I. Pswarayi-Riddihough and N.
Jones
World Bank, Washington D.C., USA
To raise the economic status of the rural poor, efficient market development should be made an essential component of social community forestry. Past experience has shown that market demands provide significant incentives for farmers to grow trees. Besides being profitable, planting of trees will also encourage economic usage of land unsuitable for agriculture. The response from farmers to market demand will be influenced by how returns compare with other income-generating activities, farmers’ productive capacity and available primary inputs. Access to credit facilities and markets will influence the type of species adopted by farmers. Farm forestry will also provide employment for other sectors of the community (FAO, 1985).
Pabuayon (1990) notes that an efficient marketing system is one that moves goods from producers to consumers at the lowest cost consistent with provision of services that consumers desire and are willing and able to afford. If transportation infrastructure is poor, proximity of the farmer to the market becomes very important. Storage, grading systems, processing facilities, market information and market facilities where buyers and sellers can interact and transact business in a relatively competitive manner must be considered. Buyers must not be allowed to exercise exploitative control on prices at the expense of producers. Although farmers are able to participate in marketing of their produce, they rarely receive a fair price for it. Incentives for increased production are minimal and incomes remain small (Edwards, 1988).
Market development requires incentive structures,
such as land tenure security, technical assistance, credit support as well
as viable marketing schemes. Another important variable in the farmers’
decision-making process about the type of product to grow will be price,
therefore favourable price structures will be important. This will in turn
require an efficient input market, i.e. low-cost inputs of fertilizer,
seeds and seedlings.
Types of wood and non-wood commodities of importance
in Asia differ between and within countries, but a report in Foreign
Agriculture (1992) lists rubber, palm oil, coconut and its derivative
products, tropical fruits and spices as highest in value in terms of international
export in the Asian region. Products which are not important in terms of
export but important at local and regional levels include indigenous fruits
and firewood.
There are three main types of marketing channels in Asia. Farmers market individually, with the assistance of middlemen or through cooperatives.
A farmer marketing individually represents a small
competitor individually controlling meagre resources. This limits farmers’
bargaining power in the market, which is further weakened by a poor financial
position and inability to keep up with rapid changes in market conditions.
The small size of surplus marketed by farmers makes it difficult for them
to sell to companies interested in bulk purchases. Farmers are generally
unaware of markets for their produce, and in some instances even when they
are aware, they do not know how to market their products. This ignorance
is perpetuated by a lack of information on markets and prices. Farmers
sell to whoever wants the produce at prices usually set by the buyer. Each
farmer makes non-systematic independent decisions which are not planned.
They thus lose out to unscrupulous traders.
Middlemen have maintained a stronghold on the market scene because they are able to provide farmers with resources essential to their work: quick credit, non-bureaucratic and quick payment for goods and good organisation. They remain essential for commodities that require time, storage, space and energy inputs, for example for products that must be dried, stored, transported, processed and packaged before distribution. In many cases these commodities are sold and bought several times, adding value at each step, before reaching the consumer. The technology and finance to perform these functions are usually beyond the reach of low-income farmers and are left to middlemen who have the resources.
A combination of the farmers’ lack of knowledge
of actual market prices and poor marketing supports the middlemen. They
are often money lenders, local merchants of food and beverages and other
household requirements. Once the farmer is indebted, he or she is obliged
to sell and buy continuously with the same individual, even when prices
are unfavourable. Poor communication and transportation facilities, highly
segregated markets, and unequal bargaining power between buyers and sellers
make the field more profitable for middlemen (Pabuayon, 1990). Farmers
sell through middlemen for want of a better marketing system, and because
middlemen give cash advances without bureaucratic intervention in periods
when the farm is not producing money (Punzalan, 1981).
Cooperatives are in operation in many countries in the region but very few have been successful. A study carried out to test the possibilities of small-farmer group marketing found four major deficiencies in cooperatives on the continent (Anonymous, 1983):
Many cooperatives have failed to meet the goals
for which they were created: self-reliant farmers, clear advantages of
large-scale transport, shipping and marketing to attract the interest of
farmers, concerted efforts to expand business areas, volume marketing either
through specialization or diversification, provision of a central authority
to bargain with exporters, importers and processing industries. In many
cases, also, they have failed to take into account differences in members'
cast, sex or religion. They have also tended to be too small and poorly
funded, and as a result have not been efficient in marketing or competing
with well organised middlemen and dealers who have been performing these
services for long periods. The poor funding typical of cooperatives in
the region has rendered them inefficient in management functions. They
usually lack any business plan. Further, poor funding has limited the potential
for cooperatives to make full analyses of the markets. Legislation which
would assist cooperatives become viable, such as tax exemption and concessional
loans, has generally been lacking.
Some of the problems encountered by farmers, between
production and marketing of products, are discussed briefly below.
Low production is a major limitation for some of
the commodities considered. In many cases this results from the small acreage
of land owned or leased by farmers. Also, the quality of planting stock
used by farmers is generally poor, resulting in poor-quality products that
cannot compete on the market. This acts as a disincentive to increasing
production. Further, technologies used by most farmers are not conducive
to large-scale production, they do not use fertilizer or other methods
of soil enrichment, and generally trees are tended only when all other
agricultural work is at a minimum.
Handling and storage facilities are below standard,
with worst consequences for perishable products that bruise and spoil easily.
This results in losses estimated between 25 to 50 percent. There is a general
lack of strict standards to guide grading and packaging for most commodities
and buyers often re-grade/sort and package before reselling to companies.
Failure by farmers to respond to standard guidelines is due to the complexity
of the guidelines. Local standards are needed that are easy for the farmer
to understand while at the same time relating to internationally accepted
standard. Availability of storage facilities among the poor is inadequate
or non-existent.
