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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.
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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 enterprises • Operate 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 Parastatals • Parastatals 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 Efficiency • To 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 Efficiency • Two 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?
