Is there vertical integration?

Demand Quantity · Quantity sold normally, e.g., per day, weekType of buyer · To whom do you sell?Seasonality · Are there changes in volume of sale over time?Variety · Are there different varieties?Consumer · If so, what is their respective demand/preference?Preferences · What is the price variation per variety?Price data · Are there changes in prices over time?

· If so, what are the reasons?

· What are key problems in selling your products?

Supply Source by area · Which are your supply areas (geographically)?Source by type of person · From whom do you buy?Price · From where do you buy? (meeting pt.)Quality · What is the current price for the top three varieties?

· Does the price change over time? If so, why? and how?

· Do you have problems getting products? If yes, describe

Quality Perishability · What is the quality of products along the chain?Post harvest issues · What is the shelf life of the products?

Storage Quantity · How much do you usually store?Time · For how long?Storage problems · Do you have any storage problems?

· Do you experience storage losses?

Grading and sorting Grading incentive · Do you grade or sort?

· Do better grades fetch higher prices?

Market information Sources · Do you get market info? (e.g., on prices)Spatial arbitrage · If so, from whom and how?

· Are there large price differences between markets at agiven time?

Price formation Market power · Who determines the price?

· How is the price determined?

· If firm/individual is a price taker, find out why

Institutional and legal Associations · Do you belong to an association?framework · Are there any market regulations? If so, which are they

and how do they affect your business?

Market structure Competition No. of sellers

· Is there price competition?

· Is there non-price competition? If so, how (interlockingmarkets)?

Credit availability Sources and type · Are there any credit institutions?

· Do you use them?

· What are their rates of interest?

36


Tabl

e 9.

Pl

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ing

mat

rix

to d

eter

min

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sear

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ools

.

Type

of

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Res

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s7.

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and

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Trad

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Agr

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37


2.4. Collecting Market Information

Once the survey tool has been designed andtested, the next step is to gather information.This process should begin with gatheringrelevant secondary information. Based on thisinformation, the primary data collection canfocus on information gaps.

Sources of secondary informationThere are many sources of secondaryinformation as indicated in the list below.General information on issues such as nationalproduction statistics can usually be obtainedthrough agencies such as the Ministry ofagriculture or statistics. Market informationcenters and wholesale markets are usually goodsources for obtaining price series data.Economic and agricultural publications andagricultural and livestock and economicsections of newspapers can be good sources ofinformation on market trends and new productoptions. In some cases, hiring a consultant tohelp acquire secondary information may bejustified, especially if the target product isrelated to a specialty market or is traded inoverseas markets. A full list of contact pointsfor gathering secondary information is given inTable 3 (page 29).

Sources of secondary information

· Chambers of Commerce.· Development agencies.· Local development agencies.· Local governments.· Market information centers/telecenters.· National, departmental, provincial, ormunicipal governments.· Nongovernmental organizations.· Local press.· Press, specialized and standardpublications, and journals.· Service providers, local consultants.· Trade associations.· Trader associations.· Wholesale supply centers and marketplaces.· Consultants.· Internet.· Private-sector companies.

Collecting primary dataCollecting primary information is like being adetective. The process of data collection meansthat the researcher needs to behave like ananalyst during the study and not be a passiveenumerator. The researcher needs to considerwhat the client is trying to define, to focus onidentifying options that are in demand. Thisrequires that market chain actors are

38


considered to be the experts, who hold vitalinformation.

As the process is rapid, the researcher needs togather minimal amounts of information, butalso be rigorous, ensuring that informationfrom one interview is confirmed throughquestioning other chain actors. The researcheralso needs to be flexible and be prepared toinvestigate new areas as they arise. Theresearcher therefore needs to listen carefully tothe answers from interviewees, be prepared tochallenge answers if they seem inaccurate orinconsistent with other answers and at thenend of each day to review the information andpiece together the separate responses to buildan idea of the market opportunities.

TradersTraders are often considered to be exploitativemiddle men in the market chain, who areunwilling to give accurate information andmake it their practice to cheat innocent farmerswhen buying goods. This is generally not thecase, most traders are interested in discussingtheir business and generally offer farmers a fairprice. Due to their position in the market chain,they are an especially good source ofinformation.

The research team should make particularefforts to interview traders in both rural andwhere possible urban centers. However, the

research team should be aware that generallyoperate very early in the morning and generallyhave limited amounts of time for questioning.Interviews with traders should be short and tothe point. Key areas of information to collect fromtraders are related to market trends, demands forspecific varieties, quality parameters and majorconstraints to sales. Interviewers should alsodetermine how payments are made to farmersand any services that the traders provider to thefarmer groups. Traders may also be able toexplain why some farmers or farmer groups aremore successful and provide information relativeto interesting opportunities for new enterprises.

Wholesale supply centers andmarketplacesThese locations are key sources of informationbecause they concentrate many actors such aswholesalers and retailers, selling a wide range ofproducts. Actors in these sites tend to pay cashand their quality demands are not too strict. Inthese strategic sites, data collection for theresearch team should focus on three mainobjectives:

· To visit central information centers (if theyexist, they are usually located in the market’sadministrative office), to obtain secondaryinformation to identify either products withhigh and intermediate demand growth orscarce products, and on the other productsrelated to Strategies 3 to 6.

39


· To obtain monthly price-series data forseveral years if possible, which may beavailable in such central informationcenters. This monthly price information willhelp identify the degree of monthly pricevariability and to determine annual patternsof low and high prices for individualproducts of interest.· To interview wholesalers and retailersoperating there, to identify products withhigh and medium demand growth andscarce products, and with respect toproducts corresponding to Strategies 3 to 6.

Purchase centers for supermarketsThese sites can provide considerable amountsof useful information because supermarketsretail a wide range of products. In particular,supermarkets are excellent sources ofinformation for identifying high-growthproducts or products in scarce supply, and ingeneral, for all of the research strategies.

However, the research team should be awarethat supermarkets generally do not pay cash tosuppliers, can take several weeks or months tomake payments, and may request specialdiscounts from suppliers to cover promotionalcosts. Methods of payment have importantimplications for smallholder rural producers:(a) they will need working capital, and (b) theywill need other sources of income while theywait for supermarkets to pay them. In addition,supermarkets tend to be more demanding withrespect to product quality and presentation.

Heads of purchases are very busy people, andthe research team will usually need to ask foran appointment well in advance. There may beseveral heads of purchase in the supermarketchain; each one specializing in a differentproduct category. For example, purchasing offruits and vegetables is generally theresponsibility of one person. The fruit andvegetable head of purchases should becontacted, as these products offer good incomeprospects for smallholders.

In this case, the use of a questionnaire isrecommended to facilitate collection of data onmany products. However, questionnaires forheads of purchase of supermarkets will tend tobe long. In this case, the research team shouldexplain, and if necessary, make moreappointments.

Several categories of agricultural and rural-sector related products sold in supermarketsare listed below:

· Basic grains sold in bulk or packaged.· Fresh fruits and vegetables.· Fresh meat and fish.· Dairy products.· Fresh and dried herbs and spices.· Flowers.· Handicrafts.· Flours and starches.· Canned and bottled fish, meat, fruits andvegetables.· Bottled products.· Frozen and refrigerated products.· Rural agro-industrial products.

Agroindustries and food-processingcompaniesIndustrial entrepreneurs are another excellentsource of current market information for allsurvey strategies. The research team should beaware that processing firms are interested inbuying low-cost, second- or third-gradeagricultural products that cannot be sold asfresh produce. This is important because aoften used and highly successful marketingstrategy for smallholder producer organizationsis to sell first-grade products to moredemanding clients such as supermarkets thatwill pay premium prices and second-grade freshproduce to marketplaces and third-gradeproducts to industrial processors. In this way,all produce can find a market, over an optimalrange of cost-quality parameters.

If the survey is directed only towards localcompanies, the research team may be able tocover the entire population being sampled. Ifthe market survey coverage is broader, a quotasample will have to be selected in accordancewith the products of interest for the marketsurvey. Local companies can use raw materials,including fruits, vegetables, grains, milk, meat,cereals, roots, tubers and vegetables, fromsmallholder producers.

The research team must identify the mostsuitable person to interview. If the company issmall, the ideal person may be the owner,general manager, or marketing manager. If thecompany is intermediate in size or large, then itis better to contact the head of purchases.These companies handle a great deal of

40


confidential information and the interviewermust guarantee that all information given tohim/her will be handled confidentially.Interviewees may be unwilling to provideinformation on sales volumes, but it is evenmore important to obtain information onannual growth rates of sales for their productsand on basic buying conditions.

Other industries and retail storesThe preliminary product lists for Strategies 3 to6 will include a wide range of products that willsurely lead the research team to contact manysorts of companies and stores. For example, ina market opportunities identification surveyconducted in south-western Colombia, a candlefactory, flower shops, dairy industries, andfrozen fruit-pulp producers were interviewed.These sales outlets were not considered in theinitial survey plan, but were found to offerinteresting market opportunities. Hence,another important aspect of the study is thatthe research team needs to be flexible andfollow up on new leads as they arise.

Tips for collecting primaryinformation

· Begin all interviews by introducing yourselfand your organization. Where possible,interviewers should make appointments withcontact people, then confirm and keep them.Appointments can be made by phone.· Interviewers should introduce themselvesand have a formal letter using stationery ofthe organization executing the survey. Thismay not always be necessary but is helpfulto identify and empower the interviewer. Theletter should also inform of the survey’sobjectives and emphasize that allinformation will be handled confidentially.· Interviewers must be informed of thesurvey’s objective and be familiar with theresearch tools developed.· Interviewers should be dressed respectablyand give the interviewee their full attention.Switch off mobile phones and be professionalat all times.· No more than three reliable people areneeded to gather this information, with thesupport, if necessary, from one consultant.In most cases 2 people are better, one to askquestions and the other to record answers.Small teams are not threatening and cangather more sensitive information moreeasily than having larger groups.

· For specific data gathering, do not interviewmore than one person at a time. Focusgroups do not work with traders or businesspeople, particularly when dealing withcommercial data, such as prices andvolumes of trade.· Interviewers should be flexible and be clearabout the purpose and timing of theinterview and stress confidentiality.· Be friendly and relaxed, use humor and asksimple and clear questions, avoid influencingor suggesting replies.· Follow a logical sequence, avoid leadingquestions.· Ask most sensitive questions last.· Be prepared to listen and learn, and try toengage the respondent- don’t be afraid to challenge the accuracy

of the information provided.- use diagrams to assist discussions.· Investigate new areas of interest as theyarise.· Use the information from one interview toimprove the next interview.· Interviewers must make sure that contactsspecify units, such as product type, weight,volume, and time units clearly.· Where possible, interviews should not be toolong, although this may be, on occasion,unavoidable. An interview lasting30 minutes is long. If it’s likely to takelonger, the interviewee should be previouslyinformed and the interviewer may requestthat the interview be conducted in twosessions.· At the end of each day, the research teamshould discuss the major findings and writeup a short summary sheet from eachinterview to facilitate data analysis andpreparing the report.· Supervision: Of interviewers is optional,depending on the degree of confidence thatexists. The facilitator should accompany theresearch groups on their first interviews andto discuss the results with the group oncompletion of the interview.· Timeframe: The rapid market survey isdesigned to be a short-term project.However, the time taken to complete thistask depends upon the amount of strategies,products and client groups that are involved.We suggest that research team should aimto spend at least 2-3 days in preparing andtesting the questionnaires.· First time: The first time that a survey isconducted, and especially if the team

41


includes a high degree of participationbetween farmers and service providers, werecommend that you start by focusing on alocal market. Do not make the first surveyinterviews too complicated.

Start by developing your survey using onlyresearch strategies 1 and 2, plus one other

2.5. Analyzing Data and Preparing Product Option Report

strategy. The selected additional strategy shouldhave a limited number of products not more than5. As a trial run the number of contacts shouldalso be limited to 5 types of informants. Withineach interview category, limit the number ofinterviews to 5 for each category. Given this levelof information gathering it should possible tocomplete the survey.

After collected primary and secondary data, thenext task for the research team is to analyze thedata and provide the first set of market optionsto the clients for their comments and furtherinsights.

Data processingThe information gathered for the MarketOpportunities Identification Survey will belocated in several questionnaires and interviewguides, and will probably include manyresponses to open-ended questions. Theresearch team will have questionnairescompleted by traders, wholesale supply centers,supermarkets, agroindustries, retailers inmarketplaces, corner stores and other types ofshops. There will also be documents, articlesand data on different products and export

opportunities. These considerations indicate thequalitative nature of the study, which makes itdifficult to process the data using acomputerized statistical package such as SPSS.

Therefore it is recommended that the researchteam, led by its coordinator, undertake manualprocessing of the information. The researchgroup is well prepared for this task as theyunderstand the survey objectives and collectedthe data. The information should be organizedby product and market type to facilitate dataprocessing and analysis. Information onopportunities for domestic and export marketsshould be separated.

First level of data analysisThe information obtained from the survey canbe classified into four categories:

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· A “long list” of market opportunities for thearea in the domestic market and, if includedin the initial survey objectives, also forexport markets.· A description of trends in market demand,including the estimated annual growth rate.· Information on the months of scarcity andthe reasons for this situation.· A summary of the basic purchasingconditions.

Determining the first market optionportfolioThe initial synthesis of data will lead to a “longlist” of products and it is recommended that theresearch team reduce this list down to amaximum of 10 market options to keep thesubsequent work at a manageable level.

To reduce the long list down to a manageablenumber, selection criteria should be developedto enable the team to discard options in anobjective but rapid manner. Selection criteriacan include issues such as:

Selection criteria to reduce long listof products

· Local knowledge to produce the product.· Access to local technical support.· Investment costs to establish the product.· Costs and availability of inputs.· Time from planting to first harvest andpayments.· Estimated rate of market growth.· Fit with current production systems.· Local marketing capacity of the product.· Level of competition from larger growers.· Market price volatility.· Fit with local culture.

The research team can propose additional ordifferent criteria, and use templates as shownin Table 10 to evaluate options. The opinion ofthe smallholder rural producers in the researchteam is very important when grading themarket options. The market options with thelowest total scores should be discarded. Havingobtained the 10 market options as the mainoutput of the Rapid Market Survey, theresearch team can now proceed to prepare thefirst product option report.

Product option reportThe structure for the product option report canbe organized by market type and strategy asindicated in Table 11. Note that the productscorresponding to Strategies 1 and 2 are notdetermined beforehand, but are identifiedduring the Market Survey. In contrast, theproducts of Strategies 3 to 7 are chosenbeforehand.

The matrix proposes two reports, one focusedon the local market and the other on theinternational market, if this has been included.Each report is divided into sections containinginformation on product options for the researchstrategies studied. These include the list ofmarket options and the basic purchaseconditions. As the report can be long, anexecutive summary should be prepared with themost important conclusions in accordance withthe Market Survey’s objectives and originalstrategies.

Contents, and drafting of the reportBelow are suggestions on content and draftingof the final report:

· Organize the report into clear sections.· Only include information relevant to theobjectives and strategies.· Where possible, detail the information onproducts representing a marketingopportunity for the targeted region.· Summarize as much as possible, and avoidbeing repetitive. Use matrixes and tables.· Make sure your report has a title page, atable of contents, an executive summary, abibliography and a list or directory ofcontacts or buyers.· Specify the dates on which fieldwork wasperformed.

