5.6 Marketing systems evaluation

5.6.1. Degree of market efficiency in terms of marketing margin
5.6.2 Price analysis
5.6.3 Services
5.6.4 Structure, conduct and performance analysis
5.6.5 Market information and intelligence

In Africa in the 1960s, and in some cases prior to that, governments, development agencies and commercial farmers tended to think that existing indigenous and private sector marketing systems were inefficient little potential for internally-generated improvement. Common assumptions were that: traders were exploitative; their operations were inefficient because of an excess number of intermediaries; and traders were unable to respond to new market opportunities and changes in consumer demand (resulting in consumer demand not being relayed properly to producers). Traders were seen as adding costs to trade without providing a service. As a consequence, government intervention increased and many livestock marketing projects and schemes for the distribution of veterinary supplies and other inputs were initiated, which either did away completely with private-sector participation in these activities, or placed them under intense government regulation. Examples of such regulatory interventions were compulsory use of stock routes, frequent veterinary inspection, mandatory weighing of animals, auction markets and detailed specifications of the qualifications or endowments a trader must have before being licensed.

While some of these projects were successful, many were not. Studies have suggested that many of these indigenous systems were much less inefficient than had earlier been believed. As a consequence, it is now more generally accepted that before intervening to change the existing marketing or distribution system, its current performance should be evaluated. This section discusses some commonly used methods of market evaluation including:

· degree of market efficiency in terms of marketing margin
· price analysis
· evaluation of services
· structure, conduct and performance analysis
· market information and intelligence.

5.6.1. Degree of market efficiency in terms of marketing margin

Technical versus economic efficiency

The degree of efficiency is often the measure by which marketing systems are evaluated. However, a distinction exists between technical and economic efficiency.. A new machine may allow for greater technical efficiency by using fewer inputs for the same level of output; it may not result in economic efficiency if the cost of the machine is not compensated by the savings in inputs. Economic efficiency is more desirable because it considers the value of resources, not just their quantity. Economic efficiency occurs in marketing when market operations are carried out at the least cost, subject to the techniques and knowledge available, provided that the good is supplied at a desired quality.

Economic efficiency is likely to occur in a competitive environment where traders are forced to provide good quality products and services at low prices, or be undercut by others more willing to do so. The obstacles to economic efficiency in marketing are lack of information, resistance of established institutions and monopoly or oligopoly power on the part of some market agents.

To evaluate markets on the basis of efficiency, the ingredients of an efficient market must be identified. Four of these are:

· Consumer demand is accurately and quickly relayed to the producer and the resulting information on producer supply is relayed back to the consumer.

· Marketing and distribution services are provided at the minimum cost per unit, compatible with the kinds and qualities of service required. Normally, the cost of marketing services will be reflected in the marketing margin.

· Innovation and flexibility exist so that market intermediaries are able to respond to new opportunities in terms of location or product quality.

· The national objectives of marketing are assisted.

Marketing margin, a measure of market efficiency

A common means of measuring market efficiency is to examine marketing margins. This is an attempt to evaluate economic or price efficiency. The overall marketing margin is simply the difference between the farm-gate price and the price received on retail sale. That difference can then be considered to be the cost of marketing and all that is entailed in getting the product from the producer to the consumer in the desired form. The question to be evaluated is whether the marketing services being provided are "worth" the cost of this margin.

Marketing margins can be calculated for different levels of the market, so that:

Marketing margin = P₁ - P₂

where

P₁ = the price at one level or stage in the market
P₂ = the price at another level

A marketing margin is the difference between the primary and derived demand curves. Primary demand is based on consumer preferences and their response to retail prices. Derived demand is based on the relationship between price and quantity at the farm gate or intermediate points. Derived demand can thus be thought of as consumer demand as experienced by producers or other intermediaries. Primary and derived supply curves are analogous. The retail price is established where the primary demand curve and the derived supply curve intersect. The farm-gate price, on the other hand, occurs at the point where derived demand and primary supply curves intersect. The difference between the two prices is the marketing margin, which is illustrated in Figure 5.5.

