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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:



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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
 New
efficiency is enhanced by
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

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
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.

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Are a few so large as to dominate the others?
The second strategic feature is the business
relationships between them.

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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.

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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?