Present information in a consistent manner, forexample, matrices should have the sameformat.

· A summary of the final report in PowerPointwill be very useful for presenting the results.

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Table 11. Suggested structure for the rapid market survey’s final report.

Components Part 1: Domestic markets Part 2: International markets

Executive summary Section A: Section B: Section A: Section B:List of market Demand trends, List of market Demand trends,options and reasons supply constraints options and reasons supply constraintsfor inclusion and purchase for inclusion and purchase

conditions for each conditions for eachmarket option market option

Report 1 Section A: Section B: Section A: Section B:Strategy 1: List of market Demand trends, List of market Demand trends,Products in high options and reasons supply constraints options and reasons supply constraintsdemand for inclusion and purchase for inclusion and purchase


Report 2 Section A: Section B: Section A: Section B:Strategy 2: List of market Demand trends, List of market Demand trends,Scarce products options and reasons supply constraints options and reasons supply constraints

for inclusion and purchase for inclusion and purchaseconditions for each conditions for eachmarket option market option

Report 3 Section A: Section B: Section A: Section B:Strategy 3: List of market Demand trends, List of market Demand trends,Traditional options and reasons supply constraints options and reasons supply constraintsproducts for inclusion and purchase for inclusion and purchase


Table 10. Screening procedure for the initial set of market options.

Market option Screening criteria

Competitive Availability of Estimated Fit with Estimated Total scoreadvantage local growth rate or current level of

knowledge scarcity level production investmentsystems andmarkets

Max: 5 Max: 5 Max: 5 Max: 5 Max: 5Min: 1 Min: 1 Min: 1 Min: 1 Min: 1

Product 1

Product 2

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Exercise 2.1Determining Research Tool Requirements

Objective· The trainee should be able to determine the different research instruments and formats required toobtain primary information in the Rapid Market Survey.

Instructions for the Facilitator and Trainees1. Form groups of four or five, preferably by region, and name a coordinator.2. Suppose that you are conducting a Rapid Market Opportunities Identification Survey for a given

region and that you have to determine the number of tools (questionnaires or checklists) required toexecute all seven strategies. Assume that the products lists for Strategies 3 to 7 are as follows:Strategy 3. Traditional products: beans, maize, pigs.Strategy 4. Imported products: lettuce and cabbage.Strategy 5. Products in which the area has a competitive advantage: roses.Strategy 6. Products related to a commodity group: soybean, apples, blackberry.Strategy 7. Products related to soil conservation: dairy products.

3. Use the tool matrix as an aid to determine the types of contacts that you will need to interview foreach of the six survey strategies.

4. Decide for each type of contact, whether you need a questionnaire or checklist.5. Decide for each type of contact, whether the tool serves one or more strategies.6. Think and write down the different tools you need in the tool matrix. See the Worksheet.7. Then, in the Worksheet list the tool formats with their respective description. Make sure that the

list of tools meets the needs for all strategies.8. Write details of the Worksheet onto a large piece of paper or in PowerPoint, for presentation in a

plenary session.

Resources needed· Section 2 of the guide.· Worksheet for Exercise 2.1.· Paper and pencils.· Flip chart or PowerPoint projector.· Magic markers or markers for the transparencies.

Time required: 2 hours.

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Exercise 2.1Determining Research Tool Requirements – Feedback

There can be many different answers to this exercise, and all can be correct. Contact types likesupermarkets and wholesale centers that work with many products can be interviewed for severalstrategies. Some contact types, such as agroindustries and traders, who are usually specialized in oneor two products, can be interviewed with respect to fewer strategies. Agroindustries purchasing fruitsand vegetables should be contacted for Strategies 1 and 2. Note that some tools are directed to asingle strategy or product. As a rule, checklists are used more with traders and wholesalers.

Tool Questionnaire (Q) Type(s) of contact and/or product(s) List strategies included inno. or interview guide (G) tool

1 Q Heads of purchase of supermarkets All

2 Q Agroindustries: fruits and vegetables Strategies 1, 2, 3 and 6

3 Q Agroindustries: dairy products Strategy 4

4 Q Flower shops (retailers) Strategy 6

5 G Traders and wholesalers: fruits Strategies 1, 2 and 6

6 G Traders and wholesalers: vegetables Strategies 1, 2, 3 and 6

7 G Traders and wholesalers: flowers Strategies 1, 2 and 5

8 G Agricultural wholesale centers Strategies 1, 2, 3, 4, 6 and 7

9 G Marketplace retailers: fruits Strategies 1, 2 and 6

10 G Marketplace retailers: vegetables Strategies 1, 2, 3 and 6

11 G Marketplace retailers: flowers Strategy 5

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Exercise 2.2Questionnaire to Study Product Purchasing Conditions

Objective· The trainee will design a simplified questionnaire for identifying key purchasing conditions orrequirements for a given product of interest.

Instructions for the Facilitator and Trainees1. Form groups of four or five trainees and name a coordinator.2. The group should examine Tables 7-11, which provide topics for key questions directed to studying

buyer requirements.3. The group will select both a product and a type of contact for the simplified questionnaire.4. The group will prepare complete questions for the eight topics in the matrix columns, and make

sure that the questions are easily understood, and keep vocabulary as simple as possible.5. All questions should be open-ended, except for the question on method of payment and frequency of

purchase, which can be closed. Therefore the group will think of appropriate response options toclose the two questions.

6. Write the complete questions in the Worksheet for this exercise.7. Afterwards, transfer the Worksheet content onto a large piece of paper or transparency to present in

a plenary session.

Resources needed· Section 2 of the guide.· Worksheet for Exercise 2.2.· Paper and pencils.· Flip chart or PowerPoint projector.· Magic markers.


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Exercise 2.2Developing a Simplified Questionnaire to Study Product PurchasingConditions – Worksheet

no. Topics Questions

1 Required quality aspects

2 Preferred variety of product

3 Preferred presentation orpackaging

4 Unit purchase price

5 Method of payment (closed)

6 Minimum volume purchasedper supplier

7 Preferred frequency of purchase (closed)

8 Minimum acceptable supplycontinuity

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Exercise 2.2Developing a Simplified Questionnaire to Study Product PurchasingConditions (Mango) – Feedback

no. Topics Questions

1 Required quality aspects (a) Which is the list of key quality requirements forthe mangoes that you purchase?

(b) Is that all?

2 Preferred variety of product (a) Which mango varieties do you buy?(optional) (b) Which variety do you prefer?

3 Preferred presentation or What presentation or packaging to you demand frompackaging your mango suppliers?

4 Unit purchase price (a) Which is the unit of purchase for mangoes?(b) At what price per unit are you currently buying?

5 Method of payment (closed)What is your method of payment for mangoes?a. For cash.b. After 1 week.c. After 2 weeks.d. After 1 month.Other: _____________________________________________

6 Minimum volume purchased Which is the minimum volume of mangoes that areper supplier you willing to purchase per delivery from a given

supplier? Please specify the units

7 Preferred frequency of purchase (closed)Which is your preferred frequency of purchase formangoes?a. Every day.b. Every 2 days.c. Once a week.d. Every 2 weeks.e. Once a month.Other: _____________________________________________

8 Minimum acceptable supply Which is the minimum acceptable supply continuitycontinuity expected from a given supplier?

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Practice 2.1Observing Product Categories in a Supermarket

Objective· The trainee will observe the variety, characteristics and will make an inventory of selectedagricultural and agroindustrial product categories sold in a supermarket.

Instructions for the Facilitator and Trainees1. Form groups of four or five trainees and name a coordinator.2. Each group will be assigned one of the following product categories:

- Basic grains sold in bulk or packaged.- Fresh fruits.- Fresh vegetables.- Flours and starches.- Canned fruits and vegetables.- Bottled fruits and vegetables.- Refrigerated products.- Frozen products.

3. Trainees will place special attention to the product’s packaging, label, brand and origin (ifapplicable).

4. Each group will make an inventory of the products in the category assigned to them, using theformat in the Worksheet for this practice.

5. Each group will transfer the Worksheet format into a large paper or transparency.6. The coordinator will present findings in a plenary session.

Resources needed· Worksheet for Practice 2.1.· Permission from the supermarket’s administration to visit the store.· Transportation to and from the store.· Note cards and pencils.· Flip chart or overhead projector and transparencies.· Magic markers or markers for the transparencies.

Time required: 3 to 4 hours.

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Practice 2.1Observing Product Categories in a Supermarket – Worksheet

Group no. Product category

Product Type of Brand Describe Originpackaging its label

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SECTION 3

Assessing and Selecting Market Options

General ObjectiveAfter studying this section, the reader or traineewill be able to assess, characterize and selectmarket options for a given area, with input fromthe rural community.

Specific ObjectivesThe reader or trainee will be able to:

· Establish appropriate evaluation criteria forscreening market options.· Design and prepare characterizationmatrices for screening market options.· Use a profitability model and interpret theresults.· Explain valid reasons for discarding marketoptions.· Conduct a final evaluation of market optionswith the rural community.· Design instruments to evaluate marketoptions.

Orienting Questions1. What are the main social and economic

differences between smallholder ruralproducers and large, commercial ruralproducers?

2. Why is it important to take social andeconomic profiling into consideration whendesigning a marketing strategy?

3. What aspects make a crop or productmore attractive to a smallholder ruralproducer?

4. What types of information should begathered to determine whether a crop orproduct is feasible and economicallyattractive for smallholder rural producers?

5. In what ways can the rationale or point ofview of a technician or rural developmentexpert differ from that of a smallholder ruralproducer?

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3.1. Establishing Appropriate Evaluation Criteria

The previous section presented a method foridentifying a “long list” of products with marketpotential through a Rapid Market Survey. The“long list” of products was then reduced tothose options considered more appropriate forsmallholder producers. This first method,however, did not prioritize the remainingmarket options.

This section provides an objective method forcomparing and prioritizing across differenttypes of products, such as crops and livestock,or forest and processed products. This methodalso enables the research team to adjust theselection critieria to meet the needs of clients atdifferent wealth levels or groups having differentskills and assets. The ability to maket thesetypes of decisions is achieved by comparingstandardized information about differentproducts that has been organizing intostructured tables or matrices, based on their(i) agronomic, (ii) livestock, agroindustrial,(iii) marketing and (iv) financial performance.

In summary the selection process has threeelements:

(i) Obvious discards based on overridingconstraints. This method removes productsthat are clearly unsuitable for the clientgroup, for reasons such as: product cannotbe grown in the area, initial investment toohigh, time to first payment too long, etc. This

first filter can be used to reduce numbers ofpotential products from 20+ down to 5-10,which are more difficult to discard and needto be studied in more detail. This is a rapidprocess undertaken through consensusselection and discard by the marketing team.This method was described in Section 2of this guide.

(ii) Discards based on the comparison ofstandardized data. This process collectsdetailed information on the (i) production,(ii) marketing and (iii) financial performanceof products to enable different types ofoptions, i.e., “apples and pears” to becompared in an objective manner. Thisproces will reduce the 5-10 promisingproducts, down to 2-3 products fordiscussion with the client groups, i.e., theinvestors.

(iii)Preference of the producers. This finalselection process is made by the client groupbased on a discussion of options with theresearch team. The client group have thecasting vote on which is the most suitableoption. This final process should reduce theproduct focus down from 2-3 options downto 1 product for subsequent development andinvestment into a new or improvedagroenterprise.

This section deals with the last two selectionmethods. Much of the information required,especially the marketing information, will have

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been collected through the Rapid Market Survey;however, this characterization phase will requireadditional information, related to agronomic,livestock, agroindustrial and financial aspects.

In the final stage, results for the most promisingmarket options are presented to the ruralcommunity by the research team. The salientcharacteristics of each market option aredescribed to the rural audience (with the aid ofsummary sheets), and then a sample ofsmallholder rural producers proceed to rank bypreference. This procedure is based on ‘concepttesting’, a method commonly used in the fieldsof market research and new productdevelopment. The final product portfolio is themain output of this guide.

Defining selection criteriaHaving made the first evaluation and selection ofproducts, the research team begins the secondand more detailed analysis of the productoptions. In this stage, selections can includemore detailed evaluation criteria such as:

· Feasibility of the product in the economiccontext of smallholder producers.· Attractiveness of the market option from abusiness and financial perspective.· Contribution to, or at least, lack of, harmfuleffects on production sustainability.· Potential impact in terms of numbers ofrural producers that could benefit fromsupport to a market option, throughincreased income and employment.· Potential for value addition.· Ability to achieve marketing gains within ashort-term period.· Maturity of private sector actors for thisproduct.· Compliance or fit with the social andcultural context and traditions.

Feasibility in the social and economiccontext of the smallholder producerSmallholder producers can be distinguishedfrom large and intermediate scale producersbecause they have less land, smaller riskcapacity and less working capital, less access toinfrastructure, support services, credit and useof family labor. The market options selected,therefore, must be relatively simple toimplement, the technological level should be lowto intermediate, and initial investment andproduction costs should be affordable.

The application of this criterion is closelyrelated to official local policy regarding ruraldevelopment, because the feasibility of a ruralbusiness or production project will depend onthe availability of local basic infrastructure andsupport services, including business coaching,technical assistance and credit. In this case, weassume that the government or service providerwill offer modest support to the smallholderrural production sector.

Attractiveness from a business andfinancial perspectiveSmallholder rural producers can be segmentedaccording to their degree of market orientation;(i) commercial producers who sell all theyproduce; (ii) semi-commercial producers, whoconsume and sell what they produce; and(iii) near-subsistence producers, who consumemost of their produce. This method is focusingon the needs of the first two categories ofsmallholder producers, i.e., those who sell apercentage of their production. We believe thatthese groups require particular support, astheir future economic prospects will be relatedto their ability to engage in markets moreeffectively.

Regardless of the degree of commercialization,all small farm and business enterprises havemany points in common. They (a) sell productsand/or services, (b) use and manage humanresources, including family labor, (c) usenatural resources, raw materials or inputs togenerate products, (d) make investments and(e) demand support services, such as technicalassistance and credit, and are (f) linked intobusiness networks. Consequently, whenselecting market options, it is essential tocharacterize options from a business viewpointand analyze opportunities with a view tomatching market options with client profiles,i.e., risk against levels of assets, skills,competitiveness, growth trends, profitabilitylevels, degree of price stability, purchasingconditions, competition (quantity, type andstrategies), etc.

Contribution to productionsustainabilityA high percentage of smallholder ruralproducers live in hillside areas and in humidtropical lowlands, both fragile ecosystems thatare highly susceptible to degradation. Therefore,studying the possible impact of the marketoptions relative to sustainability is important.

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3.2. Characterizing Market Options Using Summary Matrices

The second level of analysis is based on thecollection of pertinent information related toproduct options based on their agronomic,livestock, agroindustrial, marketing andeconomic characteristics. To enablecomparisons to be made, this information issummarized into data tables, hereafter termed“matrices”.

