LECTURE X

MARKETING AGRICULTURAL COMMODITIES

Marketing Enterprises

Fall into three broad categories including: Independent private enterprises: Range in

size and complexity from a one-man firm to a multinational corporation.

The Cooperative: Founded on the principle of equal participation by its members in its capitalization and its directing committee.

Parastatals: Established and funded by government

Independent private enterprises Individuals provide capital at their discretion. Participation in decision-making and sharing

of profits is on the basis of capital contribution.

Start and go a long way with little capital. Are great builders of capital assets. Individuals tend to be economical in their

personal expenditure. Outlays on equipment and other capital

expenditures are kept to the minimum and delayed until proven indispensable.

Independent private enterprisesOperate at low costs.Full use is made of family labour. Are stringent in their requirements for

paid staff.Follow up new ideas and exploit

unforeseen opportunities.Due to concentrated decision-making,

these entrepreneurs tend to show ready initiative and quick response to changing situations.

Independent private enterprises

Using family ties and kinship linkages to extend their marketing operations with high confidence and low risk.

Where the infrastructure for marketing is at an early stage of development, reliable means of communicating information, sales commitment and financial proceeds are important.

Limitations Difficulties in accessing capital. Variability in management A propensity to collude over prices, if there

are only a few traders in a particular market. For best performance of private enterprises

government should: Make their access to credit and information easier. Promote management training that is practical and

convenient Stimulate competition by removing barriers to the

entry of new firms, assisting new entrants and penalizing collusion

Cooperative

Farmers form group to enable them market their produce together.

This enables them to: Benefit from economies of scale in the

use of transport and other services through increasing the volume of produce handled at one time.

Increase their bargaining power by offering a larger quantity concentrated under a single management.

Cooperative

Establishment requires time and patience from the farmers concerned.

Their motivation is generally a reaction against a felt ill treatment, i.e. they believe that the existing channels of marketing are not providing satisfactory prices and service.

Cooperatives

Many governments set up farmers’ credit and marketing cooperatives as: Useful mechanisms for rural development

through tax exemptions, concessional credit and a range of support services.

Convenient base for political patronage and mobilizing external aid.

Monopoly agencies for marketing, purchasing and for distributing farm inputs.

Cooperatives

In Kenya, cooperative movement plays an important role in: Mobilization of domestic savings Agricultural production and marketing Employment creation in the country.

Since independence, the cooperative movement has grown to be a major marketing agent for agricultural produce for small-scale farmers.

Cooperatives

Cooperatives handle the marketing coffee, tea, pyrethrum and dairy products and to a lesser extent, sugarcane, cotton and horticultural crops.

The movement has evolved a wide network of collection, storage and distribution systems.

Cooperatives

Marketing cooperatives are favoured by: Specialized producing areas distant from major

markets. Concentration, specialization and homogeneity of

farm production. Farmers groups dependent on one or a few crops

for their total income. Availability of local leadership and management. An educated membership Members with strong kinship or religious ties.

Parastatals Established and funded by government. A manager is appointed to carry on its

business. While subject to government policy directives

it is autonomous in day-to-day operations. Parastatals include

Marketing boards State corporations Development authorities

They are given authority, capital and a source of income by government.

Limitations of Parastatals While it is fairly easy to add staff, many parastatals

find it very hard to terminate them. Management must cope with competing staff loyalties

and the depredation of politicians. In the absence of legal alternatives, producers and

consumers are obliged to use the services of a monopoly parastatal.

If a parastatal monopoly is maintained there should be a clear technical and economic justification.

Where family allegiances are dominant and the commercial infrastructure is uncertain, the more elaborate organizations are handicapped.

Categories of ParastatalsParastatals with legal powers over other

specified commodity markets empowered to: Undertake promotion and quality control Manage market flows and price

stabilization funds. Do not engage in marketing operations.

Good example in Kenya is the Horticultural Crops Development Authority (HCDA).

Categories of Parastatals

Those with responsibility for stabilizing specified commodity prices by operating buffer stocks alongside other enterprises. To moderate supply and price fluctuations

in food grains in domestic markets, a parastatal in this group can buy into and sell from a buffer stock.

An example in Kenya would be the National Cereals and Produce Board (NCPB).

