Guiding principles
Contractual agreements with market users
Market rules and their enforcement
Practical issues in market operational management
Performance of the managing authority
A wholesale market will be judged on the following criteria:
1. Financial viability of the market reflecting confidence and trust in its use, and acceptance of its fees and charges and rules by wholesalers, farmers, retail and other buyers and users.2. Operational efficiency, including:
- efficient handling of the arrival, unloading and loading of produce;
- discipline in the market in the internal movement, storage and display of produce, which is achieved through enforceable tenancy agreements, and widely accepted and implemented market regulations or rules;
- traffic control and vehicle parking;
- personal safety;
- produce security;
- cleanliness and hygiene;
- effective provision of services, such as loading and unloading services, produce movement, electricity, garbage collection, telephone, fax, e-mail, and internal communications, warehousing and cold storage.
3. A pleasant and safe trading and working environment in which private trading can operate profitably. Such an environment should have toilet, food and refreshment facilities, and other service facilities such as banks, accountants, input suppliers (e.g. packaging materials, seeds and fertilizers for farmers), parking, and food and accommodation facilities for transport operators.
4. The extent to which the market meets general community needs by ensuring:
- a regular supply of staple foods in the necessary quantities and quality;
- transparency in price setting through free competition between traders;
- that standards and grades are adhered to, where relevant;
- that packaging meets the needs of the market and of the eventual consumers.
5. The relationship of the management authority with market users, including wholesalers, other market operators, farmers and suppliers, retailers, and other buyers and service providers.
Most management authorities have contractual agreements with persons renting space in the market in order to clearly define rights and obligations. This is to ensure discipline in market operations, and to minimize misunderstandings leading to costly legal disputes and litigation.
For occasional or casual users this can take the form of terms and conditions printed on a ticket or permit which is issued on payment of a fee. Often a statement acknowledging acceptance of, and willingness to comply with, the terms and conditions of market rules is included for signature by the users. Failure to comply can lead to the managing authority refusing to allow access to selling space or to allow access only on restricted conditions.
For longer term wholesalers and other market tenants the managing authority usually enters into a specific contract with each tenant. This is frequently a lease or rental agreement which gives the managing authority absolute final control over the premises. More details of what a market lease or rental agreement should cover are given in Annex 2. In general, such an agreement should specify:
A WELL PLANNED MARKET FACILITATES MANAGEMENT AND OPERATIONAL EFFICIENCY
Easy access to the market with sufficient and orderly parking - Agricultural Market of Thailand
Controls on vehicle entrance and exit and fee collection - Wholesale Market, Cairo, Egypt
WHILE EASY ACCESS TO BUILDINGS IS REQUIRED, CONGESTION MAY PREVENT THIS
DISCIPLINE OF INTERNAL MOVEMENTS, TRAFFIC CONTROL, SUFFICIENT AND ORDERLY PARKING
PRODUCE COMES TO THE MARKET USING A VARIETY OF TRANSPORT MEANS
Traditional transport methods continue to be used - Wholesale Market, Bogot, Colombia
PRODUCE CONTINUES TO BE MOVED IN VARIOUS WAYS WITHIN THE MARKET
In many cases in-market circulation continues to be quite simple - Amman Wholesale Market
But here large volumes of well-packed produce justify modern equipment - Bloemfontein, South Africa
PRODUCE ARRIVES IN DIFFERENT CONTAINERS AND SPACE FOR STACKING AND STORAGE IS REQUIRED
ALLOWING ADEQUATE SPACE FOR PRODUCE DISPLAY IMPROVES SALES AND REDUCES LOSSES
An attractive stacked display in the tomato market - Central Market, Buenos Aires, Argentina
The watermelon building where watermelon seed is also traded - Agricultural Market of Thailand
A particularly attractive flower and ornamental plant market - Agricultural Market of Thailand
PRODUCE WHICH ARRIVES IN BAGS OR BASKETS REQUIRES DIFFERENT DISPLAY METHODS
MARKETS CREAT A LOT OF WASTE WHICH NEEDS TO BE CORRECTLY HANDLED
Regulation in the market
Markets are places for the interaction of various interest groups and individuals seeking to optimize their revenue. Markets therefore need to be managed with an impartiality, which recognizes the importance of all users for its successful operation. However, in a competitive environment there will be inevitably conflicts, and chaos and confusion which can be to the detriment of the weaker participants unless there are clear and concise market rules or regulations and strict and consistent enforcement of them.
These rules or regulations should be clear, practical and as simple as possible so that they are easily understood and implemented. The reasons for the particular regulation should be understood by all users of the market. They should be drafted by the managing authority in close consultation with market user groups to ensure their practicality. They must take account of national and municipal laws and be within the power and authority given in law and in any enabling legislation, order, or legal instrument establishing the managing authority. Further, the penalties or sanctions to enforce regulations or rules must also be within the power and authority of the managing authority, or be provided for in legislation or regulation. For example, if it is proposed to have “on-the-spot” fines for parking offences this power may need to be given or delegated by the provincial or municipal government by inclusion in their legislation or regulations.