Matrices facilitate the comparison of differentmarket options, there are three basicmatrices, (i) production, (ii) marketing and(iii) financial. In testing of this guide, it wasfound that clients were also working withlivestock and processed goods, and therefore,the production matrix was divided intoagronomic, livestock or agroindustrial, totaken on these additional option types.

This characterization process has manysimilarities with the pre-feasibility analysiscommonly used for business projects. Pre-feasibility analysis focus on determiningtechnical, economic, managerial,environmental and social requirements for thesuccess of a given project. After identifyingthese project parameters, a key output will beto conclude if the project is viable. Likewise,market-option characterization will providemany inputs for the development of future

business plans, a key activity for market chainstrengthening10.

Proposals for these matrices are explained below.The research team should feel free to changeand improve these matrix models. Oncecharacterized, market options can be assessedaccording to the defined criteria.

Agronomic characterizationAgronomic characterization is used to determinewhether a given market option is viableaccording to biophysical conditions of the targetregion, under smallholder conditions. Forexample, if a region were characterized by low-fertility soils, developing agricultural alternativesrequiring fertile soils may be difficult orexpensive. If a region has limited rainfall andlacks infrastructure for irrigation, thenproduction alternatives must be adapted to thisclimatic situation. The data requirements inTable 12 present an agronomic characterizationmatrix. The research group should fill in thesedata boxes for each product. Some componentsof the matrix are explained on next page.

10. The development of new enterprise planning andintegration into competitive market chains is thetopic of the next, or third module of the Participatoryand Area-based Approach to Rural AgroenterpriseDevelopment.

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Table 12. Agronomic characterization matrix.

Market option Complete Pre-production Technical Soil pH Watercycle cycle demand requirement requirement

(years) (months or years) (low, average, (mm/year)or high)

Complete cycle: is the cropping period fromplanting to when productivity falls below 30%of the crop’s maximum production potential.For short-cycle crops such as maize and beans,the complete and pre-production cycles are thesame.

Pre-production cycle: is the cropping periodfrom planting to when productivity reaches atleast 30% of the crop’s maximum potential.

Technical demand: indicates whether thecrop is tolerant (low), or requires improvedtechnology, considerable management, and ahigh level of inputs (high).

Labor requirement: is the number ofmandays11 required per year or per cycle. It isused to determine if the market option is labor-intensive, or not.

Need for irrigation: indicates whether thecrop requires irrigation to reach productionpotential.

Some sources of information on crop agronomyinclude institutions involved in training and/ortechnical assistance; agricultural publicationssuch as books, technical guides, and technicaljournals; key informants (people with specialistknowledge/experience), for example,producers; and professionals within the

agricultural sector. Different regions may haveto be visited to gather information onexperiences with targeted crops, or experts canbe contacted to provide such information.

Also, secondary information available onplanting density and productivity frequentlyrefers to experiences of large commercialproducers or experimental farms, which practiceinput-intensive agriculture. Accordingly, forproduction on small farms, information shouldbe obtained from the producers themselves, orestimated as a percentage of commercial yields,even to as low as 10% or less, depending on theyields of the rural economy. In this way, falseexpectations of profitability are avoided.

Livestock characterizationThis matrix is used when the market optionconsists of livestock production, including cattle,poultry, turkeys, pigs, sheep, rabbits, guineapigs, or fish, such as tilapia in small watertanks. Table 13 presents a model of a livestockcharacterization matrix. Some components ofthis matrix are explained below.

Market option: is the principal product of thelivestock enterprise, such as live animals, meat,milk, eggs, etc.

By-product: is a secondary good that is derivedfrom the production of the principal product; forexample, organic fertilizer, skins, gelatin, etc.

Installed capacity: is the maximum number ofanimals that can be sold in a given unit of time.

Altitude Labor Planting Need for Major pests Planting Annualrequirement requirement period irrigation and diseases density yield

(m.a.s.l.) (yes or no) (no./ha) (t/ha)

11. Manday = One man working 8 hours.

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Number of breeders: refers to the number ofanimals used for reproduction purposes togenerate young animals. If the livestock systemis meant to purchase young animals externally,this must be specified.

Period of growth: place the time betweenconception and birth and also the time requiredfrom birth until the animal has reached theappropriate selling weight.

Agroindustrial characterizationAs agroindustrial products tend to be morecomplex than agriculture, the agroindustrialmatrix is very useful to gather, organize andsynthesize necessary information. Table 14

Table 13. Livestock characterization matrix.

Market option By-products Technical demand Capacity Number of Period of growth(low, average, breeders

or high)

presents an agroindustrial characterizationmatrix. Some of its components are explainedbelow.

Market option: is the reason why theagroindustrial plant is established.

By-product: is generally a residue generatedduring the operation of obtaining the mainproduct. Agricultural by-products can be soldalso, and are commonly used for animal feed oras organic fertilizer.

Conversion factor: is a ratio or proportion thatindicates the amount of raw material requiredto produce a given unit of the principalagroindustrial product. For example, in the

Table 14. Agroindustrial characterization matrix.

Market option By-products Raw materials Other inputs Technical Conversion factordemand

(low, average,or high)

Nutritional Inputs Main pests Infrastructure Working capital Investment Annual salessystem and diseases and equipment required

Capacity Machinery and Method for Working capital Investment Annual salesequipment quality control

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12. Variable costs are those that vary directly with thevolume produced; for example, raw material,packaging, or fuel. Fixed costs are those that do notvary with the volume of production, but remainrelatively stable, such as administration expenses.

case of the dried-cassava agroindustry, theration 2.5:1 means that 2.5 kg of fresh cassavaroots are needed to produce one kg of driedcassava chips.

Installed capacity: is the maximum volumethat can be produced in an agroindustrial plantin a given period; generally the period used isone month or one year.

Working capital: refers to the amount of cash,in addition to the initial investment needed tooperate the agroindustry (infrastructure,machinery, equipment, etc.). Working capital isused to finance the variable costs and fixedcosts12 of producing or purchasing a productthat is sold. When the company receivespayment for these products, the working capitalreturns to the company, and so on. The workingcapital requirement is a function of the variablecost and fixed cost per unit of product produced,the sales volume and the method of payment.

Marketing characterizationA great deal of marketing information will havebeen gathered in the previous stage, the RapidMarket Survey. Market information includes

data on trends in product demand, competition,product characteristics, markets and purchasingrequirements of clients. Table 15 presents themarketing characterization matrix. Some matrixcomponents are explained below.

Current marketing: indicates whether thetargeted region already produces and sells thementioned product.

Competitors: describes the number, types andstrategies of the potential competition in thebusiness related to the market option.

Type of client: specifies the kind of buyeridentified for the market option. Services to theclient explains whether the client offers sometype of service to his suppliers, such as credit ortechnical assistance.

Scope of market: specifies whether the marketis local, regional, national, or export.

Growth of demand: classifies the market optionaccording to its estimated annual growth rate. Itis high if this parameter is above 6%; medium ifit’s 4% to 6% and low if it’s 1% to 3%.

Minimum volume purchased: is the leastamount purchased per delivery by the buyer.This information is key for smallholder ruralproducers, who generally offer smaller amountsof products.

Table 15. Marketing characterization matrix.

Market option Current Competitors Type of client Services to Scope ofmarketing (number, types clients market(yes or no) and strategies)

SM = supermarket TA = technical L = localFI = food industry assistance R = regionalI = industry Cr = credit N = nationalRes = restaurant Exp = export

Growth of Minimum Quality Packaging Delivery Businessdemand volume requirements requirements requirements relationship

(high, medium, purchased (high,PA = delivered at AG = agreementor low) intermediate,

zone PA = partnership or low)PW = delivered at CO = contract

warehouse

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Quality requirements: rates the level of qualitydemanded, as high, medium or low; it shouldalso specify key quality aspects demanded bythe buyer.

Packaging requirements: indicates whetherthe client wants the product to be delivered insome type of presentation or packaging; forexample, a plastic or cardboard box or in bags.

Delivery requirements informs: whether theclient wants the product to be delivered to thefarm, warehouse, or marketplace, etc.

Business relationship: describes the type ofcommercial relationship that the client iswilling to establish with rural producers. Threetypes exist: (a) an informal ‘agreement’ wherebysatisfactory product quality, price, and volumeeffect the negotiation; (b) a ‘partnership’, whichis more formal, and implies greater commitmentbetween both parties; and (c) a ‘contract’, whichis a formal relationship supported by a legaldocument. A commercial relationship can evolvefrom one type to another.

Financial characterization (profit)Assessing the profitability of a market option isone of the most important selection criteria forcomparing products for smallholder ruralproducers. This selection process provides astandard way to compare different types ofproducts and to evaluate risk. Economiccharacterization reveals (a) conventionalfinancial parameters such as investment leveland profitability, and (b) financial ratios whichcan be chosen and designed according to clientneeds.

Although smallholder rural producers may havedifferent rationale or perspectives to that of atypical businessman, they are undoubtedlyinterested in increasing their income. Incomegeneration is now considered a key strategy forimproving both well-being and food security offarm families. In addition, the promise ofprofitability is a great motivator for collectiveaction among smallholder producers, involvingthe creation of economic organizations andmarketing activities.

Evaluating the profitability of smallagroenterprises is probably the mostdemanding piece of work for the research team.To undertake this task effectively, the team willneed to gather appropriate data and may needto develop financial profitability models. This

will require some mathematics or the use of acomputer. The team must ensure that theinformation they are providing to clients onprofit is accurate and the facilitator shouldensure that all calculations are performedcorrectly. Much of the information gathered atthe market can be used in the analysis of profit,but production costs will need to be determinedwith the client group.

Basic profit/margin analysis: The simplestmethod to evaluate and compare profitability ofdifferent product within an enterprise is byusing methods such as gross margin analysis,net margin, or cost-benefit analysis. “Grossmargin” is the final income paid to the producerafter all production costs have been subtractedfrom the sales income (see example in Figure 5and Table 16). Gross margin can also bepresented as a percentage that is calculated byfirst subtracting total variable or direct costsfrom total sales income. This result is thendivided by total sales income. Net margin iscalculated similarly, but fixed, or indirect costsand marketing costs and variable or direct costsare subtracted from the total sales income. Thisresult is divided by total sales income to give amore accurate idea of the actual profit.

These methods require some practice in order toget accurate figures and it should be noted thatin many cases farmers, who do not have recordsof their production costs, are likely to guess andoften overestimate costs and underestimateincomes. In many cases, smallholders do notcost their labor or that of family labor.Therefore, the team may need to make someassumptions in regard to a standard labor coststhat should be applied across all products,based on mandays to produce the product.Take great care not to overestimate costs and beaware that farmers tend to inflate costs, so, theresearch team will need to interview severalclients, individually, to gather accurateinformation.

One of the limitations of the gross marginanalysis is that it only provides profit over oneseason and is therefore of most use for annualcrops. The evaluation of profitability over alonger period will require more complicatedforms of profit analysis. This may, however, berequired as some enterprises only show profitafter 2 or 3 years.

Multi year financial models: To developfinancial models that provide information on

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Figure 5. Profitability analysis: “gross margin” for beans in Uganda.

profitability over a number of years, informationfrom both production and/or processingsystems needs to be identified or proposed. Tosimplify the explanation, production systemsand financial profitability models will bediscussed in two parts. The part on financialmodels will also explain basic profitabilityconcepts, such as the Financial Rate of Return(FRR) or Internal Rate of Return (IRR), and NetPresent Value (NPV). The Glossary alsocontains many business and financialdefinitions.

The use of the FRR or IRR and NPV parametersare recommended for all agroindustrial projectsand, in perennial crops, when the project life is3 or more years. To make this evaluation easier,CIAT has developed a software, RentAgro, thatfacilitates the development of financialprofitability models for all types of products.RentAgro acts as a bridge between the user andan electronic worksheet, requesting data fromthe user step-by-step, while internallyconstructing the financial model. This allowsusers with little knowledge of electronic

worksheets and scant business and financialbackground to prepare accurate financialmodels and work out profitability parametersand ratios. This software will be available inSpanish and English and can be downloadedfrom both language versions of the Web site(Spanish: www.ciat.cgiar.org/agroempresas/espanol/inicio.htm;English: www.ciat.cgiar.org/agroempresas/ingles/index.htm).

RentAgro also assists users in the calculation ofthe amount of working capital required, interestpayments, and in the execution of sensitivityanalyzes. It may also be comforting to knowthat most spreadsheets such as Lotus 1-2-3and Microsoft Excel also have pre-programedmacros that can be used to calculateprofitability parameters such as IRR and NPV,with detailed help guides and tutorials.

The outline in Table 17 presents a proposedeconomic characterization matrix. The researchteam can design its own financial ratios.Economic variables are explained on next page.

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Table 17. Financial characterization matrix ($ = national currency).

Market option Level of Price stability Pre-production Break-even Average no. oftechnology (high, investment point workdays per year

(high, medium, intermediate, ($ thousands/ha) ($)or low) or low)

Level of technology: is used to classify themarket option according to the technologicalcomplexity needed to develop it.

Sales per Cash flow per FRR without FRR with NPV without NPV withworkday workday financing financing financing financing

($) (%) (%) ($ thousands) ($ thousands)

Analysis of profitability $ per annum $ per ton % ofof product revenue

Operating costs - variableRaw material - $25/ton 21,060 62.50 54Fuel - $650 per machine per year 1,300 3.86 3Direct labor 4,536 13.46 12Transport from field 3 per ton 2,527 7.50 6Packaging 2 per dry ton 674 2.00 2Transport to market 9.5 per dry ton 3,201 9.50 8

Subtotal variable costs 33,298 98.82 85

Operating costs - fixed

Management ($150/month) 1,800 5.34 5Shed lease 72 0.21 0Drying facilities 122 0.36 0Blade 42 0.12 0Maintenance of machines 500 1.48 1

Subtotal fixed costs 2,536 7.53 6

Subtotal operating costs 35,835 106.35 91Contingency - 5% 1,792 5.32 5

Total operating costs 37,626 111.66 96Capital costs 850 2.52 2

Total annual costs 38,476 114.19 98

Annual revenue 39,200 116.33 100

Profit (loss) before tax 724 2.15

Table 16. Profitability gross margin analysis for cassava processing in Ghana.

Price stability: classifies the market optionaccording to its price stability index, which isequal to the standard deviation of a deflated

SOURCE: C. Collinson, NRI economic analysis.

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series of at least 18 monthly prices.Agroindustrial products exhibit prices that aremore stable than those of unprocessed fruitsand vegetables.

Pre-production investment: is an estimate ofthe funds needed until the crop’s first harvest,or the first livestock sale, or the introduction ofthe agroindustrial product into the market.

Breakeven point: can be expressed as eitherthe sales volume in units or currency, in whichtotal income is equal to total production costs,or the sum of variable and fixed costs. At thispoint, the enterprise has neither profits norlosses. Clearly in terms of cash flow, this isimportant as it means the project is no longerconsuming investment capital.

Average no. of workdays per year: is theestimated number of workdays required duringthe project’s life, and divide it by the number ofyears of the project.

Sales per workday: is a ratio that calculatesthe total value of sales during the project’s lifedivided by the total amount of wages.

Cash flow per workday: is another ratio thatestimates total cash flow or net margin duringthe project’s life, divided by the total number ofworkdays.