Farmers seldom process their products before marketing
them, which could earn them added income, increase product value (especially
in the case of fruits and edible oils) and allow adjustments to seasonal
excess of supplies. Processing techniques are not easily available to farmers
and in some cases farmers feel that even if they process their products
they would still only earn a small income, but this has not been proven.
In urban areas, infrastructure and transportation
are usually well developed, but not in remote areas where poor infrastructure
and high costs of transportation are barriers for potential market entrants,
leading to a less competitive market environment. In some countries like
Nepal, produce intended for the market never makes it there because both
infrastructure and transportation are poor. This problem is acute on larger
islands, for example in the Philippines, where farmers are scattered over
wide areas and transport costs are high. Some bulky commodities, such as
fuelwood, a low-value product, are expensive to transport and therefore
less lucrative. Poor transportation decreases quantities available for
the market and acts as a disincentive to increased production. Most farmers
do not own vehicles so overhead costs of transportation of certain commodities
may be even higher than expected returns. Poor economic conditions in these
countries hamper the possibilities to upgrade the infrastructure in the
immediate future.
An analysis of farm and village forest-use practices in South and Southeast Asia noted that very few villagers report using credit from government sources, such as banks (Mehl 1991). For credit facilities, farmers tend to rely on family members, traders and middlemen. Few farmers borrow from formal financial institutions because they lack collateral. Also, methods used for credit checking make most farmers ineligible. However, even where farmers would have been eligible to borrow, long delays between application and receipt of loan have generally deterred them. Repayment methods seldom suit farmers who prefer to repay with produce at time of harvest rather than cash. Monthly instalments for the repayments of debts are inappropriate, as farmers receive only one or two lump-sum "paychecks" a year.
Generally, governments in developing countries have intervened heavily in rural financial markets, with the aim of supplying affordable credit to small farmers and rural business people to spur investment. Weak legal systems and ineffective enforcement arrangements contribute to commercial banks' reluctance to lend to rural people. Farmers' lack of collateral, mainly resulting from lack of secure land tenure, has not encouraged banks (Yaron, 1992).
Lack of commercial bank lending options has led to flourishing informal credit markets, which are characterized by low transaction costs for the borrower and rapid disbursement of funds and in many cases high interest rates and/or low product prices. Close familiarity with the borrower’s creditworthiness and efficient loan collection mechanisms have established the informal credit market as the exclusive, and in some cases the preferred, source of credit in rural areas, in spite of the high interest rate charges, limited loan portfolio and operation in limited areas (Yaron, 1992).
Yaron (1992) also reports that for the most part,
past performance of the state and donor-supported agricultural credit operations
has been poor, with most programmes reaching only a minority of the farming
population. Those institutions that they have managed to reach have generally
failed to develop into self-sustaining credit facilities. Another problem
with these loans has been that benefits tend to be concentrated in wealthier
farmers. A recent study carried out in China and Thailand showed that for
both borrowing and non-borrowing farmers, only a small minority had an
unsatisfied demand for formal credit, as they have access to the more flexible
services of the informal moneylenders.
Governments need to assist small farmers to market
their produce both locally and internationally. Whatever policies are implemented
should reflect this. There is a need to review existing policies and ensure
that they offer sufficient incentives and stability to encourage growth
of efficient marketing enterprises. These include: food pricing, import
policies and market intervention conducive to a full utilization of existing
human and capital resources.
One of the most common problems faced by small farmers
in Asia and other developing regions is the lack of market information
on prices and factors influencing market prices. Market information systems
must be made available and efficient. Governments should fund and develop
ways in which market information can be disseminated. Small-scale farmers
are often short or resources, so information must be disseminated at little
or no cost to them.
This brief résumé from Asia highlights
some of the problems farmers face as they compete in the market to increase
their economic status. There is a trend for both international donor or
lending agencies and local governments to promote small-business operators
in forest-based production. However, there is a need for governments to
examine market structures and attempt to ensure all components, from producers
to consumers, receive a fair share of product value.
Anonymous. 1983. Introduction, in Small farmer group marketing in Asia. Bangkok, U.N. Economic and Social Commission for Asia and the Pacific.
Edwards, C.1988. Developing and using agricultural data to describe the current situation and analyze the outlook. In Collection and analysis of market information for farm production in Asia.
FAO. 1986. Tree growing by rural people. FAO Forestry Paper. Rome, FAO.
U.S. Department of Agriculture. 1992. Foreign agriculture 1992. Washington, DC, USDA Foreign Agricultural Service, Information Division.
Hsu Wen-Fu. 1983. The marketing of farm products by farmers' organizations in Taiwan. In Producer-oriented marketing: strategies and programmes. Taiwan, Food and Fertilizer Technology Centre for the Asian and Pacific Region.
Mehl, C.B. 1991. Trees and farms in Asia: an analysis of farm and village forest-use practices in South and Southeast Asia. Bangkok, Winrock International Forestry/Fuelwood Research and Development (F/FRED) Project.
Pabuayon, I.M. 1990. Marketing tree products from small farms: case studies from the Philippines and implications for research. In Haugen, C., Medema, L. and Lantican, C.B., eds., Multipurpose tree species research for small farms, proc. international conference held November 20-23, 1989 in Jakarta, Indonesia. Bangkok, Winrock International and IDRC.
Punzalan, D.C. 1981. Cooperative marketing in the Philippines. In Food marketing in Asia: systems, cooperatives and policies. Taiwan, Food and Fertilizer Technology Centre.
Yaron, Y. 1992. Rural finance in developing countries. Policy research working papers: agricultural policies. WPS 875. Washington, DC, The World Bank.