Market rules and compliance
The most practical way to ensure compliance with market rules is to have the market users, through their representatives, involved in the drafting process. Peer or group pressure within the market can mean that for most of the time rules are observed. For example, if a wholesaler consistently stacks produce on the market floor or pavement area outside of the space leased by him then other wholesalers who are disadvantaged or hindered in their business will seek to correct the situation. There must be clearly understood procedures for action to be taken by the managing authority. Staff must be clearly designated as responsible for specific activities such as enforcement of rules applying to loading and unloading and the stacking of produce in walkways, loading areas and other common-use areas. These staff must have the delegated power and authority to act. Action normally consists of a first warning to remove the offending produce. If that order is not complied with the offender should be penalized, either by the removal of the produce to a holding area by market staff (with recovery on payment of costs and a fine) or by issue of a breach notice, leading to the penalty authorized in the rules. In some persistent cases the matter may be taken by the chief executive officer to the board of the managing authority and the board may impose a larger fine, if provided for in the rules.
In extreme cases the board may require the tenant to show cause why the lease agreement should not be terminated as a result of failure to comply with the provisions of the contract. However, before this action is contemplated the board should call the offender into a meeting. In some situations the tenant may face a practical problem which needs to be addressed by the managing authority. For example, bad layout may give poor access to floor space in a particular location.
Market rules - Some legal issues
What is included in the market rules will depend on a number of factors:
Market rules - Issues in drafting
A number of issues must be considered in the development and drafting of market rules and regulations (see Annex 1 for an example of rules developed for the Mercabarna Market in Barcelona, Spain). This section identifies the major issues and offers specific comments that will be of help in this undertaking. These are:
Market trading days. A major decision to be made is on which days, if any, the market is to be closed. This should be done in consultation with government as well as with the users.
Market hours and market access. Market rules generally need to cover three specific areas in relation to market hours:
Some markets seek to restrict trading hours which, in effect, is a restriction only on produce movement. Much trading activity in markets now takes place by telephone, fax or e-mail. This is difficult and not particularly desirable to regulate. The reasons for wanting to restrict trading hours need to be clearly understood by the managing authority and accepted by the market overall. These could include security, market cleaning requirements and life-style choices of wholesalers (not wanting to operate all day). However, decisions to restrict trading hours will mean that the board also has to make decisions on the following:
Decisions on these matters will have an impact on decisions with regard to entry of vehicles loaded with produce and entry of people into the market as well as in respect of produce collection and exit. Hours of entry of vehicles with produce will depend on:
Separate rules usually need to be applied in respect to:
Most markets require wholesalers and staff to park vehicles in designated areas away from trading floors. Some markets give, for a small annual fee, a special entrance privilege to registered buyers (i.e. retailers or larger institutional customers). This allows larger buyers to have access to loading areas and to inspect produce prior to general public access.
Whether separate rules need to be developed in respect to the exit of vehicles with produce will depend on the hours of operation, the need for security of produce, and the need for a time when traffic is minimal to allow for market cleaning and/or orderly unloading.
In most markets information is obtained regarding quantities being delivered from vehicles entering with produce. Usually a copy of the driver’s manifest (loading docket) is obtained and the date and time of arrival recorded. Where such manifests are unavailable and quality information is required, it may be necessary to follow other procedures. These, however, can often be time-consuming and delay access.
In some markets where access by buyers is not differentiated, registered buyers displaying appropriate stickers are allowed to back into loading ramps while cars of the general public are directed to other areas for parking.
Some markets allow wholesalers and their staff unrestricted access during daylight or specified hours, but require that prior approval be obtained for regular entry outside these hours. Emergency entry (e.g. to check produce arriving late or to service a cold store owned by the wholesaler) should be recorded by gate staff. Restrictions on entry are usually applied for security of produce or to enforce trading hour regulations.
Separate rules for hours of entry or operation may be developed for ancillary services such as cafés, restaurants, cold stores, prepacking plants, sorting or “picking-over” areas, warehouses, ripening rooms and other service areas
Authorized produce trading. The market rules (as well as the tenancy agreement) should specify what produce may be sold in the space rented or leased. They may also prescribe the packaging required. For example, many Indian markets specify that fruit must be packaged in wooden boxes and must be sold in the boxes in which it arrives in the market.
Problems arise in markets where authorized produce is not specified. This often leads to wholesalers selling other produce, such as eggs or spices, in a fruit and vegetable market. In addition, the rules should specify that only authorized sellers of authorized products can trade in the market. This can be used to prevent itinerant sellers, including outside food vendors, from operating in the market.
Minimum quantities. The determination, within market rules, of what constitutes “wholesale” sales is difficult. Some markets specify that produce must be traded in the container in which it arrives (i.e. case, box, carton or bag). This approach usually requires that the acceptable containers be specified or approved by the managing authority.