FRR without financing: refers to the FinancialRate of Return (FRR), a common profitabilityparameter similar to the Internal Rate of Return(IRR) that is calculated by the financial model.In this case, the FRR is an absolute measure ofprofitability because it excludes financial costs.

FRR with financing: is the same previousparameter, but including credit costs.

NPV without financing: refers to the NetPresent Value (NPV), a similar profitabilityparameter that is calculated by the financialmodel and excludes financing expenditures.

NPV with financing: is the same previousparameter, but including financing costs.

Proposing appropriate production andprocessing systemsThe definition of realistic production andprocessing systems, related to the marketoptions, is required to develop financialprofitability models. The selection of the

appropriate technological level depends onseveral factors, such as crop requirements(i.e., its hardiness), soil and climatic conditionsof the targeted region, socioeconomic conditionsof the smallholder rural producers, and marketrequirements. For example, if a market optionsuch as a high value fruit or vegetable is beingproposed for a buyer in the fresh market who isdemanding strict quality conditions, the use ofchemical or organic pesticides will probably beessential.

Sources of information on this topic include keyinformants such as small- and medium-scalerural producers and processors, ruralagroindustries, professionals of the agriculturaland agroindustrial sectors, institutions involvedin agricultural and agroindustrial training andtechnical assistance; and publications, such asguides and technical journals. Where possible,however, smallholder production andprocessing systems should be based on primaryinformation, such as field observations andinterviews with smallholder producers andprocessors, sometimes, it maybe necessary tovisit other regions where the target product isbeing grown by other smallholder producersand processors.

If only secondary information is available, theresearch team should be aware that crop dataon planting density, amount of inputs, andproductivity will often refer to trials conductedon experimental farms or by large commercialproducers, who practice input-intensiveagriculture. These figures must therefore beadapted to the reality of the rural economy,meaning that the use of inputs and productivitywill be lower. Moreover, sophisticatedtechnological components should be avoidedand emphasis placed on inputs already beingused in the target area.

Yields per unit area of crops can vary widely. Auseful exercise for determining an intermediateyield parameter is to write down the minimumand maximum yields for each production item.For example, a crop grown with high-inputtechnology may yield up to 30 times more thana crop under semi-subsistence conditions.However, the idea is to propose productionsystems that will produce yields of anintermediate level on the production scale.

A similar situation occurs with agroindustry,where conversion factors (amount of rawmaterial needed to produce a unit of the

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agroindustrial product) in smallholderprocessing units are usually less efficient thanin larger, more sophisticated agroindustrialplants. The research team will also need todefine production capacity, investment level(infrastructure, equipment, machinery andsupplies), inputs and labor requirements,conversion factors, and by-products.

The information obtained during thistechnological exploration process also helpscomplete both the agronomic and agroindustrialcharacterization matrices. Appendix 1 containsa special format that can be used to facilitatethe collection and organization of informationpertinent to the production system. This formatcomprises five parts:

Part 1. Identifies the product and thetechnological level, and estimatesproductivity.

Part 2. Documents the activities carried outbefore and during planting.

Part 3. Specifies the number of applications orrepetitions of each task duringproduction.

Part 4. Documents the rates of each differenttype of input applied per plant or pertree.

Part 5. Provides a timetable of productionactivities.

Developing financial modelsOnce the production and processing systemsare defined, the models of financial profitabilitycan be developed, using an electronicworksheet, such as Excel, or with the aid ofRentAgro, the user-friendly profitabilitysoftware developed by CIAT’s Agroenterpriseproject.

The objective of the financial model is tocalculate profitability parameters such as the

Figure 6. Graphic interpretation of the financial rate of return.

FRR, IRR, NPV, or gross and net margin so thatthe research team can classify the market optionsin profitability categories (high, medium, low,negative). This financial categorization is moreimportant than obtaining precise profitabilityparameters. The financial information generatedby the model is transferred to the economiccharacterization matrix.

Theoretical informationMany profitability parameters exist, but one ofthe most common is the Internal Rate of Return(IRR), which has two versions: the Economic Rateof Return (ERR) and the Financial Rate of Return(FRR). For the purposes of this guide, the secondone is used because the FRR includes theentrepreneurial viewpoint, together with marketprices and costs. The FRR is defined as theinterest rate that discounts a series of annualcash flows in such a way that the present valueof the series is equal to the initial investment(Figure 6).

As shown in Figure 6, the investment for thisexample project is assumed to cover 4 years. InYear 0, an investment is made and each year thisinvestment generates a cash flow, positive ornegative, which is represented by the net profitsor losses. However, the value of money dependson the ‘time’ variable; that is affected by inflation,i.e., $100 now will cost more than $100 within2 years. Therefore, the series of cash flows shouldbe discounted towards Year 0 to compare theirvalue with the initial investment. As expressed inthe previous definition, the value of the initialinvestment and the present value of the cash flowshould be equal.

The rate of discount or interest rate used todiscount the series of cash flows is the same FRR.For the project to be economically appealing tothe investor, the FRR should be greater than theopportunity cost of capital or money. The

Initial investment Cash flow Cash flow Cash flow Cash flow

Present value ofcash flow Discount rate or financial rate of return

Year 0 Year 1 Year 2 Year 3 Year 4

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opportunity cost of capital is the interest ratethat the financial system recognizes for savings;for example, fixed time deposits (FTD), that areplaced into a bank, or the rate of inflation. If theFRR is lower than the opportunity cost of capital,then the investor is better off leaving his/hermoney producing income in a bank account orother investment option in the financial system.

The NPV is another profitability parameter that iscommonly used, and is related to the FRR. TheNPV is the value in Year 0 of the series of cashflows that is discounted, using an interest rateequal to the opportunity cost of capital. For aproject to be financially appealing to an investor,the NPV should be greater than the initialinvestment. If it is smaller, then the investor isbetter off leaving the money in the financialsystem to produce income.

Financial models may or may not includeinflation. If they do not, then they are deflatedmodels and, in this case, the FRR should begreater than the opportunity cost of capitalminus the annual rate of inflation. Depreciationshould not be considered when calculating theFRR because this item does not represent a cashdisbursement. When estimating profitability,depreciation is only considered when calculatingthe amount of taxes to pay; producerassociations or cooperatives are usually exemptfrom taxes.

To summarize, the FRR and the NPV are themost suitable parameters to analyze theprofitability of medium- and long-term projects(e.g., from 3 to 20 years). For short-term projects(from 1 to 24 months), other parameters can beused for financial analysis; for example, the timeneeded to recover the initial investment(payback), gross margin or a cost-benefitanalysis.

Assumptions: To simplify financial models, twounusual assumptions are made in thisprocedure, that the planted area is one hectareand that the crop is planted as a monocrop.Small producers are known to plant in lotssmaller than 1 ha because of the lack of land andworking capital. They also usually plant crops inassociation, as a strategy to reduce risk andincrease the regularity of cash flow. Theseassumptions do not reduce the validity of themodels because the exercise does not aim toprovide precise financial parameters, but as ameans to classify different market optionsaccording to ‘levels of profitability’.

Components of the financial model: Theinformation given in Appendix 2 presents atypical financial model for a given crop, as itwould appear on the computer screen. The modelconsists of five main parts, namely: prices,quantity matrix, costs and income matrix,analysis of profitability without financing andanalysis of profitability with financing.

The prices section includes information onamount and breakdown of the initial investment,the cost of the different inputs used the cost ofthe daily wage and sale prices of differentproduct qualities offered to the market. Thequantity matrix quantifies the elements ofinvestment, inputs, workdays and productionvolume. The costs and income matrix usesinformation from the two previous matrices todevelop a simplified financial statement, similarto a profit-and-loss statement, to obtain theseries of annual cash flows.

The component ‘profitability analysis withoutfinancing’ contains the formulae used tocalculate the different parameters and financial-statement ratios. The FRR and the NPV areestimated using the series of annual cash flows.Other financial ratios, already described inTable 17 (financial characterization matrix), arealso calculated. The component ‘profitabilityanalysis with financing’ is similar, but credit costis included.

The financial model described can be used foragroindustrial products, but this will be morecomplicated because it will have to model theprocessing technology adequately. A separatesection will be needed for parameters such asconversion factors, capacity utilization and inputrequirements. RentAgro can be used fordeveloping financial models for agroindustrialprojects.

Preparing and using the financial model: Thefinancial models are executed on electronicspread-sheets and organized in components. Theelectronic sheets consist of cells, where figures,formulae, or functions are keyed in. All cells inthe financial model should be linked so that anychange of a figure or formula will change thefinancial parameters estimated by the model. Forexample, if the sale price of a product increases,then the FRR should increase automatically.

The financial model serves many uses, but aboveall, it can be used to estimate levels ofprofitability and other financial parameters of

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interest. It can also help carry out sensitivityanalyses, which aim to determine whichvariables affect a given financial parameter,the most. A third use is to estimate minimumsale prices and maximum purchase prices.Finally, financial models serve as support fordecision-making on credit and strategies toreduce production costs.

N.B.: We appreciate that for some users thissection may appear difficult and we know thatmany people avoid difficulties, in the hope thatit will not be important. Unfortunately, thefinance side is important, but help is at handand you should think about the followingoptions if this part has made you nervous.

· Ask for assistance from friends or otherservice providers if this section seems toodifficult. For the uninitiated, the termsNPV, fixed costs, etc., can appear as a newand incomprehensible language. It is atfirst, but there are several ways of doingthis type of analysis and any accountant,business college student or local bank clerk

will be able to explain the basic concepts toyou.· Microsoft Excel has special copy and pastecalculations in their tools section that youcan use to do this analysis.· Rent-Agro is a CIAT RAeD product that hasbeen specifically designed for use by peoplewho do not have business skills, and thiscan be downloaded from our Web site free.· If this financial model is too detailed for yourneeds in which case you can adapt thissection and simply compare gross marginanalysis, based on required costs andexpected sales values, to compare options fordifferent products based on a standard unitarea of production or unit of investment. Forprojects and enterprise options that are oneseason activities, gross margin analysis mayalso be the only financial analysis that isrequired.

If you are still in doubt, visit the CIAT RuralAgroenterprise Development Web site forexamples and exercises (www.ciat.cgiar.org/agroempresas/espanol/inicio.htm).

Based on the information generated by thecharacterization of market options andconsidering the three evaluation criteriaoriginally proposed, the research team can use

3.3. Defining the Second Market Option Portfolio

the information to prioritize and discard someproducts. All options that do not respond to oneof the evaluation criteria should be discarded,thus increasing the probability of proposing

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market options that are really attractive forsmall producers. To illustrate this issue see“discard” options below:

· When the level of profitability is negative ornull.· When the technology or infrastructure is toosophisticated, expensive, or not available inthe region.· When the required soil and climaticconditions do not exist in the region.· When the initial investment is too high formost smallholder producer associations.

3.4. Final Evaluation of Market Options by the Rural Community

Objectives

· Review decision criteria of smallholders forselecting new products and use thesecriteria in selection processes.· Summarize and present information in easilyunderstood formats so that thatsmallholders can understand theinformation, discuss and make informeddecisions on appropriate products.· Evaluate opportunities for segmentingsmallholder producers and hold separatemeetings to allow for different groups toselect products according to their needs,skills and risk management strategies.

· When the market option is demonstrated tohave detrimental effects on the environment.· When the sale price shows high fluctuationsthroughout the year.· When the market demands quality levelsthat are exaggerated or too strict forsmallholder rural producers.

Those market options not discarded can thencontinue to the next and final stage of themarketing opportunity identificationmethodology: the final evaluation of marketoptions by the rural community.

· Set up facilitated meetings to rank andselect products for investment intoagroenterprise projects.

Local input into preparinginformation for product selectionTo ensure that important perspectives of thesmallholder’s are taken into account, it is usefulto discuss investment criteria with them prior tosummarizing data. This will allow the views ofthe clients to be taken fully into account whenpreparing the information to be presented. In asurvey conducted in hillside areas of southernColombia, smallholders indicated that their

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most important criteria when selecting a cropfor planting were:

· The producer knows the crop and hasexperience cultivating it.· The crop is adapted to the region and ishardy.· The crop has a short or intermediate growthcycle.· Product prices are stable.· The product has a market and an attractiveprofit.

These criteria were used in the presentation ofdata and whilst this was useful in Colombia,the research team should prepare themselvesbased on local ideas.

Preparing summarized productinformationHaving gathered and assembled the productinformation and discussed key selection criteriawith representatives of the client groups, thenext task is to present the product options tothe smallholder producers. This process is madeeasier by presenting the information tosmallholders in a simple summarized form,using “flip charts” or “product cards”. In somecases, farmers may not read well, and thereforeinformation should be as pictorial wherepossible.

Designing product cardsThe product card should be designed to achievea balance between ease of comprehension andinformative content. A simplified scheme of aproduct card prepared in Colombia is presentedin Figure 7. This card refers to a crop, but theproduct card scheme or format can be used forany livestock, forest, and agroindustrialproduct, with variations in content.

Figure 7. Format of a product card with information ona market option.

The product card consists of two main sections.The first section is for identification, where aphoto or illustration and the name of theproduct appear. The second section isinformative and contains data related to degreeof adaptation, production cycle, annual yield,investment expenses (including number ofworkdays) and profitability.

All of this information is taken from thecharacterization matrices. A drawing or symbolaccompanies each type of information. Tofacilitate the handling of data and comparison,planting area is standardized to the local unit ofmeasure, such as a monoculture plot of1600 m2 in the case of Colombia, but this unitcan be varied according to local measures, suchas an acre or hectare. The later is a typicalcultivated area, in the context of smallholderproducers in the region. An example of aproduct card used in Colombia is presented inFigure 8.

Using flip charts and plenarydiscussionsAn alternative method is to present the productinformation on flip chart. The image inFigure 9 shows Robinah Nyapendi, discussingthe results from a market opportunitiesidentification process in Kampala, Uganda. Theproduct information is written onto largesheets, in English but this could also be in alocal language if required.

Segmenting smallholders to tailorselections to local needsWithin a project area, it is likely that there willbe smallholders with different skills, assets andbusiness goals. These different categories ofproducers are termed a “segment” which refersto a group of similar people. Typical marketingsegments include, rural/rich, rural/urban poor,infants, women, young people, old people. All ofthese segments have different marketingstrategies that aim to meet their particularneeds. To take local variability into account,and avoid the temptation to apply one selectionprocess or outcome to all farmers, thefacilitating organization should explore thepossibilities of presenting the information todifferent smallholder segments. This will enabledifferent groups to make decisions based ontheir degree of market orientation, level of well-being, type of economic activity, investmentpossibilities and local conditions. When thisexercise was conducted in Pucallpa, a hillside

Sub-region

Product’sname

Cultivated area orcapacity

Photo or drawing

Symbolsrelated to

informationon theright

Keyinformation

for theproducer

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Figure 8. Product card for uchuva (cape gooseberry).

Figure 9. Market facilitator, discussing product options with farmers.

K

Z - A

Uchuva (TM)Cape gooseberry(Physalisperuviana)

Fruit640 plants

Unit of land area (1600 m2) – Monocrop

Information

AdaptationWhether the optiontolerates drought, pestsand lack of fertilization.

CycleTime between plantingand first harvest.

