P538 Marketing for Small Agribusinesses · PDF fileP538 Marketing for Small Agribusinesses...

Centre for Development, Environment and Policy

P538

Marketing for Small Agribusinesses

Authors: Sophie Higman

Dr Nigel Poole

Revised: Dr Nigel Poole in 2011

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P538 Marketing for Small Agribusinesses Module Introduction

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MODULE INTRODUCTION

ABOUT THIS MODULE

In a globalised world, as people become more integrated into markets, it is essential

not just to produce, but to sell – and to do this, it is increasingly necessary to

market products. Markets are widely recognised as a key component of

development. Many governments and international donors now embrace the need to

enable producers to take advantage – even create – business opportunities. For

example, the concept of ‘Making Markets Work for the Poor’ is advocated as a way of

bringing the benefits of economic growth to poorer parts of society.

This module is aimed at students and researchers from the academic world and

development practitioners – from private business, government departments,

international development agencies or non-governmental organisations (NGOs) –

who work with micro- and small enterprises based mainly but not exclusively in rural

areas, what we call ‘small agribusinesses’. It addresses a broad range of economic

sectors. The concepts and principles apply not only to smallholder farmers, but also

to food processors, traders and intermediaries, collectors and processors of forest

products, fishermen, or producers of other natural resource-based artisanal products

or handicrafts. Around these product markets there are also linked markets for

services, such as wage labour and business support, which are integral to developing

a thriving economy.

The module aims to assist students to understand how markets function, develop

their skills to support small agribusinesses in marketing their products, and identify

ways in which markets and commercial development initiatives can better help the

poor.

STRUCTURE OF THE MODULE

The module begins with a brief introduction to markets and marketing in Unit 1, with

a focus on the issues facing small agribusinesses when they come to participate in

markets. The remaining nine units are grouped into three parts.

Part I, Environmental Analysis (Units 2–4) examines the context, or environment, in

which small agribusinesses operate: consumer demands, the political, social,

economic, and technical factors that shape markets, as well as the structure and

demands of different types of market systems.

Part II, Enterprise Strategy (Units 5–7) focuses on the steps that an individual small

agribusiness can take to analyse their own position in the marketing environment

and develop their marketing tools and strategy.

Part III, Support Strategy (Units 8–10) expands the focus from the individual

agribusiness to the wider issues of how value chains (market chains) function and

how markets can be made to work better for small agribusinesses and poverty

reduction. Possible intervention points are noted for policy initiatives to start or

enhance business activity among individual producers, collective enterprises, and

other small firms. A case study in the final unit considers interventions at the

industry or sectoral level.


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STUDY JOURNAL

In-text questions and activities are found throughout the module. Students are

encouraged to keep a reflective ‘study journal’ to record your own answers,

comments, critiques and summaries of units and unit sections which can serve the

purpose of consolidation and revision.

WHAT YOU WILL LEARN

Module Aims

To convey the importance of markets in economic development and poverty

reduction, and the role of marketing as a multiplier of development.

To describe and analyse the wide range of factors in the external environment

and internally within an agribusiness that can affect their success in marketing

their products.

To illustrate how product marketing works and how the marketing concept can

be applied to small agribusinesses.

To indicate the ways in which development practitioners can support small

agribusinesses in accessing and developing markets for their products.

Module Learning Outcomes

By the end of this module, students should be able to:

communicate critical appraisal of the importance of markets in economic

development and poverty reduction, and the role of marketing as a multiplier

of development

describe and critically analyse the range of factors in the external environment

and internally within an agribusiness that can affect their success in marketing

their products

illustrate and evaluate how product marketing works and how the marketing

concept can be applied to small agribusinesses

selectively apply specific methods for market and business analysis in order to

identify marketing options and interpret the outcomes

selectively use tools and guidelines for small agribusinesses in marketing their

products

identify specific areas where policy initiatives and interventions may facilitate

market access by small agribusinesses and formulate appropriate policy

recommendations based on critical appraisal.


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ASSESSMENT

This module is assessed by:

• an examined assignment (EA) worth 20%

• a written examination in October worth 80%

Since the EA is an element of the formal examination process, please note the

following:

(a) The EA questions and submission date will be available on the Online Learning

Environment.

