25. In this part of the paper, four conceptual frameworks which may be appropriate for the Lesotho situation are briefly discussed, with emphasis given to the major implications arising from these frameworks - marketing to meet cash needs; marketing of capital assets, and marketing to destock and transform the 'cattle complex' - are generally concerned with the relationships existing between the production and marketing decisions of stockowners. The fourth framework is concerned with the effects of market structure and conduct on market performance.
(i) Marketing to Meet Cash Needs
26. The premise of the cash needs framework is that cattle are an illiquid investment which are only sold under exceptional circumstances, that is, to meet emergency cash needs. In a series of three articles Doran, Low and Kemp (1979, 1980a and 1980b) argued that the framework is appropriate for modelling the investment and marketing decisions of cattle owners in eastern and southern Africa and presented empirical results in each of their articles to support their argument. In Low, Kemp and Doran (1980b), the authors presented a model which relates marketing to cash needs, in which total cattle slaughter is assumed to equal a fixed proportion of the herd (for ceremonial purposes), and a function of the basic cash need, the seasonal cash need, and other expenditures. Despite the statistical strength of the empirical results, however, little support was in fact provided for the cash needs hypothesis. The effects of every variable can be ascribed to economic forces other than needs. In particular, the results are very consistent with the capital asset model described below.
27. Based on their results, Doran, Low and Kemp (1979, 1980a and 1980b) cautioned development agencies and governments of the potentially harmful consequences of their efforts. Marketing initiatives may well attract more sales through the commercial channel, but total sales will actually decrease as farmers are allowed to sell less total animals to meet their cash needs. This will result in an increased stocking rate, the authors stated. Development policies which increase rural incomes will likewise promote increased stocking by decreasing cash needs. These pessimistic implications differ significantly from those derived from other models.
(ii) Marketing of Capital Assets
28. The premise of the capital asset model is that cattle owners regard their animals as capital assets which produce a stream of valuable products while held and have a capital value when sold or slaughtered. Stockowners determine the optimal age of sale or slaughter by comparing the expected net present value of the future stream of products with the expected net capital value of the animal if slaughtered or sold. Conceptually, the model implies that stockowners continually make these calculations for every animal in their herds and slaughter or sell an animal when the calculation indicates that the slaughter value equals or exceeds the net present value of the live animal. In empirical models it is generally assumed that these calculations are made on a monthly or yearly basis.
29. Calculations of the net present value of live animals is least complicated for production systems where meat is the only product and more complicated where there is a complex of valuable flow and stock products. In Lesotho flow products include draught power, milk, dung and progeny; while stock products include meat, offal and hides.
30. One of the implications of this conceptual framework is that there will be a negative relationship between slaughter prices and current marketings. Everything else being equal, slaughter price increases which are expected to be permanent will result in a decrease in the number of animals marketed as stockowners attempt to build up their animal inventories to increase current production and thereby future animal sales. In a closed market system this reaction may lead to further price increases until the production from withheld animals begins to come onto the market. Increased marketings (i.e. supply for sale) will eventually result in price decreases which will in turn prompt further sales by stock-owners anxious to liquidate their herds. A cyclical pattern of herd build-up and liquidation is the likely result of any price increase.
31. Lorie (1947) was the first analyst to develop the capital asset model and apply it to the United States cattle sector to explain the cattle cycle. Jarvis (1974) developed a more rigorous version of the model and applied it to the Argentine cattle sector. His findings of negative relationships between current marketings and current prices, and positive relationships between current marketings and lagged prices supported the application of the model to the Argentine situation. Since 1974 the model has been validated as applicable to cattle industries in the United States (Nordblom, 1981; Stringham, 1983), the Sahel (Ariza-Nino and Shapiro, 1984), Botswana (Ndzinge, Marsh and Greer, 1984), Zimbabwe (Rodriguez, 1985), and Swaziland (Jarvis, 1980).
(iii) Marketing to Transform the 'Cattle Complex'
32. In 1926, Herskovits, described the East African cattle complex as follows:
In East Africa, where currency in any form is absent, cattle constitute an almost exclusive hall-mark of wealth The subsistence economy of these tribes is based on agriculture; but the number of cattle owned by a man correlates highly with his position. That is, among these people, as in most societies, position is related to wealth and cattle are the sole expression of wealth... A cow is eaten only on certain ceremonial occasions, or when an animal dies; nor have cattle any other subsistence ability aside from that of supplying milk, since they are employed as beasts of burden. They are merely possessed and esteemed for the prestige their possession brings.
(Herskovits, 1926, pp. 264-265 as quoted in Schneider 1984, pp. 187-188).
33. Although sixty years have elapsed since Herskovits published this article, the characterization of African cattle owners as tradition bound and resistant to change continues to permeate the development literature. While it is generally accepted that Herskovits underestimated the importance of cattle in meeting the subsistence requirements of pastoralists (Evangelou, 1984b), there remains a great deal of debate about the importance of cattle in social relations and in conferring status and prestige on their holder (Schneider, 1984).
(iv) Market Structure, Conduct and Performance
34. Concern with the performance of cattle marketing systems often prompts African governments and international agencies to initiate new marketing programmes, projects, regulations or agencies. While the assumed relationship between production and marketing often causes livestock development officers to employ measures such as the stocking rate or the use of cash to evaluate the performance of cattle marketing systems, Shaeffer (1983) suggests that the fundamental objective of marketing should be efficiency - defined as the production of the mix of products most consistent with consumer preferences at the least cost (p.233). Allocative efficiency is achieved when the optimal mix of products is produced and exchanged; technical efficiency is achieved when those products are produced at minimum cost.
35. The structure - conduct - performance framework has been demonstrated to be appropriate for evaluating the performance of African cattle marketing industries. Applications of this framework have generally found that cattle marketing systems perform relatively well in African countries when left to private enterpreneurs (Bekure and McDonald, 1985; Evangelou, 1984a and 1984b; Sandford, 1983). However, governments and agencies intent on changing marketing performances often intervene. The efficiency criteria implies that such government intervention is only justified if it results in higher, more stable producer prices, lower and more stable consumer prices, and product quality more consistent with consumer demand.
36. Specific government initiatives in marketing can be categorized into three general types: (i) facilitation; (ii) regulation; and (iii) participation. In an earlier paper in the ALPAN series, Bekure and McDonald (1985) recommended that African governments concerned with the performance of cattle marketing systems should:
- emphasize their facilitative role - trek routes should be well-defined and provided with adequate grazing and water;- be cautious of the regulative role - regulations which restrict the number of traders and administer prices should be avoided; and
- avoid direct participation - parastatal cattle marketing agencies are rarely successful.