YieldAmount of productproduced per year.

Expenses until the firstharvestWhat is spent in inputsand wages.

ProfitAmount of money free forevery Col$100 spent.

RegularMore than 800to 1200 mm

6 months

3200 kg or6400 pounds

$763,000;no. of mandays:53

$66

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site in southwestern Colombia, smallholderproducers were classified according to theirdegree of market orientation. Three categorieswere established: (i) commercial, (ii) semi-commercial and (iii) subsistence. Producers canalso be classified by level of well-being intohigh, intermediate and low. In a study carriedout in 1996 by CIAT, the strong correlationbetween level of well-being (wealth) and degreeof market orientation was confirmed.

Product evaluation by subregionIn some cases, such as hillside areas, wherefarmers produce in the valley bottoms, midslopes and at high altitude, certain marketoptions are not viable in all areas. In this case,each subregion, or climatic zone, may requireits own portfolio of market options. If possible,a list of at least 3 to 5 products should beprepared for each subregion.

For example, the same market options cannotbe offered to producers located at widelydifferent altitudes (e.g., 1800 versus1100 m.a.s.l.). In the case of lowland areas,such as the Amazons, riverside farmers maydiffer from roadside farmers in theirrequirements for market options. However,several crops or market alternatives may becommon to several subregions.

Planning and conducting evaluationmeetingsThis part describes how to plan an evaluationmeeting (Table 18), and offers a checklist(Table 19) of the necessary resources.Depending on the variability of the area being

supported, product evaluation meetings can beplanned for the entire region or for eachsubregion of the targeted region separately.Each meeting should be carried out with aminimum of 20 producers, representing allproducer categories proposed.

The meeting will require two to three people,capable of performing one or more of thefollowing tasks:

· Act as facilitator of the event.

· Present market options.

· Answer business and technical questionsabout market options.

· Interview and fill out preference format (atleast three people).

Process for ranking productpreferencesAfter discussing the product options, themeeting participants need to rank and selectproducts. The prioritization and selection of aproduct option can be achieved by a show ofhands, or by placing pebbles onto images of theselected product. After selections have beenmade, these should be thoroughly discussedbefore a final decision is made to proceed toinvestment.

In Colombia, products are typically selected byorganizing product cards in order of preference.After the presentations on the market options,the invited smallholder producers are asked toseparate the cards into three groups, good, badand intermediate, according to their preferences.The producers are then asked to order the

Table 18. List of activities for planning and conducting an evaluation meeting.

· Prepare everything beforehand and wait until most of the invited producers have arrived to start the meeting,which usually lasts 3 hours. Preferably, the meeting should start at 10:00 a.m. or at 2:00 p.m.

· The meeting should be facilitated by one of the research team members.

· Begin the meeting with a general introduction, the facilitator should take time to explain the results of theproduct research findings, covering background information and assumptions.

· The facilitator should then present each market option and explain the product card. Use any other type ofmaterial that you consider appropriate. You can use posters, photos, opaque or overhead projectors, orPowerPoint for the presentation. If possible, take physical samples of the products.

· After presenting each product, leave enough time for questions and answers.

· Explain how each participant should rank the product cards (market options) that he/she has received. You canuse photocopies of the product cards.

· On an individual basis, each participant then organizes his/her set of product cards.

· Participants are then grouped by type of producer, and the options ranked again.

· Give some sort of feedback to the producers for all their work and time.

· Thank the producers for their collaboration and invite them to refreshments or a light meal.

· Those producers who were promised transportation are taken back.

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product cards within each group. When theyhave finished, they are asked why they placedcertain cards in the first (most preferred) andlast (least preferred) positions. Finally, todetermine the “ideotype” or concept of ‘idealproduct’, the producer is asked what condition ismissing in the alternative he/she has chosen toimprove it even more.

Appendix 3 presents the format used in thisexercise. The interviewer is responsible for fillingout the format. The category or type of producershould be properly identified. This procedureshould be implemented with individualproducers and by type of producer. Materialsrequired are a set of product cards per producer,and answer sheets and pencils for interviewers.

Scheduling evaluation meetingsPlanning evaluation meetings involves theadequate scheduling of activities. Meeting sitesshould have the minimum services andequipment necessary, and should be easy toaccess for both organizers and producers.Because each meeting will require considerablecoordination and solid logistic support, no morethan one meeting per week should beprogramed where required. One meetingshould be planed per subregion, andrepresentatives of all categories of smallholderrural producers should participate. Theproducers should be invited 1 week in advance,and a reminder sent 1 or 2 days before thescheduled date.

Inviting the smallholder ruralproducersTo increase the likelihood of success at themeeting, the facilitator or local agent shouldmake sure that a representative sample ofproducers and farming communities is invited,from each subregion. Where mixed groups arebeing invited, producers representing each ofseveral predetermined categories should beclearly identified, using either data fromprevious surveys or key informants, in eachselected farming community. The sampleshould include women. The same number ofpeople per type of producer should be invited;for example, if each meeting is going to becarried out with 21 producers, then sevenproducers per category should be invited.

Data processing and analysisAfter the meetings, the completed preference-ranking formats will be available, at both theindividual level and by type of producer(Appendix 3). These formats containinformation that should be processed andanalyzed. Calculations should be donemanually at the meeting.

Information should be presented by subregion,in different tables that show frequency andpercentage of occurrence. These parametersrefer to the number of times a market optionwas classified in the ‘good’ group or in firstplace, or in the ‘bad’ group. Frequencies andpercentages are presented for the entire samplefor each subregion and also by type ofproducer. Titles of suggested tables are listedon next page.

Table 19. Checklist for conducting an evaluationmeeting.

Add a tick Resourceswhen done

1. Human resources

1.1 A representative sample of ruralproducers

1.2 A facilitator for the meeting1.3 A presenter of market options1.4 One or two consultants of market

options1.5 Three interviewers1.6 One or two drivers with vehicles

2. Infrastructure

2.1 A sheltered meeting place, withelectricity and projection facilities

2.2 Tables and chairs2.3 Bathrooms

3. Tools

3.1 Three sets of full-color productcards for interviewers

3.2 Photocopies of product cardsto hand out to producers

3.3 Answer formats3.4 Pencils3.5 Badges for producers3.6 Samples of products

4. Materials and equipment4.1 Opaque, overhead, or slide

projector4.2 Flip chart and magic markers

(optional)4.3 Adhesive tape4.4 Gasoline-powered electric

generator if no electricity in area4.5 Light meal, snacks, or

refreshments4.6 If necessary, black cloth or paper

to darken the room

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3.5. Defining the Final Market Option Portfolio

After processing the evaluation formats andorganizing the results in summary tables, theresearch team can identify which marketoptions were preferred and which were rejected,with the corresponding reasons. The optionsrejected by most smallholder producers shouldbe discarded.

By now the market-option portfolio obtainedafter the Rapid Market Survey, has beenscreened three times:

(i) Obvious discards are removed by theanalytical team.

For individual ranking by subregion, thefollowing titles can be used:

· Number of times the option appears in the‘good’ group (overall and by type or segmentof producer).· Number of times the option appears in firstplace (overall and by type of producer).· Reasons for choosing the first two options(overall and by type of producer).· Reasons for choosing the most preferredoption (overall).· Number of times the option appears in the‘bad’ group (overall).· Number of times the option appears in thelast two places, that is, is least preferred(overall).· Reasons for rejecting the last two options(overall).

· What the preferred option lacks to be an“ideotype” or ideal type (overall).

For group ranking by subregion and producertype, these titles can be used:

· Most preferred options.· Reasons for preference.· Least preferred options.· Reasons for rejection.

Data presentationThe information in Table 20 shows an exampleof the final selection table or presentationformat. By organizing information in a series oftables, the initial objectives of participatoryevaluation are met, that is, to determine thepreferences and decision criteria of ruralproducers by subregion and by segment or typeof producer.

Table 20. Example of a table used to present results of an evaluation meeting.

High altitude zone Number of times classified in ‘good’ groupProduct General % Commercial % Semi- % Subsistence %

commercialBlackberry 17 100 6 100 6 100 5 100Naranjilla 15 88 6 100 5 83 4 80

Native strawberry 11 65 5 80 2 33 4 80Cauliflower 6 35 3 50 2 33 1 20Uchuva 6 35 2 33 3 50 1 20Anthurium 5 29 0 0 1 33 3 60

(ii) A maximum of 10 products has beenscreened or refined after the characterizationprocess.

(iii) The final evaluation with the ruralcommunity will produce a market optionportfolio with three to five products.

At this stage, the only remaining products arethose being considered suitable for investmentby specific smallholder segments. These are theproducts that you will now develop into newenterprise activities.

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3.6. Preparing the Final Report

The final report is a document that aims tomake explicit the results of the finalparticipatory evaluation with the ruralcommunity, in terms of the original objectives.It must also provide background informationand indicate work methodology. Results can bepresented in two ways:

1. As a text document, making reference todifferent tables included in Appendix 1.

2. As a combined text and table document thatincludes a section on conclusions andrecommendations. In addition, the differentinstruments and formats can be included asappendices.

To illustrate, the table of contents of the finalreport prepared for the final participatoryevaluation of market options with the ruralcommunity, conducted in the hillsides referencesite of Colombia was as follows:

I. Prologue.II. Acknowledgements.III. Executive Summary.

1. Background.2. Objectives.3. Methodology.4. Results.4.1 Preferred options.4.2 Reasons for preferring them.4.3 Options rejected.4.4 Reasons for rejecting them.4.5 “Ideotypes” or ideal products.4.6 Conclusions and recommendations.

Appendix 1. Tables numbers.Appendix 2. Cards of the most preferred

products.Appendix 3. Questionnaire used.Appendix 4. Guidelines for final market-option

evaluation meetings.

This final document should be held by thefaciltating organization and local researchteams as a record of how the process wasconducted and results. The final selectionsshould now be developed into an investmentoption.

3.7. Preparing for Enterprise Development

At the end of the rapid survey and evaluation ofproducts with client groups, the research teamwill have selected specific products anddiscussed options for investment with clients.As part of the market survey work, the researchteam will also have located interested buyersand collated information on buying conditions.In many cases, this is sufficient information tobegin the process of establishing a newbusiness venture, by applying this informationto new business relations such as collectivelymarketing, higher volumes of higher qualityproduce to a new buyer.

At this stage, there are several new issues toconsider, and in many cases new marketopportunities are associated with considerableincreases in quality, volume, distance to meetmore attractive buying conditions and prices.To engage in such markets, smallholdersgenerally need to make changes in productionsystems, varieties, planting times, and very

commonly will need to make plans for group orcollective marketing in order to increase sales,volumes.

All of these issues require a degree oforganization and the smallholders working withthe service providers need to consider how bestthey can address some of these issues. Someimportant areas to discuss include:

(i) Are the smallholder producer groups alreadysufficiently interested and or motivated totest market sales of one of the identifiedmarket products, based on current results?

(ii) Do the groups have sufficient financialcapital to invest in one of the new enterpriseoptions that the market studies haverevealed?

(iii) If not, can the group obtain credit from alocal service provider, micro-creditorganization or do they need to start asavings and loans scheme.

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3.8. Conclusions

Undertaking the Market OpportunitiesIdentification method is a major step towardsshifting towards a market orientation forsmallholder producers. The skills gainedthrough the rapid market survey and thesubsequent analysis of market options is anextremely useful learning process, not only forthe service provider but especially for therepresentatives from the rural community, whocan begin to use these skills in their futurebusiness plans.

Although this first marketing evaluation is onlythe starting point in a series of methods used insuccessful enterprise development, it provides asound basis to start engaging in marketing andfor developing skills in systematic informationgathering, analysis and decision making. Theseare all vital skills for the subsequent stages inagroenterprise development.

Depending on the assets and capacities of theclients, the different groups will have opted tofocus on either upgrading of existing crops ordiversification into new, higher value productoptions. However, in both cases, the next stepsin planning for enterprise investment will focus

(iv) Do the conditions set by the buyers requireany significant changes from the group interms of new selling strategies such ascollective marketing, i.e., selling produce asa group as opposed to selling small amountsof produce as individuals?

(v) Is the existing group structure appropriateto meet the new buying conditions now? Orwill the group need to consider upgradingtheir organizations, and or linking to othergroups in order to enter the new market?

If after discussions with the service providers, asmallholder producer group(s) is interested topursue a new market opportunity, and wouldbe interested to invest their time and resourcesinto building a new business relationship, thenwe advise that the new team continue onto thenext step in CIAT’s Agroenterprise DevelopmentStrategy. Depending on the strategy selected,the farmer group should work with the most

appropriate skills set outlined in one of thefollowing guides from the AgroenterpriseDevelopment series:

· Strategies to Improve the Competitiveness ofMarket Chains for Smallholder Producers.· Evaluating and Strengthening RuralBusiness Development Services.· A Market Facilitator’s Guide to ParticipatoryAgroenterprise Development.· Collective Marketing for SmallholderProducers.

The service providers, research team andrepresentatives of interested smallholderproducer groups, should evaluate whichmethods are most appropriate in their nextsteps and then begin the process of upgradingtheir skills and investing in more lucrativeagricultural opportunities.

on similar aspects which evaluate their currentpractices and examine what needs to beimproved, changed or expanded in order tosupply identified market options.

In virtually all cases, areas to focus on forupgrading from existing market options to moreattractive market linkages, will includeupgrading basic stages in the production tosales process including improvements in thefollowing areas:

(i) Organization at the farmer level.(ii) Marketing options and trends.(iii) Finance.(iv) Technology.(v) Pre-production.(vi) Production.(vii) Post harvest.(viii) Expansion and better business relations.

These issues are the basic componentscontained in the other CIAT AgroenterpriseGuides and we hope that these methods andtools will further assist you in your futureagroenterprise development plans.

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Exercise 3.1Agronomic Characterization of a Crop

Objective· The trainee will fill out an agronomic characterization matrix for a crop considered important in theregion.

Instructions for the Facilitator and Trainee1. Form groups of four trainees and name a coordinator.2. Choose a crop that is important in the area and on which one or more members of the group has

good agronomic knowledge.3. Use the agronomic characterization format appearing in the Worksheet for this exercise.4. Relevant information for this exercise is found in Section 3.2 (page 55). If some data are unknown,

the team should make an intelligent assumption.5. Once finished, the group will copy the format on a large paper or transparency for presentation in a

plenary session by the group’s coordinator.

Resources needed· Worksheet for Exercise 3.1.· Section 3.2 (page 55) of the guide.· Flip chart or overhead projector and transparencies.· Paper and pencils.· Magic markers or markers for transparencies.


Exercise 3.1Agronomic Characterization of a Crop – Worksheet

Agronomic Characterization MatrixMarket Complete Pre-production Technical Soil Wateroption cycle cycle demand requirement pH requirement

(years) (months or (low, average, (mm/year)years) or high)

Altitude Labor Planting Need for Major pests Planting Annualrequirement requirement period irrigation and diseases density yield

(m.a.s.l.) (yes or no) (no./ha) (t/ha)

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Exercise 3.2Marketing Characterization of a Product

Objective· The trainee will fill out a marketing characterization matrix for a product considered important inthe region.

