Chapter 6 - Eight common mistakes in horticultural marketing

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Important lessons can be learnt from failures, as well as the successes identified in Chapter 2. This chapter examines some of the most common misunderstandings of horticultural marketing and the mistakes made.

Fixed-price buying by governments

Fruit and vegetable production can be highly risky with market prices sometimes being too low to cover costs. As a result there is often an outcry, particularly from growers, for the government to buy horticultural produce at fixed prices.

Whenever schemes like this have been introduced growers have responded by expanding production. They do this because government prices guarantee profitable, risk-free production which bears no relation to demand. Large volumes of produce are wasted. These schemes are a great drain on government resources which could be spent better elsewhere, for example by stimulating local demand or developing new markets.

Food processing to utilize surpluses

When prices are forced down because of over-production, it is often recommended that a food-processing plant be established to utilize the surplus.

Successful, profitable and self-sustaining food-processing industries cannot be based on the occasional supply of raw material when the fresh market is glutted. Horticultural processing requires expensive investment in machinery. It is crucial to make optimum use of the equipment and minimize idle time. Successful plants have to have a guaranteed supply of raw material and must produce products for which there is a demand. Food processors enter into contracts with growers to ensure that supply is evenly extended over the longest possible supply season.

An integrated production/marketing chain

Mechanized grading

It is often felt that mechanized grading will improve the quality of produce.

Grading never improves quality, it merely separates qualities. High quality produce is mainly dependent on growing conditions, the production techniques used and post-harvest handling. Mechanized graders are very good at separating produce into different sizes. This is the least important aspect of grading. The most important is separating into different quality grades.

This can only be effectively done by the human eye. It is a common and recurring mistake that technology-particularly high technology-will in itself solve problems. Far greater advances can be made by improving management and adapting existing systems. Investment in expensive machinery may be a later requirement of an ongoing, successful, grading operation. If centralized grading is to work, then capital investment costs need to be minimized. Equipment such as grading tables can be made by local carpenters following a simple design. In the first instance the only mechanized equipment necessary is likely to be a conveyor which moves the produce past quality control staff. Expensive grading lines are normally only necessary if very large volumes of produce are being packed and graded for developed markets.

National grading standards for the domestic market

It is often recommended that horticultural marketing will be improved by the imposition of national grading standards.

Although national standards can probably be justified for export, when compulsory minimum standards are introduced for the home market it will put up prices to the consumer. This would be entirely detrimental because it would lower consumption and reduce the size of the local market. Ideally policy measures should reduce prices and thereby increase consumption.

Grading is generally introduced by the industry itself when the consumer is willing pay a higher average price for the sorted product. Very often informal and flexible grading standards are used, which respond to the market requirements and state of supply and demand. Any attempts to force sorting on to the horticultural industry before then will be almost impossible to police, will waste government resources and will fail.

Generally the first growers to sort produce will get a high premium for their Class 1 and a low discount for their Class 3. As more growers take up grading, the increased supply of Class I may force down the price to the point where it no longer pays to grade. The viability of grading depends on whether sufficient consumers are willing to pay the extra price involved.

In practice grading and sorting will take place throughout the marketing chain. Some grading, particularly of fruit, takes place in the field. Further grading often takes place at the wholesale and retail level so that damage caused by transport and delay can be dealt with. With re-grading, a balance has to be achieved between the higher price for more uniform quality and the increased damage from grading itself.

Storage of produce to exploit price rises

It is commonly thought that, in times of oversupply, produce can be held in storage and marketed when price rises occur.

Most horticultural crops are only suitable for short-term storage, maybe only a few days. Storage is expensive and detracts from freshness and quality. In most situations, when the produce is brought out of store it has to compete with freshly arrived produce. The result is reduced prices and the farmer has to pay for the storage costs as well.

Relatively few crops are suitable for long-term storage. These crops should be put into storage directly after harvesting. If prices are low at harvest growers will react en masse to put a higher proportion of produce in storage. As a result when these crops are marketed out of storage there is fierce price competition. Storage in production areas is often not successful because the storage facilities are under-utilized for most of the year and are therefore uneconomic.

Government-run trading operations

Middlemen and traders are often accused of making excessive profits. Government-run horticultural trading operations are thought to result in improved grower returns and lower consumer prices.

In practice most government-run enterprises marketing horticultural produce are failures and can only cover costs if they have some special monopoly, e.g. importing food products. Amongst the most common reasons for their failure are:

Horticultural marketing is a highly competitive business requiring strong entrepreneurial and trading skills. Decisions have to be made rapidly and long hours worked, and civil services are not set up to operate in this way.

In export marketing, however, there are many examples of governments successfully establishing a single organization to oversee the development and promotion of horticultural exports. These organizations have the advantages of:

Generally the activities of support and control are allocated to the public sector, leaving the trading and business functions in the hands of the private sector.

Ultra-modern post-harvest techniques

Very often the level of post-harvest losses is claimed to be very high in developing countries. The introduction of post-harvest techniques used in highly developed societies, such as sophisticated packaging and cool chain techniques is expected to reduce crop wastage.

Most modern post-harvest techniques are also very expensive, requiring a high initial investment in imported equipment. They also require highly trained staff and managers and immediate access to spares and skilled technicians.

For example, cardboard cartons can only be used once. They require considerable investment in manufacturing facilities and the continued importation of raw materials. Cool chains require specialized refrigerated stores close to the production areas in order to remove the crops' field heat, as well as refrigerated vehicles. Refrigerated containers are very expensive and the produce stored in this way should then be held in refrigerated counters even in the retail shop. The system is only practical and viable when an integrated chain is established, which requires a substantial coordinated investment, often from different firms, and when large volumes of produce are handled.

These technologies are very often inappropriate for developing countries because the costs are greater than the savings. They work best in countries with a highly developed infrastructure, i.e. good roads, reliable and cheap electricity supply, a highly skilled workforce and easy access to spare parts. Most importantly, the consumer must be prepared to pay a higher price for the produce. High technology like this does not work well in isolation. Newly introduced technologies should not be significantly more advanced than the general level of technology in a society. They should also be carefully costed to ensure that they do not add to the costs of marketing and distribution.

Change for the sake of change

A marketing adviser or an extension officer with special responsibilities for marketing may feel obliged to make changes to the existing marketing system. What is not often fully appreciated is that most marketing systems have evolved and will continue to respond to changing market requirements. Generally there are very good reasons why they function as they do. Like all systems a marketing system will be imperfect. However, if the system functions reasonably well, if there is competition and if produce is well distributed around the country then any marketing adviser should be extremely wary of trying to impose unnecessary changes, which may destroy what he is trying to improve. When change is not necessary, it is necessary not to change.

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