Marketing improvement in the developing world

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WHAT HAPPENS

AND WHAT WE HAVE LEARNED

This one

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Marketing improvement in the developing world: what happens and what we have learned by J.C Abbott and colleagues of the Marketing Group, FAO Marketing and Credit Service

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The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever by the Food and Agriculture Organi- zation of the United Nations concerning the legal status of any country, territory, city oF area or ofits authorities, oF the delimitation of ts frontiers or boundaries The views expressed are those of the authors

The copyright in this book is vested in the Food and Agriculture Organization of the United Nations The book may not be reproduced, in whole or in part, by any method or process, without ‘written permission from the copyright holder Applications for such permission, with a statement of the purpose and extent of the reproduction desired, should be addressed to the Director, Publications Division, Food and Agriculture Organization of the United N;

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The author would like to thank all those whose work has gone into this

book, in particular the FAO marketing field officers to whom it is dedi-

cated J Coudert, H Creupelandt, A.A El Sherbini, M Fenn, S.L Gal-

pin, G Holsten, D Link, L Lorinez, W Lumholtz, H.J Mittendorf,

P.J Nelson, P Newhouse, E Reusse, A Scherer, F Shah, W Shreck-

enburger, A Silva, H Spink, R Spinks, H Steppe, S.M Taylor, P.ter

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This book is concerned with food and agricultural marketing improve-

ment in practice It draws directly on FAO experience in assisting Member Nations in the developing regions over the period 1955-80

For many of these years, there were 50 to 100 FAO advisers and consul-

tants working on a wide range of marketing issues Their long-term goal

was to build up the capacity of these countries to solve their own problems

Marketing is a highly dynamic subject Its problems do not disappear as development proceeds indeed, they may become more intricate and complex The need for training personnel to staff marketing enterprises

and services will continue

In many ways this book follows on from the FAO Marketing Guide

No 1, Marketing Problems and Improvement Programmes, first pub-

lished in 1958 Readers may find it convenient to refer to the first part of

this guide for a simple statement of marketing principles A fuller cover-

age of economic, pricing, marketing and development concepts is avail-

able in Agricultural Economics and Marketing in the Tropics; FAO col- laborated in the publication of this text, in 1978, with the Longman

Group, London Readers seeking background on economic and marketing relationships may refer to this text Meanwhile, a glossary of market-

ing terms in common use has been provided at the end of this book

Marketing Improvement in the Developing World is also designed for the use of policy-makers and marketing leaders in the developing coun-

tries, and to assist aid agencies and other organizations and institutions concerned with the development process Officers of banks, commercial

enterprises and other institutions engaged in developing country opera-

tions will also benefit from the experience assembled in this text

The “Issues for discussion” section at the end of each chapter is

designed to ensure that students become familiar with the structure of

food and agricultural marketing in their own country Since much of the

information may not be readily available, instructors will have to make

arrangements for it to be built up through successive inquiries Students

should participate in these inquiries as far as time permits When answers

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be held back until after an initial round of discussion In any event, all stu-

dents should be required to make at least one set of direct interviews and

site visits in each subject area Instructors will need to contact enterprises

in advance to arrange for student visits Stress may be laid on the advan-

tage for those enterprises of a wider understanding of the realities of marketing in their country

Some strategic marketing enterprises may be reluctant to cooperate

In this event, students should be taken through the exercise of building up

a dossier on their operations by inquiries of other knowledgeable people

(competitors, suppliers and customers); and from relevant official and

unofficial sources, including press cuttings, which should be collected reg-

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Acknowledgements P x v 1 Food and agricultural marketing improvements 1 Marketing as aconcept 1

What to do to improve marketing 2

Some equity issues 10

Issues for discussion lỗ

Reference: 16

2 Building up government support services 17

Decisions by the uninformed 17

Surveys leading to action in India 21 Practical initiatives in Sierra Leone 23 Policy formation in East Africa 26 Preparation of marketing investment projects ng 2 : 30 7

Whatwehavelearned ———————— 40

Issues for discussion 44

Reference: 45,

3. Training staff for marketing enterprises and services 47

Assessing training needs 4

Seminars to create awareness SD

Fellowships to study in other countries 56

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Managing the market with 10 percent of the crop 72 Arbitrary decisions 71

Establishing a grain marketing agency in Somalia 79

Botswana Agricultural Marketing Board 83

“The humid tropics 86

Long distances in the Sahel 88

Helping low-income consumers 90

Whatwehavelearned ——————————— § I ave lea 08

Reference: 9

5._ Fruit and vegetables 101

Centralized grading and packing 101

Benefiting from climatic advantage 107

Matching supplies to market demand 112 Processing 116 Need for flexible marketing organization 121 MWhatwehavelearned ——— 124 1 Nee References 20 6, Livestock andmeat 4

Strengthening existing marketing systems 129

Channelling supplies to the new rich of the Near East 140

Exploiting a limited export potential 146

Meeting consumers’ needs behind a veil of religious disapproval 150

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Extending fertilizer distribution channels in India 173

Ensuring that small farmers are well served (Kenya) 177

Helping the farmer obtain supplies from the lowest-cost

source (the Caribbean 179

‘What we have learne 8

Issues for discussion 183

Reference: 185

8 Markets and marketing enterprises 187

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marketing improvements

Food and agricultural marketing means the movement of agricultural produce from the farm where it is produced to the consumer or manufacturer This includes physical handling and transport, initial processing

and packing to simplify handling and reduce wastage, grading and quality

control to simplify sales transactions and meet different consumers’

requirements, and holding over time to match concentrated harvest sea-

sons with the continuing demands of consumers For the farmer, the strategic function of a marketing system is to offer him a convenient out-

let for his produce To the consumer and the manufacturer of agricultural

raw materials, assurance of a steady supply is the vital service Through

negotiations at rural purchasing, wholesale and retail stages, prices are

determined that balance the consumers’ ability to pay with the farmers’ need for an incentive An effective marketing system will be geared toward expanding the range and types of consumers served, and will thus offer producers expanding outlets