Figure 5.5. The marketing margin: (Pr - Pf).

Source: Amir and Knipscheer (1989: p. 160).

There are several types of marketing margins, based on the market level being considered. The wholesale margin is the difference between the price paid by the wholesale trader (or the processor) and the farm-gate or producer price. The retail margin is the difference between the price the retail trader pays and the retail price he charges to consumers. When the margin is expressed in monetary terms, it is called the price spread. Expressed as a percentage, it is known as the percentage margin. The mark-up is the price spread between two levels in the market divided by the selling price, expressed as a per cent.

Exercise 5.3: Calculation of marketing margins.

Example: A rural dairy producer sells one kg of locally-processed butter to a trader for 20 Ethiopian Birr (EB)/kg. The trader sells the butter to a retailer in an urban area for EB 24/kg. The retailer in turn sells the butter to his consumers for EB 26/kg.

wholesale margin	= trader price - producer price
	= EB 24 - EB 20 = EB 4
retail margin	= retail price - trader price
	= EB 26 - EB 24 = EB 2 total
price spread	= wholesale margin + retail margin
	= EB 4 + EB 2= EB 6
percentage margin =	wholesale margin/wholesale buying price X 100
	= (EB 4/EB 20) x 100 = 25%
retail mark-up	= retail margin/retail selling price x 100
	= (EB 2/EB 26) X 100 = 7.69%

Exercise: (estimated time required: 1/2 hour).

A pastoral herder in West Africa can sell his cattle to a trader for about CFA 700/kg (based on the buyer's estimate of the weight). The trader treks the animals to an urban area, where he sells them to a butcher for 1200 CFA/kg. The butcher then sells the meat to consumers. Half of the meat sells for 2100 CFA/kg; the rest sells at 900 CFA/kg.

Question 1. What is the wholesale margin? What is the retail margin, based on an average retail price for meat? What is the total price spread?

Question 2. What is the wholesale percentage margin? What per cent is the retail mark-up?

In an efficiently operating market, the competitive environment should keep the marketing margin to a minimum. Market prices should then reflect two elements: the actual costs of marketing plus normal profit margin. A normal profit is one which provides returns to investment comparable to available rates of interest plus some compensation for the risk borne by the marketer.

At different stages in the marketing system the "product" (e.g. animal or meat) is sold and bought. Normally, at each successive stage, the price per unit bought/sold is higher and we say that value has been added. This refers to the fact that some marketing service has been provided, whether transport, processing or one of the other marketing functions, and the value of that service is now included in the product price (and presumably the desirability of the product has been likewise increased). Again, at each successive stage the value added at that stage can be split into two categories: the part which is reflected in the real additional costs of adding value and the part which reflects the extra "profit" made.

Some of the additional costs incurred at each marketing stage are obvious, for example: taxes and market fees, transport costs (e.g. hiring a truck or paying trekkers accompanying the cattle), food purchases for the animals, any interest paid on a loan taken to finance the purchase, and animal upkeep.

Table 5.4 gives an example, based on data from Abidjan in 1977, of the growth in value added at different point in a marketing system and the apportionment of this growth in value added to costs and profits.

Table 5.4. Evolution of the cost and value added of beef and offal sold retail in Abidjan in 1977.

Item		% of final sale price
Purchase of animal in Ouagadougou		46.8	46.8
Labour
	Shipping cattle	0.5	47 3
	Slaughter	0.6	47.9
	Total labour	1.1
Intermediaries' commissions and margins		1.9	49.8
	Taxes and licenses
	Burkina Faso		58.2
	Côte d'Ivoire	8.4	62.5
	Total taxes	4.3
Transport of cattle		12.7
	Transport fees	6.1	68.6
	Shrinkage	7.0	75.6
	Losses and forced sales	1.5	77.1
	Total transport	14.6
Selling costs of meat
	Transport, stall rental and labour	4.4	81.5
	Wastage (bone)	1.0	82.5
	Losses due to condemnations, credit default	0.8	83.3
	Total selling costs	6.2
Profits
	Cattle trader	5.0	88.3
	Wholesale-retail butcher	7.5	95.8
	Vendor of fifth quarter	4.1	99.9
	Total profits	16.6

Source: Delgado and Staatz (1980: p.62).

