9. Improving marketing arrangements

THE PRODUCTION-MARKETING CHAIN

One of the vital roles of an organization trying to assist farmers to improve marketing is to oil the wheels of the production-marketing chain, that is, to help the businesses in the chain operate more efficiently. Very often, marketing chains are not coordinated and the participants can be blind to the existence of others and their needs, problems and opportunities. You have an important role in creating opportunities for buyers and sellers to meet, to share information, to exchange ideas and to explore trading opportunities.

Helping farmers develop markets

Linking buyers with sellers. Buyers are not always aware of all the alternative sources of produce that may be available to them. Producers often do not appreciate the range of potential customers for their produce nor how the market wants products presented and what the prices are likely to be. One of the most important roles that you can play is to create linkages between buyers and sellers. This can be done in a number of ways, including:

• providing contact information and introductions to potential trading partners;

• creating a forum where buyers and sellers can meet (e.g. at farmer meetings, seminars, training sessions, trade fairs). Most important business discussions occur informally, for example at tea or coffee breaks or lunch;

• helping traders to access new market opportunities by providing marketing advice and research findings;

• introducing buyers and sellers.

Establishing collection centres. Collection centres enable produce to be assembled in volume. This attracts buyers and creates competition between them. Better prices are realized and economies can be achieved in transport.

Where unorganized shipments of produce are being made to a distant market you can consider promoting a collection centre. You could do this by:

• identifying a suitable location (i.e. one that is accessible to both producers and traders);

• agreeing with local growers to organize harvesting and deliver their produce to the assembly points on a specific day of the week;

• informing buyers, agents, wholesalers and truckers of when and where farmers will assemble;

• encouraging growers not to compete with one another on price.

Farmers' markets and village markets. Farmers' markets enable farmers, or groups of farmers, to sell produce directly to retailers or individual consumers. In Egypt and India, for example, successful village markets have been established. They operate on a weekly basis and enable farmers to sell either directly to consumers or to wholesalers' agents who take the produce back to the city markets.

By working together to assemble produce in one place, farmers can attract traders and reduce their marketing costs.

In India knowledge of local market (haat) requirements is good and the need for new markets can be accurately assessed. About two-thirds of all new markets go on to thrive (see Case study 3).

Group marketing. Establishing new outlets for growers increases the efficiency of traders and enables farmers to build up an understanding of what they need to produce to meet the demands of the market. When farmers have sufficient mutual trust there is scope for them to work informally together as groups to improve their sales. The first step in this process is for them to understand the benefits of working together and to develop commitment to coordinating their activities. These ideas are best developed collectively with the farmers. Possible ways that farmers can work together include:

• consolidating loads to facilitate bulk buying by traders or bulk transport;

• sharing transport to reduce costs;

• joint negotiations with buyers;

• collective purchase of inputs to reduce costs.

In Bangladesh, about 90 percent of the farmer groups given marketing training developed collective marketing activities. These ranged from using mobile phones to call traders when the farmers had sufficient volumes to sell, to delegating group members to take produce to sell in markets or to agribusiness concerns.

Cooperatives. In many countries cooperatives have been formed to market produce on behalf of farmers. An effective cooperative can increase the chances of small farms remaining viable as the market becomes more developed and demanding investments in post-harvest equipment are required (e.g. grading and packing for export or to supply supermarkets). This guide gives several examples of informal cooperation between growers. When considering the formation of a more formal cooperative you should take into account:

• the importance of producers retaining control. This is ensured through the cooperative's constitution. Either "one-person-one vote" or share capital linked to area of land farmed is desirable as the basis for decision making;

• the need to employ efficient and well-motivated staff, particularly at senior management level. Many cooperatives have failed by employing the wrong staff or paying the right staff inadequate salaries. Marketing requires a business mind. Successful cooperatives have often been established by linking the manager's salary to turnover and/or to the net sum paid to members;

• a properly equipped cooperative must have the necessary facilities and equipment to carry out its objectives, but should avoid building up too high a level of overheads.

Cooperative activities are born out of necessity, when growers recognize that their survival depends on the collective negotiating strength that working together can provide.

Working together should come about as a result of a need felt by farmers to cooperate and should not be imposed on farmers by outside bodies.

Negotiating and selling

For the grower the most critical moment in the production/marketing chain is agreeing on the price with the buyer. This is when the farmer discovers whether all the effort and money invested in growing the crops has been worthwhile.