Difficulties faced include how to deal with bulk deliveries or loose items. Large disposable bulk bins of fruit are now delivered to many wholesale markets. Usually these are sold on pallets and delivered to large retail stores. Sometimes, however, they are repacked into smaller packs. Loose larger items such as melons, pumpkins, cabbages and cauliflowers do not readily lend themselves to a concise definition of “wholesale” quantities.Some markets make a simple distinction between wholesale and retail sales by establishing a minimum trading quantity for all produce. This leads to many anomalies. For example, 5 kilograms of garlic is a reasonably significant quantity, while 5 kilograms of watermelon can be one melon. However, such a blanket approach is sometimes preferred to the alternative of specifying and enforcing different minimum quantities for all items.
Some markets allow access to the general public after registered retail buyers have had prior access. At this time wholesale sales in smaller quantities may be permitted. However, as a general rule the preferred approach is to determine the package size and require sales in the container in which the produce arrives, with minimum quantities being specified for loose or bulk items.
Allocation of space. In the case of casual or daily rentals of space, as is common in producer or farmer markets, the issue of space allocation can be a problem. This can arise when farmers or suppliers visit the market every day, filling all available spaces and leaving no spaces for farmers who want to make seasonal or occasional sales. The majority of “producers” tend to become traders, often buying from others and turning the “farmers” market into just another wholesale market. Some markets do not give permanent bookings or access to any space but allocate on a “first come” basis or on a random method of selection for selling space. Some restrict access (e.g. no producer may sell more than twice a week).
In the case of wholesale spaces the issue of space allocation mainly occurs when a new market is established. If an existing market is transferred to a new site, then first preference is usually given to existing traders. Space is usually allotted by a tender system or through a ballot or lottery. Such an arrangement can include a segmented tender or ballot system: one for existing traders and one for new tenants. Sometimes, seniority of licensees in terms of time or volume traded in the existing market is used to allocate space. To ensure order it is often desirable to specify the range of commodities to be traded in a particular section or part of a market. The number of sections available for each product group is then determined and allocated block by block.
In Johannesburg and some other wholesale markets in South Africa, space for wholesalers is allocated monthly on the basis of the previous month’s sales, thus avoiding any problem of vacant or underutilized lots. This is made possible by a centralized system of payment transactions, all of which are recorded by the market.
Tenders can be based on either an agreed upon “entry-fee” to the market or for the rent the bidder is prepared to pay. Both of these approaches can lead to problems. The entry-fee approach can result in returns less than the total investment. The rental system can lead to a wide range of rents applying and apparent inequities. Often the drawing of lots is used to determine both eligibility for a space and for the actual section or stall allotted. In some markets, once a section has been allocated, the wholesaler must either purchase the property for a sum equivalent to the recently established privately owned investment (payable in cash or in installments at determined interest rates) or pay a lease fee which is calculated by the managing authority by amortizing the investment over the expected economic life of the investment property.
In the case of the new privately operated Talad market in Bangkok, Thailand, no charges were made at the commencement of trading operations in order to encourage entry into the market. However, charges are made for use of services such as cold stores, ripening rooms, or the use of forklifts. Fees, after the initial period, are set at a level necessary to recover investment over a predetermined number of years.
The current practice in Spain, France and other European countries is for the payment of lease fees, by which the managing authority is able to recover the construction costs. In addition, wholesalers pay a monthly rent to cover their share of the operational expenses of the market. Some markets operate a licensing system for use of trading space. In other markets there are also license fees payable by wholesalers for the right to operate as wholesalers. In Australia these are paid to provincial governments which are responsible for establishing regulations for the conduct of wholesale operations, whether by merchants, commission agents, brokers or participants in auctions.
In most markets, leases (or licenses in some markets) for rental of wholesaler trading space are incorporated in a lease or tenancy agreement. This stipulates the period of the agreement, lease or license to occupy space. At New Covent Garden (Nine Elms) in London it is for seven years. In Barcelona the term is 49.5 years (6 months before the end of the administrative concession granted by the Municipality of Barcelona to the company Mercabarna S.A.). The issue of lease length can be a major problem if over-long leases prevent new wholesalers entering the system (e.g. the old Amman wholesale market). Leases or licenses to occupy space may or may not be transferable by the lessee/licensee. This usually depends on the approach taken to recover investment costs. Obviously, lease transferability is attractive to traders who can recover the entry fee if the business they have created is put up for sale. Transferability, as provided for in market rules and lease agreements, usually requires the prior approval in writing of the managing authority. Conditions can also apply. In Barcelona, the Mercabarna company reserves the right to evaluate the transfer of licenses as a means of retrieving the initial investment costs, requiring that this be paid by the original license holder. In this case, if the management company establishes that the amount advised for the license transfer does not correspond to the amount actually paid, it has the right to withdraw and cancel the license. Some managing authorities require payment to them of a share of the proceeds of any wholesale lease/license transfer.
Most markets have a rule or regulation, which empowers the managing authority to refuse a transfer in the following circumstances:
Some markets specifically exclude persons engaged in retailing (including supermarkets) from owning or controlling wholesale space in the market.