In value-added costs, some costs are less obvious. If a trader buys 20 cattle at $ 100 each and one of these dies before he can resell it, the average additional "cost of losses" incurred can be estimated at $ 5.26 for each of the remaining 19 animals that he does sell ($ 100 loss divided by 19 remaining). Similarly, if a trader buys a 300 kg animal at $ 600 and, before he sells it, the animal loses 30 kg, then to his original cost per kg (live weight) of $ 2.00 has to be added a further $ 0.22/kg for the loss of live weight before sale (cost per kg is then $ 600/270 kg = $ 2.22). Such costs and transport costs are particularly important in livestock trade (Box 5.4).

Box 5.3: The case of Alphabeta: Beef marketing efficiency. An evaluation of the efficiency of the beef market in Alphabeta was carried out by examining processing costs. The focus was on the Meat Marketing Commission (MMC), a state agency which controls slaughter for export and urban markets. The analysis showed that between years one and six, MMC's costs rose faster than inflation. MMC total costs rose by 31%, while consumer costs rose by 13% and manufacturing costs in general rose by 22%. This trend continued in years 7 and 11. The comparison suggests that increased costs to MMC are not caused by increased costs in general in the economy, but by inefficiency in MMC's operation. Further, MMC's margins were compared with those of private slaughtering operations and again the analysis suggested inefficiency. Private margins were 5 cents/kg, while MMC operated at a margin of 7.5 cents/kg. Private processors can offer a higher price to producers and a lower price to consumers.

Some further costs tend to be more controversial. Suppose a trader keeps an animal which he has bought for $ 600 for three months before he sells it. The interest rate payable on deposit accounts at the local bank is 10%/year, calculable 3-monthly. By investing $ 600 in the animal and not selling for three months, the trader "lost" $ 15 which otherwise he could have earned by putting the money on deposit account ($ 600 x 10% x 3/12 = $ 15). Many economists would want to count that $ 15 as a "cost" of trading, even though the trader did not actually pay anyone interest for using this money. The $ 15 is the opportunity cost of the capital he has invested in the animal during the period he is holding it. Another controversial cost is that of the trader's own time. Suppose he spent three weeks trekking the animals from the place he bought them to the place where he sold them. If he had not been doing that, the trader could have been employed by someone else at $ 5/day. Again, many economists would argue that an extra $ 105 (i.e. $ 5 x 21 days) of any "value added" between purchase and sale should be counted as "cost of trading" rather than as "trader's profit".

Information on value-added costs and profits is very difficult to obtain, since the people who have the information (usually traders) are reluctant to reveal it for fear that, as a consequence, they will be taxed or regulated or the information might be used by a competitor.

Value-added costs and profits will tend to vary widely over time, i.e. a trader will make a big profit on one buying expedition, a small one on the next and possibly, a big loss on the third. For this reason, policy makers must carefully consider the variation that is possible not only over time, but between enterprises (i.e. some may be making profits while others fail, even though the market as a whole exhibits normal margins).

Some approaches to estimating market margins

Three commonly used approaches to determine marketing margins are:

· To sample prices of uniform products at each market stage cross-sectionally at one point in time across a variety of market agents.

· To sample prices of uniform products at each market stage through time (time-series), relying on data from a smaller number of sources.

· To examine gross receipts and expenses of marketers at each stage, and divide by number of units traded.

The method selected may depend on the availability of reliable means of collecting data.