Agricultural marketing also includes the marketing of production

supplies to farmers These supplies include fertilizers, pesticides and

other agricultural chemicals; livestock feed; and farm machinery, tools

and equipment As the mass of small farmers in the developing world

becomes aware of the value of these supplies, the organization of dis-

tribution systems adapted to their needs becomes vital

Through all the stages of input supply and product marketing, financing is essential, as is easy access to credit if goods are to move freely and bargains be concluded without duress

Marketing as a concept

While the term marketing has rung out loud and clear for many decades in North America and in many of the British Commonwealth countries, it attained acceptance only later in countries with French and Spanish cul-

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produce”, which is the literal translation of the title of the professorial

chair nearest to agricultural marketing in the USSR Mercadeo was brought into Spanish over the bodies of several authoritative translators

Awareness of marketing as a concept and as a vital element in the

economy needing attention has nevertheless grown greatly in the

developing countries since the 1950s Large numbers of young people

from those countries have taken courses in marketing at American uni-

versities, and more recently also in Europe Gradually, they are moving

up into more influential positions Universities in developing countries

are also beginning to teach marketing, and increasing numbers of students are acquiring an appreciation of its principles

What to do to improve marketing

In comparison with other types of food and agricultural improvements — the expansion of irrigation, breeding higher: yielding varieties and pro-

tecting crops and livestock against disease — what constitutes an

improvement in marketing is not so obvious Many administrators have shied away from working in this area because they saw it as complex and

difficult It is also very political — on international, national and local

levels Should marketing enterprises be in private, cooperative or public ownership? This is still an emotional issue for many people It is also one on which the governments of developing countries may be highly sensi-

tive because of the political commitments of the people who led them to independence, and the association of particular marketing structures with a former metropolitan power or with particular alien or ethnic

groups

Establish competent government services In many governments, there is

no department specifically responsible for advising on agricultural mar-

keting policy or for conducting practical research as a basis for it In the 1950s, the Directorate of Agricultural Marketing in India constituted a

model in this area Responsibility was subsequently dispersed

Lack of awareness of the importance of marketing was reflected in the way national development plans were formulated in the 1950s and early 1960s In their development strategies, none assigned a major role

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government attitudes toward marketing in Asia showed that this was a

field about which most government officials knew very little; major deci-

sions were frequently taken without adequate information as to what was

actually going on

In contrast, marketing has been for some time a direct responsibility of major ministries in some African countries, such as Kenya, the United Republic of Tanzania and Uganda Major marketing assistance,

demonstration and training efforts were mounted to strengthen these

ministries after independence

In francophone Africa, however, there is still a long way to go This

area of improvement is taken up again in Chapter 2

Train staff for marketing Lack of qualified personnel is a major con-

straint on marketing development Indeed, it is sometimes claimed that, with adequate training of the people concerned, most improvement prob-

lems would solve themselves Unfortunately, training in marketing has

been a latecomer Much of the training offered has been theoretical,

irrelevant or both It is essential that students receive effective training in

marketing and be attracted to work in it later Marketing economics and policy courses can be included in college teaching programmes Manage- rial and technical training can be provided at various levels In-service

training can be arranged for existing staff of marketing enterprises

‘A major issue is how to secure sufficient time in a general agricultural or economic curriculum for agricultural marketing In 1975, the average course allowance in a number of African universities was only ten hours

How best to organize medium- and lower-level training in marketing in developing countries remains an open issue It is taken up again in Chap-

ter 3

Develop better packing, transport and storage The scope for improving

the handling of farm produce to avoid loss and maintain quality and

appearance is immense There are limits, however, to the applicability of

new methods and equipment; these limits are set by the extent of local

know-how and organizational development, by costs in relation to scale of enterprise and consumer incomes, and by social considerations The centralization of packing should proceed with caution In various coun-

tries, access to aid funds has led to the purchase of mechanized sorting

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Too often, also, storage advisers backed by aid donors and foreign equipment manufacturers have recommended the construction of storage unsuited to conditions in a developing country Large-scale mechanized silos are likely to be economical where labour is scarce in relation to capital, marketing enterprise is on a large scale, and transport

is easy

The social implications of marketing technologies must also be con-

sidered Proposals for the use of machinery in place of labour should be

appraised both for their direct employment effects and their implications

for employment at other stages in the production-assembly-distribution

chain

In the area of transport, too, some expensive lessons have been

learned over the last decade Air and refrigerated transport can bridge

gaps in the movement of perishables to the higher-income consumers In the developing countries, however, improvements of feeder roads and

elimination of specific obstacles (such as streams without culverts), and easy access to rubber tyres for bullock carts and spare parts for old motor

vehicles, often pay off much better than the introduction of radically new

transport equipment Access to return loads and out-of-season business

to reduce costs, and assurance of regular maintenance, are related issues

Often they point to ownership of vehicles by private carriers rather than

a specialized marketing organization

There is a view that the establishment of some physical facilities, such as a plant to pack or process an agricultural product, will stimulate

an expansion of output in the surrounding area The automatic appearance of marketing organizations to use the plant, finance purchasing of the raw material and find outlets for the finished product is assumed Such

projects have been particularly favoured by agencies which have targets

to meet, and which are seeking something concrete to show A review of 70 canning, slaughtering, storage and related plants established in Africa, which subsequently failed, evidences the risks of disappointment if a more thorough consideration of the marketing element is not undertaken

before investment is committed

Apply quality standardization Because it reduces the risks faced by the

buyer, quality standardization expedites marketing The heterogeneous

nature and appearance of the produce offered on their markets has been

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but their application in practice has been uneven and disappointing It is easiest in export marketing-notably, where importing countries set stan-

dards which must be met if produce is to be allowed entry

In domestic marketing, where buyers can see the produce on offer,

uniform quality specifications are less vital The application of simple

standards in the purchasing of grain or other produce by an official price- stabilization agency can promote awareness of their convenience These and other ways of improving the marketing of agricultural products and

inputs are examined in the cases of grains, fruit and vegetables; livestock

and meat; and fertilizer in Chapters 4, 5, 6 and 7

Plan and construct better markets Congested market sites, poorly

organized and lacking space for the movement of produce and vehicles,

raise costs and hamper price and quality comparison Planning new

assembly and distribution facilities to meet the requirements of growing populations is an important area of marketing improvement Too often,

such planning is delayed and distorted by the efforts of established

wholesalers, market personnel and municipal authorities to protect their immediate interests Only her assumption of special powers enabled Mrs Gandhi to decree in 1975 that the Delhi fruit and vegetable wholesalers should move to the new market in Azadpur New central markets for Baghdad, Beirut and Teheran have each been under discussion and planning for decades