Where the managing authority seeks to restrict the allocation or transfer of a section or space on the grounds of a person having control of another space, it is important that there be a provision in the market rules clearly limiting the number of sections in which any one person may have an interest.
Provision should exist in the market rules for the transfer or cancellation of leases or licenses in the event of death, bankruptcy or liquidation of a company. Many markets have found it expedient to have a provision for cancellation of leases in these circumstances. Without the possibility of reissuing a lapsed lease, matters can take years to resolve and revenue is not earned for the space.
It is usual to include in the market rules a provision for cancellation of leases/licenses in cases of default on payments, unauthorized subletting or transfer of leases/licenses; and for consistent offences in relation to operational management; or for serious misconduct (such as assaulting an employee of the market).
Once market operations are under way, the assignment of new or vacant market stalls to established or to new external wholesalers requires prior decisions on:
In relation to the allocation of other facilities in the market (e.g. warehouses, cold rooms, ripening rooms and packaging or sorting rooms) separate contracts or lease agreements are usually entered into with persons using these facilities. These arrangements can be for a ground or land lease, with responsibility for construction by the successful tenderer or nominated company of a clearly defined building which may, in time, become the property of the managing authority. Such arrangements allow for management of these facilities independently of the selling floor areas. Also, separate contracts permit necessary additional or special conditions to be applied (e.g. responsibility for maintenance, management, access and security). Allocation of non-trading-floor space should normally be done by tender in order to maximize the market’s revenue.
Sometimes management authorities build these facilities “on demand”, for example, warehouse facilities may be constructed as a result of prior agreement with individual wholesalers to rent a specified area for a rental which would repay the investment over a period of, say, 10 to 15 years.
Ancillary facilities. The rules for ancillary facilities such as cold storage, warehouses and prepackaging areas will depend on the policy adopted in relation to their construction (i.e. who paid for these buildings). Those facilities located within the market complex, but independent of trading areas, should have separate market rules. General rules for cleaning can apply but these facilities should have their own operational rules or regulations, especially as regards opening hours for access to and for the movement of goods. In order to maintain management unity and security in the complex, it is preferable that access to these facilities be through the main entrances of the market, both for people and vehicles. The rules for these facilities should clearly determine whether they may be used by other than the lessee (e.g. for storage of produce owned by other traders). Either the market rules or the contract agreement should establish this right and provide for indemnities to the managing authority in the event of default, theft or loss. Operators of these facilities should be required to supply the same information on volumes handled and other matters as is required from market wholesalers.
Vehicle movement and parking. Markets should have a traffic control plan aimed at ensuring public safety, efficiency of produce handling, and optimal use of pavement and parking areas. This plan can be translated into operational plans for staff. The plan will also require some powers to be established within the market rules to allow staff to implement and enforce it. Issues to be addressed should include:
Produce handling. This includes the unloading, on-section movement, movement between wholesalers, loading, stocking and display, and sorting of produce. Each of these is briefly described below.
Many market authorities have reserved for themselves, or for an organization they appoint, the right for the unloading of produce. The reasons for this are to minimize confusion, to more economically utilize mechanical handling equipment, to reduce theft (for night arrivals), and to keep wholesaler presence in the market during night hours to a minimum. Market rules therefore can stipulate that unloading of vehicles should be done by the managing authority or by companies appointed or authorized by the authority. In some markets (e.g. Brisbane, Australia) a wholesalers’ cooperative association was authorized to do the unloading on behalf of all wholesalers. Other markets have labour cooperatives or contracted companies.
“On-section” movement of produce within a rented space is the responsibility of the lessee/licensee. Market rules usually specify that a wholesaler must not stand produce outside the leased area.
In a busy market it is possible for many vehicles and forklifts to be used for produce movement between wholesalers and to and from warehouses and other facilities. Some markets, in their market rules, apply restrictions and conditions on the use of forklifts and vehicles operating in the market, requiring licensing or registration of such vehicles with the authority, licensing of drivers with the appropriate authorities, and training within the context of the market’s traffic control plan.
Loading is usually done by retail buyers using their own vehicles with assistance from wholesaler’s staff or the available loading service staff. Market rules often specify that larger vehicles (specified by size) must be loaded by the authorized service provider. This is to minimize loading time and optimize use of the loading ramps/docks.
Market rules regarding produce stocking and display usually specify that between certain hours (usually the formal trading hours) no wholesaler may stack or store produce outside his allocated selling floor space or warehouse space. A common provision is that produce which has been sold and is being delivered to trucks or other vehicles must be moved directly from the allocated space or warehouse to the vehicle and must not be stored or left outside the section, in passageways, on loading ramps or on the market pavement area.
As mentioned, penalties can include on-the-spot fines or seizure of the produce and its movement to a secure lock-up holding area with required payment of charges for its release. Market rules can provide that offenders who persistently interfere with the rights of other market users may be asked to show cause why their lease or license should not be cancelled. Market rules also usually require that a wholesaler should not store or display produce loosely in contact with the pavement or the ground for reasons of hygiene.