Categories of Parastatals

Parastatals with legal monopoly of a defined area of marketing. They can obtain higher returns for export

products if they control enough of the total supply on their markets to be able to influence prices.

Where buyer preferences vary, however, a monopoly board may obstruct price signals seeking to adjust production to their needs.

It can also become a discriminatory vehicle for taxation.

Categories of Parastatals Monopolies in domestic marketing are

assigned to parastatals to concentrate sales of produce through a particular processing plant to:

Justify the investment Facilitate collection of credit repayments and

other dues from small farmers Implement market separation programmes

whereby higher overall prices can be obtained.

Good example Pyrethrum Board of Kenya

Marketing EfficiencyTo farmers efficient marketing means

the sale of their produce at the highest possible price.

To consumers it is the provision of high quality supplies at the lowest cost possible.

However, too high a price for the farmer would limit sales to consumers, and too low a price would discourage the production of future supplies.

Marketing Efficiency

Neither the consumer nor the producer stands to benefit from: unnecessary marketing charges wasteful methods inconvenient structures.

To reconcile the interests of both, marketing efficiency would have to be defined as: The movement of goods from producers to

consumers at the lowest cost consistent with the provision of the services that consumers desire and are able to pay for.

Marketing Efficiency

Reduction in cost of maintaining the same standard of service represents a clear increase in efficiency.

Additional marketing services that raise the cost of marketing, may also represent increased efficiency. That is if consumers value the extra service more

than a corresponding saving in cost.

Marketing efficiency includes: Technical Efficiency Economic Efficiency

Marketing Efficiency

Technical efficiency is enhanced by New methods of packing and processing to

reduce waste and deterioration in quality. Adoption of new machinery to achieve

labour economies.

Marketing Efficiency Economic efficiency Means that

Marketing is proceeding on the lowest cost basis feasible with techniques, skills and knowledge available.

This will be reflected in the prices and quality of service.

All the enterprises involved should continually look for new ways of carrying out their tasks and improving services.

They should adopt new methods as soon as they seem likely to reduce costs or encourage a better service.

Marketing Efficiency However, the use of machines or storage

designs, which are more efficient in terms of volume handled per hour, may not necessarily be economically efficient under all sets of conditions.

Many persons may be engaged in distribution because of limited earning opportunities elsewhere and in consequence, saving on labour may be neither profitable nor socially desirable.

Marketing Efficiency The use of sophisticated equipment may

cause difficulties such as obtaining spare parts and performing adequate maintenance.

New techniques must fit into existing systems.

Storage and processing units that are efficient, from an engineering point of view, have stood empty and unused for much of the time in various tropical countries, because the marketing system was not geared towards technical efficiency

Obstacles to economic efficiency

Include Lack of information. The resistance of established institutions. Monopoly.

Measures of EfficiencyTwo approaches used to evaluate

efficiency of marketing Analyzing the existing channels according

to prices and service provided Evaluating the factors that take into

account efficiency by examining marketing enterprises for structure, conduct and performance.

Measures of Efficiency Prices

The prevailing prices should reflect costs plus a profit margin.

The profit must be sufficient to reward investment at the going rate of interest, to repay risk bearing and to provide an incentive for new ideas designed to save costs or improve services.

Service Provided The quality of service provided should be neither too high

nor too low in relation to cost and consumer desires. There should also be a range and variety of services to

match the variety of consumer incomes and preferences, in so far as this is consistent with economies of large-scale operation.

Measures of Efficiency Structure Includes all the firms engaged in a particular

marketing channel. The first strategic feature is the number and

relative size of the firms involved. Are a few so large as to dominate the others?

The second strategic feature is the business relationships between them.

Are they independent or interlinked in ownership and management?

Are they connected by formal contracts or informal understandings?

How easy is it for new firms to come into the new system?

Measures of Efficiency

Conduct This refers to the market behaviour of

these firms. In what ways do they compete? Are they looking for new techniques and do

they apply them as early as practicable? Are they looking for new investment

opportunities, or are they disinvesting and transferring funds elsewhere.

Measures of Efficiency

Performance This is an assessment of how well the process of

marketing is carried out and how successfully its aims are accomplished.

Is produce assembled and delivered on time without wastage?

Is it well packed and presented attractively? Is its quality reliable and are contracts kept? Is the consumption of the products increasing and are

sales in competitive markets expanding?