Many new markets suffer from too elaborate a design and too solid

a structure Where a simple shed is required for protection against sun

and rain, heavy concrete structures are erected In addition to wasting money that would be better spent on “software”, services and staff training, these buildings are difficult to modify later as needs evolve

Strengthen marketing organization The heart of marketing is the exis-

tence of enterprises able to buy and sell, and carry the risk of finding an

outlet for products at a remunerative price Broadly, these enterprises are of three categories: private, cooperative and state

Private enterprise has a bad public image in many countries The

popular idea persists that, while the sowing and weeding of a crop are

intrinsically productive, its subsequent storage and distribution to con-

sumers are not This feeling is reinforced in situations where competition

is imperfect and prices are unstable with high rates of inflation, so that

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in the government and cannot be touched If they are foreign-owned or

of different ethnic background, they cannot be helped If they are small,

they will be difficult to identify and contact, and they may lack the Tesources and risk capacity to try out new ideas

Faced with an apparent multiplicity of small enterprises, some

administrators have approached the problem by restricting their numbers

under licensing regulations in the hope that some of them will then grow larger The neoclassical economist is in opposition to this because it

restricts competition He pins his faith on measures to help these enter-

prises operate more efficiently — improvement of roads and means of

transport, public provision of market information and easier access to

credit Even this relatively safe ground may prove to be shaky For years, the estal ment of official market news services was the stock in trade of marketing improvement Now there are disturbing questions as to whether such information is ever used

Collaboration by a number of farmers in organizing transport to

markets and selling their crops can bring them substantial benefits, espe-

cially where the quantities offered by each are small and markets are relatively distant On social and political grounds, many governments

have consistently proposed cooperative solutions to marketing problems

They also see cooperative organizations as an administrative mechanism for injecting development funds and initiating pilot activities How far this path of idealism and convenience has led into the wilderness of disappointment is masked by the limited duration of many such projects, and the arrival on the scene of new enthusiasts with new funds

A recent analysis of experience in East Africa and Asia concluded

that overreliance on cooperatives can become a major impediment to

agricultural development The failure of cooperatives there to achieve

the goals set for them resulted in a catastrophic defeat of integrated pro-

grammes built around them; extension services were discouraged and the credibility of the governments’ programmes put in doubt In some coun-

tries, governments speak of farmers’ organizations and group marketing to avoid using the word cooperative — it has been associated with too

many disappointments Mostly, these result from attempts to set up structures that are not founded on the recognition of a common interest by the members, or on tangible benefits Inexperienced managements have been assigned tasks that are intrinsically difficult

The easiest role for a new cooperative to assume is as assembling agent for an established marketing board It has a sure outlet and no sales

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tisk From this base, the cooperative can go on to distribute seed and fer-

tilizers on credit, and undertake other related activities

Marketing boards and state enterprises have been set up and funded by governments to undertake the purchasing, storage, distribution or export of many agricultural products Common objectives are to increase the scale of enterprise operations; introduce new marketing or processing technology; implement stabilization, subsidy and other special pricing

programmes; and strengthen bargaining power in sales on international

markets A further consideration for governments of newly independent

countries has been to ensure that strategic sectors of the national

economy are fully under their control If such enterprises are given a

monopoly, however, the main natural pressure for efficiency — the need

to survive under competition — is removed

Considering their strategic role in the economies of developing countries, marketing boards and state enterprises might be expected to be sub-

ject to continuing reviews of operating methods, management and costs

In practice, such reviews are extremely rare The managements of these bodies seem able to resist outside assistance in such areas, and to have allies in the government to protect them A specialist designated to assist one such marketing board met continuing passive resistance by its staff

He finally withdrew when first his telephone was disconnected and then

his office stripped of its furniture

A crucial goal in marketing organization is the integration of succes-

sive marketing enterprises into a smoothly working channel from pro-

ducer to consumer Government policy, financing and other support services should work consistently in support of such developments A situa-

tion where producers, wholesalers and retailers, and the government

each operate without knowledge of the others’ plans and intentions — and sometimes in direct opposition — raises costs and wastes resources The integration of production with marketing through linked ownership or contracts has been common in the developing countries for tobacco,

oil-seeds and other crops for processing It has been more difficult to

organize for crops sold fresh, or where there are many producers of varying quantities For the big cities of Latin America, voluntary retail chains

with unified purchasing are being developed It has become clear, how-

ever, that there must be a leader for the integration to work —a “channel

captain”, in contemporary terminology The entrepreneur can be

directing a private, cooperative or publicly owned system, but must exist Programmes to set up new markets and strengthen marketing organiza-

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Some equity issues

Concern for an overall rural development, an equitable distribution of benefits from improvement action and the role of women, has extended greatly in recent years Increasingly, governments and aid agencies apply these criteria to the programmes they support

Small farmers In a rural development frame, the area of land cultivated

may not be the significant criterion for defining a small farmer One ha of

irrigated land can be very productive Rather, a small farmer is one who

is handicapped by a lack of economic resources and, therefore, areduced

ability to take risks, compounded by a sense of social inferiority and by limited education and access to technical and economic information Improved market conditions filter down to such a farmer only after other

larger farmers have profited The small farmer tends to receive less

favourable prices because of the small quantities he has to offer The government may announce official prices but small farmers often do not receive them Their produce is sold at the farm, by the roadside or in the

village; it is taken to the official buying station by somebody else

Strategies to correct such a situation include:

