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7. Markets, marketing and trade

Markets
Key factors in marketing non-wood products
Market information systems
The trade environment
Summary
References
For further reading

This chapter takes a closer look at two major forces playing in any effort to link rural economic development to non-wood forest resources: markets and the means to reach them. For this chapter, marketing is defined as an information-based technology that producers can use to (Lintu, 1995):

• identify market opportunities in the form of market needs and wants;
• analyze competition;
• develop appropriate approaches to reach identified markets;
• make a profitable income.

Proper marketing starts with linking the resource and product development to market preferences. In sustainable forestry, the role of marketing is to create effective linkages between resource managers, processors, and end users.

This chapter will discuss the basic aspects of marketing to meet customer preferences: product, place (channels of distribution), promotion and price. It will look at the role of intermediaries in distribution channels, and the trade environment formed by social and economic, technological, political, regulatory, legal, and institutional factors, particularly for national and international markets.

Markets

NWFPs are sold in various markets: local, urban, national, regional and international. In Costa Rica, products from the bitterwood tree (Quassia amara) are marketed in local markets (as a medicinal substance), national markets (processed as herbal teas or medicinal drops), and on a pilot scale in international markets (as a pesticide). In many places, daily markets focus on local demand, while weekly markets can address both rural retail and wholesale demands (Falconer, 1992).

Each market holds a different set of values, even for the same product. Consumers in an industrialized country may purchase cane baskets from West Africa for their environmental value if they know that the cane harvest did not destroy the forest, or for their aesthetic value as "exotic objects". An urban consumer in West Africa may purchase the basket for its functional value, or if cheaper than plastic baskets, for its economic value. Good marketing involves knowing which values a particular market seeks, and making one's product more desirable than competing products based on that information.

Each market place also involves different influencing factors relating to the product, promotion, and price. (See Chapter 5 on the relative risks associated with each type of market.) For example, selling herbal medicine in a local market may involve no packaging, broad quality categories, and few transport costs. However, marketing the same product in a city can require precise identification of quality standards, more sophisticated packaging and advertising, and incorporating transport costs into the product's price.

In many countries, urban markets for traditional rural products are growing as people move to the city, but retain rural customs. Markets for traditional forest-based medicines in Indonesia, for example, have grown; the number of companies producing these items has doubled in twenty years. To exploit this trend of nostalgia markets, producers must identify which customary products are in demand and in what form (package size, packaging, etc.) they are desired.

Each market also entails different levels of ecological constraints. For example, plant species in tropical forests that occur at very low densities may yield enough material to support local demand for a product, but not the volume needed to cover costs of processing for national marketing. In this case, producers should recognize at the start that it is not financially or ecologically feasible for them to expand their market.

Downstream processing can serve as markets for primary products. The same principle of learning conditions and demands applies to them. If a soap manufacturing firm is the market for coconut, coconut producers must know what quantities the soap factory requires, its production schedule and what criteria the manager uses to buy coconuts for soap-making.

Neighbouring countries may share cultural or ecological features that make regional markets worth exploring. In Asia, for example, the rattan furniture manufacturing industry in the Philippines and India's essential oils industry benefit from the existence of a regional market (Cubberly, 1995). The Costa Rican tea industry has begun small-volume exportation of a packaged tea to other Central American countries using plants valued throughout the region (Ocampo, 1994). In West Africa, regional markets are important in the trade of cane baskets (see text box 6.2).

International markets require more complex research on preferences, prices and trends. They also typically have more exacting standards and require stable supply of at least a specified minimum volume.

Table 7.1 presents several methods for evaluating markets. Producers should also talk with private firms and NGOs that have experience in marketing related products, development agencies, universities and other information clearinghouses.

Table 7.1: Methods for evaluating markets, by type of product

(Based on ATI, 1995)

Once an enterprise has learned about a prospective market and its requirements, it should further narrow the scope to a target market (ATI, op. cit.). How large is the target market? Who are the competitors for that product? What is their current share of the market and how fast do they plan to expand? Answering these questions may identify ways to raise the product's value. For example, a purchaser may be willing to pay a higher price for a product sorted by grading categories that guarantee consistent quality, and this may require packaging and storage. Purchasers of morel mushrooms, for example, can be willing to pay a higher price for morels that have been cleaned (Iqbal, 1993).

Once an enterprise has identified a target market and the scale of production, it may choose to organize local groups for processing and/or marketing into cooperatives (see Chapter 8). Collective organization can also be effective at the national level, where producer associations can together supply the high volumes needed to enter international markets , organize trade shows and exchange information on international trade.