In nearly all markets some produce arrives which requires sorting or “picking-over”. Because of the garbage problems this can create, many markets now require that this be done in a designated area. A fee for use of tables and equipment is charged. In some markets there is a service provider who will undertake the task of sorting produce and rebagging or placing it in new cartons or boxes.
Quality and packaging. Central wholesale markets play an essential role in developing and maintaining quality standards for an industry. Often national quality standards and required packaging can be incorporated in national or provincial legislation and regulations. If so, then the responsibility for enforcement may rest with inspectors appointed under these regulations. In these circumstances the market authority’s responsibility is to require that all produce supplied, sold and delivered in the market complies with legal standards. As well, access to wholesalers’ premises must be ensured for authorized inspectors, by specifying this in market rules or in tenancy agreements.
If a central market is used to assemble produce for supply to export markets then high-grade standards and strict quality control will be required. Government inspection and phytosanitary certification will be necessary and provision will need to be made for such certification procedures.
Wholesaler activities. The regulatory control of wholesaler activity usually rests with national, provincial or municipal governments. This is usually done through legislation or regulation which sets out the responsibilities of wholesalers, whether acting as merchants, brokers or commission agents. Often this is within the context of general commercial law.
A usual minimum requirement of wholesalers acting as merchants (i.e. buying fruit from a grower and selling it at a profit to a retailer) is as follows:
Commission agents act as agents for the grower/supplier and physically handle the produce. Unlike merchants, the agents never legally own the produce. A fee or commission, usually a percentage of the sale price, is charged. Documentation usually required is a statement to the grower showing the date, produce supplied (including grade standard), the quantity, the price the goods were sold for, the commission and any other agreed charges deducted. A document is usually required to be supplied to the buyer as for a merchant transaction, but it should also record the supplier (this is often coded).
Brokers act as commission agents but do not usually physically handle the goods, arranging supply, sale and delivery by telephone, fax or e-mail. The fees charged are of the order of 2 or 3 percent compared to commission agent’s rates, which range from 5 to 10 percent.
Market authorities usually require, through market rules, that licensed wholesalers supply daily information to them or some authorized agency on quantities traded and highest, lowest and most frequent prices for various commodities.
Some markets also include a system where produce is offered for sale at auction. Those markets, which receive large quantities of perfectly graded produce and whose function is to redistribute goods to other sales outlets, carry out transactions by means of auction bidding using an electronic notice board. This is the case in the flower markets in Seoul, Hamburg and Aalsmeer, and many fish markets (e.g. Rabat in Morocco).
Some markets (e.g. the fruit and vegetable market in New Delhi) license wholesalers to act as auctioneers with set fees for produce supplied by farmers. A difficulty with this approach is that an artificiality can be introduced if there are many auctions with relatively little produce and few bidders. The alternative approach, which is more widely used, is for the managing authority or its appointed agent to conduct auctions in central locations or for product groups. In New Zealand privately-run markets function almost entirely by auction with, in effect, the auction company functioning as a commission agent Where auctions exist or are contemplated, then care is required to incorporate within market rules the following:
Many markets, especially those with auction systems require some form of buyer registration in their market rules. This applies particularly where payments to the auction agent are to be on credit. Credit-guarantee schemes, which may be incorporated in market rules, can require registration of buyers, lodging of a fidelity bond, or bank or other financial-institution guarantee, and a follow-up system of suspension in the event of default on payments.
Market rules can provide for dispute resolution procedures on quantities, grades, and prices. Disputes can arise between a supplier and a wholesaler, between one wholesaler and another, between a retailer and a wholesaler, or with service providers such as transport operators. Market inspectors appointed by government may be used to resolve these disputes. In a few cases market staff may be used. However, increasingly these disputes are resolved either by independent arbitrators or by industry associations (e.g. a traders’ or farmers’ association). Often the traders’ association has developed a code of practice with which all members must comply. This code will include dispute-resolution arrangements. In these circumstances, market rules (and tenancy agreements) may state that all traders must be members of the traders’ association and comply with its code of practice.
Cleaning and garbage disposal. Market rules require that tenants in the market are responsible for hygiene and cleaning of the spaces they occupy, and that they deposit refuse in places or containers specified. Some markets require tenants to be responsible for cleaning of a specified area outside the rented space. Sweeping or cleaning of most common areas, collecting garbage from containers or collection points and garbage disposal are responsibilities of the managing authority.
A common problem with use of a central waste collection point (e.g. ramp, dump area, or compactor) is that outside persons bring waste products and empty containers into the market. Market rules can stipulate that only wholesalers or registered tenants or their employees may place refuse or garbage in the central collection point.