— farmers’ initiation of group action to reduce transport costs and

improve bargaining power;

— introduction of contract systems for crops adapted to small-farmer production;

— fostering of positive action by private entrepreneurs;

— extension of assembly market systems further into rural areas

The establishment of special marketing machinery for small farmers

does not seem practicable, except where these farmers are concentrated

in one area (as under settlement schemes) or where such machinery

focuses on specific crop or livestock items in which the small farmers have

some production advantages Examples of such items are milk, and crops

offering high unit returns if picked selectively In more general situations,

the most practicable approach is likely to be close government supervi- sion and provision of support services to supplement marketing struc-

tures serving farming communities as a whole

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developing countries Many are tempted to keep down prices to farmers

on this account, but the effect of this practice is to discourage production

It now seems certain that the food crisis of 1973/74 would never have occurred if producers in developing countries had been paid at interna-

tional price levels In many countries, there are groups of consumers that cannot afford to pay such prices, even for necessities To meet their

needs, yet keep supplies flowing from domestic agriculture, a two-price

system is virtually essential Programmes of this kind have been operated

in India and Sri Lanka for a number of years Wheat or rice is available

at fixed low prices through fair-price shops, and ration cards can be used

against the cost Food stamps, which count as part of the price, can be

issued to low-income groups The problem in implementing this type of

programme is how to confine the benefits to the truly poor and avoid

extensive leakage and an excessive financial burden on the governments

concerned

Marketing costs and margins A continuing popular concern is the rela-

tive proportions of the consumer price which go to producer and to marketing The proportion taken by marketing depends on many factors,

such as:

— the distance over which produce is transported;

— the packaging and processing undertaken; — the fees and taxes to be paid;

— the degree of competition in the marketing system,

The marketing margin can be very low, as shown by that for rice mar-

keted through private marketing channels in the Philippines in Table 1.1

(Included in the miller`s margin is the value of the bran which is kept by

the miller.)

Great care is needed in drawing conclusions from percentage marketing margins Rice growers in the Philippines and many other developing countries receive a larger share of the retail price paid by consumers than do growers in the United States of America Superficially, it might

appear that the American farmer is worse off because of the share of the

total margin taken by the cost of packaging (see Figure 1.6) Under con-

ditions in the United States, however, the retailing of rice without pre-

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ind margins in marketing rice: the Philippines, 1979 Price Margin US cotars

Farm price of paddy (1 400kg atUS$0.17perkg) 240 83.9

‘Assembler's margin including transport 5 18

Assembler's sale price to miller (1 400

atUS§0.175 per kg) 245 86.7

Miller's margin plus income from by-products 27 94 Miller's sale price towholesaler (1 000kg

of milled rice at US$O.272 per kg) 272 95.1 Wholesaler’s margin 7 25 Wholesaler’s price to retailer (1 000kg atUS$0.279 perkg) 279 976 Retailer's margin 7 24 Retailer's price to consumer (1000 kg at USSO.286 per kg) 286 100

Costs and margins are most meaningful in analysing the marketing of

similar products over distances and under similar conditions Sharp dis-

crepancies between one channel and another merit further investigation

If they are attributed to additional processing or other services, these ser-

vices should be in line with users’ requirements When monopoly pres

sures or specific inefficiencies become evident, action can be taken The

weakness of many estimates of costs and margins is that they are insufficiently specific to be a basis for such conclusions

Women in marketing In coastal West Africa, women handle 60-90 per-

cent of domestic farm produce from point of origin to consumption Women have a similar role in many Caribbean countries and in the moun- tain regions of Latin America populated by Indians These women manage such responsibilities in addition to raising children and cultivating

some crops Yet the assistance they receive from national authorities and

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Philippines Price to farmer Price to farmer Milling Packaging Transport Milling Wholesaling, 2 retailing Wholesaling, retailing

Figure 1.6 Percetange shares of consumer price for rice inthe Philippines and the United rates

minantly male government personnel, and educational limitations on the

part of the women, hinder communication There has also been a feeling

in some official quarters that the women's activities are temporary —

aimed primarily at providing funds for raising and educating children —

and that the women are unlikely to found an enduring marketing enter-

prise On the other hand, their accumulated skills are certainly passed on

by demonstration and emulation

Programmes of assistance to women traders include:

— provision of market facilities and a convenient child care service, etc.; — arrangements for equipment and packaging materials, etc., to be rented or purchased on convenient terms;

— credits to purchase equipment and build up a working capital;

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Issues for discussion

1 What do you understand by the term “marketing”? What benefits does it bring to farmers? to consumers?

2 What are the main areas of marketing improvement? Which would you say are the most strategic for your country?

3 How many government ministries or departments in your country

are responsible for aspects of marketing? Where, would you say, should marketing policy formulation be located?

4 What kinds of training for marketing are available in your country?

How many people receive this training each year?

5 Have there been important grain storage construction projects in

your country? Who have been the main users of this storage? Who has

benefited most from it?

6 What are the limitations on the usefulness of introducing mechanized sorting and packing of agricultural produce? Under what conditions is it used in your country?

7 Can you quote some examples, from your country, of development promoted by the introduction of a new transport or processing technique? What were the conditions favouring success?

8 For which marketing channels in your country and for what products

would you advocate the application of compulsory quality standards?

9 What are the main kinds of enterprises engaged in marketing in your country? What are their respective roles in the marketing of different agricultural products, and of fertilizers?

10 Are there important examples of vertical integration in marketing in

your country? What has been the impact on farmers? on consumers? 11 Indicate some of the ways in which the marketing system can promote rural development Are there sectors of agriculture in your country where special attention to this is needed? Can you suggest changes that

would bring practical benefits?

12 How can the marketing system be used to secure a more equitable

consumer food intake? What has been done in this direction in your coun-

try?

13 Do you know of any marketing channels where prices to consumers are adjusted according to their income? How are the low- and higher- income markets kept separate?

