8 Market operations
Contents - Previous - Next
The development of practical policies for the operation of a new market is critical both to the preparation of the physical design proposals discussed in Chapter 4 and as a basis for project formulation and feasibility testing discussed in Chapters 5 and 10. Many people are likely to approach such a problem based on their limited experience of existing markets they may have worked in or seen, bringing with them a variety of prejudices. It is important that such preconceived ideas do not hamper any innovative thinking and this subject is often, therefore, more appropriately considered by outside consultants.
Transaction methods: auctions and sales
A key factor in determining how a market will operate is the sales method it will adopt. The main methods for sales of fresh fruit, vegetables and fish are by private treaty, by commission sales, by auction, by pre-arranged contract, or by a telephone order (common in the USA and Europe).
Private treaty. The most common method of selling perishable produce is by private treaty between a seller and buyer. The main physical difference between this method and auctioning is that there is no auction hall. The farmer/traders with produce for sale rent a market stall from a market authority for the day, week or month dependent on anticipated volume and frequency of visits to the market. Alternatively, they may sell directly from the back of the truck or pick-up in which they brought produce.
They display their produce on the stall or on the tail gate of the truck and await an offer from an interested potential buyer. The bargaining begins and depending on the supply and demand situation, coupled with the quality of the sample, the private bargaining continues until an agreement is made between the two parties. The success of this system from the farmer's or trader's point of view is largely dependent on his knowledge of the current market supply and price situation.
Commission sales The procedure adopted for commission sales is similar to that used in a private treaty agreement, except that the producer is not there in person. The commission agent, who does not have title to the goods, acts on the producers' behalf to try and obtain the best price, for which he earns a percentage commission. For this system to work there must be a high level of trust between the producer and agent. (Often the agent may be a relative of the farmer or be a larger-scale producer from the same village who owns or has access to transport facilities.
Actions A common alternative method for selling produce is by auction. This aims to attract a large number of buyers who wish to purchase goods at a competitive price. The auction method means that the auctioneer starts at a minimum price, usually bearing some relation to the price prevailing at the previous day's auction. If there is no bid, the "lot" is withdrawn from the sale. It may be taken away from the market or be sold by the farmer or trader (or in some cases, the auctioneer) in a farmers' market on a private treaty basis for the best possible price, bearing in mind the supply and current price prevailing at the time.
On the other hand, if the opening price is taken up by a buyer at the auction, followed in turn by other buyers, the bidding proceeds until the rising price for the "lot" eliminates all but the last bidder, who then becomes the owner of the produce concerned. Sophisticated variants of the auction system use a clock to indicate how the prices are changing.
Preferred system Which sales method is adopted will depend on local custom and what type of produce is being sold. It is not uncommon to have a number of methods operating at the same market. Private treaty is the most flexible method, requiring the minimum of management and is typically adopted for the sale of small lots, particularly vegetables. Auctions are almost always used in the sale of livestock and frequently for the sale of fish. Fruit can also be sold at auction, particularly if some form of grading system has been instituted.
The auction system has the advantage that it can avoid the development of wholesalers' rings and, if well organized, can facilitate the sales of a large number of very small scale consignments. However, the problems of introducing an entirely new system of sales should not be minimised and if an auction is introduced the market authority is likely to experience some difficulties with the farmers and traders, as well as the wholesalers, in the months following commencement of trading.
Rentals, fees and charges
It is the responsibility of the GM to recommend to the market board for their approval the following types of charges for the use of the market's facilities:
· rent and service charges to wholesalers for storing produce in the mar ket shed or for renting separate storage premises;
· commission to be charged to wholesalers and others purchasing produce by auction;
· tolls to farmers for using a farmers' market;
· charges for using washing, grading and repacking facilities;
· car parking charges; and
· charges for all vehicles entering the market.
The setting of rental levels and appropriate levels of auction commission is likely be one of the most controversial subjects in which the board is involved. This issue should be investigated at the project's feasibility stage and alternative rental levels and fee structures fully tested during the financial and economic analysis (see chapters 4 and 10). Final resolution of this will be dependent on full consultations with the producers, wholesalers and traders, demonstrating that they will benefit from the market development programme.
As a guideline, commission fees for auctions can be set as low as 0.5 2 percent of the value of sales, and figures as high as 8 - 10 percent are not uncommon. A figure of between 3 - 5 percent is probably reasonable. Other revenues may account for a further 2 - 5 percent of the value of sales, producing an overall revenue of 5 - 1 0 percent. if an auction system is not being used it is likely that entry and parking fees will need to be proportionally higher to cover expenditure.
Produce handling procedures
A critical step in both determining staffing levels and in designing an appropriate physical layout is to understand the functioning of the market as a series of operational steps. Although there are differences in the detail of how produce is handled, the basic steps are the same.
Figure 15 illustrates a sequence of steps, based on the proposed day-to-day operational pattern for a typical wholesale market using the auction system in Nepal. Details of this process are elaborated in Table 8.1.