Margin analysis in African agricultural markets shows that there are not many cases of excess profits. In most cases, traders' profit margins amount to less than 10% of the selling price. Table 5.5 shows the distribution of costs in some free-market livestock systems. Returns of 10% or more may be required in many markets to compensate for risk factors. Further, such returns may be similar to those in other professions. The analysis of livestock margins is often made particularly difficult by the large role of the informal market, and thus a lack of data on prices and/or the level and structure of costs of those involved in the marketing process.

Table 5.5. A comparison of free-marketing sheep and cattle systems in selected African countries.

Source: Sandford (1983: p. 204).
n.a. = not available.

Box 5.4: Transport systems and costs in Africa. A number of studies have addressed the conditions and costs of transport systems and their effects on trade (Ariza-Nino et al, 1980). Examination of the economics of transport requires a comparison of the merits and disadvantages of different modes of livestock transport (trekking, trucking and railing), a comparison which is usually made on the basis of cost. Such costs are both direct and indirect. While the direct costs may be obvious, indirect costs include weight loss or death in transit (sometimes resulting in early sale en route), forced sale or loss of grade at sale, crop damage or pasture use during transit, causing conflict or the need for cash compensation and the costs of government services to help avoid these costs. In many parts of Africa, trekking is the primary means of moving livestock to consumer markets. Ansell (1971) looked at one indirect cost, animal weight loss resulting from lack of adequate feed and water during trekking, and found that the cost was not as large as expected. Without facilities for food and water, weight losses can be expected to range from 8-13%. These could be reduced to about 5% by providing both adequate water points along the trek routes and rest, food and water at pre-slaughter holding grounds. During bad years, losses from trekking can be expected to be much higher but not necessarily higher than when other modes of transportation are used. Although trekking results in high indirect costs, trucking can produce high direct costs (fuel, depreciation, capital etc). Rail and trucking can also lead to high mortality and weight loss. An exception is Nigeria where an improved road network and low fuel costs have led to a large-scale replacement of trekking by trucking. The level of trucking costs are also affected by return loads and alternative uses for vehicles. Large specialist vehicles could produce economies of scale, but only if used frequently (to avoid the cost of "dead time"). Small multi-purpose private vehicle transport is usually more cost-efficient because of alternative vehicle uses. Improved roads would lower trucking costs and reduce the risk to animals from transportation breakdowns and accidents. Transporting live animals is usually more cost effective than transporting slaughtered animals because of refrigeration costs.

Reference values of marketing margins for evaluating market efficiency

Reference standards can be used to set up a point at or beyond which performance is judged to be "satisfactory" or "unsatisfactory". Market margins of more than 15%, for example, could be considered unacceptable. These are best used, however, as an indicator that more examination, using other measures of evaluation, is needed.

Because economic conditions generally, and marketing systems in particular, tend to change rapidly of their own accord even when governments do not deliberately intervene, infrequent one-time evaluations may be inadequate. Thus, permanent monitoring systems may be required. However, these can be expensive, and careful planning is required to ensure that a monitoring system will be viable over the longer term, with data not only being collected with satisfactory accuracy, but also analysed and utilised. A permanent monitoring system needs to collect some data without reference to specific criteria for evaluation. Data of this kind include export and import flows, price trends and information on functions, flows, participants and stages (Figure 5.4).

Great care must be used in making conclusions based on comparisons of marketing margins, especially between different countries. Policy decisions based solely on simple margin analyses are likely to be based on erroneous conclusions. Efficiency in performance of marketing functions is not in all cases equated with small marketing margins. Similarly, large margins are not necessarily a firm indication of inefficiency or excess profit by traders. Marketing margins and costs can only be meaningfully discussed in relation to the services and functions which are provided. We return to the question whether marketing services provided are "worth" the cost.

Widening margins over time may reflect an increased demand by consumers for additional services. In that case, consumers may begin to prefer more processing or better presentation or handling, increasing the value added and the margin between producer and consumer prices. Consumers may demand meat which is refrigerated and packaged, and be willing to pay for the additional value added because they perceive the worth of such product handling. This change in demand points toward one reason why it is difficult to measure market efficiency. Markets must encourage new production and consumption by introducing new products. Thus, equilibrium and stable margins may not always exist.

