lecture x marketing agricultural commodities. marketing enterprises fall into three broad...
TRANSCRIPT
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 enterprisesOperate 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 ParastatalsParastatals 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 EfficiencyTo farmers efficient marketing means
the sale of their produce at the highest possible price.
To consumers it is the provision of high quality supplies at the lowest cost possible.
However, too high a price for the farmer would limit sales to consumers, and too low a price would discourage the production of future supplies.
Marketing Efficiency
Neither the consumer nor the producer stands to benefit from: unnecessary marketing charges wasteful methods inconvenient structures.
To reconcile the interests of both, marketing efficiency would have to be defined as: The movement of goods from producers to
consumers at the lowest cost consistent with the provision of the services that consumers desire and are able to pay for.
Marketing Efficiency
Reduction in cost of maintaining the same standard of service represents a clear increase in efficiency.
Additional marketing services that raise the cost of marketing, may also represent increased efficiency. That is if consumers value the extra service more
than a corresponding saving in cost.
Marketing efficiency includes: Technical Efficiency Economic Efficiency
Marketing Efficiency
Technical efficiency is enhanced by New methods of packing and processing to
reduce waste and deterioration in quality. Adoption of new machinery to achieve
labour economies.
Marketing Efficiency Economic efficiency Means that
Marketing is proceeding on the lowest cost basis feasible with techniques, skills and knowledge available.
This will be reflected in the prices and quality of service.
All the enterprises involved should continually look for new ways of carrying out their tasks and improving services.
They should adopt new methods as soon as they seem likely to reduce costs or encourage a better service.
Marketing Efficiency However, the use of machines or storage
designs, which are more efficient in terms of volume handled per hour, may not necessarily be economically efficient under all sets of conditions.
Many persons may be engaged in distribution because of limited earning opportunities elsewhere and in consequence, saving on labour may be neither profitable nor socially desirable.
Marketing Efficiency The use of sophisticated equipment may
cause difficulties such as obtaining spare parts and performing adequate maintenance.
New techniques must fit into existing systems.
Storage and processing units that are efficient, from an engineering point of view, have stood empty and unused for much of the time in various tropical countries, because the marketing system was not geared towards technical efficiency
Obstacles to economic efficiency
Include Lack of information. The resistance of established institutions. Monopoly.
Measures of EfficiencyTwo approaches used to evaluate
efficiency of marketing Analyzing the existing channels according
to prices and service provided Evaluating the factors that take into
account efficiency by examining marketing enterprises for structure, conduct and performance.
Measures of Efficiency Prices
The prevailing prices should reflect costs plus a profit margin.
The profit must be sufficient to reward investment at the going rate of interest, to repay risk bearing and to provide an incentive for new ideas designed to save costs or improve services.
Service Provided The quality of service provided should be neither too high
nor too low in relation to cost and consumer desires. There should also be a range and variety of services to
match the variety of consumer incomes and preferences, in so far as this is consistent with economies of large-scale operation.
Measures of Efficiency Structure Includes all the firms engaged in a particular
marketing channel. The first strategic feature is the number and
relative size of the firms involved. Are a few so large as to dominate the others?
The second strategic feature is the business relationships between them.
Are they independent or interlinked in ownership and management?
Are they connected by formal contracts or informal understandings?
How easy is it for new firms to come into the new system?
Measures of Efficiency
Conduct This refers to the market behaviour of
these firms. In what ways do they compete? Are they looking for new techniques and do
they apply them as early as practicable? Are they looking for new investment
opportunities, or are they disinvesting and transferring funds elsewhere.
Measures of Efficiency
Performance This is an assessment of how well the process of
marketing is carried out and how successfully its aims are accomplished.
Is produce assembled and delivered on time without wastage?
Is it well packed and presented attractively? Is its quality reliable and are contracts kept? Is the consumption of the products increasing and are
sales in competitive markets expanding?