Licensing. Apart from licences which some markets issue in relation to rented or leased trading areas, wholesalers may also be required to hold other licences or permits. These could include any licence required for a wholesaler to operate as a merchant, commission agent, broker, or auctioneer, or to own or use specific equipment (ripening rooms, forklift). Market rules and tenancy agreements should specify that all traders should obtain and hold the necessary licences. Failure to do so would result in suspension or cancellation of the tenancy or right to trade.
Fees and charges. Market rules and regulations usually set out in detail the following:
Penalties. Market rules and regulations should set out clearly the penalties and sanctions which apply in the event of failure to comply with a particular requirement. These can include financial penalties, “on-the-spot” fines, authority to cancel or suspend leases or licenses or, in the event of specific or consistent offences, to reduce the area to be leased.
Other matters. There are a number of other matters which may be included in market rules, such as:
Use of allocated space
Regular checks need to be made by managing authority staff of products being traded in the areas allocated to ensure that only authorized produce is sold, that changes have not been made to premises and that produce is not placed outside agreed boundaries. Many markets also strictly control the signs that may be painted or placed over allocated areas.
Market entry
To avoid delays at market gates most markets do not undertake other than quick inspections of incoming produce. A cargo manifest is generally obtained from the driver. Market staff generally oversee all unloading and anything not in accordance with submitted manifests is noted and reported. However, in many markets in developing countries produce enters in small vans or even on hand carts and such manifests are not available. Care must be taken in these circumstances to balance the need to obtain reliable information about quantities entering the market with the need to minimize congestion at the entrance.
Many markets now supply wholesalers, their staff, registered buyers, market staff, and loading and unloading staff with ID cards. Sometimes these can operate electronic entry gates and register entry into the market. The guiding principle for many markets in relation to vehicle entry and access is to separate vehicles delivering produce from buyers’ vehicles and from vehicles taking full loads from the market.
Use of farmers’ markets
As mentioned, markets established to allow farmers to bring and sell their produce can, over time, become wholesale markets where traders predominate in daily trading. Stalls, while allocated daily, tend to become permanently taken by one trader. Farmers initially selling their own produce, begin to buy and sell the produce of others. Some markets seek to avoid this situation by requiring any person wishing to trade in a farmers’ market to be registered and to establish proof that they are primary producers. Some stipulate that no person may occupy a stall more than once a week with allocation on a pre-booked or a random basis.
Accommodation for large buyers
In order to maintain the viability of a central market some managing authorities have gone to considerable trouble to meet the requirements of major buyers such as supermarkets. Often this has necessitated provision of warehouse and office space within the market for individual buyers, or a shared facility.
Exclusivity for a market
In the legislation establishing many markets earlier this century governments included an exclusivity clause. These made it illegal for anyone to either operate as a wholesaler outside the market or to establish a further market without approval. This was done to safeguard the investment in the central market. In today’s legal, economic and social environment of free competition, such a provision would be now difficult for governments to introduce. However, most governments have considered it necessary to have legislation or regulations concerning the establishment of wholesale markets and how wholesalers may operate. These regulations may require that no one can establish a wholesale market without prior approval and the submission of various feasibility and impact studies (e.g. regarding traffic implications).
Quality, packaging and presentation
In many more developed countries, recent decades have seen the emergence of large chain stores and supermarkets with enormous buying power. To meet their needs for large quantities and uniform qualities of a particular commodity, some farmers have become specialists at supplying supermarkets. The existence of clearly defined grade standards has enabled these farmers, cooperatives or their marketing agents to enter into contracts to supply large quantities, even prior to planting. Savings can be made by having appropriate selected commodities grown under controlled irrigation conditions and delivered in bulk containers directly to prepackaging plants operated by or for supermarkets.
These changes in technology and marketing practices have led to the development of larger wholesalers, larger or more integrated farm operations and bulk handling, with reduced handling and marketing costs per unit. Often wholesalers, who may be located in a central market, act as brokers in arranging sales of produce, but not physically handling it through the markets. Wholesale markets still have a role in helping to establish the market price, although this may become less and less relevant as long-term supply contracts are negotiated.
Under the circumstances, smaller suppliers who, in aggregate, supply a significant proportion of some commodities to a market can be disadvantaged unless care is taken to allow for their requirements in terms of unloading arrangements and other operational procedures.
All these factors can have a bearing over time on the policy adopted by the managing authority, or even government, regarding how many sections or basic trading floor units any one person or company may control. As markets change in reaction to the increasing influence of supermarkets, a policy to allow some amalgamation of trading floor units will probably be required.
Market communications
Problems arise in all central markets where changes are introduced and the various user groups do not accept or understand them. Market authorities need to devote considerable time and effort to the processes of communication and consultation with individuals and groups. Effective markets usually have the following in place:
Penalties
The ultimate sanction to ensure compliance is withdrawal of the right of a wholesaler to trade in the market. This is always a serious step to take and is never easy to achieve. While withdrawal may be relatively easier when a market is new and when contracts, leases or licenses are for short periods, there can be difficulties where businesses have been established for a long period or long leases exist. Withdrawal of the right of a wholesaler to operate will not only affect the firm’s business but also the many farmers or suppliers who have developed a business relationship with the firm. The issue of compensation for loss of trading rights for the business can also arise.