In cross-country comparisons, a higher margin may only mean lower production costs per unit or more value added in the form of services. In developed country markets for beef, the proportion of retail price which goes to the producer is likely to be small, reflecting the large value added of handling and packaging. Such comparisons are really valid only when production systems, marketing systems and consumer preferences are similar. Thus comparisons between marketing channels within an economy can be useful. The existence of large differences in margins between marketing channels would justify further examination of services, costs and market conditions. Because there are no absolute indicators of efficiency, evaluation depends on comparisons between enterprises and between marketing sectors within an economy.

5.6.2 Price analysis

Price analysis is a widely-used evaluation method which looks at the spatial correlation of markets through time. The assumption is that if market prices in different regions move together, then the overall market is operating effectively, in that supply is being distributed regionally in a way which meets local demand. It also assumes information and transport are operating effectively. However, there is some criticism of this method because markets with no strong trade links may show correlated price simply due to similar demand and supply conditions. Further, a monopoly firm could control prices in several regional markets. If price correlation occurs, other evidence needs to be used to discover how prices are being determined.

5.6.3 Services

Marketing services may be difficult to evaluate directly, although cost comparisons can provide some indication of availability. Evidence of excessive mortality and weight loss may indicate that feed, water points or other services during transport are lacking. The functioning of services can also be seen in the structure of the market. Large numbers of intermediaries in the market indicate a lack of capital and risk-avoidance services such as banking and insurance. Without capital, traders are forced to deal in small quantities at a time. This leads to a preponderance of small traders in the market. Lack of livestock insurance can have the same result. The presence of numerous traders can thus be seen as an effective adaptation of the market to a situation where services from external and public source are lacking.

Box 5.5: Pooling transport costs. Differences in transport costs will affect the pattern of production and marketing. Farm-gate prices can be expected to be lower at greater distances from the market, until, at some point, the price traders are willing to pay to producers is lower than production costs. This point is the effective limit, under a free market system, to the area supplying the market. Governments in Africa, however, have often intervened to create cost pooling where a single producer price is paid and profitable support unprofitable routes. This allows the inclusion of otherwise non-viable production areas into the market supply zone (an example is the KCC in Kenya). This is a difficult policy to implement because of the possibility of overall losses, particularly if some external shock occurs which changes the cost structure. Thus, the producer price must be carefully chosen. Also, a price remaining constant over the year does not acknowledge seasonal changes in supply and demand. Even if overall losses occur, cost pooling is often justified on the basis of equity considerations which are seen to outweigh the efficiency criteria. Encouraging production in remote areas may be desirable for equity reasons. Indeed this is true of any policy which equalises charges for government services, such as veterinary or artificial insemination services delivered to dispersed pastoral producers at great cost. Choosing to pursue such a policy depends on which of the objectives, efficiency or equity, is considered more important.

Exercise 5.4: Transportation costs.

Example. Table 5.6 compares the costs of transporting cattle to market by truck and mixed trek-rail. The largest trucking cost is from truck rental. A trek-rail system requires higher costs in terms of salary, (note the greater number of days in transit), as well as additional costs for damaged fields etc. The overall costs of trek-rail, however, are significantly less than those of trucking and animal mortality rates are lower (1.5% compared to 2%), but the table does not reflect the costs of animal weight loss while in transit. Instead, it assumes that the animals are sold for the same price (40,000 CFA) even though those trekked may have lost significant weight.

Exercise: (estimated time: 2 hours).

Question 1. Group the costs from Table 5.6 into direct and indirect costs. Convert them into percentage total costs. How do the two transportation methods compare in terms of proportion of direct and indirect costs?

Table 5.6. Comparative costs of transporting 50 head of cattle from Koutiala, Mali, to Abidjan by a) truck and b) mixed trek-rail transport, 1976-77 (all costs in CFA).