Table 8.1 The sales process at an auction market
Arrival and display of produce
On arrival the farmer or trader is checked and registered at a gatehouse at the market entrance. If, on checking, the produce is unacceptable (not washed, cleaned and sorted at the farm or collection centre) he is instructed to take it to a washing and repacking shed. Once produce has been brought up to the required standard it goes to an auction hall. The trader with produce of an acceptable standard has it weighed and is issued with a numbered ticket detailing his name, district, type of produce, number of units, their weight and, lastly, an identification number of the section of floor space where he is to take his produce to await the auction. The produce is moved to a designated space on an auction «platform" (segregated into vegetables, fruit and fish) by a porter employed by the market on a casual basis.
The auction then proceeds, supervised by a qualified auctioneer. A typical auction, in most tropical and arid countries, commences at 0500 hours. By 0800 hours it is likely that most of the day's intake would be sold. Where it is normal to serve the main meal of the day in the late evening as in some Mediterranean cultures (such as Malta) the peak auction period may be during the late morning, with sales to the retailer in the afternoon, ready for early evening shopping. Each auctioneer needs two clerks. After each accepted bid a clerk prepares a numbered sales note (or "chit") on which he enters the entry card number; the farmer's name and district; the product; quantity and selling price. One copy of the chit is given to the farmer, the second and third copies are given to the buyer; and a funkier two copies would remain in the clerk's book.
Purchase of produce by wholesalers and retailers
The wholesaler who has bought the produce must then immediately pay the farmer/trader. Subsequently, the wholesaler presents his two copies of the chit at a cashier's counter where commission will be calculated and paid. As the wholesaler is likely to be purchasing more than one consignment of varying products he is not required to go to pay until he has completed all his planned purchases. The market porters then remove the purchased consignment and take it to the buyer/wholesalers' storage area, where it might be repacked for immediate sale or sent to cold storage. Unsold produce might be stored temporarily at the auction shed or removed, to be sold at an adjacent farmers' market.
Retailers and institutional users come to the market and purchase directly from buyers/wholesalers' establishments adjacent to the auction area. When the cashier has received the sales commission he returns a receipted copy of each sale note to the wholesaler.. On leaving the market the wholesaler needs to show these receipts to the gateman to be counter-stamped.
For a market using a private treaty method of sales the sequence of steps are as follows:
·checking-in of produce at the entry gate. An entry toll is usually paid at this point (but sometimes later) based on the size of the vehicle, an estimated volume or a weight established from passing over a weighbridge. Produce may at this point be divided between graded and ungraded, so it can be directed to different points in the market.
· unloading of produce at space allocated by the market authority, either a sales platform within a market shed or in some cases (normally with fruit and vegetables) an open area where sales are permitted directly from trucks. If there is a prior agreement for purchase or a contract arrangement, produce may be taken directly to a wholesaler's premises.
· purchase of produce by whole salers by private treaty and then transfer to their premises.
· resorting, packing and display for purchase by retailers and other users such as hotels and restaurants. The produce may also be stored, the storage period depending on type of produce and whether the wholesaler has cool storage facilities.
-the retailer pays a market charge based on the type of vehicle (when he enters), or the weight or volume of purchases (on leaving).
Figure 15 Produce handling within a typical wholesale market
Markets generate a large number of transactions within a short period, requiring simple, standard procedures to handle them. A market accounting system operating along commercial principles is required, based on a system of bookkeeping which will allow auditing on a daily, quarterly and yearly basis.
Persons with recognized accounting qualifications are usually difficult to recruit and it is often impossible to attract commercially qualified accountants, unless the salary and conditions of service are considerably in excess of anything offered by the public service. The project often needs, therefore, to train its own staff and, probably, traders who will use the market, in simplified accounting procedures.
Market information and extension
A major function of a modern wholesale; market is to aid market transparency by compiling information on market prices, quantities sold and qualities offered. This information is usually collected by officials from the ministry of agriculture or trade and is useful for both the market's management and for producers, so that they can choose both the location and timing of sales. It allows producers to delay harvest or store their produce till prices are better or transport facilities are available and helps them to make better long-term production decisions. it enables traders to decide to which market they should deliver produce, so helping to equalize supply throughout a country and even out price differences. The theory of improved market transparency is that it acts as a stimulus to the economic functioning of the market, improving competition and promoting adaptations to meet supply needs and market opportunities.
Dissemination of information The implication of introducing such procedures needs to be recognized at the project formulation stage as extra staff will be needed for data collection. Computing and communications equipment will be required. A notice board should be provided in the market to display information on a regular basis. The system should ideally be connected into both a national price collection procedure linked to the media (particularly if export produce is important) and to local assembly markets and packing or collection centres. Facsimile or computer modem facilities are the most appropriate method for transmitting this information. However, if telephone links are poor this may need to be supplemented by short-wave radio connections.
Extension. Markets are a convenient location for dissemination of extension advice and information, particularly related to marketing activities. Suitable publicity material should be provided on grading/packing requirements and possible outlets for produce. A full-time extension officer from the ministry of agriculture may be warranted for a larger market. Facilities for the display of extension material and the holding of extension meetings should be made available al the market .
Contents - Previous - Next