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15 Are there areas of marketing in your country where women have an

important role? What is being done to assist them?

References

ABBOTT, J.C Consideration of alternative marketing organizations to serve small farmers 1982 ` Agric Admin., 9:285:299, ABBOTT, J.C Building marketing infrastructure for development In E.E Kaynek, ed 1985 ` World food marketing systems London, Butterworth, ABBOTT, J.C & MAKEHAM, J.P Agricultural economics and marketing 1979" don, Longman in the tropics Lon~

Bauer, P.T The economics of marketing reform J Pol Econ., 62 (3) Chicago 1954 BAUER, P.T West African trade London, Routledge & Kegan Paul

1963

FAO Marketing problems and improvement programmes, by J.C Abbott Sth ed Rome 1973 FAO Marketing Guide

FAO Marketing costs and margins of agriculural products in selected countries of Asia and 1981 the Pacific Bangkok Fox, R Problems and pitfalls of product marketing through group action by small scale 1979 ` farmers Agric Admin , 6 (4):305-316 GERMAN FOUNDATION FOR INTERNATIONAL DEVELOPMENT Marketing and rural develop- 1978 "ment Working papers presented for the International Lxpert Consultation,

Feldafing 27/11-3/13, 1977, Berlin,

Hunter, G Cooperatives: 1970 and rural development effects of the social matrix in C.G Widstrand, ed Cooperatives in East Africa New York, Africana Publishing Co Lipton, M Rural poverty and agribusiness Univ Sussex 1977

OECD/FAO Critical issues on food marketing systems in developing countries Paris, Deve- 1977 lopment Centre of the OECD WoRLD BANK Accelerated development in sub-Saharan Africa: an agenda for action 1981 Washington, D.C

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support services

The first priority in improving marketing is to expand awareness in

influential circles of what it means, who is involved and how it operates

Decisions by the uninformed

The main reason that many agricultural development programmes have

failed to attain their goals has been the failure, by officials at the policy- making level, to understand the marketing link

Their concept of marketing tends to be restricted to the assembly of produce at rural markets, and exports In the strategic area of whole-

saling, they know nothing The role of marketing in providing an incen-

tive for production is not appreciated, and marketing as a multiplier of

development is seldom considered

Notions of agricultural marketing held by national policy-makers and researchers are often based upon inaccurate information, or half-

truths, handed down over the years and accepted without question Over time and through constant repetition, they have become facts Even some

international research and advisory workers have made the mistake of

accepting them uncritically

Illustrative of this situation are popular attitudes toward coopera-

tives, and middlemen — traders who buy commodities from the producer

and sell them to the retailer or consumer The intensity of feeling against

middlemen, who in fact provide essential marketing functions and services, often seems staggering The negative qualities attached to the term are such that it is almost synonymous with antisocial behaviour; in some circles, mere mention of the term creates an impasse in discussing the marketing system This feeling toward middlemen reflects the attitude toward commerce in general of the higher social groups in some

developed as well as developing countries Traditional domination of the marketing system by aliens (e.g the Chinese in Southeast Asia, Asians in

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That middlemen pay farmers less than the real value of their produce is an assumption Seldom is the concept of value defined Farmers are

sometimes paid low prices, but it is far from a universal fact At the same

time, the middleman may be the one who brings the producer into the

money economy; often he alone creates the market His pioneering

activities would warrant higher profits for the services he performs, but

these gains also attract others and few middlemen actually have the

power to pay the farmer low prices at even the village level They have to

compete with others for supplies Often the form of competition is not only in price but in terms of services rendered to farmers Notable among

these are services designed to retain the loyalty of producers and to

attract new ones, such as the provision of information on prices, credit

arrangements with local stores or free board and lodging It is also

assumed that the middleman always has, or is able to obtain, almost un- limited funds In fact, middlemen, particularly those based in the villages, face the same problem as the producer: inadequate finance to cover a full range of business activities, including storage

Middlemen are also damned for their alleged inclination to hoard

stocks and force up prices to consumers Rarely considered is the fact that buying supplies at post-harvest time, and holding them until the period of

relative scarcity later in the season, benefits both consumer and producer

Increased purchasing by traders in the period just after harvest forces

prices up, thus benefiting producers Release of stocks when prices are

high later in the season has the effect of expanding supplies and thus low-

ering prices, to the benefit of the consumers

Middlemen afe commonly accused of acting in collusion Their large

number is in itself, however, a condition which does not favour collusion (This is more likely at points along the marketing chain where there are

only a few large merchants; it is significant that middlemen, at this stage,

suddenly gain the respectable title of “exporter”, “trader” or “mer- chant”.) Rarely are such criticisms founded on empirical studies An examination of a large wheat market in the Punjab of India showed that

it was highly competitive and served effectively as a pricing signal for pro-

ducers Prices reflected supply and demand conditions very well in the

areas where government food-zoning regulations were not operating The study tended to contradict almost all the preconceived notions of the

role of middlemen in the marketing of food grains in India Unfortu-

nately, empirical studies are still too few or too little known to destroy the

false premises on which attacks on middlemen are built

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19

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of cooperatives They are frequently regarded as quite separate institutions and as sacrosanct Yet their role in marketing has to be assessed dis-

passionately along with those of government, private and mixed enterprises Indicative of the limited understanding, in some government cir-

cles, of marketing’s vital importance is the vigour with which they have pushed cooperatives, despite a large measure of failure Linked to this

attitude are problems of uncritical acceptance of opinions and impres-

sions as fact, and unwillingness to appreciate facts which are contrary to

government policy and/or to the opinions held by high-level officials

Sometimes marketing units, informed of evidence contrary to the

accepted notions of decision-makers, do not even pass on this information to them