Expense		Truck		Trek and rail
		Total	Per animal	Total	per animal
Salary, food, return trip for drovers		24,000	480	75,000	1,500
Round trip and food for owner		14,400	288	14,400	288
Health certificate		4,000	80	4,000	80
Indemnity for damaged fields				250	5
Salt for animals				500	10
Loss of animals		2% of 50 animals @ 40,000 each = 40,000	800	1.5% of 50 animals @ 40,000 each = 30,000	600
Forced sales		2% of 50 animals @ 20,000 loss each = 20,000	400	2% of 50 animals @ 20,000 loss each = 20,000	400
Cattle market tax		25,000	500	25,000	500
Merchant license, vaccination, export tax		220,000	4,400	220,000	4,400
Transport charges
	Truck rental/rail car	2 trucks =700,000	2 rail cars =14,000	125,116	2,502
	Straw			1,000	20
	Loading/unloading	2,500	50	2,500	50
	Other			2,500	50
Unofficial charges		105,000	2,100	5,000	100
Total costs (excluding weight loss)		1,154,000	23,098	517,266	10,445
Days in transit		3		31

Source: Delgado and Staatz (1980: p. 68).

Question 2. Suppose that, under the trek-rail method, animal mortality increased to 4% and forced the sale of animals to 8%. How do the two transportation methods compare?

Question 3. Suppose that weight loss under either method amounted to 0.5% each day and that this was directly reflected in a lower sale price for each animal (i.e. a 10% weight loss during transit resulted in a sale price 10% less than 40,000 CFA). How do the two transportation methods compare when weight losses are taken into account?

Question 4. At what daily rate of weight loss do both methods result in the same costs? Is such a rate plausible?

Exercise 5.5. Market area determination on basis of transport costs.

Since transport costs increase with distance, there is a certain distance from a market at which it is no longer profitable to transport goods. The area around a consumer market in which transportation is profitable is called the market area. The radius, or limit of the area, is calculated by the following equation:

Radius (kms) = P/T

where:

P = profit per head of livestock
T = transport cost per head per km.

The further producers are from the consumer market, the greater the transport costs and the lower the producers' profits (all costs of transportation are passed from the trader to the producer). A change in price at the market centre affects mainly those producers who are on the edge of the market area, since the relative price change differs.

Example: Figure 5.6 illustrates a hypothetical African country and the system of roads connecting the capital with main points in the interior. In the interior traders purchase livestock which they truck to an abattoir in the capital. Producers close to the capital receive $ 360/head at the abattoir and pay an average of $ 300/head in production costs.

Figure 5.6. Hypothetical country and transport routes.

Exercise: (estimated time required: 1.5 hours).

Question 1. What is the average producer profit?

Question 2. If transport costs an average of $ 0.40/head per km, what is the radius of the market area?

Question 3. If producers require a $ 10 minimum profit on each head of cattle, what is the radius of the market area?

Question 4. What would transportation costs have to be for the market area to reach point D?

Question 5. What would be the maximum price a trader would be willing to offer at point A?

Exercise 5.6: Cost pooling in transport.

Use the information given in Figure 5.6. The government is considering establishing a livestock marketing system which would purchase cattle from all willing buyers, no matter how distant they are from slaughter facilities (pooling costs). The government proposes to offer a uniform price of $ 310/head. The selling price at the abattoir is; proposed at $ 360/head. An examination of transport costs shows that for points A and B. in mountainous and sparsely populated areas, transport costs are $ 0.70/head per km. Transport costs from point C are only $ 0.35/head per km. Costs from other points remain at $ 0.40/head per km. The expected annual livestock purchases are:

Point	No. of head
A	10,000
B	15,000
C	65,000
D	32,000
E	25,000
F	1 8,000

Exercise: (estimated time required: 1 hour).

Question 1. What will be the annual costs and revenues of the government marketing system from the total purchase?