Instructions for the Facilitator and Trainee1. Form groups of four trainees and name a coordinator.2. Choose a product that is important in the area and which one or more group members are familiar

with.3. Use the marketing characterization format appearing in the Worksheet for this exercise.4. Relevant information for this exercise is found in Section 3.2 (page 58). If some data are unknown,





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Exercise 3.2Marketing Characterization of a Product – Worksheet

Marketing Characterization MatrixMarket Current Competitors Type of client Services to Scope of marketoption marketing (number, types clients

(yes or no) and strategies) SM = supermarket TA = technical L = localFI = food industry assistance R = regionalI = industry Cr = credit N = nationalRes = restaurant Exp = export

Growth of Minimum Quality Packaging Delivery Businessdemand volume requirements requirements requirements relationship(high, purchased (high, PA = delivered at AG = agreement

medium, intermediate, zone PA = partnershipor low) or low) PW = delivered at CO = contract

warehouse

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Exercise 3.3Agroindustrial Characterization for a Processed Product

Objective· The trainee will fill out an agroindustrial characterization matrix for a product consideredimportant in the region.

Instructions for the Facilitator and Trainee1. Form groups of four trainees and name a coordinator.2. Choose an agroindustrial product (processed or transformed) that is important in the area and

which one or more group members are familiar with.3. Use the agroindustrial characterization format appearing in the Worksheet for this exercise.4. Relevant information for this exercise is found in Section 3.2 (page 57). If some data are unknown,





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Exercise 3.3Agroindustrial Characterization for a Processed Product – Worksheet

Agroindustrial Characterization MatrixMarket By-products Raw materials Other inputs Technical demand Conversionoption (low, average, factor

or high)

Capacity Machinery and Method for Working Investment Annual salesequipment quality control capital

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Exercise 3.4Designing a Product Card

Objective· The trainee will develop a product card for a given agricultural, livestock, forest, or agroindustrialproduct that is important in a given region.

Instructions for the Facilitator and Trainee1. Form a group of four trainees and name a coordinator.2. Choose a product that is important in the region and on which one or more members of the group

has good knowledge.3. Use the product card format appearing in the Worksheet for Exercise 3.4.4. Pertinent information for this exercise is found in Section 3.4 (page 67) and in Figures 7 and 8.5. If some data are unknown, the team should make an intelligent assumption.6. When finished, the group will copy the format onto a large paper or transparency for the

presentation in a plenary session by the group’s coordinator.

Resources needed· Worksheet for Exercise 3.4.· Section 3.4 (page 67) and Figures 7 and 8 of the guide.· Flip chart or overhead projector and transparencies.· Paper and pencils.· Magic markers or markers for transparencies.


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Exercise 3.4Designing a Product Card – Worksheet

Format for Product Card

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Exercise 3.4Designing a Product Card – Feedback

Each group will present different product cards, depending on the cropselected. An example developed for the Colombian case is given.

Mid-altitudezone

Fig treeFruit tree46 trees

2 harvests

1600 m2 – Monocrop

Regular

Water: 700 mm

2 years

640 kg

Col$770,000;no. of workdays: 28

Col$35

AdaptationWhether the optiontolerates drought, pestsand lack of fertilization.

CycleTime between plantingand first harvest.

YieldAmount of productproduced per year.

Expenses until the firstharvestWhat is spent in inputsand wages.

ProfitAmount of money free forevery Col$100 spent.

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Exercise 3.5Preparing a Timetable for Final Evaluation with a Rural Community

Objective· The trainee will prepare a timetable for the final evaluation meeting of the market options with therural community.

Instructions for the Facilitator and Trainee1. Form groups of four trainees and name a coordinator.2. The groups will use the format appearing in the Worksheet for Exercise 3.5. The number of

activities appearing in the format is merely a suggestion.3. Under the ‘Date’ column, the group should begin with Week 1 and continue to work in terms of

weeks. Some activities may take more than one week. Several activities can be carried outsimultaneously and the order is important because some activities are prerequisites for others.

4. The groups should first prepare a draft timetable before copying it onto the worksheet format.5. Pertinent information is found in Section 3.4 of the guide.6. The group will prepare a transparency with the completed Worksheet.7. The coordinator of each group will present the group’s work in a plenary session.

Resources needed· Worksheet for Exercise 3.5.· Section 3.4 of the guide.· Overhead projector and transparencies.· Paper and pencils.· Markers for transparencies.


83


Exercise 3.5Preparing a Timetable for Final Evaluation with a Rural Community – Worksheet

no. Activity Person Terminationresponsible date

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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Exercise 3.5Preparing a Timetable for Final Evaluation with a Rural Community – Feedback

Timetables can vary, but it is important to list major activities in thecorrect order. Activities 15-17 (shaded) are the same for each meeting.The others are general activities.

no. Activity Person Implementationresponsible time

1 Ensure funding of final evaluation of market options Coordinator Week 1

2 Establish work teams Coordinator Week 2

3 Subdivide targeted region Team Week 2

4 Select market options per subregion Team Week 2

5 Collect information on options Team Week 3

6 Define smallholder producer categories Team Week 4

7 Select sample of farming communities Team Week 4

8 Conduct survey on smallholder producer’s decision Team member Week 5criteria

9 Prepare survey report Team member Week 6

10 Design and prepare product cards Team Week 8

11 Define evaluation meeting sites Team Week 8

12 Plan evaluation meetings Team Week 8

13 Prepare invitation cards for meetings Team member Week 9

14 Train relevant personnel Team Week 9

15 Invite smallholder producers Team member Weeks 10-13

16 Coordinate logistics of the meetings Team Weeks 11-14

17 Conduct evaluation meetings Team Weeks 12-15

18 Process and analyze data Team Week 17

19 Prepare final report with conclusions Team Week 19

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Practice 3.1Survey of Decision Criteria for Crop Selection

Objective· The trainee will identify key decision criteria of small producers when selecting a crop for planting.

Instructions for the Facilitator and Trainee1. Form a team of four trainees and name a coordinator.2. Worksheets no. 1 and 2 include interview guidelines and a format for reporting.3. Pertinent information to this practice is found in Section 3.4.4. This practice takes 2 days, divided into three sessions, as follows:

Planning session· If not done already, the team will choose four farming communities that are representative of theregion and define smallholder producer segments or types.· Then, follow through with the interview guidelines or questionnaire, which is the research tool to beused with rural producers. Remember the objective of the survey of decision criteria.· During the interview try to corroborate the type of producer being interviewed. Remember to usesimple language.

Fieldwork session· A sample of eight producers is interviewed in a single farming community. The sample shouldinclude all types of producers.· One team member can conduct the interview, while another completes the format. (If necessary, afarming community can be served by more than one team.)

Reporting and presentation sessionEach team prepares a report and its coordinator will present it in a plenary session.

Resources needed· Transportation to and from the rural area.· Refreshments.· Worksheets no. 1 and 2 for Practice 3.1.· Section 3.4 of the guide.· Flip chart or overhead projector and transparencies.· Paper and pencils.· Magic markers or markers for transparencies.

Time required: 2 days.

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Practice 3.1Survey of Decision Criteria for Crop Selection – Worksheet no. 1

Interview Guidelines for the Survey on “Smallholder Producers’ DecisionCriteria for Selecting Crops for Planting”

1. Greet the producer and explain the objective of your visit, for example:

‘Good morning (or Good afternoon), we are from Organization and we would like toknow whether we could talk to you about a subject that really interests everybody.’

2. Ask a question to corroborate the type of producer, such as:

‘Do you sell most of what you produce or do you use it yourself?’

Note: This question is pertinent only if it were decided that smallholder producers should beclassified according to their degree of market orientation (commercial, semi-commercial,subsistence).

3. Write down the producer’s name, the type of producer he/she is, the farming community, and thename of the survey group.

4. Ask about selection criteria used to choose traditional crops, for example:

‘What aspects do you think about when choosing a traditional crop for planting?’

5. Write down the answers.

6. Ask about selection criteria when choosing new crops, for example:

‘What aspects do you think about when choosing a new crop for planting?’

7. Write down the answers.

8. Thank the producer for his/her collaboration.

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Practice 3.1Survey of Decision Criteria for Crop Selection – Worksheet no. 2

Report Format for the Survey on “Smallholder Producers’ Decision Criteriafor Selecting Crops for Planting”

Group: Farming community:

Number of producers interviewed:

no. Decision criteria to select traditional crops Frequency %12345

no. Decision criteria to select new crops Frequency %12345

Differences found in criteria among producer types:

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Practice 3.1Survey of Decision Criteria for Crop Selection – Feedback

This is an example of a final report:Survey on “Smallholder Producers’ Decision Criteria for Selecting Crops forPlanting”

Group: no. 5 Farming community: La Torre

Number of producers interviewed: 8

no. Decision criteria to select traditional crops Frequency %1 Knowledge/expertise 8 362 Does not require inputs/easy to plant 5 233 Short or intermediate growth cycle 4 184 Stable price 3 145 Has a market 2 9

no. Decision criteria to select new crops Frequency %

1 Does not require inputs/easy to plant 8 322 Good price 6 243 Has a market 5 204 Short or intermediate growth cycle 4 165 Stable price 2 1

Differences found in criteria among producer types:

Subsistence producers were more interested in hardy, short-cycle crops.

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Appendices

APPENDIX 1

Format for Preparing a Production Systemfor a Crop

Product:

Technology: Low Intermediate Optimal

Total cycle: Production cycle:

Is irrigation necessary? Yes No

Planting density: /ha

Range of productivity:

Low: t/ha High: /ha

Estimate for low technology: t/ha

Estimate for intermediate technology: t/ha

1. Initial investment

2. Pre-planting and planting

Days required to:

( ) Prepare the land

( ) Place posts, trellises, and fastenings

( ) Prepare the seedbed

( ) Make holes

( ) Design plot, dig holes and plant

Others:

( )

( )

( )

90


3. Production activities (applications)

Activity no. of applications per month (or year)

0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10

Weed control

Fertilization

Organic

Chemical

Foliar

Lime amendments

Pruning

Irrigation

Sanitary control

Insecticides

Fungicides

Others

91

Appendices

4. Inputs

Activity no. of doses per plant (or tree) per month or year

0 1 2 3 4 5 6 7 8

Fertilization

Organic

Chemical

Foliar

Lime amendments

Sanitary control

Insecticides

Others

92


5. Production activities (timetable)

Activity Scheduling within program (month)

0-1 1-2 2-3 3-4 4-5

Weed control

Fertilization

Organic

Chemical

Foliar

Lime amendments

Pruning

Irrigation

Sanitary control

Insecticides

Fungicides

Others

93

Appendices

APPENDIX 2

Financial Profitability Model for a Product:Example of Lulo (Naranjilla – Solanum quitoense

Lam.)

Main details

Date: February 1996

Calculation of internal rate of return: 1 ha

Product: Naranjilla (lulo), not hardy and is well known

Technology: Intermediate

Planting density per hectare: 2,200 plants

Wage per workday: 5,500 Colombian pesos

Pre-production period: 12 months

Model’s time span: 3 years

Part 1. Unit costs and prices.

Item Unit Value (Col$)

· Investment

Pond and accessories Unit 300,000

Seedbed Unit 50,000

Hoses m 300,000

Fumigator Unit 70,000

Tools Unit 5,000

Plastic baskets Unit 7,200

· Inputs (placed on site)

Ca + P (‘calfos’) kg 91

Chicken manure kg 70

Fertilizers kg 430

Green manure kg 75

Foliar fertilizers lt 3,587

Insecticides lt 5,500

Fungicides kg 7,000

Traps Unit 300

· Prices

First grade kg 1,400

Second grade kg 750

Transport costs kg 50

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Part 2. Quantity matrix.

Item Unit Month Total

0 0-1 1-2 2-3

· Investments

Pond and accessories Unit 1

Seedbed Unit 1

Hoses m 130

Fumigator Unit 1

Tools Unit 10

Plastic baskets Unit 25

· Labor

Preparing the land Workday 15 0 0 0

Preparing the seedbed Workday 5 0 0 0

Laying out, digging holes, and planting Workday 42 0 0 0

Weed control Workday 0 30 15 15

Fertilization Workday 11 33 33 33

Sanitary control Workday 10 10 10 10

Debudding Workday 0 15 15 15

Watering Workday 0 30 20 20

Harvesting Workday 0 14 69 69

Cleaning and selection Workday 0 5 23 23

Packaging Workday 0 1 6 6

Total labor Workday 83 138 191 191 602

· Amounts of inputs

Ca + P (‘calfos’) kg 660 0 0 0

Chicken manure kg 1,320 880 880 880

Fertilizers kg 0 44 44 44

Green manure kg 1,100 1,100 1,100 1,100

Foliar fertilizers kg 0 4 4 4

Insecticides kg 8 5 5 5

Fungicides kg 0 2 2 2

Traps Unit 110 0 0 0

· Yields

First grade 70% kg 0 1,120 5,600 5,600

Second grade 25% kg 0 400 2,000 2,000

Losses 5% kg 0 80 400 400

Total 100% kg 0 1,600 8,000 8,000

95

Appendices

Part 3. Cost and income matrix.

Item Month Total

0 0-1 1-2 2-3

1. Investments

Pond and accessories 300,000 0 0 0

Seedbed 50,000 0 0 0

Hoses 39,000 0 0 0

Fumigator 70,000 0 0 0

Tools 50,000 0 0 0

Plastic baskets 180,000 0 0 0

Subtotal ‘Investments’ 689,000 0 0 0 689,000

2. Variable costs

a. Labor 456,500 756,667 1,049,833 1,049,833 3,312,833

b. Inputs

Ca + P (‘calfos’) 60,060 0 0

Chicken manure 92,400 61,600 61,600 61,600

Fertilizers 0 18,920 18,920 18,920

Green manure 82,500 82,500 82,500 82,500

Foliar fertilizer 0 15,783 15,783 15,783

Insecticides 44,000 27,500 27,500 27,500

Fungicides 0 14,000 14,000 14,000

Traps

Subtotal ‘Inputs’ 278,960 220,303 220,303 220,303 939,868

c. Transportation to city 0 76,000 380,000 380,000 836,000

Total ‘Variable costs’ 735,460 1,052,969 1,650,136 1,650,136 5,088,702

3. Administrative costs

Administrationa 73,546 73,546 127,014 127,014

Technical assistanceb 50,000 50,000 50,000 50,000

Subtotal ‘Fixed charges’ 123,546 147,697 177,014 177,014 625,270

4. Total operational costs (2+3) 859,006 1,200,666 1,827,150 1,827,150 5,713,972

5. Subtotal ‘Investments’ +‘Operational costs’ (1+4) 1,548,006 1,200,666 1,827,150 1,827,150 6,402,972

6. Sales

First grade 0 1,568,000 7,840,000 7,840,000

Second grade 0 300,000 1,500,000 1,500,000

Total ‘Sales’ 0 1,868.000 9.340.000 9.340.000 20,548,000

a. Administration expenditures are calculated as unit percentage (10%) of investment in labor and inputs.b. Three levels of costs for technical assistance are proposed: crop is hardy and well known: $25,000;

crop is hardy and new, and crop is not hardy but is well known: $50,000; and crop is not hardy and isnew: $150,000.