Key factors in marketing non-wood products

Product
Place and the role of intermediaries
Promotion
Price
Placing a value on sustainable supply

This section provides a quick review of the most essential aspects/factors that producers need to understand in selling their product - the "Four P's" of product, place, promotion and price. Producers should determine these factors at the beginning of an enterprise, and develop a marketing mix that balances the four factors to strengthen their enterprise to be capable of meeting any competition. This evaluation should be repeated regularly once the business is under way, and the marketing mix adjusted in response to changes (ATI, op. cit.).

Product

Selling a product requires the producer to understand the values that a buyer attaches to the product. From the buyer's viewpoint, the product includes not just the physical product but also the economic, moral, aesthetic, and other values associated with it, as mentioned above; these values vary depending on how it is marketed (Lintu, op. cit.).

The first question that a producer should ask is: is the product already established in the market or not? In general, established products involve less risk than new products. Also, more marketing information will exist for established products.

A product that is established in one country or even locality may not be desired or demanded in another place. If several traders already deal in the product, then it is most likely an established product (ATI, 1995).

Other questions about the product, among others, are: is it available throughout the year or only during a certain season? In what quantities is it produced in the area? What are the factors that determine its quality as perceived by customers - are these factors in producer's control, or not?

Place and the role of intermediaries

Place refers to channels of distribution and marketing through which products and information move between producers and consumers (Lintu, 1995). This factor of marketing involves transportation and intermediaries in distribution.

Intermediaries, or middlemen can serve important roles that can either help or hurt small-scale producers of forest products. In many places middlemen keep a strong grip on markets because they provide producers with three essential services: quick credit, quick and non-bureaucratic payment for products and good organization (Pswarayi-Riddihough and Jones, 1995). Middlemen can also be essential for centralizing supply among dispersed producers and helping to absorb risk in markets that require product volumes too large for individual producers to provide (e.g. industries for gums, resins and essential oils).

On the other hand, middlemen can, and often do, unfairly exploit producers' weakness and ignorance of market factors in order to claim a disproportionate share of the product's value for themselves.

An example from Peninsular Malaysia illustrates both situations. In one village, coconut and cocoa producers had difficulty entering the market directly because this involves large initial capital investment (for a van or other form of transport) and heavy competition. This competition kept middlemen's profits relatively low, and producers did not complain of being exploited. On the other hand, in the village of Kampung Bandar Terai, producer-gatherers of durian fruits (Durio zibethinus) and petal (Parkia speciosa) found that entering the market required little investment for them and offered significantly greater returns than dealing through middlemen (Table 7.2).

Producers can avoid unfair exploitation by middlemen by:

• educating themselves about market conditions;
• organizing themselves into groups for greater collective strength; and
• pressing for market channels that are transparent (that is, traceable in terms of transactions and profit margins).

Table 7.2: Farmers' access to markets in two locations of Peninsular Malaysia in 1990

(Adapted from Lim and Woon, 1994)

Promotion

Promotion involves advertising or other ways of raising purchasers' awareness of the product. Key questions in promotion for a target market include:

• Why would consumers buy the enterprise's product instead of a competitor's, or a substitute?

• How will purchasers learn of the product? What are the costs and expected effectiveness of advertising options for reaching the target market?

• Should any labelling or brand name be used to identify the product?

• Do purchasers expect a certain kind of packaging (size, durability, attractiveness) or other characteristics?

In rural markets, word-of-mouth recommendation can be the most effective promotion. Urban and national marketing likely require more formal campaigns. New products, or established products in new niches, require more resources for promotion. For example, an effort in Nepal to create a larger market for Ayurvedic medicine required a great deal of advertising to overcome consumer bias in favour of Western-style medicine (LeCup, 1994). A supplier's reputation for reliability is also a favourable factor for promotion.

Price

To arrive at a competitive price that compensates production effort (including promotion), an enterprise must consider a variety of questions, including (ATI, op. cit.):

• What is the local availability and cost of raw materials, including packaging?

• What is the cost of equipment and operations (including maintenance and repair) needed to produce the item ? What are the labour costs? What are the infrastructural costs of energy, workshops and storage?

• What are the costs associated with maintaining market specifications of quality (for example, inspectors, testing equipment)?

• How much transportation cost is required? How far away are the target markets?

• What costs are involved in product marketing and promotion? Who will bear these costs - the producer or distributor?

• What are the costs and benefits of using intermediaries for marketing?

• What are the financing costs (for example, loan repayment)?