Question 2. Will the government be obliged to provide a subsidy at the price, and if so, of how much?

Question 3. At what farm-gate price will revenues in the system cover costs?

5.6.4 Structure, conduct and performance analysis

Because marginal analysis alone may be limited in value, it can be included in a wider analysis. A measure of market evaluation which can complement the market margin analysis is a classic approach called structure, conduct and performance analysis. The three elements of the analysis, as the name implies, are conduct, structure and performance

The approach, based on ideal competitive market conditions, holds that if the market is "structured" in a particular way, it will tend to make participants conduct their business in particular and rather predictable ways with, again, particular and partially predictable consequences for market performance. This approach focuses on the continuous monitoring of the market on structural issues, (which are easier/cheaper to monitor), leaving a full investigation of performance (e.g. price-margin analysis) only to those cases where monitoring of structure suggests that some undesirable conduct and performance are likely to arise.

Structure is determined by the number and size of firms in the market, the degree of product differentiation and the conditions for entry of new firms into the market. The number of participants operating in a particular market or related markets can be indicative of the extent to which buying and selling power is concentrated amongst them. A few large firms can dominate a market and control prices. The concentration ratio, which measures the proportion of total sales in a market by a given firm, can be used to indicate the level of concentration of market share. Monopoly elements in the performance of market functions will not necessarily disadvantage consumers or producers. Economy of scale, which may lower market costs, has been the basis for government interventions.

Entry, or the ease with which individuals can join and leave business, is important to a competitive environment and to market structure. This may refer to the process of getting a license or professional qualification or skill, or to the need for having a minimum amount of capital or other resources in order to operate successfully. Lack of available capital could effectively restrict entry of new firms if a large initial outlay is required. Structure can also include the nature of information transfer in the market, which might require an examination of the institutional and other facilities available for acquiring and transmitting market information. This could include weigh scales, an auction system, trader registration and accessible information on prices at which deals are concluded.

Conduct refers to the strategies that firms pursue with regard to price, product and promotions, and the linkages/relationships between and among firms. The market behaviour of firms will determine whether or not they compete and whether they are acting innovatively to improve market efficiency. Informal association between even a small number of firms (collusion) can cause price distortions, and seemingly independent firms can have joint ownership (subsidiaries). These conditions can sometimes be seen in African markets where one ethnic group, often from another country, can dominate a particular market and, through cohesive behaviour, affect market conditions. Thus, a point of examination might be the social composition and distinctiveness (e.g. in terms of ethnic group, income class, membership of associations) of one kind of market participant (e.g. traders) and the practical social opportunities that this gives to collude in operating against the interests of other market participants (e.g. farmers or consumers).

Performance is the focus of the margin analysis discussed in section 5.6. It is exhibited by trends and stability of prices, margins and profits. A monitoring scheme which focuses on the relatively easy-to-monitor issues of structure will not itself provide the raw material needed to evaluate the efficiency of a marketing system. It may, however, provide information at relatively low costs on changes indicating the opportunity for monopolistic tendencies to prevail.

Tables 5.7 and 5.8 provide an example based on Ethiopia of the monitoring of one of the elements of market structure, i.e. the number of traders and the number of sheep they offer for sale. Data for only one year are presented. Monitoring over several years would indicate trends.

Table 5.7. Average number of sheep offered for sale by individual trader by market and period.

Market	High transaction on (festivals etc)		Normal transaction		Mean no. of sheep offered
	No. of traders	Average no. of sheep offered	No. of traders	Average no. of sheep offered
Shola	67	24.6	90	25.1	24.9
Addisu Shola	25	56.1	6	52.8	55.5
Deneba	16	15.7	7	10	14.0
Degollo	10	17.7	12	20.6	19.3
Ginchi	12	11.4	9	12.2	11.8
Debre Zeit	5	9.6	6	11	10.3
Dejen	8	5.4	3	5.3	5.4
	143	25.9	133	23.2	24.6

Source: Kebede Andargachew (1990: p. 86).