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Part 4. Cash flow without financing and calculation of profitability.

Financial parameters

Item Month Total

0 0-1 0-2 2-3

Net flow (1,548,006) 667,334 7,512,850 7,512,850 14,145,028

Financial rate of return: 67.09% Minimum acceptable: 12%

Net present value: 7,730,642 Minimum acceptable: 0

Discount rate: 12%

Pre-production investmenta: 2,548,561

Ratio of sales to no. of workdaysb: 34,114

Ratio of cash flow to no. of workdaysc: 23,484

Average no. of workdays per yeard: 201

Part 5. Cash flow with financing and calculation of profitability.

Item Month

0 0-1 1-2 2-3

Flow without credit (1,548,006) 667,334 7,512,850 7,512,850

Financial plana 2,548,561 0 (1,587,659) (1,587,659)

Net flow with financing (2,548,561) 1,667,889 5,925,191 5,925,191

Financial rate of return: 48.18% Minimum acceptable: 12%

Net present value: 5,821,582 Minimum acceptable: 0

Discount rate: 12%

a. Unit deflated interest rate assumed to be 16% per year.

a. Total amount of investments in assets and required expenditures during pre-production period.b. Sum of sales obtained per paid workday during complete cycle.c. Sum of cash flow per paid workday during complete cycle.d. Average no. of workdays per year.

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Appendices

APPENDIX 3

Format for Ranking Market Options

Producer:

Code: Area:

Interviewer: Date:

Good market options

Name of option Order Explanation of first two positions

1.

2.

Moderately good market options

Name of option Order

Poor market options

Name of option Order Explanation of last two positions

Last

Penultimate

Can the option you like best be made even better? Yes No

If yes, what do you think would make it even better?

If no, why can’t it be made better?

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99

Appendices

Ad valoremLatin expression that means ‘accordingto its value’.

AdvertisingAny form of marketing communication in thepaid media.

AgentA channel institution which represents one ormore suppliers for a fee.

Aggregate valueThe result of a post harvest or processingactivity, in this case, at the rural level, thatcan vary in complexity from levels I to III.Level I refers to simple operations such aswashing, cleaning, clearing, roasting,classification, baling and storage. Level IIincludes more complicated processes such ascooling, milling, cutting, mixing, dehydrating,cooking and canning. Level III operations aremore sophisticated, such as extraction,distillation, freezing, fermentation, extrusionand enzymatic processes.

Agri-businessInvolves the manufacture and distribution offarm supplies, production operation on thefarm and the storage, processing, anddistribution of farm commodities and itemsmade from them.

Agricultural extensificationUsing more land or animals to increaseagricultural output.

Agricultural intensificationIncreased agricultural output from increasedproductivity or yield per unit of land.

Agricultural or livestock productProduct with little aggregate value.

AgroenterpriseA business or firm, typically small-scale innature, often based on a rural location thatproduces and sells agriculturally basedproducts or services.

Agroindustrial productProduct with some degree of aggregate value,in this case, at the rural level.

Annual cash flowFor the financial model, this represents the netgain or loss generated by the project. Theseries of these flows is used to calculatefinancial parameters.

AppellationSystem by which a product is legally protectedto support marketplace differentiation basedon its place or origin or method of processing.

ArbitrageThe simultaneous purchase and sale of acommodity in two different markets to takeadvantage of differences in prices of thatcommodity in the markets.

AssetItems of money value owned by a business orperson, including items suchs as land,buildings, machinery, tools, etc.

Average no. of workdays per yearThe total number of workdays required duringthe duration of the project divided by thenumber of years of the project.

BarterThe direct exchange of goods and servicesbetween two parties, often without cashconsiderations.

BenchmarkingThe process of comparing the company’sproducts and processes to those of acompetitor or leading firm in other industriesto find ways to improve quality andperformance.

Biodegradable productsProducts made from biological materials thatbreak down within a relatively short period oftime when disposed of or left to degrade undernatural conditions. These products are notconsidered harmful to the environment as theybreak down into non noxious products.

BiomedicinesMedicinal products produced from plants andanimal products.

Biophysical and socioeconomic profileA brief document that summarizes thephysical, social, economic, and institutionalaspects of a given region under study.

Glossary

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BiotechnologyNew area of biological science pertaining topropagation, transformation and therecombination of genetic materials that isconducted in controlled, sterile conditions.This technology often uses sophisticated nontraditional methods for enabling geneticpropagation and genetic manipulation is usedto produce genetically modified organisms,(GMO’s).

BrandA name, term, sign, symbol, logo, phraseintended to identify the goods or services ofone seller, which differentiates them fromthose of competitors. A recognized brand isone which has strong customer loyalty.

BrokerA channel institution which puts a specificbuyer(s) and seller(s) in contact with oneanother in one or more commodity(ies) orservice(s) with a view to achieving a sale orbenefit.

BudgetAn amount of money set aside to cover thetotal cost of a communication campaign orother marketing activity.

Business Development Service (BDS)Any business or business entity that offersinformation and activities in the marketingsystem that facilitates a second businessthereby improving its operational and pricingefficiency. In some cases the term BDS isused to capture all of those business servicesother than financial services, such as inputsupply, processing, advisory services.

CapitalProductive resources, (goods) that areavailable, as a result of past human decisions,to produce other want-satisfying goods.

Ceteris paribusHolding some variables constant, whilstletting specific variables change.

C.I.F.A contract of sale “cost, insurance freight” ofthe documents of title, not the goods, wherebythe buyer is under an obligation to payagainst the shipping documents irrespectiveof the arrival of the goods.

Closed questionsQuestions that include all possible answers,of which one or several will be selected by theinterviewee. Examples of closed questions aremultiple choice and rankings.

Collective actionTerm used to describe group activities, usedto increase economies of scale.

CollusionProcess through which traders artificially fixprices above the price they would achieve in asituation of perfect competition.

Commercial phaseStage of an integrated production project thatfollows a successful pilot phase. Theoperational scale is expanded according to theestimated demand potential.

CommodityProduct for sale in the marketplace. Termoriginally coined to differentiate products thatwere essential, termed utilities, with newproducts such as coffee and cocoa that wasconsidered to be exotic and desirable.Nowadays, commodities tend to be used forproducts in high volume trading.

Comparative advantageCompetitive condition of an individual,organization, or region that allows it to offer aproduct or service of better quality or at alower price than others. Or one countryenjoying a lower production ratio (input tooutputs) than another country under totalspecialization.

Comparative analysisComparing the same set of statistics within acategory of one country with another for thepurpose of estimating potential demand.

CompetitionA product, organization or individual, in eitherthe same or another category which can bedirectly substituted one for the other infulfilling the same needs or wants.

Competitive strategyThe adoption of a specific target market andmarketing mix stance in the marketplace.

Convenience sampleProcedure in which sample components areselected according to the ease of obtaininginformation.

Conversion factorThe ratio or proportion relative to the amountof final products, or by-products, obtainedfrom a given unit of raw material. Forexample, if we obtain 0.4 kg of dried cassavachips from each kilogram of fresh cassavaroots, then the conversion factor would be 0.4.

CooperativeA collection of organizations or individuals,pooling their resources in order to gaincommercial or non-commercial advantage inbuying, selling or processing goods and/orservices.

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Customer satisfactionThe extent to which a product’s perceivedperformance matches a buyer’s expectation. Ifthe product’s performance falls short ofexpectations, the buyer is dissatisfied. Ifperformance matches or exceeds expectations,the buyer is satisfied or delighted.

Decision-making criteriaIn the context of this manual, these refer toaspects that the small rural producer takesinto account when selecting a crop to plant.

DemandThe quantity of products that the consumerscan buy.

Differentiated productA product that has undergone some form ofvalue addition to distinguish it from othersimilar products, through means such asgrading, sorting, packaging, branding,specialized marketing such that it attracts ahigher price and targets a more specializedmarket.

DiscountA reduction in price on purchases during astated period of time.

Discount rateThe interest rate used to convert a series ofannual flows to a single present value (year 0).

DistributionMarketing variable that defines the channelsthrough which the product or service reachesthe client.

Distribution channelAn institution through which goods orservices are marketed, giving time and placeutilities to users.

DiversificationBusiness growth strategy to produce newproducts for new markets.

DumpingThe selling of goods or services in a buyingcountry at less than the production unit pricein the selling country, or the differencebetween normal domestic price and the priceat which the product leaves the exportingcountry.

DutyThe actual custom duty based on an importedgood either on an ad valorem, or a specifiedamount per unit or combination of these two.

Economic rentReturn in excess of opportunity cost, oftenenabled through political protection.

Effective cash flow per workdayThe sum of cash flows during a project’s life isdivided by the total number of workdays.

Effective market demandWhen needs and desires are supported by theability to pay.

Elastic supplyA supply elasticity coefficient of more thanone indicates an elastic supply, thepercentage increase in supply being greaterthan the percentage increase in price.

EntrepreneurPerson who organizes resources to produceand market goods and services.

Evaluation criteriaIn the context of this manual, the aspectsanalyzed when selecting or discardingelements, as in the case of market options.The criteria used are feasibility forsmallholders, attractiveness as business, andcontribution to production sustainability.

ExchangeThe act of obtaining a desired object byoffering something in return.

Exchange rateThe ratio of exchange of one currency toanother.

ExportingThe marketing of surplus goods produced inone country into another country.

Financial rate of return (FRR)An interest rate that discounts a series ofannual cash flows in such a way that thepresent value of the series is equal to theinitial investment.

FirmA decision-making business entity that usesresources hired from households to producegoods and services for sale to households orother consuming units.

Fixed costsCosts that do not vary with productionvolume and remain relatively stable, forexample, administration and surveillance.

F.O.B.A contract of sale “free on board” whereby theseller undertakes to place the goods on boarda named ship at a named port and berth andcarry all charges up to delivery over the ship’srail.

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Focus groupA small sample of typical consumers (or aninterest group) under the direction of groupleader who elicits their reaction to stimulussuch as an advertisement, an idea, a questionor concept.

Foreign exchangeFacilities’ business across nationalboundaries, usually expressed in foreigncurrency bought or sold on the foreignexchange market.

FRR with financingThe FRR calculated and including financingexpenditures.

FRR without financingThe FRR calculated as a parameter of netprofitability because it excludes financingexpenditures.

Futures optionA legally binding contract to deliver/takedelivery on a specified date of a given qualityand quantity of a commodity at an agreedprice.

GatekeepersPeople in the organizations buying center, orpoint in a market chain, who control the flowof information to others.

Global productsProducts designed to meet global marketsegments.

GlobalizationThe integration of international transport,finance and communications systems andservices to enable transnational trading ofgoods and services.

Gross domestic product (GDP)The value of all goods and services producedby a country’s domestic economy in one year.

Gross marginAccounting term equivalent to sales minusvariable costs. It can be expressed as apercentage or as a sum of money.

Gross marketing marginThe sum of all marketing costs plus profits.

Gross national product (GNP)The market value of all goods and servicesoutputted by residents of a country in oneyear including income from aboard.

Growth rateThe growth in the sales of a product that ismeasured as a percentage of annual increaseof demand. Growth can be high (more than6% per year); average (4%-6%); low (1%-3%,and similar to the population growth rate);null; or negative.

HedgingA mechanism to avoid the risk of a decline inthe future market of a commodity, usually byentering into futures markets.

Horizontal integrationThe combination of two or more enterprises orfirms operating at the same point in themarket chain.

Human capitalThe educational investment that improves theknowledge and productivity of people.

Human needA state of deprivation that can be addressedor reduced by a product.

Human wantsThe form that a human needs takes as shapedby culture and individual personality.

IdeotypeThe concept that small rural producers haveof an ideal product. It is used in participatoryevaluation.

Income elasticity measurementsA description of the relationship between thedemand for goods and changes in income.

Income elasticity of demandThe responsiveness of quality purchased to a1% change in income, ceteris paribus.

Income per capitaThe market value of all goods and servicesoutputted by a country divided by the totalnumber of residents of that country.

Inelastic supplyProducts that have a supply elasticity betweenzero and one the supply elasticity isconsidered to be inelastic. The percentagechange in supply is less than the percentagechange in price.

InflationA condition where demand outstrips supply orcosts escalate, affecting an upward change inprices.

Information systemA system for gathering, analyzing andreporting data aimed at reducing uncertaintyin business decision making.

InnovationAn idea, service, product, or technology thathas been developed and marketed to aconsumer who perceive it as novel or new. Itis a process of identifying creating anddelivering new product or service values thatdid not exist before in the marketplace.

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Appendices

Input marketsMarkets where inputs such as seeds, tools,fertilizers, agrochemicals are sold, generallythrough specialized dealers that only trade ininput supplies.

Integrated production projectRural development project that takes intoaccount the system elements of the targetedproduct, for example, agricultural andlivestock production, post harvest handling orprocessing, marketing and entrepreneurialorganization. Important project componentsare research and development.

InterestThe charge made for borrowed money. Therate at which we discount future economicgoods.

Interest rateThe price of borrowed money.

IntermediariesDistribution channel firms or persons, thathelp to find the customer or make sales tothem, including bulking agents, wholesalersand retailers that buy and resell goods.

International productsGoods or services seen as having extendedpotential into other markets.

Joint venturesAn enterprise in which two or more investorsshare ownership and control over propertyrights and operations.

Key informantsActive and leading members of the marketchain.

Key observersPeople who are knowledgeable about a marketchain but are not directly involved in thebusiness operations of the market chain.

Letter of creditA method of international payment wherebythe buyer instructs his own country bank toopen a credit with the seller’s own countrybank specifying the documents which theseller has to deliver to the bank for him/her toreceive payment.

Level of technologyDegree of technological complexity needed toadequately develop a crop. It is similar to‘technical requirement’.

LevyA tax imposed by government, to meet aspecific objective.

LicensingA method of foreign operation cooperationwhereby an organization in one country agreesto permit a firm in another country to use themanufacturing, processing, trademark, know-how or some other skill provided by thelicensor.

Local productsGoods or services seen only suitable in onesingle market.

LogoSymbol or emblem used to identify a specificproduct and for marketing purposes todifferentiate a specific product from similaritems.

Mark of origin (appellation)System by which producers and processorscan legally register their products such thatno other producers or processors can use thisname, title or logo, unless they produce theproduct within a legally recognized area orterritory and use specifically laid downmethods of production and or processing.

MarketThe group of consumers, industries andinstitutions who can buy a product or service.

Market chainTerm used to describe the multiple marketchannels through which a product or servicemoves until reaching the consumer.

Market developmentA business growth strategy to identify anddevelop new market segments for currentproducts. New market segments can comprisenew clients, institutional markets, othergeographical areas, and export.

Market efficiencyA comparison of the value of output to thevalue of inputs used in the marketing process.

Market entryThe way in which an organization entersforeign markets either by direct or indirectexport or production in a foreign country.

Market holding priceThe charging of a price at what the marketcan bear in order to hold market share.

Market information services (MIS)People, equipment and procedures to gather,sort, analyze, evaluate and distribute needed,timely and accurate information to marketingdecision makers.

Market mixThe set of controllable tactical marketingvariables including: product, price, place andpromotion, that a firm blends to produce theresponse it wants in the target marketplace.

