Part A - Introduction

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The following two chapters broadly review the background to wholesale marketing, how it is evolving and the design approaches that can be adopted in formulating projects for the construction of new markets and the improvement of existing markets.

Although much has been written on the subject of wholesale marketing, there is a dearth of information on the practical aspects of market planning. There is a particular need for a simplified methodology for planning and design which would act as a "drawing-board aid" and provide a systematic approach to the preparation of development proposals. For general application, a manual needs to be very broad in scope, taking into account the wide range of issues (economic, social, environmental, planning, engineering and management) that are involved with any market expansion and improvement programme.

1. Changing role of wholesale markets

Food is the most basic of human needs In less-developed countries any improvement in food marketing will have a significant impact on the poorer sections of the community. The proportion of the household budget spent on food for lower income families tends to be much higher than for the wealthy and may be between 50 - 60 percent of the total family income. For the very poor, expenditure on food may rise to 70 - 80 percent.

The function of wholesale markets

The consumption and production of marketed food are spatially separated. Production is generally in rural areas and consumption primarily in urban areas. Marketing is the process that overcomes this separation, allowing produce to be moved from an area of surplus to one of need. The concern of this manual is the planning and design of physical infrastructure that will be required for part of this process, the wholesale marketing of fresh produce, primarily fruits and vegetables.

The purpose of wholesaling. Food reaches the consumer by a complex network, involving production, assembly, sorting, reassembly, distribution and retail stages. A simplified diagram showing this process is illustrated in Figure 1. The social institution or mechanism that forms the linkage between the producer (farmer) and the retailer is the assembly and wholesale trading system, which enables farmers to sell in small quantities and purchasing by traders and wholesalers to be made in bulk.

Figure 1 The operation of a food marketing system

Figure 2 illustrates how this process operates. Without wholesalers, retailer would need to purchase directly from farmers, involving many minor transactions. With both rural assembly and wholesale markets, the number of transactions is reduced and the marketing process simplified. In this case, the retailer does not need to concern himself with any of the sorting, reassembly or distribution functions and concentrates solely on selling to consumers.

Wholesaling facilitates the economic function of buying and selling (usually termed as "price formation") by allowing the forces of supply and demand to converge to establish a single price for a commodity. The assembler or wholesaler may also perform a storage and warehousing function, as well as allowing economies of scale to be obtained in the transportation of produce from farm to market. The people involved in wholesaling can act simply as merchants, buying and selling produce, be brokers dealing in orders rather than goods, be commission agents (or factors) acting for the producers (and without title to the produce) or be export/import agents, only dealing in foreign trade.

Figure 2 Impact of wholesaling

How food reaches consumers. In a rural subsistence economy the source of food mainly comes from what is grown on the farmers' own land, supplemented if possible by purchases in local rural markets. For urban areas the sources of food are more diverse and will vary greatly depending on economic and cultural factors. The most obvious source will be market stallholders or conventional retailers operating from fixed premises, who will receive their supply from wholesalers and, perhaps, directly c from producers.

In less-developed economies, sources of supply other than from formal retailers are frequently of equal significance and are particularly important for the urban poor. There is often a petty commodity or informal sector, which is largely carried out by hawkers, who typically supply fresh and cooked produce. There is usually also subsistence production within the city from household or backyard gardens.

Production from household gardens. In some Chinese cities over 85 percent of the food consumed is grown within the municipal boundaries (although these cities do have extensive administrative areas). These are rather extreme cases but figures of 10 - 30 percent are quite common. In Jakarta, for instance, the household's own production accounts for around 18 percent of the total consumed, although this varies with income and occupation of the household head. Surveys in Western countries have also concluded that production from kitchen gardens makes a significant contribution to the household diet, with 10 -20 percent of the domestic plot area often being given over to food production.

International trends in wholesale and retail marketing

Wholesale markets develop in a number of of stages. They start as general markets, then become more specialized by trading in a limited range of produce. A later stage is to deal with samples of produce and finally to transact only graded produce. A recent trend in Western Europe and the USA is to by-pass the wholesale market system. Direct links are created between producers and supermarket chains, usually by means of contract farming arrangements.

Very few new wholesale markets have been created in developed countries in the last decade, although old markets have been relocated to new sites. Those that already exist have tended to also attract warehouses for integrated food distribution, changing their role to "food centers" (in the USA) and including other non-fresh food products. Wholesale markets still have a role in the marketing of horticultural produce but the traditional fresh meat and fish wholesale markets, particularly those dealing with live produce, are generally being closed down in major urban centres. rends in retailing. In less developed countries the retail sector will Lend to be located in traditional markets and small-scale shops, but with the growth of integrated food distribution systems the use of these facilities is likely to decrease. Supermarkets and hypermarkets will become more important sources of supply. A typical example of the changes in food distribution that are likely to occur with economic development is illustrated in Figure 3.