Table 5.8. Distribution of traders by number of sheep offered for sale.

Flock size	No. of traders	% of all traders	Cumulative %	Percentage of all sheep offered	Cumulative %
1-10	87	31.5	9.1	9.1	9.1
11-20	80	29.0	60.5	18.3	27.4
21-30	45	16.3	76.8	17.6	45.0
31-40	25	9.0	85.8	13.3	58.3
41-50	17	6.1	91.9	10.9	69.2
51-75	15	5.4	97.3	14.2	83.4
76-100	4	1.4	98.7	5.1	88.5
100+	3	1.1	99.8	11.3	99.8

Source: Kebede Andargachew (1990: p. 87).

5.6.5 Market information and intelligence

Market information is crucial to producers, wholesalers and consumers to help them make decisions on what and whether to buy and sell. In general, information is required on prices, traded or available quantities, forecasts of future supplies and demand, and general market conditions. Information must be relevant, accurate and timely and reflect all sectors of the market, especially consumer demand. Such information can be used by traders to shift to those goods with high consumer demand. An effective market information system reduces risks to traders, eventually reducing market margins. When reliable information is not available, traders increase their margins to protect themselves from risk (e.g. if information on distant cattle markets is not reliable, traders face the risk of finding low prices at the end of a long trek).

In most African livestock markets, evidence suggests that information flows relatively freely through traditional information systems, although this may not be the case for markets that are not trading regularly throughout the year. Even external consumer preferences are conveyed well, as evidenced by a quick shift in the suggested export patterns when international demand changes.

Researchers in West Africa found it easy to obtain price information for livestock transactions. Further, prices reported by buyers and sellers showed close correlation. Information about prices and market conditions is spread rapidly by returning merchants and word of mouth (the price of live cattle in Ouagadougou reaches Abidjan in about the time it takes trains to travel the distance).

An efficient market information system needs to address information flows in both directions between consumers and producers. Information should be evaluated in terms of its accuracy, how promptly it reaches those who need it and its degree of detail. These can be determined by comparing the results of surveys of traders and agents with known information about the market.

Methods of collecting market information vary from country to country. Central agencies may be poorly trained and the same market figures may be reported in successive years. Price information, perhaps the easiest to gather, is usually collected by reporters who go into the market and randomly sample. The systematic collection of reliable market data is a tedious and difficult task and is often avoided because of large recurring costs. In cattle markets, collecting systematic data may not be feasible because of the large volume of informal trading that takes place. Whether information about the number of animals presented at market or slaughtered can be transmitted rapidly depends on the effectiveness of the market information collection and dissemination system. The cost effectiveness of weekly and monthly statistics on this type of information is uncertain, because such information is likely to be more readily and efficiently disseminated through informal communication channels. Whatever system is used, it should be simple. Data should be generated quickly and disseminated promptly.

Attempts to disseminate price information on cattle have suffered from a lack of uniform standards (e.g. animal weights, grades etc). Grading systems are particularly important to market information systems. The need for grading is based on the idea that buyers recognize differences in quality. Thus, some buyers are willing to pay more for the quality they want and may buy other qualities only at lower prices or in smaller quantities. Sellers can benefit from grading because negotiating contracts becomes easier.

Exercise 5.7: Market information systems.

Choose from your country some livestock commodity market with whose market information system you are familiar. (If the participant is not familiar with such a system, a description of the system in the literature can be used.)

Exercise: (estimated time required: 2 hours).

Question 1. Describe in detail the level of development of the market information system, both formal and informal.

Question 2. Describe how market information is collected. Evaluate the market information collection system in terms of accuracy, regularity and relevance.

Question 3. Evaluate market reports and forecasts in terms of timeliness and accuracy. How well are they prepared, how are they disseminated and how well do they meet the needs of users?

Question 4. Suggest what improvements could be made to the market information system and discuss how this could be done.