Non-wood forest products for rural income and sustainable forestry
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Appendix 4.2.4

SOME MARKETING PROBLEMS FACED BYAGROFORESTRY FARMERS IN ASIA


I. Pswarayi-Riddihough and N. Jones
World Bank, Washington D.C., USA



INTRODUCTION

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.

IMPORTANT COMMODITIES PRODUCED IN ASIA

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.

MARKETING STRUCTURES AND THEIR LIMITATIONS

There are three main types of marketing channels in Asia. Farmers market individually, with the assistance of middlemen or through cooperatives.

Marketing Individually

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.

Marketing through a Middleman

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).

Marketing through a Cooperative

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):

In Taiwan, Hsu (1983) found that some farmers were not loyal to their cooperatives and sold high-quality goods to other buyers when prices were better, and poor-quality goods to the cooperative, often demanding the same prices, rendering the cooperative poor competitors.

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.

COMMON FARMER PROBLEMS

Some of the problems encountered by farmers, between production and marketing of products, are discussed briefly below.

Production

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

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.

Processing

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.

Transportation and Infrastructure

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.

Credit Facilities

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.

Policy

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.

Marketing Information

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.

CONCLUDING REMARKS

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.

REFERENCES

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.

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