Urbanization. and trends in consumption . With rapid urbanization and increases in income, the general long-term trend in food distribution of less-developed countries will be for per caput consumption of horticultural produce to rise, accompanied by changes in dietary preferences, often along Western lines. Expenditure on food becomes increasingly elastic, allowing discretionary purchases of non-staple, often imported, foodstuffs.

Changes in work patterns, particularly the employment of women, and the impact of technological innovations in post-harvest handling, food processing and storage, including the use of domestic refrigerators, tends to encourage the development of one-stop shopping at supermarkets, usually on a once-a-week basis. In Hong Kong, for example, the number of supermarkets grew from 62 in the mid 1970s to 655 by the mid 1980s, when they accounted for around 55 percent of retail food sales. This rejects what has occurred in Western Europe. In Sweden supermarket sales of vegetables in 1990 accounted for 90 percent of the total, whilst in England, France and the Netherlands they were around 55 percent. Supermarket sales in Spain were only around 30 percent on average, but higher for imported produce and lower for local produce.

Types of wholesale markets

Markets can be viewed in economic terms by the degree of competition that exists within them. This ranges from "perfect" competition when there is a large number of buyers and sellers who have a perfect knowledge of demand, supply and prices, to "imperfect" markets when a single firm or individual is dominating the market, either by "monopoly" (a single seller) or "monopsony" (a single buyer). A more common situation is one of "oligopoly" (few sellers) or "oligopsony" (few buyers). Markets can also be viewed by their degree of public intervention. This ranges from unregulated markets to fully regulated markets which trade in accordance with rules and regulations (see Chapter 9).

This manual is, however, primarily concerned with the physical location and functioning of the wholesale marketing system. The kinds of markets considered can be broadly classified into two types: Secondary and Terminal Wholesale Markets. These markets are exclusively, or at least predominantly, involved with wholesale produce and transactions for the sale of incoming produce are generally between farmers or traders and wholesalers.

Figure 3 Evolution of food distribution systems

Secondary wholesale markets. These markets are located in district or regional cities and take the bulk of their produce from rural assembly markets located in production areas, where the transactions are small scale and usually take place between farmers and traders. The distinction between rural assembly markets and secondary wholesale markets is often not clear. The difference is that secondary wholesale markets are in permanent operation (rather than being seasonal in nature or dealing in specialized produce), larger volumes of produce are traded than at the rural assembly markets and specialized functions may be present, such as commission agents and brokers.

Terminal wholesale markets. These markets are located in major metropolitan areas, where produce is finally channelled to consumers through trade between wholesalers and retailers. Produce may also be assembled for export. The merchants tend to be well organized and a commodity exchange may exist for forward trading. A variant on terminal markets are markets located at major ports (or a border railroad or sometimes an airport) dealing exclusively with import and export of produce.

Nature of market design problems. Markets may share a number of characteristics. They may act as the terminal market for a regional city but also provide facilities for the assembly of produce destined for other locations, both within the same province or district, or other parts of the country or for export. Although the scale of secondary and terminal wholesale markets, in terms of the volumes of produce traded, may be different there are many resemblances. They both perform similar wholesale functions, the distinction between them being their location and the scale of their catchment areas. Secondary wholesale markets are essentially rural or located in a small city, with local catchment areas, while terminal wholesale markets are urban, with regional or national catchment areas.

Design problems that are unique to secondary wholesale markets may be related to seasonal peaks in production and the provision of farmers' markets, aimed at a specific group of users (and often introduced to change the operation of existing marketing channels). To tackle the problems of secondary wholesale markets requires a full understanding of their local context, including the regional road system, the location of production areas, the seasonal variation in production volumes and their relationship to primary assembly markets in rural areas.

The problems of terminal wholesale markets are usually ones of congestion caused by an unsuitable location or by an inappropriate mixture of wholesale and retail functions. Traditionally, wholesale markets were built adjacent to city centres, located at a focal point of the inter-city transport facilities and close to the main retailing areas. Population growth, changes in urban land-use patterns and the development of modern transport systems have all had an influence on the suitability of existing and proposed wholesale market sites. A recognition of urban planning problems is therefore essential to understand the growth of terminal wholesale markets.

However, from a planning point of view secondary and terminal wholesale markets can be treated in a similar way. They tend to share common problems in the types of data that need to be collected in order to analyse them and in the methodology that is used in preparing layouts and designing facilities. This applies whether a new location is being proposed or an improvement to existing services is being undertaken.

Is it possible to standardize wholesale markets?

It would be very convenient if a standard model for wholesale market development was available for use in less-developed countries. This is generally possible if you look at other specialised contemporary building types, such as international air passenger or cargo terminals, medical operating theatres, industrial laboratories or warehouses using mechanical handling equipment. Although the design approach will depend on the climate of a particular region, the space standards used for designing such building types will generally be the same whether the facility is in Alaska or Calcutta. The overall organization will be broadly similar and so will be the level of sophistication of equipment. The use of modern management techniques will also be broadly applicable, irrespective of the location.