If a managing authority believes it wishes to use this sanction (i.e. withdrawal of rights), it is preferable to have relatively short lease periods, for example, no more than five years with the option of review on the part of the authority before renewal. For public and quasi-public bodies it will be important to obtain from government the right to impose on-the-spot fines or to be able to proceed to court to establish conviction with an effective level of penalties (i.e. a penalty must be at a level where it deters persons from offending consistently).
Closure of an old market
The closure of an old market and the opening of a replacement market is a complex process. The closure first has to be accepted as necessary by existing wholesalers and requires careful planning and design of the new market and the allocation of space in it. The actual shift of the location requires a concentrated and coordinated effort to minimize any loss in time for trading, to avoid traffic and other logistic problems, and to ensure that all parties are fully involved with and aware of the change. This will require detailed consultation with farmers, suppliers, transport operators, traders, business companies, market workers and local authorities. The operation must be preceded by awareness campaigns in the existing and new market areas and in the production areas that supply the market.
The removal of the fruit and vegetable market of Les Halles, from central Paris to Rungis near Orly Airport in 1969, was efficiently planned by a General of the French Army who was a logistics expert. In Barcelona, over one weekend in August 1971, all the supplies and stores of the old Borne Market, located in the heart of the city, were moved to the new food supply centre in the “free zone” located on the outskirts near both the city airport and sea port. The operation was a success. Many similar operations can be cited: London’s Covent Garden was moved from the city centre to Nine Elms and Madrid’s market was moved to its new site on the outskirts of the Spanish capital.
Once an old market has been evacuated, it seems obvious that it should no longer function again. However, this is not necessarily as obvious as it seems. All too often, due to negligence on the part of local authorities, the old premises reopen for one reason or another. This creates difficulties for the new wholesale market as well as introducing a major distortion into the marketing process. In this respect, Barranquillita in the city of Barranquilla and Santa Helena in Cali, both in Colombia, have already been mentioned.
Business principles and planning
Markets do have public-service obligations. However, there are no valid reasons why a market should be required to operate at a loss for the benefit of farmers, traders or consumers. For markets established and run by private enterprise there is no doubt that the objective is to make a profit. For public sector or quasi-public sector management the objectives, as a minimum, should be to ensure that all operational income and expenses are met from current income and that revenue is also sufficient to make adequate provision for long-term needs, including reserves for:
In some economies in transition it is argued that markets should operate on the basis of balancing operational income and expenses. This always leads to losses and problems, especially where government or municipality approval is required for fees and charges.
Administrative delays or failure to act can lead to a major discrepancy between the real cost of operation and income levels. In the United Kingdom and the United States, among others, it is the market authority that sets and approves the fee scales so these problems do not arise.
Critical staff benefits and maintenance may not be provided if income is too small. To rely on the governments or municipalities of the future to meet future capital investment costs or even to guarantee loans may not be realistic. Where governments or municipalities dictate to a managing authority that less than full cost recovery, including long-term costs, will be permitted in fee approval, then the national or local government must be prepared to subsidize the market budget.
The temptation to operate new markets on the basis of recovering only operational costs should also be avoided. From the opening day the office and computer equipment starts to depreciate, staff benefits accrue, and the buildings and pavements begin to deteriorate. Increasingly, market-managing authorities have adopted a “user-pay” principle requiring tenants, buyers, and suppliers to meet all operational and specified overhead and long-term costs.
A business approach
A sound business approach will include the following:
Markets should have a business plan which clearly identifies the role the market is to play and how it will do this for the benefit of the community and the market users. Long-term objectives should be included and capital replacement and new capital investment methods specified.
From this should flow an annual budget and an annual work plan on which the budget is based. There should be a commercially oriented accounting system with regular financial reports to the board of directors (at least monthly). There should also be monitoring of physical performance and ongoing monitoring and evaluation against determined performance indicators. Regular market performance and financial reports should be given to the board of directors. An annual report, with audited financial statements, should be made to government, shareholders and the public.
The accounting system
Within the overall financial structure the managing authority should ensure that it is able to identify costs and returns from the various activities in the market. As a general principle, all activities not directly related to market trading (e.g. cold stores and restaurants) should operate as separate cost centres and have separate budgets and accounts.
The accounting system, as a minimum, should enable all income and expenditure to be brought to account quickly and regularly, so as to allow regular performance reports to be prepared against budget projections. It should also:
The budget - Income and expenditure
The annual budget, approved by the board of directors prior to the commencement of the new financial year, should balance operating income and expenditure. It should also provide for long-term reserves for staff benefits, major maintenance, capital replacement and loan repayments. The budget should be based on realistic estimates of cash flow and expenditure. Most income will come from rentals or leases of market trading space and from ancillary facilities. Funds will also come from entrance and parking fees, fines and penalties, and interest earned on invested funds.
