A. The Main Focus of the Guide
B. Marketing Intermediaries
C. Marketing Channels
D. Objectives of Market Infrastructure Improvements
E. Overview of Marketing Problems to be Addressed
To facilitate marketing development it is essential to understand how the system presently operates and what changes are occurring. This chapter covers the following subjects:
The guide has two main areas of concern, which are:
An efficient and adequate marketing system is a precondition for agricultural diversification, providing better prices to producers and the availability of competitively priced produce to consumers. Physical improvement is usually addressed in two ways: by providing improved market infrastructure (both urban and rural) and by improving rural access roads. In the case of markets, it is usual to place the main emphasis on the improvement
of fresh produce marketing (fruit, vegetables, meat and fish), focusing primarily on rural assembly markets and urban wholesale or semi-wholesale markets. The relationship between these facilities is discussed below. Many of the principles involved with market developments and discussed in this guide are common to all types of market. However, where there are specific issues relating to particular types of market these are considered separately.
In order to make any effective interventions in a marketing system it is necessary to define the types of marketing channels, their linkages and functions. The linkage between rural and urban areas is normally provided by a network of market intermediaries, including:
Agricultural produce is normally channelled through the following types of market:
a) Rural Primary Markets: In rural markets, trade is characterised by direct sales of small quantities of produce by producers to village traders and by sales by retailers to rural consumers. Rural markets form part of a trade network and are normally arranged on a periodic basis on specific weekdays, and are commonly organised at a central place in a village or district centre or beside the villages access road. In some instances, provincial and district-level markets also serve this function, as well as providing an assembly function (i.e. assembling produce in larger quantities for onward sale to outside buyers).
b) Assembly Markets: Larger rural markets are found where greater quantities of produce are traded, either by the producers themselves or by traders. These assembly markets (often combined with local rural markets), are normally situated on main highways, or near to ferries and other local transport nodes. Produce is predominantly bought by traders or collection agents on their own behalf or on behalf of urban wholesalers.
c) Wholesale Markets: Terminal wholesale and semi-wholesale markets are located within or near major cities (usually with populations exceeding 0.5 million). These markets may be supplied by purchasing or assembly centres in the rural areas or directly from farms, either by traders or by large farmers. Transactions are predominantly handled by traders although many wholesale markets incorporate farmers markets where farmers can sell directly to retailers. Some markets also allow traders to sell to retailers off the back of the truck.
d) Retail Markets: These are markets directly serving consumers and are found in main urban areas, such as provincial, town and city centres. Although primarily retail, they may have some semi-wholesale functions, particularly if they allow farmers to trade. In that case, they are often called farmers markets. This form is very typical in developing countries, but there has also been a strong trend in the USA, the UK and other parts of Europe to create farmers markets for the sale of specialised produce, such as organically-grown fruits and vegetables.
e) Other Marketing Channels: Channels other than markets often exist, particularly in the case of horticultural produce. These include on-farm sales, where collectors purchase the produce (usually under contracts between the producers and distributors) and arrange transport to wholesale outlets, packing houses or supermarkets. The extent to which this is done depends primarily on the general state of development of the economy and the demands of consumers.
Why go ahead with market infrastructure investments? The reasons could include:
Pressures for change in marketing systems
The pressures for change derive from two sources: internal factors from within the food marketing system and external factors.
a) Internal factors: Changes occur due to the changing organizational structure of commerce:
There may also be changing operational practices within markets, including:
b) External factors: The main external causes for change are demographic factors, including:
Changing transportation patterns will have a significant impact through:
Changes can also be precipitated by new legislation and greater public awareness:
Impact of Changes
These factors all need to be taken into account in identifying the best approach to market development. The formulation of detailed proposals is likely to be done by either in-house technical advisors or outside consultants. However, as discussed in Chapter 1, it will be necessary for involvement of the decision-makers in order that the project can start on the right track. The decision-maker will need to be involved with reviewing all the main factors which will influence the development. Only when this exercise has been completed will it be possible to prepare a basic accommodation brief to be used for the detailed design of the project.
The three areas which will need to be reviewed in planning a market investment are:
In addition to overall sub-sector reforms in terms of deregulation and trade liberalization, radical improvements may need to be made to the management, physical arrangement and layout of a market if there is to be a significant improvement in throughput and operational efficiency. These steps are elaborated in Chapters 3 - 5. This is followed, in Chapter 6, with an outline of appropriate approaches that can be adopted in evaluating the various development options.