Special characteristics of wholesale markets. Although differences may exist, say between London and Rome, modern wholesale markets in developed countries have much in common. In terms of layout and circulation they are similar to hypermarkets or to large-scale distribution warehouses. They need to handle efficiently the input and output of large volumes of produce and to provide facilities for the sale of that produce. So why are wholesale markets in less-developed countries different? The distinction is largely that neither the inputs into nor outputs from the market, in terms of the types of produce, how it is transported and its quality and quantity can be standardized in the manner that is possible in a developed country. This has a significant impact on both the planning of the market site and on the design of its buildings.

"Ideal markets" There are a number of general principles by which "ideal" markets should be conceptualized. Textbooks on marketing economics often refer to them as the "golden rules". The reality of wholesale markets in less-developed countries is that most of these principles have not been fulfilled. It is necessary to invert the principles in order to understand what occurs in such markets:

produce is not cleaned before it is brought to the market;
different qualities of produce are not sold separately;
produce is not graded before being sold;
produce is not sold by standard weights or in standard packages;
. produce is sold with a lack of price information, creating an atmosphere of uncertainty; and
storage facilities are not used or arc not available and immediate sales have to be made.

The main concern of a market development programme should therefore be to attempt to reverse a number of these factors in order that improved conditions can be obtained for both producers and consumers. As discussed in the section on international trends, markets need to develop in a number of stages. They start as general-purpose markets, then become more specialized by dealing with a limited range of produce and only later trade in graded produce, selling by samples as in Western Europe and the USA.

It is virtually impossible to move rapidly to more sophisticated practices when the producers arc small, the buyers arc not organized and the management skills for running a complex marketing system are not available.

What are the forces for change to wholesale markets?

Although the intention may be to develop private sector market institutions, the main forces for change in wholesale marketing in less-developed countries, except in very exceptional circumstances, will come from central or municipal government agencies. A basic cause for this is often the weakness of the national wholesale fruit and vegetable marketing system and related marketing information networks.

Relationship to national programmes. Marketing interventions, particularly for assembly and/or secondary wholesale markets, are often related to targets for achieving increased production from government-assisted horticultural projects and form part of an agriculture sector component of national plans and basic needs programmes. The main aim may be to improve incomes for fruit and vegetable producers, constrained by the lack of an expanding market for the sale of their produce.

National programmes related to terminal wholesale markets are more likely to be concerned with efficiently meeting the food needs of rapidly expanding urban populations, particularly those in the lower income groups. Existing consumption of fruit and vegetables may be relatively low and a government may have identified marketing as a major constraint in increasing consumption to provide better nutrition, while providing improved incomes to rural producers.

Physical changes. Changes in marketing systems will be influenced by a whole range of factors, of which the main one is likely to be the growth in demand for produce because of demographic changes.

Within existing markets this is usually seen in the inability of existing marketing systems to cope with the increased demand, causing congestion and delays. Space for efficient handling of produce is inadequate and the market area is overcrowded, frequently leading to activities spilling over into the adjacent streets. Parking facilities are usually limited and provision for waste disposal is often lacking.

Other physical factors that might influence the need to expand or relocate a market are changes to transport modes and new communications facilities, such as the construction of access roads to production areas, a new urban highway system or a new port, enabling improvements to be made in the marketing of produce both for domestic and export markets.

Improvements in storage facilities may also allow producers to market their produce in a more flexible and cost-effective manner.

Institutional and political changes. Institutional changes that might occur include the growth in banking and credit infrastructure, allowing producers a greater freedom in how they market their produce; increased political stability and liberalization of pricing systems, bringing about changes in support policies for both producers and traders; and the development of traders' associations and wholesaling skills, which may enable more sophisticated marketing organizations to be developed.

Public intervention may play a part in bringing about changes, such as through the introduction of rules for regulated markets, including modifications to sales methods. Often this intervention is taken as an opportunity to introduce an open-auction method to encourage the marketing and prompt disposal of better quality produce, with immediate payment. Traditional practices, which are often banned, include the method of bid
ding "under a cloth", which is seen as providing many opportunities for cheating. There is often resistance to adopting auctions, however, as they can be time consuming if there is wide variation in the quality of produce. There may be pressure to combine lots, leading to a buyers' market.

Outside forces. Changes can also occur because of factors outside the control of a marketing authority but which may have a significant impact on market development. The most common of these is likely to be planning pressures from municipal authorities to relocate an existing market because of a desire to redevelop an area of a city or make mayor land-use or environmental changes to the structure of a city. Of all forces for change to an existing market this is likely to be the most common. However, market authorities need to be conscious of the negative effects that relocating a market might cause. Traders may not be willing to move, people working within the existing market may experience difficulties in moving their place of employment and the poorer sections of the urban population served by the market may lose access to cheap supplies.

Another outside force can be the introduction of new health and safety regulations. An example of this, currently applying to markets in Europe is the effect of new European Economic Community directives on the marketing of fresh meat and fishery products. This is likely to lead to radical changes in the organization of existing markets in Europe, requiring more stringent control of temperatures and the exclusion of vehicles from within market buildings.

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