Fees can be set or based on area occupied, or on the basis of value or volumes transacted, or a combination of the two. In Spain, during the early years of food-centre operations, markets were charging fees based on the size of sections (Barcelona, Bilbao, Zaragoza, Valencia, Salamanca) while others were charging ad-valorem fees (Badajoz and Murcia) and yet others were using a combination of the two (Seville, Granada, Santander). Now, twenty years after the first food centres were started, the vast majority of markets tend to charge fees based on the size or area occupied.
Fees based on volumes and values are difficult to enforce and tend to encourage movement and sales of produce outside the market. Ad-valorem fees and tonnage-based fees do help to foster the presence of small wholesalers in the market. Such variable fees also are adjusted automatically when changes in revenue are required.
The issue of fee adjustment is usually controversial and difficult, often strongly opposed by wholesaler groups. In some markets wholesalers have threatened to withhold, or have actually withheld, payment of fees to prevent fee increases. It is important that wholesalers be consulted about fee changes and the reasons for them. Many markets have included in legislation or regulations (as against market rules prepared by the authority) a provision which puts in place automatic penalties for non-payment of fees and charges.
Many markets have, by agreement with traders’ or tenants’ associations, a maximum annual adjustment in fees, which is based on an independent official indicator, such as the consumer price index or cost of living index. In Spain nearly all markets apply these criteria, by agreement with market operators’ organizations. Some markets have fixed rentals for a specified period of years (e.g. Nine Elms in London has a nine-year term with stipulated rentals).
Expenditure controls need rigorous application to all expenditure areas, especially high-cost areas such as staff, cleaning, maintenance, electricity, water and telephones. Staff policy and numbers must be approved by the board of directors within the annual budget. Any increases in staff numbers must be fully justified and non-performing staff should not be retained. Any increase in expenditure, or major expenditure areas above expected budget levels, must be queried by the board and investigated by management staff.
Provision in the budget must be made for a surplus above operating costs to enable transfer of funds to necessary strategic reserves. These must be carefully invested and not utilized for any purpose other than those specified.
Work plans
The annual budget as approved by the board of directors or management should be based on, and accompanied by, an annual work plan. This should clearly set out what is proposed in key areas, for example:
The annual work plan should be time-based with programs planned for various times of the year. It should be translated into staff-job descriptions or duty statements as necessary.
Reporting, monitoring and evaluation
The chief executive officer or manager should give the board a concise report on market operations and authority operations (at least monthly). This should be based on “exception reporting”, that is, indicating unusual occurrences and trends contrary to the expected. Good reports usually employ a standardized format giving information the board has indicated that it requires, such as volume received, thefts, accidents in the markets, late deliveries, consistent offenders against market rules, income and expenditure compared to budget, a list of all major payments made and last, but not least, staff matters.
The chief executive officer has a responsibility for staff performance and staff monitoring and evaluation. The managing authority may also establish (or be asked by the government to establish) some physical, economic or financial performance indicators. Physical indicators can include truck arrivals, tonnages of specific commodities, prices paid, number of buyers, traffic accidents, late deliveries to selling floors, thefts and other criminal activities, water and electricity usage. Economic indicators can include sales of businesses in the market, such as numbers of bankruptcy/insolvency cases involving traders and others occupying space in the market, and total sales values. Financial indicators should include all those normally applicable to companies:
Managing authorities should be required to prepare an annual report covering market operations and financial performance. This should include audited financial accounts, as required of companies and statutory bodies.
Staff and staff development
Staff structure. Staff costs are a significant part of operational costs. It is therefore important that the board give ongoing attention, as part of budget preparation and monitoring, to staff structure including staff numbers, salary levels and training.
Staff numbers should be maintained at a level essential to fulfil the various functions of:
Staff duties and responsibilities. It is important that all staff know what their duties are, to whom they report, and what to do in the event of unusual circumstances. Every staff member should be issued with a “statement-of- duties” or “job description” which should be reviewed at least once a year by senior management.
Staff training and development. There should be an ongoing staff-development programme funded by the annual budget. This should provide both on-the-job training and professional development, including participation by selected staff members in specific outside training. Where applicable and practicable, consideration should be given by management to provide training programs for wholesalers, producers and buyers.
Compliance with national and other legislation
The managing authority has to comply with government legislation relating to accounting, auditing, reporting, staff employment conditions, public health and safety, environmental laws, and all provisions of general common law.
Consultative processes
The effectiveness of a market will depend upon the cooperation of market users with the managing authority in seeking to achieve its multiple objectives of efficient operations, reasonable costs to users, a good trading environment with honest and fair trading and with appropriate facilities and sanitation, and an appropriate profit on investment. The extent to which this is achieved will depend on the relationships developed by the managing authority with wholesalers who are the principal tenants, and with other market users including farmers, retailers and other buyers, and service providers.
The use of consultative or advisory committees with user group area and/or commodity representation can help to facilitate change. However, should the managing authority decide not to accept a recommendation from an advisory committee then it should give a detailed account of its reasons to the advisory committee.