Before initiating the process it will be necessary to review what information is presently available. In order to resolve many of these issues some basic surveys may need to be undertaken (see Chapter 7). In that case, it will be necessary to determine how to collect the information, who will be responsible, what should be the timetable for collection and whether additional financial resources will be needed to do it. The Appendices summarise the types of information that will be needed.
Assembly and Wholesale Markets
The primary function of all markets is to facilitate the movement of produce between producers and consumers. The assembly and wholesaling of produce often occurs most efficiently within the framework of a developed wholesale market system. This system will also assist in price formation for domestic produce. However, when economies are developing or being liberalised it may take some time for wholesalers to emerge.
Where the marketing system is not organised, with a formal wholesale market, wholesaling premises tend to be scattered throughout cities. This is neither convenient for producers delivering produce, nor for retailers, although such wholesalers (or semi-wholesalers) do provide a helpful service for small retailers, when they deliver produce directly to them. However, the existence of such a dispersed pattern tends to lead to imperfect market price formation. A similar situation may also emerge when an already established assembly or wholesale market has outgrown its site and additional markets are established or where the urban areas have expanded so rapidly that the central market facilities cannot effectively function. Although the development of integrated marketing of produce through supermarket chains is emerging in many countries, in the medium-term it is likely that wholesaling will continue to be important. Wholesale markets still account for 50-80 per cent of the overall trade in fresh produce in most developing countries.
Land-ownership constraints often hamper municipal authorities in making long-term strategic development decisions. Difficulties of land acquisition and coordination of the different parties involved tends to lead, particularly at the early planning stages, to the intervention of government institutions and other organizations which have interests in produce marketing. Such organizations often play a decisive role in initiating and planning market projects, as well as financing their site development and infrastructure. They generally have the legal power to establish, operate and regulate markets, to lease space, charge fees and to clean the market area. In the long term, institutional arrangements for the ownership and management of markets may need to be based on a form which balances the possible role of government with that of traders and other entrepreneurs whose support will be necessary for a markets success. For commercial viability and administrative flexibility, markets should ideally be run as self-accounting and autonomous management organizations. How this can be achieved will depend on the mix between government and private sector participation and ownership. *
* See the forthcoming FAO Agricultural Services Bulletin Wholesale Market Management Manual.Ultimately, private markets run by individual traders or market management companies may emerge. However, initially the evolution of the management system may involve developing a system for joint public and private financing, with short-term government majority ownership of shares which can be transferred as private investment interest increases.
Municipal authorities are also involved with the provision of low-cost retail facilities such as covered markets and street markets. Appropriate organizational structures for managing these are often not very satisfactory, resulting in the markets being poorly maintained. A frequent complaint concerns high rental values for stalls, which may drive the traders out of the market onto the street. Some markets are leased to single entities or franchises, which might lead to a distorted rental structure and may be counter-productive to the long-term development of retail markets.
Establishment of new retail markets and upgrading of existing market areas requires that a positive programme is adopted so that they can be properly integrated with development proposals for cities and towns, including any new wholesale markets. Guidance from municipal authorities is often needed for the planning of such an environmental upgrading programme. Improvements might include the provision of redesigned stalls for vendors, improved water supplies, better street surfacing and drainage, and the provision of facilities for the daily collection of solid waste.
Similar conditions to those which occur with retail markets apply to rural primary markets, but usually with a lower value and volume of produce and, therefore, with less potential for generating revenues for improving services and infrastructure. The improvement of rural markets is often combined with programmes for general upgrading of post-harvest handling facilities or for access road improvements.
Markets as Taxation Instruments
A common situation at both wholesale and retail levels is that the markets are viewed as tax instruments rather than as means of facilitating the marketing of local produce. This means that the marketing system is kidnapped by municipalities, with the sole purpose of collecting taxes.
By imposing a tax which tries to catch everything that goes through the system (in a very rigorous and labour-intensive manner), the market authorities may inflict greater economic losses than the actual revenues collected. The losers are the overall national economy, the rural producers and the urban consumers. There are, ultimately, no real winners.
SUMMARY OF TYPICAL MARKETING PROBLEMS
In summary, the typical problems that affect planning of interventions in the marketing system include: