S.S. Acharya
1. INTRODUCTION
Despite unprecedented rates of economic and agricultural growth in the past three decades, poverty and household food insecurity remain serious problems in several countries of the Asia and Pacific region. It is a paradox that although food is produced in rural areas, food insecurity is much more pronounced among rural households. Furthermore, this has happened even although, in almost all developing countries of this region, governments have intervened in some form or another in agricultural markets with the avowed objective of providing market support to the farmers and/or improving the physical and economic access of the masses to staple foods.
The agricultural marketing system plays an important role in determining the prices received by the farmers and those paid by the consumers. The performance of the marketing system depends on the structure of the market and on the conduct of the market functionaries. Government intervention in agricultural markets is intended to influence both the structure and conduct and, in turn, the performance of the market.
The persistence of rural poverty and food insecurity in the wake of satisfactory agricultural growth and pervasive government intervention in the agricultural marketing system suggests the need for a thorough review of the current agricultural marketing policies and systems, and the identification of new initiatives for improving marketing practices and performance. Further, most of these countries have become signatories to a number of new international trade agreements, particularly those relating to agriculture, and these, inter alia, require that domestic agricultural marketing systems in these countries are made compatible with the Agreement on Agriculture (AoA) under the World Trade Organization (WTO). The objectives of this paper are to present an overview of agricultural marketing systems in the countries of the Asia and Pacific region and identify some issues and priority areas of action, particularly those in which FAO can play an important role. The paper is divided into five sections. The role of agricultural marketing systems in reducing the levels of food insecurity and poverty is discussed in section 2. An overview of agricultural marketing policies, strategies and systems for agricultural commodities in the region is presented in the third section. Priority issues and areas of action for revamping and improving the marketing systems are identified in section 4. The fifth section covers the current initiatives of FAO in improving agricultural marketing systems and brings out some new areas where FAO/RAP could take further initiatives and make a significant contribution.
2. FOOD SECURITY AND THE ROLE OF THE AGRICULTURAL MARKETING SYSTEM
A common accepted definition of food security is that "all people at all times have both physical and economic access to sufficient food to meet their dietary needs for a productive and healthy life". In this sense, food security is a broad concept and implies not only producing sufficient food, but also making food accessible to the entire population throughout the year on a sustainable basis. Food security also connotes freedom from famine and chronic malnutrition and this requires provision of the means whereby all individuals or families can adequately meet their nutritional needs on a daily and annual basis. Food security is a right of every citizen and not merely an aspiration. The ultimate objective of food security, therefore, is to guarantee food to every citizen irrespective of his or her ability to pay. Provision of food security is essential for maintaining peace and social harmony in a country. There are three important dimensions of food security, viz. availability of food on a sustainable basis, accessibility of food, and utilization of the available food.
With reference to these three dimensions, the essential requirements for achieving food security can be summed up as follows:
i. Availability of food
a) A satisfactory level of food production.
b) Sustainability of food production.
c) Stability of aggregate supplies, i.e. minimum fluctuations in production and availability from year to year.
ii. Access to food
a) Physical access to food, i.e. availability of food in all regions and villages and to all families.
b) Economic access to food, i.e. availability of food to individuals and families at affordable prices.
iii. Food utilization
a) Intra-family allocation of food to ensure its availability to individual members as per his or her needs.
b) Maintenance of health of all individuals to enable them to consume and absorb the minimum food requirements.
An individual, family, community or a nation that is food insecure is unable, or at risk of being unable, to meet any of these requirements. Food insecurity may be transient or chronic and mild or acute.
Each of these dimensions of food security is influenced by several factors relating to both the national and the household socio-economic environment. Experience suggests that adequate food availability is a necessary, but not a sufficient, condition to achieve adequate food access. Food access, in turn, is a necessary, but not a sufficient, condition for adequate food utilization. A conceptual framework of the major dimensions of food security and the factors influencing these is shown in Appendix 1.
At the national level, whether or not food security requires self-sufficiency in food depends on the structure of the national economy. As long as a country has enough foreign exchange earnings to import food and food surpluses are available elsewhere, it need not be self-sufficient in food to be food secure. However, many developing countries do not have export earnings to command adequate imports. Moreover, in these countries food production is closely linked to the livelihoods of a large number of households that are engaged in farming and the number of people living below the poverty line is quite significant. In such economies, the maintenance of some degree of self-reliance in food production may be a necessary condition for food security. In such cases, the long term solution to the problem of food security lies in evolving a development strategy that includes adequate increases in food production, growth in employment and in the incomes of the masses, and improving access to education and primary health care. Nevertheless, selective market intervention and targeted distribution of subsidised food can ensure food security in the short term.
It is now widely recognised that higher economic growth is at best only a necessary condition and certainly not a sufficient condition for reducing poverty and food insecurity. To reduce poverty and food insecurity, the quality of growth is more important than the rate of growth. In the developing countries of Asia and the Pacific region, where a majority of the population is rural and derives its livelihood from farming (Appendix 2), poverty and food insecurity can be brought down rapidly if economic growth is based on the agricultural sector and if within this sector small farmers and farmers of dry lands and resource poor areas are also brought into the growth process. FAO, in deriving the lessons from the past 50 years (FAO, 2000), has concluded that the process of agricultural development has enabled major gains in accelerated growth in output, but incomes and productivity levels of small and subsistence farmers have not improved to the desired levels. This implies that unless the small farmers of the developing countries of Asia and the Pacific are also brought into the growth process, poverty and food insecurity are likely to continue and will accelerate the rate of migration to the urban areas and increase social tensions. When agricultural growth is broad-based and small and resource poor farmers participate in the growth process, the demand generated by these farm families is for such goods and services that are produced by small scale labour intensive enterprises in the rural non-farm sector, and this increases employment and the incomes of rural poor families. Some other lessons drawn by FAO in this regard become extremely relevant for identifying the role of agricultural marketing policies and systems for reducing food insecurity and poverty in this region. First, in predominantly agrarian economies, there is no mechanism for distributing entitlements to peasant farming populations other than that of enabling them to improve their food and agricultural production base. An efficient marketing system can play an important role in supplying yield-enhancing modern inputs at reasonable prices/user charges and in assuring remunerative prices for their meagre surpluses. Second, there is now a general understanding that agriculture in these countries is responsive to economic incentives, yet incentives fail where the risks cannot be afforded. A shift to high value crops entails higher risks and a failure could be fatal to the livelihoods of small and poor farmers. These farmers can adopt high-return high-risk crops only if the mechanisms to guard against such risks are in place. Efficient output and input markets can play an important role in reducing the price risks for small farmers.
Agricultural marketing includes: (a) the performance of physical and institutional infrastructure to transfer farm products from the farmers to consumers; (b) the discovery of prices at different stages of marketing; and (c) the transmission of price signals in the marketing chain specifically from consumers to farmers.[1] Agricultural marketing adds value in terms of time, place, form and possession of utilities to the agricultural products originating at the farm level. Physical infrastructure for agricultural marketing, inter alia, consists of storage structures, roads and transportation facilities, marketing yards, grading equipment, packaging facilities, processing plants, and retail outlets. The institutional infrastructure includes organizations (public, private or cooperatives) and rules of the game, prescribed by either government or market functionaries - individuals or their groups - for performing various marketing functions.
Agricultural marketing systems in Asia and the Pacific region and other developing countries have been the focus of attention of national governments and international organizations for several reasons. First, it was perceived that the systems on their own would not be able to reconcile the conflicting objectives of different stakeholders, particularly in situations where there is a wide gap between the demand and the supply. Farmers expect quick market clearance for their produce at "remunerative" prices, market functionaries want to maximize their net margins and consumers expect the system to supply them with value-added farm products at prices that are as low as possible. Second, given the basic characteristics of agricultural production and the nature of the demand for farm products, particularly food grains, fluctuations in product prices can be significant if left to the interplay of market forces. Third, most of the developing countries of this region began their journey on the path to development with low levels of production, particularly of staple foods, and low purchasing power of the masses and were required to generate marketable surpluses at a rapid rate. This would not have been possible through the then existing marketing system if incentives had not been not offered. Fourth, the physical infrastructure in the form of transportation, storage, processing and communication facilities were quite inadequate - and continue to be so - to perform the role expected of the marketing system in the absence of government support. And fifth, a majority of the farmers in Asia operate small farm units and produce only small marketed surpluses that require marketing facilities at nearby places.
3. AN OVERVIEW OF EXISTING AGRICULTURAL MARKETING SYSTEMS IN THE ASIA-PACIFIC REGION
3.1 General common features
The present structure and framework of agricultural marketing in developing countries of the Asia and Pacific region varies from country to country. However, there are some common features which need to be recognized.
i. The average farm size in the region is very small. Consequently the marketable surplus available per farm continues to be small, requiring the marketing system and infrastructure to accommodate this.
ii. With the increase in agricultural production and the tendency towards some degree of specialization according to comparative advantage of various regions within countries, the marketed surpluses, and consequently the demand for marketing facilities, have increased. However, developments in the marketing system have not kept pace with the requirements arising out of developments in the agricultural production system.
iii. The marketing channels through which products move from farm to consumer are similar. Assembling traders and wholesalers play an important role in the marketing channel.
iv. Although the traders (village trader, assembling wholesaler, secondary wholesaler, or retailer) perform important functions in marketing and provide a ready market to the farmers, they have always been looked down upon. Moreover, they are seldom seen as positive and effective agents of improvement in the efficiency of the marketing system. Provision of credit from financial institutions to traders has always been kept restricted or prohibited.
v. In almost all countries the emphasis on improving physical infrastructure, marketing institutions and the functioning of the marketing system has remained lopsided. Whereas the development of physical infrastructure generally has received greater emphasis, the importance of formal and informal institutions in marketing system improvement has rarely been recognized.
vi. Urbanization is increasing in all countries of the region. This, coupled with rising average incomes, is leading to an increase in the demand for high value processed foods. However, grading, processing and packaging services have not developed.
vii. Grading and packaging facilities at the farm level have not improved. Farmers continue to sell ungraded products and use traditional methods of packaging. As a consequence, losses in transit are high and lead to higher marketing costs and lower returns to the farmers.
viii. Agricultural production in these countries continues to be seasonal whereas consumer demand is usually perennial. During the post-harvest season there are heavy arrivals of farm products in the rural markets. These cause congestion in the markets. Moreover, prices during this period are at their lowest. However, the farmers have to sell their products at low prices because of: (a) their cash needs to repay debts; (b) the interlocking of credit with marketing; and (c) the unavailability of storage facilities at farms, or even in the primary markets.
ix. Seasonality of production requires storage of produce till the consumers purchase it. But the shelf life of some perishable products is very short, resulting in heavy losses during storage. These losses can be reduced by processing these commodities. However, the varieties of several fruits and vegetables grown in these countries are unsuitable for processing. In India, losses in fruits and vegetables during marketing have been estimated at around 30 percent.
x. Governments in all countries of the region have intervened in agricultural produce markets and implemented measures to improve the marketing system for farm products. However, across countries, there have been considerable differences in the nature of the marketing policy instruments adopted and in the relative emphasis on various aspects of marketing system improvement.
xi. Several countries have, over the years, become either exporters or importers of some agricultural commodities - marginally or otherwise. However, quite a few domestic marketing restrictions, which were generally imposed owing to equity concerns and in a context of scarcities, have continued.
xii. In response to the commitments made by these countries when they became signatories to the Agreement on Agriculture (AoA) under the WTO, governments have embarked on dismantling barriers to international trade and phasing out domestic marketing restrictions. However, the speed and sequencing of domestic agricultural marketing reforms are perhaps not based on a rational analysis of their impact on efficiency and equity. Unless liberalization of external trade regimes and domestic market policies are properly meshed, these may do more harm than good to the vulnerable sections of society. The gains may not reach the small farmers and rural households. In this context, it is not surprising that in these countries there is considerable internal resistance to the liberalization of agricultural produce markets. In democratically governed societies, governments are finding it politically unfeasible to withdraw certain instruments of market intervention, precisely because the pace and the sequencing of withdrawal have not been carefully worked out.
3.2 Marketing policy formulation
Agricultural marketing policy formulation is very complicated.[2] First, it has to serve several conflicting objectives of farmers, consumers and market functionaries. Second, as it has to reconcile conflicting interests, marketing policies are often prone to criticism from one or other interest group. Third, agricultural marketing policies cut across a large number of federal ministries and departments and this requires very frequent inter-ministerial interactions. Fourth, several policies and their implementation involve expenditure or investment by the government, and this necessitates consultation with the Ministry of Finance or the Treasury. Fifth, in quite a few areas of agricultural marketing policies, the provincial governments and local self-government institutions have mandatory assigned roles. In such cases, federal governments are required to consult provincial or local governments, and this takes considerable time. Sixth, in recent years, marketing policies, particularly those relating to international trade in agricultural commodities and domestic support to farmers, require that the commitments made by the country when signing AoA are complied with. In such matters, the Ministry of Commerce or Foreign Trade needs to be made an important partner in the formulation of internal marketing policies. Seventh, several policy changes require amendments to legal instruments, and this necessitates the involvement of the Ministry of Law or Legal Affairs. Eighth, the policy relating to the promotion or creation of marketing infrastructure such as roads and transport facilities involves other ministries. And ninth, policy relating to the promotion of value addition or agro-processing also requires the involvement of other related ministries.
3.3 Agricultural price policies and government intervention
The most important aspect of the agricultural marketing system in Asian countries is the instrument of government intervention in the form of support prices for farmers and issue prices for the distribution of foodgrains to consumers. Intervention in this form has been pervasive for rice and/or wheat in almost all the developing countries of this region. The implementation of policy requires purchases or procurement from farmers at pre-announced prices, stocking these foodgrains and distributing them either directly or through traders to the consumers. The extent of intervention has varied from country to country and from commodity to commodity. However, one common feature has been that, of late, controls and restrictions are being relaxed in almost all the countries and the share of private sector trade in food items, although large already, has increased.
In China, the agricultural marketing system has been undergoing a major transformation since 1978. The state monopoly of the procurement and distribution of foodgrains has been replaced by a multichannel or "double track" marketing system that is a combination of state procurement and private or group trade. Procurement quotas have been reduced and marginal farmers are exempted from quota procurement. Farmers are free to sell after their quota requirement has been fulfilled. Procurement and distribution have been decentralized and the provinces and municipalities have been given full authority in these matters. Private trade is being encouraged to operate in foodgrains markets. Except for staple foodgrains, viz. rice, wheat, corn and soybean, the marketing of all other agricultural commodities has been liberalized.
In India, the government has announced support prices for 24 agricultural commodities, but farmers are free to sell their produce in the open market. The government’s designated agencies purchase farmers’ produce only when market prices are lower than the support prices and farmers voluntarily offer their surpluses to the government agencies. Government agencies’ share in handling agricultural commodities overall has been about eight percent, the remaining quantities being handled by private trade or cooperatives. The farmer’s cooperatives handle about nine percent of the total marketed surplus. The government’s share in rice and wheat trade is higher at about 15 percent. Rice and wheat purchased by the government at support prices are distributed to targeted consumers at pre-determined prices through private designated retail shops. Sometimes, these are also given to the processors, traders or exporters at open market or pre-determined prices. The central and provincial governments have restricted the activities of private trade in the form of compulsory levy or procurement from rice millers and sugar factories; and restrictions on stocking of grains beyond specified limits. However, the import and export of almost all agricultural commodities have been liberalized in recent years.
In Viet Nam, the government has relaxed restrictions on the marketing of rice since 1980. However, the government still retains some control over exports and the internal trade in rice (Minot and Goletti, 2000). In Japan, the rice trade, which was largely controlled by the Rice Law of 1921 and the Food Control Law of 1942, has been considerably relaxed since 1994. Rice producers who register with the government are allotted acreage and produce from these farmers is purchased by the government at the prescribed price. However, some rice producers who do not register sell their rice in the open market. It may be noted here that the government’s purchase price is considerably higher than the open market price (APO, 1997).
In Indonesia, government intervention in rice marketing is now limited to maintaining a ceiling price. This is done by purchasing rice from the open market and assuring supply to what is called the ‘budget group’, which consists of the armed forces, civil servants and employees of state enterprises. The government agency (BULOG) also announces floor prices for rice, but farmers are left free to sell in the open market. The purchases of rice at floor price by BULOG have now come down to about six percent of the total output. It is claimed that the difference between floor and ceiling prices is wide enough to allow the private sector to operate in the market. The basic objective of the government intervention is to insulate domestic market prices from the fluctuations in the world market (AFMA, 2000). The government’s role in grain marketing, other than rice and soybeans, is to facilitate trade by means of establishing basic regulations, providing infrastructure and maintaining quality standards and grading.
In Thailand also, the government has a programme of providing price support to farmers by announcing guaranteed prices of rice, but it is reported to be ineffective as it is not supported by the guaranteed purchase scheme. The government intervention through a floor price is, of late, considered ad hoc and selective. The government also has a programme to maintain a buffer stock of rice. In both programmes there is an in-built component of participation of cooperatives, farmers’ organizations, the central market, the Public Warehouse Organization (PWO) and traders. By and large, government intervention in grain marketing is limited and most of the functions of storage, transportation, processing, trading and export are performed by the private sector. One important feature of Thailand’s agricultural marketing system is that the private traders are provided adequate credit by the Central Bank.
The system in Bangladesh is similar to that in India. The government provides price support to rice growers but private trade is free to operate in the market. The public distribution of foodgrains is mainly in the urban areas. However, the government maintains almost total monopoly on exports of agricultural commodities. For Jute, which is another important agricultural commodity of Bangladesh, the government has established a Public Corporation of Jute to intervene in the market as and when the need arises.
In Philippines, the National Food Authority intervenes in food marketing on behalf of the government. It purchases foodgrains at support prices and sells to consumers through private traders who work as government agents. However, in the matter of imports and exports, the government’s discretion dominates. In Malaysia, except for rice, food commodities are largely free of government intervention. However, at the retail level, the government controls prices of basic staples like wheat flour and cooking oil besides rice. The government has the objective of maintaining self-sufficiency to the extent of 65 percent of its requirements of rice. With a view to achieving this goal, the government provides support to the rice growers by means of input subsidies (fertilizer grants and interest free loans) or an output support price. In addition, each rice producer is also given an income supplement (FAO, 1998).
A quick review of agricultural price policies in the countries of Asia reveals that:
i. governments in almost all countries have intervened in agricultural produce markets in one form or the other to encourage production and assure minimum support prices to the farmers for staple foodgrains;
ii. governments have also tried to maintain some buffer stocks of staple foodgrains and intervene through these stocks in the markets to make available staple grains to consumers at reasonable prices;
iii. by and large, government policies have tried to influence the prices for the farmers as well as consumers, but the private sector has continued to play a major role in staple food markets;
iv. the operation of the private sector in agricultural produce markets has been subjected to several restrictions imposed by the governments;
v. government intervention in foodgrain markets and restriction on the operation of private trade have been considerably reduced during the last one or two decades;
vi. although government intervention is being reduced and restrictions on private trade are being relaxed, the legacy of intervention, fears of food insecurity of the vulnerable sections, and protection of the interests of small farmers continue to influence the government;
vii. the export-import of foodgrains continues to be subjected to the ad hoc decisions of the government;
viii. government intervention in the marketing of other agricultural commodities (other then staple foods) has been very weak and continues to be so; and
ix. according to some estimates, private trade accounts for 90 percent of total trade in agricultural commodities (not including rice) in Asian countries.
3.4 Marketing institutions and regulations
Marketing institutions affect the structure, conduct and performance of agricultural produce markets in Asia and the Pacific Region. There are basically three groups of marketing institutions, viz. formal organizations established or created by the federal or provincial governments, formal or informal associations of market functionaries, and rules of the game prescribed or followed by the participants of the marketing system. These are described as follows:
i. In almost all countries in the region, governments have established organizations to implement and operationalize the marketing policies formulated and announced by the government. In some countries, government departments at the federal or provincial level or municipalities or urban area management authorities implement the policies. India has established the Food Corporation of India (FCI), the National Agricultural Cooperative Marketing Federation (NAFED), the Cotton Corporation of India, the Jute Corporation of India, the Tobacco Board, the Rubber Board and the Coffee Board to implement and assist in the formulation of marketing policies and intervene in the markets as required by government policy. Apart from these, there is a Commission for Agricultural Costs and Prices (CACP) to advise the government on a regular basis on all matters related to agricultural marketing and prices. The provincial departments responsible for food and related matters, help federal agencies to implement marketing policies. Nepal has the Nepal Food Corporation, Malaysia has the Federal Agricultural Marketing Authority and Philippines has a National Food Authority to intervene in the market and implement the government’s marketing policy. In Myanmar, a government organization named Myanmar Agricultural Produce Trading (MAPT) implements government policies relating to agricultural marketing. BULOG in Indonesia, the Public Corporation for Jute in Bangladesh, the National Agricultural Cooperative Federation, and the Agricultural and Fisheries Marketing Corporation in the Republic of Korea, the Pakistan Agricultural Storage and Services Corporation (PASSCO) in Pakistan and the Public Warehouse Organization (PWO) in Thailand are examples of other formal government sponsored organizations working in the field of agricultural marketing. These organizations function as an extended arm of the government for operationalizing its marketing and pricing policies. Some of these are not engaged in actual trading, but in other market-related activities that are advisory, promotional or regulatory in nature.
ii. There are several other formal or informal institutions operating in agricultural markets of the Asian region. These include farmer’s cooperatives, consumer’s cooperatives, trader’s organizations, associations of transporters and organizations of processors. Each country has several such organizations functioning at village, village-cluster, district, province and federal levels. In some countries, governments have specific programmes of encouraging and promoting farmer’s cooperatives for group marketing and processing of agricultural commodities. However, their performance has been mixed. Whereas some have been very successful, others have been complete failures. Cooperatives, which emerged voluntarily and were needs based, have been, by and large, successful. But where they emerged as another arm of the government and depended excessively on bureaucratic management and government patronage they have failed. In addition to the cooperatives, there are several formal organizations for managing periodic rural markets, primary wholesale markets and urban city markets. The establishment of government sponsored organizations and regulation of the organizations of market functionaries by the government have become necessary to restrict some undesirable activities of private trade; for example, when all the traders or transporters of a market join in a cartel or association and deny entry to new players. The farmers tend to suffer in such a situation unless government regulation is in place to counter such practices. It is in this context that the governments have taken an active stance and put in place legal or other instruments to regulate the conduct of market functionaries.
iii. The government in several countries monitors the conduct of market functionaries through promulgation and implementation of several mandatory regulations. The regulatory framework consists of two sets of regulations. One of these is regulation of buying and selling facilities in the first stage primary markets where the farmers sell their surpluses. The main objective of this set of regulations is to provide a farmer-friendly market environment. A committee consisting of farmers and representatives of traders, cooperatives and government prescribe the rules for regulating the system of auction, the charges for various services used by the farmer or buyer, time of payment to the farmers by the buyers, and licensing of traders for participation in the auction of farmers’ produce. This set of regulations has played a very important role in eliminating several malpractices to which farmers were subjected to when they took their produce for sale. Several countries in this region have established these kind of regulated markets in rural areas. India has established more than seven thousand such regulated markets in the primary producing areas. However, many countries are yet to take up such measures on the required scale.
The second set of agricultural marketing regulations includes legal instruments promulgated by federal or provincial governments with the objective of regulating the marketing activities of traders, processors, packagers and other market functionaries. For example, some of these regulations relate to specification of grades and packages, maintenance of quality, prevention of adulteration, prescription of blending, use of standard weights and measures, and restrictions on stocking and intra-country movement of agricultural commodities. Many of these regulations were relevant in situations of scarcity or when demand exceeded supply by a large margin. However, there is a need to critically review many of the regulations that obstruct the efficient functioning of the agricultural marketing system. As these regulations are administered by different departments and ministries of federal and/or provincial governments, they cause considerable confusion and delays in performing marketing functions, and quite a few of them end up in increasing the marketing and transaction costs. India has more than 30 such legal regulatory instruments relating to the marketing of farm products.[3]
These apart, there are also restrictions on futures trading in agricultural commodities in several Asian countries. Trading in futures, it is claimed, helps to reduce fluctuations in prices, but it is not clear how these will help small farmers with small marketed surpluses. Several countries have permitted futures trading in some agricultural commodities such as cotton, spices, tobacco, jute and oilseeds. However, there is considerable scope for the use of this instrument in reducing price risks for farmers.
3.5 Market support services
Apart from pursuing policies and creating formal organizations to intervene in agricultural marketing, governments in Asian countries have adopted several programmes of providing marketing services. The establishment of marketing facilities not only helps to expand the size of the market for agricultural products but also helps to transmit price signals from one marketing stage to another. The support services can be grouped into the following:
i. training farmers in selecting the right kind of food varieties and in post-harvest handling, including cleaning, drying, sorting, and packaging at the farmgate level;
ii. developing market places like periodic markets or rural primary markets by providing facilities like auction platforms, storage structures, grading facilities, traders shops, weighing and packaging facilities, parking space and common facility centres;
iii. developing wholesale markets by providing necessary facilities consistent with the volume of arrivals;
iv. constructing roads linking villages with nearby assembling and wholesale markets and in turn with large wholesale and terminal markets and ports;
v. creating storage structures and their network from villages or rural areas to district and provincial headquarters and ultimately to terminal markets and ports;
vi. encouraging the establishment of cold storage facilities and refrigerated carriers to facilitate storage and transportation of perishable commodities such as fruits, vegetables, milk and livestock products;
vii. standardizing grade standards and encouraging buying and selling of quality graded products;
viii. encouraging technological developments in packaging of various agricultural commodities and promoting packaging facilities according to the need for various commodities;
ix. expanding communication facilities such as postal and telephone services and now internet facilities with a view to facilitating exchange of information on prices and available supplies and, in turn, increasing the integration of markets;
x. encouraging agro-processing and value addition activities; and
xi. collecting, compiling, analysing and disseminating market and outlook information on prices, market arrivals, potential supplies and demands for various agricultural commodities.
It must be recognized that all these facilities expand the market for farm products and thus provide market clearance to the farmers. Most of these facilities are capital intensive facilities. Therefore, governments have to play an active role in investing and in creating an enabling environment for the private sector to come forward and invest. Country by country time series analysis of these facilities reveals that there has been considerable expansion in the availability of these facilities during the last three decades. However, there are considerable gaps in several of these market support services. As a consequence, both the farmers and the consumers suffer. For example, nearly 50 percent of the villages in India have no approach roads to link them to nearby market places. Because farmers lack appropriate training in post-harvest handling, about 6 percent of the grains are lost by the time they reach the nearest market. The losses in the marketing chain have been estimated at around 10 percent for foodgrains and in excess of 30 percent for fruits and vegetables. Moreover, because of several government restrictions, the agroprocessing industry continues to be inefficient, resulting in considerable losses that adversely affect farmers and consumers.
Apart from the general market support services, several countries have initiated a large number of programmes to provide market support to small farmers: (a) Some countries have established and created rural primary markets to help small farmers who do not find it economically feasible to transport their small surpluses to distant wholesale markets. (b) Efforts have also been made to standardize the charges payable by farmers when selling their produce in these markets. (c) Standard weighing machines have been provided in these markets to prevent cheating by traders. (d) The practice of open auction has been introduced in these markets and this, to some extent, has helped small farmers by preventing the collusion of traders. (e) Several countries have put in place provisions to supply subsidized inputs, including credit, to small farmers who usually sell only a part of their produce and retain the remainder for family consumption. (f) Governments have introduced schemes of advancing loans against the produce stored by the farmers in institutional storage structures. However, this facility is used by a minority of the farmers only. (g) In some countries, farmers’ markets are also being promoted to enable farmers to sell their produce directly to consumers. However, only an insignificant proportion of the marketed surplus moves through this channel. (h) Market support to small farmers has been provided in the form of promoting cooperatives or group marketing. Some countries have even organized and promoted exclusive farmers’ marketing societies, which collect the produce of small farmers and undertake its sale at an appropriate time and place. A part of the payment is immediately made to the farmers so that their immediate cash requirements are met. The final payment is made after the produce is sold by the cooperative society and final prices become known. In some countries, the primary marketing societies have been federated to provincial and national cooperative organizations. (i) In the case of agricultural commodities that require processing before sale (such as raw cotton, raw jute, oilseeds, sugarcane and some fruits), commodity based processing cooperatives have been organized to help small farmers.
It appears that the types of programmes initiated in these countries cover a very wide spectrum of possible solutions to help small farmers. However, the benefits have not reached the intended target groups. The possible reasons are the inadequate scale of measures and programmes, excessive bureaucracy, lack of professionalism, and inadequate involvement of the communities in designing and implementing these programmes.
3.6 Urban food marketing
The urban population is increasing at a rapid rate in Asian countries. Asian cities are growing at a rate of 3 percent per year compared with an overall growth rate of 1.4 percent per year. This is bound to continue as urban centres serve as growth poles in the development process. Relative neglect of rural areas in terms of physical and social infrastructure pushes the youth to the cities. The rural unemployed also migrate to urban areas in search of employment. However, most of the food needed by urban people is still produced in the rural areas. In that sense, urban areas provide an assured market for surplus food produced by farmers. The urban food marketing system thus assumes considerable importance, both for feeding the urban population and for helping farmers.
There are some distinct characteristics of urban food demand that need to be noted:
i. The majority of the urban population has considerably higher purchasing power. Demand is greater for high value processed and packed foods.
ii. The population density in urban areas is very high and this requires a chain and network of retail outlets.
iii. A considerable number of urban women are working women who create a demand for ready-to-cook or ready-to-eat foods.
iv. Owing to the widespread availability of refrigeration facilities, the food purchasing habits in urban areas are quite different from those in rural areas.
v. Notwithstanding high average incomes in urban areas, there are many poor among the urban population who also need food. There are indications that the proportion of the poor among the urban population is increasing rapidly.
vi. In Asia, 11 cities already have populations exceeding 10 million, and another four are expected to exceed this figure shortly.
It has been estimated that a city of 10 million people needs to import at least an average of 6 000 tonnes of food per day. Considerable coordination is needed among the market functionaries and infrastructure is required to meet the demand on this scale.
There are basically two channels of food supply and distribution in urban areas. The first channel is the traditional sector comprising wholesale merchants and retail operators. Wholesale merchants, who include wholesalers and transporters, buy the commodities from the primary wholesalers in assembling areas and distribute to retail operators such as small shopkeepers, retailers or street sellers. Some cities have established wholesale market yards where the products from primary assembly markets arrive in truck loads or vans and city wholesalers purchase these according to their capacity for onward sale to retailers. For example, in China, India and other countries, wholesale grains, fruits and vegetables markets are being set up in major cities. The second channel consists of large vertically integrated distributors and agro-industrial supply networks and national or international trading companies. This channel operates mostly with perishable commodities and animal products. The technological and capital requirements in this channel are considerable. Although this channel is capable of reducing marketing losses, so far it accounts for only a small proportion of total food handled in the urban areas of Asian countries. Some of the main features and problems of the traditional channel of the urban food marketing system in Asian countries can be summarized as follows:
i. Most of those involved in transporting, marketing and distributing food in the urban areas are private businesses and individuals. Although it varies from country to country, the contribution of the public sector in direct marketing of food in urban areas is small and generally declining.
ii. The farmers and consumers cooperatives play an important role in supplying and distributing food, especially milk, eggs, fruits and vegetables, but their share in total food traded in urban areas is small. The main objective of promoting the cooperatives has been to help small farmers market their products.
iii. Some cities do not have adequate markets. Special market yards were created in certain cities, but they have become inadequate because a long-term perspective was not kept in view while designing these. The inadequate space not only creates chaotic conditions during auctions or transactions, but also results in considerable loss of the product, especially of perishables such as fruits and vegetables.
iv. In addition to inadequate space for parking the trucks and carrying out loading and unloading operations, many wholesale market yards suffer from poor management. These market yards are supposed to be managed by elected management committees, but in a large number of cases these are superseded by the government, and the yards are managed by bureaucrats whose commitment and accountability to market stakeholders remain doubtful. Most of them are not professional market managers.
v. Most of the wholesale and retail markets in urban areas do not have adequate sanitation and garbage disposal facilities.
vi. In many of these markets, wholesalers, commission agents, transporters and other market functionaries have organized themselves into strong associations or cartels. As a consequence, free entry to the trade is restricted, resulting in loss of marketing efficiency.
vii. Planning for urban wholesale markets has not kept a horizon of, for example, 25 years. Moreover, infrastructure planning has not been done separately for different sizes of urban population (e.g. up to one million, one to ten million, and above 10 million). Such planning is necessary because one model cannot fit cities of different sizes.
viii. Some of the urban markets serve as channels of transit trade also, and this requires additional space and infrastructure. For example, Delhi wholesale market, on average, handles 6.5 million tonnes of foodgrains, of which 15 percent is transit trade. It handles 3.25 million tonnes of fruits and vegetables, of which 55 percent is transit trade. Similarly, out of 70 thousand tonnes of fish, 78 million poultry birds and 200 million eggs handled by Delhi market, 30 percent is transit trade. As the requirements of handling additional quantities for transit trade have not been met, the situation in the city wholesale markets is chaotic.
ix. In addition to the poor conditions of the wholesale markets, the conditions of the retail markets are also unsatisfactory. In most of the cities, there is very little planning for retail outlets of food products. Although the fact that the private sector is responsible for retail marketing augurs well for its operation in the liberalized environment, the provision of facilities such as garbage disposal and the planning to determine decentralized locations for such facilities have not received adequate attention by city managers.
4. ISSUES AND PRIORITIES IN AGRICULTURAL MARKETING
4.1 Issues
Issues in agricultural marketing emerge from the role of agricultural marketing in reducing food and nutritional insecurity:
i. One of the important conditions for assured food security is the availability of adequate food on a sustainable basis. To fulfil this condition, the supply of food must grow at a rate consistent with the demand. However, this does not imply that every country should produce sufficient food. If a country has, or can earn, foreign exchange to import food and it has no comparative advantage in food production, it need not produce all the food it needs. However, most countries try to maintain some degree of self-sufficiency in at least the staple foods. In the context of the Asia and Pacific region, analysis of cereal production, imports and exports during the last decade (Appendix 3) reveals that: (a) Combined for all countries, the increase in imports of cereals has been much larger than the exports - between triennium ending (TE) 1988 and TE 1998, imports went up from 71.4 million tonnes to 84.6 million tonnes and exports increased from 35.0 million tonnes to 44.4 million tonnes. (b) The contribution of the developing countries of the region, particularly of India and Viet Nam, to the incremental exports of cereals was considerably higher than that of a developed country like Australia. (c) India, which was a net importer of cereals in TE 1988, established itself as net exporter in TE 1998. (d) Whereas Viet Nam increased its exports, Thailand continues to be a net exporter of cereals. (e) Although the net imports as a proportion of total production work out to about 5.1 per cent, total imports of cereals aggregate to 7.4 per cent of the requirements in developing countries and 10.3 per cent for the whole region. (f) T he countries of the region can be divided into two groups, viz. major importers and import dependent countries. Major importers are Bangladesh, China, Indonesia, Iran, Malaysia, Pakistan, Philippines and Republic of Korea. The countries with imports constituting a very high proportion of total availability of cereals are Cook Islands, Fiji, Maldives, Papua New Guinea (PNG), Samoa, Solomon Islands, Tonga and Vanuatu, along with Malaysia and Republic of Korea. Given this scenario, an assured availability of adequate food in these countries would call for a strategy consisting of the following: (a) Large populated countries like China, India and Indonesia should maintain a reasonably high degree of self-sufficiency in staple cereals. (b) Countries with relatively small populations, particularly those which are major import dependent countries, should maintain adequate buffer stocks of cereals, say of three months consumption requirements. (c) Heavy dependence on food imports for developed countries like Japan and oil-rich countries like Iran should not be a major cause of concern as far as food security at the national level is concerned. (d) For other countries, there is certainly a case for a more carefully worked out system of planning, steering and monitoring the pattern of production, imports and distribution for assured food security. By and large, it is implied that in several countries, the farmers must continue to receive adequate incentives to produce food and other agricultural commodities. In this connection, three basic foundations of agricultural development should be recognized. These are: (a) provision of improved technology of production to the farmers; (b) creation of systems for supply of yield raising inputs including credit to the farmers; and (c) adequate facilities for marketing of farmers’ surpluses at remunerative prices. An efficient agricultural marketing system is of considerable significance for building two of these three foundations. The improvement in the efficiency of the marketing system is the crux of increasing food security in this region. The issue, therefore, is that governments should redefine their role and move away from direct marketing and trade functions to promote cost reducing technologies of production, create marketing infrastructure in rural areas and promote technological changes in marketing practices.
ii. The other important condition of assured food security is physical access to food. The food produced on the farms needs to be assembled and taken to consumption centres. With the increase in specialization in production patterns, the marketing system is assuming increasing importance in assembling and distributing food. The role of the marketing system is also critical in supplying food to the people living in remote, hilly, and inaccessible areas, particularly if their purchasing power is low. The issue, therefore, is what enabling environment and infrastructure should the government create for the normal market forces to transport food for the people of such areas at affordable prices.
iii. Apart from physical access, economic access to food is even more important. This is particularly true of poorer segments of society who do not have adequate purchasing power. As the proportion of poor people is quite substantial in the developing countries of Asia, there are only three options available to assure that they have economic access to food. First, to enhance their incomes or purchasing power by creating and providing employment opportunities. Food for work or employment guarantee programmes are examples of this option. Second, to distribute food to the identified poor families at affordable prices by implementing a programme of subsidized food distribution. Third, keep the open market prices of food at relatively low levels by the compulsory procurement of food at low prices and its subsequent release in the open market. A number of governments have been using a combination of these three options to improve the economic access of the masses to food. It may be mentioned here that the second option involves a considerable amount of food subsidy. Governments in some countries have, therefore, resorted to the third option and protected the interests of farmers by supplying them with key farm inputs at lower prices or user charges. The rationale of food subsidy and farm input subsidies in some countries should be viewed in this context of improving economic access to food and yet assuring a reasonable return to food producers for continued increase in the output of food and other agricultural commodities (Acharya, 2001). However, several questions relating to the financial and environmental sustainability and, consequently, to the economic costs of this option are being raised. The issue is whether the food security of the poor can be assured at a lower social cost by phasing out government subsidies on food and farm inputs and using the budgetary resources thus saved to create marketing infrastructure and technological developments.
iv. The marketing system has a more direct role in improving food security by reducing the losses that occur in the marketing chain during post-harvest handling, transportation, and storage and processing. As already mentioned, in some countries the losses incurred as a result of inadequate marketing infrastructure have been estimated at 10 percent for foodgrains and more than 30 percent for fruits and vegetables. This would require massive investment in the creation of physical infrastructure at all stages of marketing. The issue is whether the governments in these countries have the financial resources to invest in marketing infrastructure and, if not, what enabling environment needs to be created so that the private sector comes forward and makes investments of this magnitude.
v. Reduction in the actual costs of performing marketing functions is the greatest challenge that the agricultural marketing system must address. This will require the introduction of new technologies in performing various marketing functions and changes in the institutional framework to directly link the farmgate with the retail outlets. Training of farmers in grading and packaging (or creating such common facilities at the village level) and making arrangements for transporting farm-packed commodities directly to retail outlets are important options for reducing gross marketing margins (GMM) and thus benefit both farmers and consumers. The suggested options would require increase in the scale of operations as well as investment, apart from technological changes in the marketing system. The issue is: what institutional framework would help in evolving this new agricultural marketing system?
vi. The marketing system can also play an important role in increasing employment opportunities for youth in rural areas. As suggested earlier, creation of drying, cleaning, sizing, grading and packaging yards and facilities in rural areas will, apart from reducing physical losses of agricultural commodities and GMM, create substantial employment in rural areas. However, this would necessitate substantial investment in the agricultural marketing system. A recent exercise for India indicates a potential investment of US$60 billion during the next 10 years, of which about 50 percent can be mobilized from the private sector if complementary investment by the government is made and the institutional framework is made investor friendly (Acharya, 2001). The issue in this context is whether governments in the developing countries of Asia are ready and committed to reorient their agricultural development strategies to build a sound agricultural and rural based economy by strengthening the agricultural marketing system.
4.2 Priorities
Priorities in agricultural marketing system improvements in developing countries of Asia and the Pacific must be guided by the objectives of reducing poverty and food insecurity at a rapid rate. This will depend to a great extent on the accelerated growth of the agricultural sector, increases in rural non-farm sector employment and reduction in interpersonal and interregional disparities in development. Given these as the focus of priorities, there may be a strong basis for continuation and sharpening of some policies and programmes, and at the same time for reformulating others and taking new initiatives. In this context it is relevant to recall the results of a comprehensive study of India’s agricultural policy (Acharya and Chaudhri, 2001) that dispel several myths and provide lessons for the future in terms of policy, particularly that relating to the marketing and pricing of farm products and inputs.
i. The most important lesson is that all interventions in agricultural marketing are not bad. Rather, some interventions are essential and will continue as long as there are tiny farms and landless poor people in Asia. Agricultural price policy, including the provision of subsidized inputs, has helped to achieve an equitable distribution of the gains of technology and public investment between farmers and consumers, improvements in the economic access to food, and the required diversification of the production pattern in agriculture that is consistent with the emerging pattern of demand and the development of backward and dry land areas. However, several policy instruments, which may have been relevant in situations of scarcity, hinder the activities of private trade and should be withdrawn.
ii. Following increased economic access to food, industry and government have been able to keep their wage bills low as wages in the organized sector in India are linked to the index of prices of consumer goods and foodgrains have a considerable weight in this price index. Input subsidies helped the government to keep the food subsidy bill low. The benefits of market intervention policy, including input and food subsidies, have thus been shared by all sections of society, i.e. surplus producing farmers, other farmers who are net purchasers of foodgrains, landless labourers, urban consumers and industry. However, government intervention depressed investment in the marketing system by the private sector. Moreover, the distortions in the prices of inputs have led to some social costs in terms of excessive withdrawal of ground water in certain areas, excessive chemical residues in soils and farm products and, in some cases, wasteful use of such a scarce resource as water. There is, therefore, a need for a thorough review of farm subsidies with a view to rationalizing them within the permissible limits in the framework of the AoA under WTO.
iii. Market intervention by the government has been selective, particularly during the last two decades, but did not adversely affect the integration of the agricultural produce markets. The markets for wheat and rice that demonstrated a high degree of interaction during the 1980s, have certainly become more integrated during the 1990s. However, there are still many restrictions that should be removed to further improve the efficiency of agricultural markets. Some restrictions that need to be phased out include the compulsory levy on rice millers and sugar factories, the statutory rationing of foodgrains in Calcutta, monopoly procurement of cotton in Maharashtra, state advised prices of sugarcane in the northern states, and the imposition of stocking limits on traders by the provincial governments.
iv. Another important lesson from this comprehensive study is that the liberalization of domestic markets must precede the opening up of the external trade regime for the benefits to trickle down to the poorer sections of society.
Based on the foregoing analysis and on the issues raised above, it is evident that in the developing countries of Asia the priorities of agricultural marketing development will vary from country to country, commodity to commodity, and from area to area within a country. However, by and large, the following should be the priorities:
i. Though farmers must continue to receive adequate incentives for producing food and other agricultural commodities, the emphasis should shift from general input subsidies to the provision of cost reducing technologies, support for improvement of post-harvest practices and the evolution of institutional mechanisms to reduce farmers’ price and yield risks. Input and food subsidies should target only the small and marginal farmers and vulnerable sections of the society.
ii. For foodgrains to reach inaccessible areas, the emphasis should shift from direct handling of grains by public agencies to the provision of infrastructure such as rural roads and godowns and encouraging the involvement of the private sector or farmers cooperatives in handling grains.
iii. A programme of supplying subsidized food should remain in place for food insecure populations till their purchasing power improves. But rather than government agencies directly handling the grains, this should be done by the private sector or local self-governing institutions.
iv. While direct government intervention in the marketing of food and other agricultural commodities should be phased out, governments should play a more active role in: (a) encouraging grading, standardizing, and monitoring quality standards at all the stages in the marketing chain; (b) promoting farmers or consumers groups to undertake various functions of marketing; (c) promoting value-addition and processing facilities for agricultural products; (d) collecting, compiling and disseminating market and outlook information; (e) training farmers in post-harvest handling of farm products; and (f) undertaking or promoting research and studies relating to changes in farm incomes, real prices of food, terms of trade for the agricultural sector, physical losses in the marketing chain, gross marketing margins and malpractices in the marketing system.
v. To improve the efficiency of the agricultural marketing system considerable investment in physical infrastructure is required. This should include:
a) creation of some minimum physical facilities for drying, cleaning, sorting, grading and packaging, and covered sheds, auction floors and parking spaces in the villages and periodic market places;
b) establishment of primary wholesale market yards for a group of villages or in towns with all of the above facilities plus auction platforms, grading and quality testing laboratories, storage godowns, cold stores, processing units, packaging plants, and garbage disposal systems;
c) construction of link roads to connect all the village and periodic markets with primary wholesale markets;
d) development of secondary wholesale market yards at district or divisional headquarters with all the above facilities at a higher level;
e) development of mega markets and food parks in cities or terminal markets with a higher level of all the above facilities;
f) establishing processing and value addition facilities and plants within the market yards or in the neighbourhood;
g) creation of storage facilities and warehouses including multi-channel and multi-purpose cold stores in the market yards;
h) provision of refrigerated vans for transportation of perishable commodities from one market to the other; and
i) establishing linkages between all levels in the hierarchy of market yards with telephones, fax and Internet connections, and allowing electronic trade.
vi. With a view to encouraging the private sector to make investments in marketing infrastructure at the required scale, the regulatory framework in various countries will need to be changed significantly. Such changes would include:
a) liberalization of norms for extending credit facilities to entrepreneurs for agricultural marketing activities;
b) changes in the market regulatory framework to allow private entrepreneurs to establish market yards and other related facilities;
c) changes in the cooperative laws to allow farmers cooperatives to work along corporate lines and compete with private trade;
d) review of several other legal instruments to facilitate the entry of entrepreneurs in marketing activities; and
e) making provisions to allow private entrepreneurs to cover price and yield risks for farmers.
vii. Considering that most governments will continue to pursue a policy of maintaining certain levels of buffer stocks of staple foodgrains, multilateral collaborative arrangements at regional level might help to reduce the public cost of carrying undue stocks at individual country level. FAO can take a lead in this endeavour.
5. THE ROLE OF FAO
5.1 Medium Term Plan 2002-07 and Plan of Work and Budget 2002-03
The medium term (2002-07) plan of FAO includes several initiatives for reducing poverty and food insecurity. Under the programme (2.1.4) related to agricultural support systems, the following technical projects (TP) have a direct or indirect relationship with agricultural marketing systems:
i. A 1 entitled Enhancing small farmer livelihoods is aimed at improving the livelihoods of small farmers, particularly in terms of their incomes and competitiveness. This is planned to be achieved by means of inter alia: (a) undertaking comparative studies on trends affecting small farm commercialization and competitiveness and advising countries on supportive policies and the effectiveness of sustainable livelihood approaches; (b) appraisal and promotion of opportunities for increasing farm incomes; (c) providing field guides and training materials for improving managerial skills in small farm businesses; and (d) assistance to countries for strengthening small farmer advisory and support services (including for assessment of advisory and support service requirements, guidelines and training to reinforce marketing information systems and marketing extension, and field guides on self-help community action relating to agricultural support services).
ii. A 2 entitled Meeting urban food needs is aimed at providing a basis for government and municipal authorities to identify changes needed to improve the efficiency of food supply and distribution operations to, and within, urban areas. This is planned to be achieved by means of inter alia: (a) assistance in the analysis and identification of solutions to enhance rural-urban linkages; (b) policy, planning and investment support tools for city and local authorities to enhance the efficiency and safety of food marketing systems in urban areas; (c) guidelines, strategies and analytical frameworks to identify technologies for value added products to satisfy increasing and changing urban food needs, while reducing post-harvest losses and increasing the utilization of residues and waste products.
iii. A 3 entitled Sustainable commercial provision of input supply, mechanization, investment support and marketing services is aimed at supporting improvement in the performance of the agricultural sector through increased efficiency of input-output systems and private and government services. This is planned to be achieved by means of advice in the formulation of policies for sustainable provision of commercial services including inputs, finance and marketing. The major output planned is in the form of guidelines, bulletins, training materials, workshops and software systems
iv. A 4 entitled Agribusiness development is aimed at enhancing the integration of production, processing, packaging, transport and storage of marketed commodities and value-added products from the farm through the consumer and supporting entrepreneurs in rural and peri-urban agribusiness development. The major output planned is elaborated management tools for entrepreneurs, together with related information and training packages, promotion of appropriate technologies for agro-industries and post-harvest management and related training, identification of opportunities for strengthening farm-agribusiness linkages, a post-harvest analytical framework to determine functional inefficiencies and advise on policy, management and infrastructure adjustments to the post-harvest system.
The programme of work and budget (PWB) for biannual 2002-03 specifies the output, which includes:
i. publications on diversification, export oriented production, opportunities for increasing farm income and farmers’ management skills; and guides on farmer utilization of market information services;
ii. information and training material, and workshops on the role of city and local authorities in improving food supply and distribution systems, including rural-urban marketing linkages; and advice on small-scale agro-industries suitable for meeting urban food needs;
iii. economic and policy studies on farmers access to services, and guidelines on marketing strategy formulation in response to growing globalization of trade; and
iv. training packages for entrepreneurs in agribusiness; support to awareness campaigns on food safety issues in food processing and marketing; appropriate technologies for agro-industries and post-harvest management; expert consultations; and post-production constraints analysis in selected countries.
For many of the marketing related training and experience-sharing activities, FAO has actively collaborated with the Association of Food and Agricultural Marketing Agencies in Asia and the Pacific (AFMA), an institution promoted and supported by FAO. Several training programmes, seminars and workshops on various aspects of agricultural marketing have been organized jointly by FAO and AFMA. Since the inception of AFMA, more than 60 such programmes have been organized. The published reports of some of them are available. The main commodities covered in these programmes are foodgrains, fruits, vegetables, livestock and livestock products. In recent years, seminars or workshops have covered such important themes as market liberalization, the legal framework of agricultural marketing, and experience with regulated markets. Seminars on trade issues in food security, commercialization of governments’ grain handling agencies, and credit for agricultural marketing activities are being planned during the current biannual period.
5.2 Suggested new initiatives
A review of the medium term plan (2002-07) and PWB for 2002-03 suggests that FAO has several important programmes for helping countries to improve their agricultural marketing systems. However, considering the emerging importance of internal agricultural marketing policies in the context of liberalization of external trade in agricultural commodities, and of fulfilling the commitments made by these countries as a part of the AoA under the WTO and the persistent problem of poverty and food insecurity, FAO may wish to take a more active stance by way of direct support in providing capacity building services, establishing information networks, sponsoring comparative studies and providing a forum for sharing experiences in the following areas:
i. Maintenance of a Cross-country Information Network on Key Elements of Agricultural Marketing Policies and Marketing Systems in the countries of Asia and the Pacific.
Examples of the key elements are: (a) commodities covered under the minimum price guarantee programme and quantities of output purchased every year; (b) commodities covered under compulsory procurement at pre-determined prices and quantities procured; (c) buffer stocks, their size and how built and operated; (d) public distribution system - size, scale, population targeted, prices and subsidy; (e) farm input subsidies - how administered, direct or indirect, targeted farmers and volume; (f) total number of agricultural produce markets of different hierarchical levels and how many developed; (g) estimates of marketed surplus and share of government, private sector and farmers cooperatives in its trade; (h) village level infrastructure in terms of connectivity by roads, telephone, fax and Internet; (i) capacity of storage godowns, cold stores and refrigerated carriers; (j) commodities for which grade standards prescribed and proportion of graded products in total trade; (k) trends in real prices of staple foods; and (l) annual series of prices of major agricultural commodities (e.g. rice, wheat and soybeans) traded in the international market.
A detailed questionnaire can be prepared and comparable information for all the countries compiled. This would help to make an objective assessment and dispel false perceptions about some countries. This ought to be a regular practice, e.g. once in three years, and the results should be widely shared and disseminated. There may be some concealment of information, but that should not be a matter of serious concern. The proposed AFMA Web site can be used to disseminate the information.
ii. Comprehensive Review of Current Agricultural Marketing Policies and their Relevance for Household Food Security and Poverty Alleviation
The review may specifically focus on: (a) price guarantees to farmers; (b) subsidies on farm inputs and the share of small farmers; (c) buffer stocking operations; (d) policies relating to land and labour markets; (e) subsidized distribution of food under various programmes; (f) trends in real prices of staple foods; and (g) agricultural marketing related laws and regulations.
There is a plethora of overlapping policies and regulations, and this hinders the functioning of the agricultural marketing system. Some of these are well-intentioned policies and programmes, but because of ineffective implementation they often invite criticism from many sections. The cross country objective review of these, along the lines of the Indian study, may help governments to assess the real impact on the poor and the food insecure and, accordingly, to reformulate policies and programmes and thus help to improve the functioning of the marketing system.
iii. Support for Reduction of Farmers’ Price Risks
One of the major problems faced by farmers in Asia, particularly those with small marketed surpluses, is the uncertainty of yield and prices. The crop insurance schemes introduced in some countries have had only partial success. To cover the price risk, minimum price guarantee programmes are being operated by several governments. However, several questions relating to the effective implementation and sustainability of these programmes are being raised. Moreover, as the countries are progressively liberalizing their external trade regimes and reducing government intervention in domestic markets, the price risks for the farmers are likely to increase. It is politically difficult to sustain liberalization policies when they expose the farmers to the full brunt of international market fluctuations without providing some mechanisms to allow them to manage their risks. It is in this context that mechanisms to manage price risks for farmers effectively need to be devised and put in place. A long-term solution to reduce price risks for farmers would be to develop, evaluate and implement market based approaches, including commodity price insurance mechanisms and futures trading in agricultural commodities. FAO may help selected countries to evolve an institutional framework for price insurance and assess the possibilities of promoting futures trading for reduction of price risks at the farmers’ level.
iv. Capacity Building and Support in the Area of Planning for a Hierarchy of Agricultural Produce Market Yards
This should include all levels of markets, i.e. village markets, primary wholesale markets, secondary wholesale markets, city markets and terminal or mega markets. Capacity building and support is needed in terms of assessment of the facilities required with a perspective of 25 years, for example; investment requirements; motivation of the private sector for investment at least in some areas and facilities; and mobilization of public resources for others. In Thailand, private wholesale markets are reportedly functioning very well. Such examples can also be brought out as case studies so that other countries could derive lessons from them.
v. Support for Technology Assessment and Development
The production of some commodities such as fruits and vegetables is increasing, but considerable losses occur in the marketing chain mainly because the varieties grown are not suitable for processing, and appropriate packaging technologies are not being used or are not available. Projects to develop appropriate packaging technologies can be initiated in some countries for selected commodities. Apart from this, the establishment of quality testing laboratories with equipment and specification of grade standards is another area where support from FAO can contribute significantly to improving the marketing system.
vi. Support for Assessment and Investment in Marketing Infrastructure
Huge losses of agriculture produce in the marketing chain are mainly the result of the lack of infrastructure, including rural roads, marketing yards, storage godowns, multipurpose cold storage facilities, refrigerated carriers, grading facilities, quality testing laboratories, food processing units and communication networks. The investment requirement is quite substantial. Most of the federal and provincial governments are already facing financial difficulties. The private sector can be attracted to invest in such infrastructure, but it needs an enabling environment. Support to countries to assess the investment requirements and develop feasible projects for mobilizing financial resources from international financial institutions can help to improve the situation. FAO has formulated guidelines for market infrastructure planning (FAO, 1999) and these can be used to develop national and provincial level market infrastructure projects.
vii. Support for Developing Alternative Marketing Channels
Linking the farmgate with retail outlets is the surest way to reduce losses and marketing costs and thereby increase marketing efficiency. But it requires an institutional framework and infrastructure to prepare the produce in the villages in the form of packages demanded by the consumers. For this, both increases in scale and technological changes are called for. Organized corporate management is the right model for this purpose. However, if farmers groups with corporate type management come forward, the benefits of scale and technology are likely to trickle down to the small farmers. Apart from this, a strategic alliance between small and medium size enterprises established by farmers cooperatives and large scale enterprises can help to reap the benefits of scale and technology in agricultural marketing. There are already some such initiatives in a few countries. For example, in the Republic of Korea, agricultural marketing wholesale centres, agro-products processing complexes and agricultural marketing complexes have been functioning in the cooperative sector. An assessment by FAO of these innovations and some more initiatives in this area in selected countries may be quite helpful.
viii. Support for Safety Nets for the Food Insecure
Some safety nets for the food insecure are already in place in various countries. Some of these are being questioned by those who believe that the market can take care of food security. However, the governments will have to continue to play an even greater role in providing safety nets for some sections of society. These include school age children of poor families, disabled and old people, households with no working adult and transient poor families such as those affected by droughts, earthquakes, floods, cyclones, landslides or armed insurgencies/conflicts. Quite a few such programmes are in operation in Bangladesh, Thailand and India. The lessons learnt in terms of the reasons for their successes and failures in these countries would be quite helpful for others. Further, several national governments would need support in terms of planning, implementing and/or financing safety nets for such sections of society.
ix. Support and Capacity Building for Marketing System Research
As countries move from command or planned economies towards liberalized, market driven economies, the sequencing of government withdrawal becomes extremely important during the transitional period (Acharya, 2001). In this period, various interest groups try to influence the government policy reforms, particularly in terms of their sequencing. Unless an impact assessment of existing policies is objectively carried out, the small and poor farmers and the food insecure may bear the brunt in the transition period. In this context, an objective assessment of the following outcomes and processes of the existing agricultural marketing system could be of considerable advantage to several countries in reforming their existing marketing policies:
a) barter and income terms of trade for the agricultural sector as a whole and for groups of commodities;
b) decomposition analysis of gross marketing margins for key agricultural commodities;
c) intra-year and inter-regional price spreads and integration of agricultural markets;
d) cost of marketing by public agencies compared to private trade;
e) share of government agencies, private traders and farmers cooperatives in total trade;
f) cost of stocks held by the government agencies compared to private trade;
g) optimum requirement of buffer stocks for food security.
h) role of futures markets in reducing farmers’ price risks and fluctuations in prices.
i) trends in real prices of staple foods.
x. Support and Capacity Building to Assess the Requirements of Human Resources and Training in Agribusiness and Agricultural Marketing
Although there has been considerable expansion in the training facilities in business management and agricultural production technology, training facilities in the area of agribusiness and agrimarketing management are limited. In fact, even an adequate assessment of the needs for human resources in this emerging important area has not been made. Considering the level of anticipated investment in agricultural marketing infrastructure and the vast expansion in the demand for marketing services, many countries of this region would need support to assess the requirements for/human resources and training in agribusiness and agricultural marketing. In this context, it needs to be pointed out that on the initiative of FAO, an institute catering to the training and research needs in the field of agricultural marketing in the Asian region was set up in the late 1980s at Jaipur in the Indian province of Rajasthan. The institute, which was initially known as the Centre for Agricultural Marketing, is now called the National Institute of Agricultural Marketing and is fully funded by the Ministry of Agriculture, Government of India. The Institute has been provided with reasonably good physical infrastructure in terms of land and buildings, but it has not ‘taken off’ and made significant contributions in agricultural marketing research and training for a variety of local reasons. The technical and other support of FAO to help raise this Institute to the level of an Asian Institute of Agricultural Marketing Training and Research could significantly contribute in the area of human resource development, training and research in agricultural marketing in this region.
xi. Regional Cooperation in Buffer Stocking of Cereals
As already mentioned, for food security reasons most of the countries of the region pursue a policy of buffer stocking of cereals and will continue to do so in the foreseeable future. If the decisions relating to the level of stocks are taken by the national governments, the sum of national level stocks is usually considerably higher than the stocks desired from the global or regional perspective. In this context, a multilateral collaborative arrangement can help to reduce the public cost of carrying undue stocks at the level of individual country. The member countries of ASEAN have already initiated dialogues on the modalities of food security cooperation and a rice reserve management system in East Asia. The desirability of establishing a food security information system is also being discussed at different levels in the region. FAO can take a lead and work out a model for cereal buffer stocking for Asia and the Pacific in consultation with the countries of the region.
Acknowledgements
I am grateful to FAO for giving me the opportunity to work on this important issue. I am also grateful to R.B. Singh, ADG and Regional Representative for Asia and the Pacific for sharing his concerns relating to agricultural marketing in this region, and for making available various facilities during my stay in Bangkok. My grateful thanks are due to Ralph Houtman for the logistical support, several rounds of discussions, and for very useful suggestions on the earlier drafts of this paper. I am extremely grateful to Edward S. Seidler, Senior Officer, Marketing and Farm Supply Group of FAO, Rome, for his observations on an earlier draft and for useful suggestions for its improvement. My grateful thanks are also due to M.R. Satyal, Executive Director, AFMA, for useful discussions, sharing the literature available at AFMA and for providing comments on the first draft of the paper. I also express my sincere thanks to T.C. Ti and D.B. Antiporta for helpful discussions on important issues in agricultural marketing. Words fail to express my deep sense of gratitude to Pieter Ypma, APO for his ever-willing help in facilitating my work in various ways and also for helpful suggestions on an earlier draft of this paper. Finally, I also record my sincere appreciation for the secretarial assistance provided by Ms Truchai in the preparation of the paper.
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Appendix 1
A Conceptual Framework of National and Household Food Security
|
Major Dimensions of Food Security |
Factors Influencing National Food Security |
Factors Influencing Individual or Household Food Security |
|
Availability of Food |
1) Availability of resources - natural, man made, human 2) Use of resources and levels of domestic production of food 3) Availability of food outside the country |
1) Resources commanded by the household to produce food or access it from outside 2) Actual on -farm production of food 3) Availability of food in the neighbourhood |
|
Access to Food |
1) Capacity to access food from outside the country - both physical and economic 2) Prices of food in the international market 3) Infrastructure and marketing system to distribute and transfer food in all the areas |
1) Level of income to command food not produced by the household 2) Availability of food in the open market or entitlement from subsidized distribution system 3) Level of food prices in relation to income |
|
Utilization of Available Food |
1) Wastage of food at different stages of the marketing chain 2) Socio-economic factors, including educational levels which influence dietary habits and consumption patterns 3) Health status of the masses |
1) Education and social status, both of which influence spending behaviour and intra-household allocation of food among members of the family, particularly women and children 2) Place of women in the family 3) Health status of members of the family - good health necessary to absorb minimum nutritional needs |
Source: Acharya, 1999.
Appendix 2
Rural and Farming Population in the Asia and Pacific Region
|
Countries |
Rural (1995) (%) |
Farming Population (1996) (%) |
Rural Non-farm Population (%) |
|
1 South Asia |
|
|
|
|
Bangladesh |
82 |
61 |
21 |
|
Bhutan |
94 |
94 |
0 |
|
India |
73 |
57 |
16 |
|
Iran |
41 |
35 |
6 |
|
Maldives |
73 |
29 |
44 |
|
Nepal |
90 |
93* |
0 |
|
Pakistan |
66 |
50 |
16 |
|
Sri-Lanka |
78 |
46 |
32 |
|
2 Southeast Asia |
|
|
|
|
Cambodia |
80 |
73 |
7 |
|
Indonesia |
65 |
49 |
16 |
|
Lao PDR |
79 |
77 |
2 |
|
Malaysia |
46 |
21 |
25 |
|
Myanmar |
74 |
72 |
2 |
|
Philippines |
46 |
41 |
5 |
|
Thailand |
80 |
55 |
25 |
|
Viet Nam |
81 |
69 |
12 |
|
3 Central North Asia |
|
|
|
|
China |
70 |
71* |
0 |
|
DPR Korea |
39 |
33 |
6 |
|
Mongolia |
39 |
28 |
9 |
|
Republic of Korea |
19 |
12 |
7 |
|
4 Pacific |
|
|
|
|
Cook Islands |
40 |
37 |
3 |
|
Fiji |
59 |
44 |
15 |
|
PNG |
84 |
77 |
7 |
|
Samoa |
79 |
34 |
45 |
|
Solomon Islands |
83 |
75 |
8 |
|
Tonga |
59 |
38 |
21 |
|
Vanuatu |
81 |
41 |
40 |
|
5 Developed Countries |
|
|
|
|
Australia |
15 |
4 |
11 |
|
Japan |
22 |
5 |
17 |
|
New Zealand |
14 |
10 |
4 |
Source: Selected Indicators of Food and Agriculture Development in Asia- Pacific Region 1988-1998, FAO,1999
* Some farming is done by non-rural residents
Appendix 3
Imports and Exports of Cereals in the Asia-Pacific
Region
(Thousand Tonnes)
|
Countries |
Imports |
Exports |
Net Imports |
Production* |
Imports as |
|||
|
|
TE 1988 |
TE 1998 |
TE 1988 |
TE 1998 |
TE 1988 |
TE 1998 |
TE 1998 |
TE 1998 |
|
Bangladesh |
2 095 |
2 530 |
0 |
0 |
2 095 |
2 530 |
20 006 |
11.2 |
|
Bhutan |
29 |
52 |
0 |
0 |
29 |
52 |
94 |
35.6 |
|
Cambodia |
103 |
36 |
0 |
7 |
103 |
29 |
2 292 |
1.6 |
|
China |
18 506 |
13 098 |
6 040 |
6 334 |
12 466 |
6 764 |
379 750 |
3.4 |
|
Cook Islands |
3 |
1 |
0 |
0 |
3 |
1 |
0 |
100.0 |
|
DPR Korea |
533 |
1 205 |
229 |
0 |
304 |
1 205 |
2 567 |
31.9 |
|
Fiji |
86 |
117 |
0 |
3 |
86 |
114 |
13 |
92.1 |
|
India |
1 074 |
1 714 |
440 |
3 911 |
634 |
-2 197 |
177 739 |
1.0 |
|
Indonesia |
1 818 |
5 909 |
71 |
225 |
1 747 |
5 684 |
41 651 |
12.5 |
|
Iran |
4 610 |
7 110 |
0 |
2 |
4 610 |
7 108 |
15 823 |
31.0 |
|
Lao PDR |
71 |
60 |
0 |
4 |
71 |
56 |
1 116 |
5.1 |
|
Malaysia |
2 167 |
3 996 |
28 |
273 |
2 139 |
3 723 |
1 329 |
79.1 |
|
Maldives |
21 |
34 |
0 |
0 |
21 |
34 |
0 |
100.0 |
|
Mongolia |
52 |
123 |
136 |
0 |
-84 |
123 |
218 |
36.1 |
|
Myanmar |
0 |
49 |
409 |
169 |
-409 |
-120 |
11 853 |
0.4 |
|
Nepal |
43 |
50 |
15 |
1 |
28 |
49 |
5 134 |
1.0 |
|
Pakistan |
963 |
2 337 |
1 267 |
1 784 |
-304 |
553 |
23 501 |
9.7 |
|
PNG |
212 |
351 |
0 |
0 |
212 |
351 |
10 |
97.2 |
|
Philippines |
1 109 |
3 427 |
37 |
0 |
1 072 |
3 427 |
10 924 |
23.9 |
|
Republic of Korea |
8 512 |
12 040 |
3 |
20 |
8 509 |
12 020 |
5 211 |
69.9 |
|
Samoa |
8 |
18 |
0 |
0 |
8 |
18 |
0 |
100.0 |
|
Solomon Is |
18 |
30 |
0 |
0 |
18 |
30 |
0 |
100.0 |
|
Sri Lanka |
804 |
1 227 |
1 |
2 |
803 |
1 225 |
1 550 |
44.2 |
|
Thailand |
249 |
958 |
7 175 |
5 903 |
-6 926 |
-4 945 |
19 612 |
6.5 |
|
Tonga |
7 |
8 |
0 |
0 |
7 |
8 |
0 |
100.0 |
|
Vanuatu |
11 |
13 |
0 |
0 |
11 |
13 |
1 |
92.8 |
|
Viet Nam |
547 |
549 |
157 |
3 867 |
390 |
-3 318 |
19 625 |
3.4 |
|
Sub Total |
43 651 |
57 042 |
16 008 |
22 505 |
27 643 |
34 537 |
740 019 |
7.4 |
|
Australia |
27 |
44 |
18 398 |
21 344 |
-18 371 |
-21 300 |
32 119 |
0.4 |
|
Japan |
27 644 |
27 272 |
392 |
518 |
27 252 |
26 754 |
8 718 |
76.9 |
|
N Zealand |
100 |
257 |
201 |
24 |
-101 |
233 |
930 |
22.1 |
|
Sub Total |
27 771 |
27 573 |
18 991 |
21 886 |
8 780 |
5 687 |
41 767 |
58.1 |
|
TOTAL |
71 422 |
84 615 |
34 999 |
44 391 |
36 423 |
40 224 |
781 786 |
10.3 |
|
Rest of World |
144 462 |
160 898 |
184 170 |
202 362 |
-39 708 |
-41 464 |
1 092 906 |
15.3 |
|
WORLD |
215 884 |
245 513 |
219 169 |
246 753 |
-3 285 |
-1 240 |
1 874 692 |
|
Compiled from FAO Year Book on Production and Trade & Commerce for 1988 and 1998
TE = Triennium Ending
* This refers to officially recorded production figures only. Countries with no official record of production are likely to be producing small amounts.
|
[1] In a broader sense, all the
functions performed in transferring farm inputs from the point of production to
the farmers are also a part of agricultural marketing. (see for example Acharya
& Agarwal, 1998) [2] For a detailed description of the mechanics of formulating agricultural price policy in India, see Acharya & Agarwal, 1994 [3] For details, see Acharya, 1998 |