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Market opportunityA given product or service presenting highgrowth or for which the levels of demandexceeds supply, and an organization or regioncan produce profitably.

Market penetrationA business growth strategy to increase thesale of products in current market segmentswithout changing the product offered. Thiscan be done by lowering prices, enhancingpromotion and increasing distribution.

Market positioningThe adoption of a specific market stance,leader, challenger, follower, flanker oradopter, vis a vis competition.

Market researchEntrepreneurial discipline that not onlyidentifies market trends and opportunitiesbut also reveals the opinions and preferencesof clients and consumers. Data are obtainedby consulting primary and secondaryinformation sources.

Market segmentA group of consumers who respond in asimilar way to a given set of marketingstimuli.

Market segmentationDividing a market into distinct groups ofbuyers with different needs, characteristics orbehavior, who might require separateproducts or marketing mixes.

Market speculationA marketing strategy whereby buyers holdstocks of a product in the hope that priceswill increase so that they can maximizeprofits when they decide to sell. Physicalspeculation requires that a lot or amount ofproduce is purchased and stored. There arecosts associated with storage and for aspeculation to be profitable, the final salesvalue must be more than the costs of storage.

Market shedThe area that covers production, processingand marketing of a product.

Market supplyThe quantity of products that is offered forsale.

MarketingA business activity that focuses on identifyingand satisfying market needs through aprofitable offer of products and services.

Marketing costsAgricultural marketing refers to the activitiesinvolved in taking a product from the farmgate and delivering it in the form, at the timeand to the place that the buyer requires. Suchcosts are therefore incurred through handling,transport, storage, processing, packaging,market fees, risk management, brokerage,export handling and others.

Marketing processThe process of analyzing marketopportunities, selecting target markets,developing a marketing mix and managing themarketing effort.

Marketing strategyThe marketing logic by which the businessunit hopes to achieve its marketing objectives.

MediaAny paid for communication channelincluding television, radio, posters, etc., thusproviding an immediate idea of themicroregion’s system.

MiddlemanPerson who trades in goods, a buyer and sellerof goods and services.

Net marginAccounting term equivalent to net gain, thatis, sales minus both variable and fixed costs.

Net marketing marginExcludes normal marketing costs, therebyproviding a measure of the profit realized. Netmarketing margins may however also includethe remuneration of the trader or processor’slabor, in which case it is not an exact profitindicator.

Net present value (NPV)The value in year 0 of a series of annual cashflows generated by a project if discountedusing an interest rate equal to the opportunitycost for capital.

Niche marketingAdapting a company’s offerings and productsto more closely match the needs of one ormore subsegments where there is often littlecompetition.

Non tariff barriersMeasures, public or private, that causeintentionally traded goods or services to beallocated in such a way as to reduce potentialreal world income.

NPV with financingThe calculated net present value, butincluding financing expenditures.

NPV without financingThe calculated net present value, butexcluding financing expenditures.

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NutracueticalsProducts that have medicinal/pharmaceuticaland or nutritional value, that are derived fromplant or animal products. Examples includehigh iron producing beans, bananas thatcontain insulin.

Open questionsQuestions that allow the interviewee to answerin his or her own words.

Opportunity costThe value of other opportunities given up inorder to produce or consume any good.

Opportunity cost of capitalInterest that the financial systemacknowledges for savings, for example, theinterest for fixed-term deposits.

OptionA bilateral contract giving its holder the right,but not the obligation to buy or sell a specifiedasset at a specific price, at or up to, a specificdate. Type of financial instrument that givesthe holder the right to buy or sell futurescontracts.

Output marketsMarkets where harvested products are sold—these are the more traditional assembly,wholesale and retail markets.

PackagingActivities involved designing and producingthe container or wrapper for a product.

ParticipatoryAdjective that refers to anything that takes theviewpoints of users, beneficiaries, or partnerorganizations or projects into account whenmaking decisions.

Participatory evaluationMethodology, inspired by concept tests usedin product research, which allows small ruralproducers to express their preferences formarket options presented to them.

PatentingLegal mechanism used to protect productsfrom being copied by other entrepreneurs. Thepatent scheme usually lasts for a designatedperiod of time, 10 years, after which time thescheme either elapses or the inventor or ownerprovides evidence of innovation to renew thepatent to protect the value of the givenintellectual property.

Penetration priceThe charging of a low price in order to gainvolume sales conducted under conditions oflittle product uniqueness and elastic demandpatterns.

Physical distributionThe act and functions of physicallydistributing goods and services including theelements of transport, warehousing and orderprocessing.

Pilot phaseStrategy to minimize the risks involved incommercializing an integrated productionproject. Entrepreneurial activities are carriedout on a small scale, but under real marketconditions.

PlaceAll the company/firm activities that make theproduct or service available to the targetcustomer.

Pre-production cyclePeriod of a crop between planting and 30% ofthe crop’s maximum production potential.

Pre-production investmentThe amount of money spent before the firstcrop is harvested.

Price ceilingThe maximum price which can be chargedbearing in mind competition and what themarket can bear.

Price elasticity of supplyIs defined as a measure of the percentagechange in quantity supplied in response to apercent change in price. A supply elasticity of0.4 for cotton in the short run means thatthe quantity supplied increases 0.4% for a1% increase in the price of cotton.

Price escalationThe difference between the domestic price andthe target price in foreign markets due to theapplication of duties, dealer margins and/orother transaction costs.

Price floorThe minimum price which can be chargedbounded by product cost.

Price stabilityDegree of variability of product prices, whichcan be measured with an index equivalent tothe standard deviation of a deflated series ofat least 18 monthly prices.

PriceThe amount of money charged for a product orservice, or the sum of the values thatconsumers exchange for the benefits of havingor using a product or service.

Primary dataThat data which is collected and generated aspart of a survey. Unpublished data fromindividuals or organizations.

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Primary informationIn market research, this is the informationobtained firsthand by using severalcommunication methods, for example,personal interviews and group sessions.

Probability sampleProcedure in which the elements of a sampleare chosen at random.

ProductAnything that can be offered to a market forattention, acquisition, use of consumptionthat might satisfy a want or need. It includesphysical objects, services, persons, places,organizations and ideas.

Product cardA format that is especially designed forparticipatory evaluation. Each formatcomprises a card that represents the conceptof one market option. The cards are thenorganized according to preferences of smallrural producers.

Product developmentA business growth strategy for offering new ormodified products to current marketsegments. The products can be improved ordifferently packaged or labelled.

Product strategyA set of decisions regarding alternatives to thetarget market and the marketing mix given aset of market conditions.

ProjectA series of activities planned and carried outto achieve an objective within a defined periodof time and with predetermined resources.

PromotionActivities that communicate the product ofservice and its merits to target consumersand persuade them to buy. The offer of aninducement to purchase, over and above theintrinsic value or price of a good service.

QualityThe totality of features and characteristics ofa product or service that bear on its ability tosatisfy stated or implied needs.

QuotaA specific imported amount imposed by onecountry on another, when once filled cannotbe exceeded within a given time. When aquota is in force, the price mechanism is notallowed to operate.

Quota sampleProcedure in which a specific number ofelements of each group or segment of a givenpopulation is included in the sample.

Relationship marketingThe process of creating maintaining andenhancing strong value laden relationshipswith customers and other stakeholders.

Research and developmentEntrepreneurial term that refers to twocomplementary activities that must be carriedout for product development. It encompassesresearch on markets, products and processes;development of brands and packaging.Research and development is an importantcomponent of integrated production projects.

RetailerA channel institution which acts as anintermediary between other channelinstitutions and the end user and who usuallybreaks bulk, charging a margin for itsservices.

Rural agroindustryEconomic activity that generates aggregatevalue for agricultural and livestock productsin the field.

Sales per workdayTotal value of sales during the project’s life,divided by the total number of workdays.

SampleA part or segment of a population selected asrepresentative of the targeted population.

Sample unitIn market research, the contact person.

Sampling procedureMethod used to choose a population sample.

Secondary dataThat data which already exists in other texts.Published accessible data from a variety ofsources.

Secondary informationIn market research, this is the informationobtained secondhand, that is, fromdocuments or Internet.

SectorRelates to the all activities under the mandateof one government ministry, such agriculture,health, education, justice.

Sensitivity analysisStudy that uses a profitability model todetermine those variables that most affect agiven financial parameter.

ServicesActivities, benefits or satisfactions that areoffered for sale.

SMSShort message service, text used to transferinformation via mobile phones.

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Appendices

SpeculationThe purchase or sale of title to goods orfinancial obligations in the expectation offavorable price movements.

StandardizationSame goods or services marketed in eitherproduct, distribution or advertising form,unchanged in any country.

Strategic business unitA self contained grouping of organizations,products or technologies which serve anidentified market and competes with identifiedcompetitors.

Strategic planA plan that describes how a firm will adapt totake advantage of opportunities in itsconstantly changing environment, therebymaintaining a strategic fit between the firmsgoals and capabilities and its changing marketopportunities.

Structured surveyResearch tool consisting of a questionnairethat is applied to all interviewees alike.

SubsectorA part of a sector, which can mean, withinagriculture that a subsector focuses on onearea, such as grains, fish, livestock, etc., orcan be more detailed to all that relates to oneparticular commodity, such as the maize, rice,cassava, beef subsectors.

SubstitutesTwo different goods or resources betweenwhich a choice is made to satisfy humanwants (or to produce a product).

Super BrandA product that has world renownedreputation, for providing customer satisfactionand delight, e.g., the soft drink Coca-Cola, theNIKE sports shoe.

Support servicesIn the context of this manual and of ruraldevelopment, these are sustainable orpermanent complementary services thatfacilitate the dynamics of the economy andrural organizations. These services includesavings and credit, technical assistance,commercial information, transportation andcommunications.

SustainabilityPermanence of any condition, for example, theproductive capacity of the agricultural sector.It is also applied to the continued existenceover time of any economic activity ororganization.

SystemA series or grouping of related or connectedelements so that they form a unit or a whole.

TariffAn instrument of terms of access normally theimposition of a single or multiple excise rateon a imported good.

Technical requirementTerm indicating the characteristics that a cropneeds to cope with the prevailing soil andclimatic conditions of a targeted region, forexample, whether it is hardy and tolerant, orwhether it requires sophisticated technologiesand large amounts of inputs for its successfulproduction.

Test-marketA business strategy to minimize risks when anew product or service is being introduced. Itconsists of releasing it into a restricted marketto assess the degree of success.

TimetableA tool to plan and organize projects thatdefines the sequence of activities, theirduration and the person or institutionresponsible for activities.

Total cyclePeriod of a crop between planting and thepoint where productivity decreases to below30% of the crop’s maximum potential.

TraceabilitySystem by which a product is tagged, suchthat it can be traced from source of origin tofinal user. This process may becomemandatory in formalized food markets.

TrademarkLegally recognized name, symbol or title,which can only be used for marketingpurposes by the originating or owningcompany.

TransactionA trade between two parties that involves atleast two things of value, agreed uponconditions, a time agreement and a place ofagreement.

Transaction costsTransaction costs relate to the non-price costsof making a commercial exchange. These areexpenses incurred in finding someone to tradewith, time spent negotiating a deal and thecosts involved in ensuring that contracts arehonored, all fall under the general category oftransaction cost.

Type of producerClassification of small rural producersaccording to a given variable of interest, forexample, the degree of market orientation orlevel of well-being.

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Unstructured surveyResearch tool consisting of a series ofinterview guidelines that allows theinterviewer to question interviewees and directeach interview according to the answers given.

ValueThe consumer’s assessment of the product’soverall capacity to satisfy his or her needs.

Value addedThe contribution to final produce value byeach stage in the production, delivery andmarketing process. Also, includestransformation processing of goods fromprimary to final state offered to a consumer.

Variable costsCosts that vary directly with the volumeproduced, for example, raw materials,packaging and fuel.

Vertical integrationThe linkage of firms (enterprises) in differentstages of producing and or marketing underthe ownership of a single firm.

WholesalerA channel institution which purchases andsells in bulk from either original suppliersand/or other channel intermediaries,charging a margin for its services.

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About the Partners

ASARECA FOODNET (Association for Strengthening Agricultural Research in Eastern and Central Africa)FOODNET is ASARECA’s post harvest and market research network for East and Central Africa. The network was establishedin 1999 and focuses on market analysis studies, market information, agroenterprise development, and related businessdevelopment support services. FOODNET works in collaborative partnerships with research and development partnersfrom the public and private sector.

Catholic Relief ServicesCatholic Relief Services was founded in 1943 by the Catholic Bishops of the United States. Their mission is to assist thepoor and disadvantaged and promote development of all people and to foster charity and justice throughout the world.CRS operates on 5 continents and in over 90 countries. CRS aids the poor by first providing direct assistance thenencouraging these people to help with their own development.

CIPASLACipasla, an inter-institutional consortium that fosters sustainable agriculture in hillsides, was founded in 1993 and isbased in Pescador, a village in northern Cauca department, located in south-western Colombia. In its first phase, Cipaslaincluded twelve public and private agencies and its structure involved a support committee consisting of communityrepresentatives. Cipasla’s agenda encompasses community organization, environmental education, soil and waterconservation, integrated crop management, marketing and agro-industry. Several CIAT projects have implemented researchactivities in this region, which is considered to be a pilot site.

About the Donors

CIDACanadian International Development Agency’s mandate is to support sustainable development in developing countries toreduce poverty and contribute to a more secure, equitable, and prosperous world. The Agency’s work is concentrated inthe poorest countries in Africa, Asia, and Latin America. CIDA’s program is based on the Millennium Development Goals,to which it contributes through four key areas: social development, economic well-being, protection, conservation, andmanagement of the environment and governance.

DFIDThe Department for International Development (DFID) is the part of the UK Government that manages Britain’s aid to poorcountries and works to reduce extreme poverty. DFID’s work aims to bring people out of poverty through programs thatsettle conflicts, increase trade and improve health and education.

IDBThe Inter-America’s Development Bank was established in 1959 as a development institution with novel mandates andtools. The IDB is the oldest and largest regional development bank. It is the main source of multilateral financing foreconomic, social and institutional development projects as well as trade and regional integration programs in Latin Americaand the Caribbean.

IDRCThe International Development Research Centre (IDRC) is a public corporation created by the Parliament of Canada in1970 to help developing countries use science and technology to find practical, long-term solutions to the social, economic,and environmental problems they face. Support is directed toward developing an indigenous research capacity to sustainpolicies and technologies that developing countries need to build healthier, more equitable, and more prosperous societies.

SDCThe Swiss Agency for Development and Cooperation (SDC) is organized and funded by the Swiss government and operatesby financing programs both directly, and in partnership with, other agencies to countries around the world.

USAIDThe United States Agency for International Development is an independent federal government agency that aims to furtherAmerica’s foreign policy interests in expanding democracy and free markets while improving the lives of the citizens of thedeveloping world. USAID supports long-term and equitable economic growth and advances U.S. foreign policy objectivesby supporting: economic growth, agriculture and trade; global health; and democracy, conflict prevention and humanitarianassistance.

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228 W. Lexington Street Baltimore, MD 21201-3413 USATel: 410.625.2220 • www.crs.org

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