• How many days per year will the enterprise operate with available supplies of labour, raw materials, product demand, energy and water? How much time will equipment repairs and maintenance take?

• In view of the above expected costs and the volume of demand, can the products be sold at a competitive price?

Once the costs are calculated, the enterprise should again compare the benefits of the production effort with alternatives, to make sure that the venture offers the best return to its labour and resources. Producers should regularly calculate the enterprise's profitability compared to other investments. This highlights the need for good record-keeping of costs and transactions.

Placing a value on sustainable supply

Proper valuation of long-term supply poses a problem in sustainable forestry. Producers who employ wise management will often have to compete with others who do not. This can mean that the sustainable enterprise must: (a) distinguish itself from others through promotion and public education efforts on environmental problems, or (b) find other ways to reduce costs so that it can sell the product at the same or lower price as their competitors. The decision depends on consumer attitudes and public awareness of the importance of sustainable forest utilization.

Market information systems

National and regional systems
Local market systems
Information on international markets
Green marketing

Effective marketing depends on reliable, up-to-date marketing information on the Four P's. Once an enterprise is started, how does it update information on market demand, competition and trade factors on a regular basis? Market information systems are the answer.

National and regional systems

Market information systems for agricultural products are better established than those for NWFPs and some efforts to provide NWFP producers with market information have started through the agricultural sector. Examples include (Lintu, op. cit.):

• Tribal Cooperative Marketing Development Federation of India, Ltd. (TRIFED). TRIFED disseminates price information from Indian national and export markets to member cooperatives in a bi-weekly mimeograph. It focuses on agricultural products but also covers some NWFPs;

• Indonesian Agricultural Market Information Service. This service gathers price information at markets throughout Indonesia, enters it into computers and disseminates it by radio and local blackboards;

• Marketing Information System of Ghana. This government-run system provides wholesale and retail prices for 30 agricultural commodities on a bi-weekly basis, mainly for government use.

In India, an ambitious plan by the National Wastelands Development Board uses regional radio and television centres to provide farmers with information on agricultural commodity prices (Issar, 1994). All Indian newspapers now devote one page each week to agricultural commodity prices and articles on trends. States such as Haryana and Punjab have organized state marketing boards that provide intra-state price information.

Government trade offices and universities may possess information on market factors which are less accessible to entrepreneurs. Where market research services exist, producer groups may organize collectively to commission a market study and share the cost.

FAO has published a Compendium of computer-based databases of relevance to forest-products marketing, and is currently testing it with potential users with the aim of revising it for wider distribution (FAO, 1995).

Local market systems

Producers can create information systems for tracking local markets relatively easily with assistance from extension workers. FAO has developed a method for developing such a system in collaboration with the Philippines government for use by local producers, extension workers, and NGOs involved in community forestry. The guidelines were tested in the Philippines, Uganda, Peru and the Solomon Islands, and are now being published by the Community Forestry Unit of FAO. In outline, the process consists of the following steps, to be adapted to each local situation:

• a pre-feasibility study assesses the appropriateness of a market information system based on local perceptions, existing information sources, products and market access;

• a local situation analysis identifies local markets and current sources and uses of market information;

• system establishment determines the system's scope, selects and trains data collectors, prepares guidelines for record-keeping, and selects the most appropriate media (blackboards, newsletters, radio broadcast);

• monitoring and evaluation seeks input from people who use the system and from those who do not use the system, and evaluates the use of the information.

Data gathering for market information systems, like other NWFP research, should account for the effects of non-economic factors, such as cultural preferences, taboos and the existence of ethnic or kinship links in market chains.

Information on international markets

In international markets, accurate information is vital because more variables are beyond producers' control and trade fluctuations for commodities can be more pronounced and faster paced. Information on international markets is more difficult to obtain because sources of consumer preferences, import regulations and policies are more distant and often closely guarded by agents or intermediaries. Some of this information for NWFPs is available from the International Trade Centre, FAO, and others listed in Appendix 1.

Green marketing

Green marketing is an environmental niche in NWFP marketing that has grown in recent years. Green marketing is based on the understanding that a growing number of consumers (particularly in industrialized countries) are more likely to purchase a product if they know that its production is environmentally sustainable (see text box 7.3). Generally, green marketing ventures require rural producers to work through international intermediaries with offices in the destination countries, which can more easily collect market information and promote the product in these markets. Some mail-order catalogues managed by non-profit organizations also link producers in developing countries with overseas consumers of environmentally - safe products with lower transaction costs.

It is too early to know if optimism about green marketing is entirely justified, but public education about the need for sustainable forest management can help improve its prospects.

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