Lack of coordination of responsibilities for agricultural marketing,

the dispersal of these responsibilities among various ministries, and the

resultant duplication of effort, are a further indication that governments

do not understand the subject

Need for effective government marketing services The tenacity of these erroncous notions of agricultural marketing in government is a measure

of the need for better marketing policy units Somewhere in the government structure there must be a unit with a professional staff trained in

marketing and able to collect information systematically, analyse it and

formulate sound action recommendations for consideration by the

responsible governing body Continuity is essential Past experience can

then be drawn upon when legislation or other intervention is envisaged, so that the practical consequences are foreseen

A qualified marketing development unit is also needed to plan

facilities and services which will cater for the expansion of farm produc-

tion to match the growth of population Expanded transport services,

more and better storage, drying and processing facilities, additional finance for marketing, studies of consumer attitudes to new varieties, new

marketing institutions and adaptation to changing patterns in world and

domestic agricultural structures will all be required Field studies based on direct contacts with the production and marketing enterprises and people will be essential

To assist a marketing system to operate efficiently, most govern-

ments will also find it useful to provide certain services, including:

@ = research, initially to advise the government and subsequently to assist

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similar services for enterprises engaged in marketing and the people who depend on it (specifically, producers and consumers);

technical information, first to government planners and policy-makers,

then to marketing operators and those served by them, including produc-

ers and consumers

The controls on marketing maintained by far-seeing governments

are initially designed to provide a legal framework for the conduct of

purchases and sales They may then be extended to protect producers and consumers against fraud and harmful practices, and to maintain the repu- tation of produce in particular markets The establishment of uniform weights and measures, product quality standards and grades, and stan-

dard packaging, containers and labelling follow For many products and

market areas, such specifications may be promulgated as a guide for vol-

untary adoption Legislation to enforce them is recommended when the

advantages are quite clear, the means of enforcement are available, and

the cost to those affected, as well as to the government, is acceptable

The remainder of this chapter is concerned with how such services

are established and operated

Surveys leading to action in India

The post of Agricultural Marketing Adviser to the Government of India,

established in 1934, was the first of its kind It was recommended by aspe- cial Commission on Agriculture which interviewed hundreds of agricultural, commercial, banking and official personalities in 1927 and 1928 The Commission noted that the small farmers of India faced many dis- abilities in marketing their produce They received no assistance from the

government, which “hitherto regarded the problems of marketing as out-

side its purview”

The central marketing staff consisted of three senior marketing

officers, each assisted by a marketing officer and four assistant marketing

officers They were responsible for:

ield crops and futures markets;

— livestock and livestock products;

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They were assisted by provincial marketing offices working in liaison Their first task was to carry out detailed studies as a basis for an improvement programme In the meantime, quality specifications were to be formulated for all-India export grades

Requirements of candidates for the posts were a sound knowledge of economic theory, coupled with practical acquaintance with the produc-

tion and sale of the commodity; and a capacity to develop conclusions

from the facts as they established them, and to avoid the temptation to mould the facts to suit preconceptions

The unit was required to survey one class of product at a time over

the whole marketing channel This coverage included: — examining production trends, and domestic and export marketing (localized or seasonal); — analysing price structure, margins and seasonal fluctuations over a period of years:

— reviewing transport and communications:

— evaluating market machinery affecting freedom of choice in produce:

— reviewing storage facilities and costs:

— appraising the services of wholesalers;

— studying distribution costs ale of

These surveys brought to public attention a whole range of malprac-

tices and duplicatory market charges, and led to the following measures: © A Standard and Weights Act (1939) established uniform definitions of weights and measures for the whole country

an Agricultural Produce (Grading and Marketing) Act was passed in 1937 Rules for grading were prescribed Use of these grades was not compulsory, but produce marked with an official “Agmark” grade must conform to it Penalties were provided for infringement

— date when the transaction is binding;

— terms of sale, e.g to be collected by the buyer, or delivered if.) to a place specified;

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— price, with specification of costs included;

— quality standards applicable;

— margins of tolerance, which may be specified for quality and loss or damage in transport;

— astandard delivery period which can be specified and can include the consequences of delay or non-delivery;

— time, place and form of payment and the consequence of delay or

non-payment;

— procedures for checking quality and for arbitration in case of dis-

pute

@ A market news service was initiated with radio broadcasts (in English

and local languages) of prices, stocks and movements of wheat, rice and

linseed at producing and consuming area markets

@ Asystem of licensed warehouses was established These offer storage

space for a fee with insurance and other protection The user may then obtain credit against the produce in store He receives a storage certifi-

cate which is lodged with a bank as security for a loan The grain is

released from store when the credit is repaid

the assembly markets (further details are provided in Chapter 8) Dealers on the futures market had to be licensed and keep records subject to

inspection Formerly these markets had attracted speculators ranging

from government clerks to a “blind” beggar who sat outside the railway

station at Bombay

In India, the new government marketing department set out to

improve and facilitate an already quite sophisticated commercial structure The next section features the work done by a marketing development officer of the Government of Sierra Leone around 1950 The

emphasis here is on creative activity at the practical level

Practical initiatives in Sierra Leone

In Sierra Leone, it was agricultural department policy that professional

officers spend about 25 days each month away from their home station,

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marketing development officer was to help raise the quality of traditional export products

Sierra Leone was then the leading exporter of piassava, a stiff fibre 60-90 cm in length produced from the fronds of the raffia palm We car-

ried out a series of experiments, including selection of fronds of varying

age and size, and fronds from different varieties of raffia palm We also tested to see whether acid solutions would speed up retting and produce

cleaner fibres without damaging them; and whether drying with artificial

heat would enable processing to be carried out during periods of

inadequate sunshine The conclusion was that the best fibre could be pro-

duced by good traditional methods without artificial aids

I was then sent to Nigeria to study and report on processing and mar-

keting innovations in the marketing of palm-oil products The Pioneer Oil Mill had been developed with the cooperation of the United Africa

Company This type of mill involved a simple process requiring a palm-

fruit cooking vessel, an autoclave to extract the palm-oil and a nut crack-

ing machine These three units were driven by a small steam engine,

which was fuelled with the nutshells and fibre The merit of the Pioneer Oil Mill was that it extracted 85 percent of the oil as against less than 50 percent by manual methods The next step was to identify areas in Sierra