You have an important role to play in improving farmers' negotiating strengths and in training them in the art of selling. The nature of business is that both buyers and sellers try to maximize their profit. To do this requires information, but farmers are generally the least well-informed in the marketing chain. A well-informed farmer who has some basic negotiating skills will usually obtain better prices than less-well-informed farmers.

The strength of farmers during negotiations can be increased by the following:

• being informed of the range of buyers available;

• growing crops for which there is a strong demand;

• being aware of prevailing market prices and conditions and how to relate these to farmer prices;

• knowing the break-even cost of production and marketing (see Figure 12).

You may be able to assist farmers to do the above by providing information, as well as by helping groups to negotiate with buyers and to draw up contracts.

Traders and other intermediaries can sometimes take advantage of farmers:

• on the weight of the crop;

• on the comparative quality of the produce;

• when calculating the money due to farmers;

• by inaccurately representing the state of the market (prices, supply, demand).

These kinds of problems can be reduced by identifying honest traders in the first place. The accuracy of scales can be tested. For large scales an effective method is to test if they measure your own weight accurately. By sharing information about the reputation of traders, growers will learn which traders to trust.

A processor can, with your help, introduce a system whereby selected farmers grow specifically for the factory. Suitable farmers can be identified and formed into a group or groups to:

• introduce improved production techniques;

• design a production programme;

• receive training in improved harvesting, handling, grading and packaging techniques;

• agree on firm prices for the produce;

• coordinate the supply of packaging materials and transport.

Contracts. Contract farming is becoming more common as agriculture developes^[4]. It has the advantage of reducing price fluctuations and therefore risk, both for growers and buyers. Contracts are generally formed between farmers and agribusinesses that need an assured supply of raw material. However, problems can arise when there is a significant difference between the contract price and the price on the open market. Growers are then tempted to make short-term profits by selling to others^[5]. This is generally a short-sighted practice because it discourages the agribusiness from working with those farmers again.

Using market information

An effective marketing chain not only takes produce out of rural areas and returns money, but should also provide an ongoing stream of feedback to farmers on the state of the market. This information should keep producers in touch with the changing needs of the markets. Such knowledge enables farmers to be confident in negotiations, and provides insight on how the quality and prices of their produce compares with the competition.

Market information can be divided into short-term information, which helps farmers make instant marketing decisions on selling their products, and longer term market information, which can be used to make planting decisions and plan marketing strategies.

Short-term information includes:

• up-to-date price information;

• up-to-date information on supply and demand.

Government market information services have been set up in many countries but they have experienced problems. They are costly to run. The information is not always accurate. The time taken to process information often means that the market news provided is out of date by the time it reaches the farmer. These days, the most important source of information in many countries is often the telephone. Buyers and sellers contact each other and provide instant feedback on prices, supply and demand. Access to telephones, particularly mobile telephones, is increasingly important for market-oriented farmers.

In the absence of telephones farmers should be encouraged to share market information. For example, when they return from a visit to a market, they should circulate news on prices and opportunities to other growers in their neighbourhood. Some extension workers have organized notice boards where farmers can post information about market conditions.

Longer term market information includes:

• quarterly or annual price reports from market information services;

• product and trader fact sheets;

• contacts of companies providing services (e.g. transport, storage), and inputs (e.g. seeds, fertilizers and packaging);

• descriptions of the marketing chain and how it operates.

This kind of information helps farmers decide which crops to grow, how they might market their products and which companies to sell through. Some of the information may be available from directories, catalogues and trade magazines. This specialist information needs to be drawn together from different sources and is not likely to be easily available.

Test marketing

A new trading activity, whether it is selling to new buyers or marketing new products, provides opportunities for additional rural incomes. It is also a period of risk, when there are high chances of problems occurring. You, as an extension agent, have an important role in:

• ensuring delivery of samples to potential new buyers (most traders want to see examples of the product);

• organizing a test-marketing programme if the trader responds positively and the financial returns look promising. This is done by marketing small volumes of produce over a period of time to provide an opportunity to resolve problems in the system, such as payment arrangements, transport connections and quality issues. Test marketing can also establish whether the trade is likely to be profitable in the long term;

• resolving disputes, ensuring that communication occurs between the trading partners and preventing any misunderstandings from arising.

Ultimately, trading relationships have to be based on trust. The test marketing phase allows mutual trust to develop and permits the parties to understand one another and how they operate.