Leone where natural stands of oil-palm were sufficiently dense to supply a Pioneer Mill In collaboration with the responsible agricultural officers,

12 locations were selected A phased programme to install the mills and

develop palm-fruit collection roads was then included in Sierra Leone’s

first Ten- Year Development Plan

A major task of the marketing officers was to review and implement

quality inspection regulations for the major export products: palm ker-

nels, dry ginger, groundnuts, sesame seed, coffee, cocoa and piassava The most serious quality problem was how to dry produce in a clean way — off the ground and free from goat and poultry droppings “Pure Food”

legislation in the United States of America was very fierce about adulter-

ation with animal droppings Detection of the smallest evidence of this would lead to a whole consignment having to be hand-picked by costly American labour, and charged to the Sierra Leonean exporter The “ap- proved” traditional practice was to spread palm kernels, cocoa, beans and other products on cane mats suspended on pole frames about 1 m

above the ground Our campaign involved visiting villages in producing

areas to obtain the support of local leaders If standards were not main-

tained, our produce examiner would follow up with prosecution of local

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penalized for buying substandard produce The producers, however,

could only be prosecuted for selling produce which had been deliberately adulterated

Administration of the quality regulations required the continual vig- ilance of senior staff to prevent standards from slipping Some traders

would buy inferior produce at low prices from producers in urgent need

of cash If caught, they would try to bribe the inspector Some flexibility

is advisable, however, when there are sharp seasonal variations in supplies At a time of shortage, traders would press for a relaxation of

standards so that they would have enough exportable produce to fulfil their contracts When production had responded to favourable prices and the quantity for export was large, the overseas buyers would complain of quality defects and invoke arbitration Our policy was to insist that the

prescribed quality standards be maintained, but to authorize, as well, the

export of limited consignments of substandard produce against specific

contracts which clearly showed them to be substandard We felt that this

was needed to maintain our export market position, and to avoid a situation where buyers were switching to other sources, including synthetic fibres

Weights and measures used in market transactions were inspected Produce for local consumption was customarily sold by heaped tins or

cups Unscrupulous retailers showed great ingenuity in reducing the

capacity of measures by fitting false bottoms, making detection difficult Weighing scales were too expensive for general use An attempt was made to introduce standard containers with the quantity clearly marked, but this met with no success

In domestic marketing, the main concern of the government was the

distribution of rice Rice had become a major feature of the popular diet,

and was politically sensitive Domestic production varied sharply from year to year Periods of plenty with depressed prices alternated with

periods of poor crops, scarcity and high prices Annually, there was a

hungry season before the early crop ripened, when rural people would be

very short of food An important traditional role of the Paramount Chief was to store stocks of rice for distribution during this season From 1900,

the commercial role of indigenous leaders became eroded by the expand-

ing activities of Lebanese traders; thus, it was their shops that were looted under the strain of rice shortages and high prices in 1954/55 In response to strong local feeling, the Department of Commerce and Industry under- took imports of rice and arranged for their distribution through African

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the department accumulated profits that could be used to develop

domestic rice production and marketing These operations were con- ducted in consultation with a Rice Committee on Policy, and a Rice

Sellers’ Association, representing the retailers

The second major government intervention was the establishment of the Sierra Leone Produce Marketing Board Its role was to guarantee minimum prices to farmers for export produce, sell it to the best advantage, and maintain a reserve fund to cushion the effect of abrupt changes in world market prices Many people in the government, however, saw the Board’s role as helping to implement their development policies Their inclination was to keep prices to growers low even when export

prices were high so that funds would be available for other purposes

In Sierra Leone, agricultural marketing came under the Ministry of Trade and Industry, which took over from the Ministry of Natural Resources at the farm gate Its responsibilities included control and licensing of imports; regulation of internal trading and markets; qualit weights and measures inspection; processing; a large rice marketing, ling and storage operation; and export promotion Cooperative development also came under this ministry Cooperatives were encouraged by

being appointed as buying agents for the Marketing Board, and were

helped with their produce grading

Very detailed and practical training and retraining were required for

the marketing staff, particularly those in produce inspection It was

essential that they be as fully competent in every aspect of handling produce as the traders and their employees An important part of their work was to advise on and demonstrate good produce handling practices, such as sewing bags securely (with lugs for palm kernels, without for cocoa), stacking and infestation control Over the years, many traders indicated their appreciation of these services

Policy formation in East Africa

The two previous sections illustrate the work of government marketing departments in two countries In one, indigenous marketing enterprises were already well established; in the other, such enterprises played only

a modest role We shall now indicate what must be done in countries

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‘The United Republic of Tanzania The Marketing Development Bureau

(MDB) was established in the Ministry of Agriculture of the United Republic of Tanzania with FAO/UNDP assistance in 1970 It subsequently received World Bank funds From 1961, when it became inde-

pendent, the United Republic of Tanzania had adopted a policy of socialism and self-reliance which, in agricultural marketing, centred on

parastatals and/or cooperatives This placed a very heavy burden on the

Ministry of Agriculture, which was responsible for marketing This Ministry had a seat on the board of each marketing parastatal; it was also very much concerned with pricing policies and was responsible for the cooperatives In manpower terms, it had a workload that was barely sup-

portable

The work programme of the Marketing Development Bureau

included:

— market research and export promotion;

— training of marketing staff for government services at the Cooperative

College, Moshi;

— issuance of marketing intelligence bulletins;

— provision of advice on pricing policies;

— review of the operations of parastatal marketing bodies, and assis-

tance in solving their problems

In addition, the MDB was asked to monitor the food supply situa-

tion An international programme of storage construction and provision

of initial reserve stocks resulted from the food security studies it initiated

As constraints and deficits multiplied in the parastatal sector, the problem-oriented work of the MDB increased both in scope and com- plexity Accounting and financial management became crucial areas of

attention, the more so as substantial investment resources were pumped

into the crop authorities The abolition of the cooperative unions in 1976,

and the requirement that crop authorities purchase directly from the villages, imposed a further supervisory burden on the MDB

In such an economy, a problem in promoting marketing efficiency is that it is not possible to measure norms for parastatals’ performance by

referring to norms of enterprises motivated by market forces for which

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decision-making on producer prices It was the first attempt to present price proposals in an overall balanced study, rather than disjointed deci-

sions made around individual crops

In its advice to the government on pricing decisions, the MDB brought in concern for the impact on the marketing organizations invol-

ved and a live awareness of the effect of inflation This is illustrated in the

following two excerpts:

More serious is the Government's decision not to follow MDB's recommendation to

differentiate between white sorghum, which is readily acceptable for human consumption and red sorghum which with its high tannin content and bitter taste isuseful mainly as an ingredient in both traditional and modern sector brewing and also for stock feed A price of 130c/kg with a premium of 30c/kg for Mwanza, Mara and Shinyanga was recommended for white sorghum while the price of red sorghum was to remain unchanged in money terms at 100c/kg Although the National Milling Cor poration does not keep separate figures for white and red sorghum, it is thought that the majority of its purchases are of the higher yielding, lower risk red sorghum Itis probable that the 1982/83 announced price for sorghum will lead to purchases of red grain substantially in excess of domestic market requirements NMC can expect to have storage capacity tied up by this product, and to incur heavy financial loss from deterioration in storage and loss-making exports, as was the case in 1978/79

It-was recommended that the retail price of beans be increased from 350 to 480c/kg (Grade 1) and 275 to 380c/kg (Grade II) in order to maintain real income from bean production at about the present level It will be recalled that the present produce price for beans has remained unchanged since 1977/78, at which time the price was probably pitched unduly in favour of the producer It is considered that the approxi- ‘mate 30 percent drop in real value which the unchanged money price of beans implies will have a significant negative impact on NMC purchases It is likely therefore that availability of beans for sale by NMC in 1982/83 will fall short of demand, which in

1980/81 resulted in NMC sales of 25 000t

A new priority consideration in marketing around this time became

the cost of fuel More than half of the United Republic of Tanzania’s

export earnings went on imported energy Export crop prices and quantities were largely static, or declining Transport requirements became a major issue The feasibility of continuing pan-territorial pricing in accor- dance with socialist principles was another aspect that was sharply under question

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— the recommendation for action; — supporting arguments;

— possible views to the contrary and the arguments against them; — the cost implications for the government, the sources of finance and the expected benefits to the economy

Failure to.present these elements clearly has often meant that significant studies on marketing issues have been neglected for policy purposes This was the situation, for a time, at a Marketing Development Centre

established with FAO/UNDP support in Kenya Valuable marketing

studies were carried out They remained in a form more suited for an M.A thesis than a ministerial brief They were not read by the relevant decision-makers, and the unit had little impact When the Centre began to prepare short, clear briefs, with only the essential supporting and

background information, it immediately became influential and its advis-

ory role expanded from there The following excerpts from a government

statement on National Food Policy drafted by the Marketing Centre and

adopted by the Cabinet are presented to demonstrate the approach:

‘The planned rapid expansion of food production, together with the increase in inter- regional movement from surplus to deficit areas which will occur in the coming decade, will impose a severe strain on the marketing and distribution systems The expansion of facilities required will be more closely related to the expected growth in urban population of 9.6 percent per annum than to the overall population growth of 4.0 percent per annum A comprehensive programme will be implemented to expand marketing facilities and modify certain policies to improve the efficiency of the system in order to meet this challenge

The existing restrictions on inter-district and inter-regional movements of maize and other produce impede efficient nationwide distribution by private traders and add to marketing costs and consumer prices Simultaneous shortages and gluts have occurred in different parts of the country, and the restrictions are widely abused The long-term aim, as defined in the current Development Plan, is to simplify the marketing system by removing these artificial movement restrictions and employing the National Cereals and Produce Board as a buyer and seller of last resort

‘As soon as the maize supply situation improves, NCPB commercial stocks are replenished and a national strategic grain reserve is established, the internal market restrictions will be phased out For certain minor products, where NCPB accounts for a small proportion of the total market, these restrictions will be withdrawn

At present farmers and traders lack adequate information on prices prevailing in other markets and are aware only of the NCPB purchase price which is announced

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increases the ‘s borne by traders and hence their required margin To overcome

this problem, the Ministry of Agriculture has started collecting grain and horticultural prices every day in the markets at Mombasa, Kisumu, Nakuru, Limuru, Thika, Eldoret, Nyeri, Karatina and Machakos These will continue to be broadcast on the

radio, daily for horticultural products and weekly for grains

The Marketing Development Centre’s Background Marketing Brief for the Agricultural Price Review 1981/82 takes the following form, on a commodity basis:

Maize: international market situation — production, data and comment, export data comment, estimates of total supply, price prospects; local market situation — tabulation of production and NCPB purchase for recent years

Maize which is not kept on the farmis either sold to traders in the “in-

formal sector”, to cooperatives, or directly to consumers, or is marketed through the NCPB or its agents The NCPB buying price for maize has

been increased over the last four seasons and the Board has embarked on

a programme to strengthen marketing arrangements by establishing a

number of buying centres in the main maize growing areas NCPB pro-

jected purchases and sales of maize in 1982 face a shortfall for the year of 170 000 tonnes To meet this shortfall and rebuild NCPB stocks to the minimum working level of 190 000 tonnes, it will be necessary to import 240 000 tonnes At the present world market price of around US$170 c & f Mombasa, this would cost approximately K Sh 415 million if purchased on a commercial basis

At the time that this brief was prepared, the Marketing Develop-

ment Centre was involved in the preparation of cabinet papers on an

average of one per week, and was consulted almost daily by various per-

manent secretaries and senior officials

Preparation of marketing investment projects

Most government marketing departments will be expected to take the initiative in preparing development projects These projects may include

investment components, which should begin with a concise statement of

the present situation and its limitations, and the implications of these for

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