(b) The EA is submitted by uploading it to the Online Learning Environment.

(c) The EA is marked by the module tutor and students will receive a percentage

mark and feedback.

(d) Answers submitted must be entirely the student’s own work and not a product

of collaboration. For this reason, the Online Learning Environment is not an

appropriate forum for queries about the EA.

(e) Plagiarism is a breach of regulations. To ensure compliance with the specific

University of London regulations, all students are advised to read the

guidelines on referencing the work of other people. For more detailed

information, see the User Resource Section of the Online Learning

Environment.


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STUDY MATERIALS

There is one textbook for this module. Global Marketing (2012), 7th edition, by

Warren Keegan and Mark Green, which provides an excellent and contemporary

overview of the marketing concepts that are introduced. (We also refer to an older

publication by Keegan, the 2002, 7th edition of Global Marketing Management).

While the perspective of the book is global, the fundamental concepts that are

described are often equally important to the small businesses that are the focus of

this module. Individual units make reference to specific sections of this book as key

readings; however, the student is encouraged to read other parts of the text too.

For each of the ten units, additional Key Readings are provided. These Key Readings

are drawn from a wide range of sources including books, journals, and the internet.

They are authored by individual researchers and analysts, and also through the

collective efforts of diverse national and international organisations. They cover a

variety of disciplines including development, marketing and economics, and aim to

provide a range of perspectives and more depth on the unit subject matter. Students

are expected to read these and note that they are examinable.

A large number of Further Readings and References are also listed. These texts are

not provided but many are available on the internet. All references cited in the unit

text are listed here. Students are not expected to follow up each and every Further

Reading, but can follow up specific points of interest.


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INDICATIVE STUDY CALENDAR

Part/unit Unit title Study time (hours)

Unit 1 Small agribusinesses and markets 15

PART I ENVIRONMENTAL ANALYSIS

Unit 2 The consumer environment 15

Unit 3 The wider marketing environment 10

Unit 4 Market systems 15

PART II ENTERPRISE STRATEGY

Unit 5 Tools for market analysis 15

Unit 6 Product and quality 15

Unit 7 Place, price and promotion 15

PART III SUPPORT STRATEGY

Unit 8 Value chain analysis 15

Unit 9 Collective organisations 10

Unit 10 Business services 10

Examined Assignment

Check the online learning environment for submission deadline

15

Examination entry July

Revision and examination preparation September

End-of-module examination October


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ACRONYMS AND ABBREVIATIONS

4Ps the four Ps of the marketing mix: produce, place, promotion, and

price

AAACP All ACP Agricultural Commodities Programme

ACDI/VOCA Agricultural Cooperative Development International/Volunteers in

Overseas Cooperative Assistance

ACP African, Caribbean and Pacific

ADB Asian Development Bank

AGSF Agricultural Management, Marketing and Finance Service (FAO)

ASEAN Association of Southeast Asian Nations

AOC Appellation d’Origine Contrôllée (Controlled Origin)

B2B business-to-business

BCG Boston Consulting Group (who developed the Growth-Share Matrix for

portfolio analysis)

BDS business development services

BES business and extension services

CADER Centre for Arbitration and Dispute Resolution

CARHCO Central American Retail Holding Company

CEE Central and Eastern Europe

CGE computable general equilibrium

CGIAR Consultative Group on International Agricultural Research

CHDI The Clinton Hunter Development Initiative

CIAT Centro Internacional de Agricultura Tropical

CIMMYT International Maize and Wheat Improvement Center

CIP International Potato Center (Centro Internacional de la Papa)

CITES Convention on International Trade in Endangered Species

CLUSA The Co-operative League of the United States of America

CODEX Codex Alimentarius

CPHP Crop Post-Harvest Programme

CSR corporate social responsibility

DFID UK Department for International Development

ECOWAS Economic Community of West African States


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EIA Environmental Impact Assessment

EU European Union

FAO Food and Agriculture Organization of the United Nations

FARA Forum for Agricultural Research in Africa

FCE farmer controlled enterprises

FDA Food and Drug Administration

FERT Formation Paysanne et Promotion des Organisations Professionnelles

Agricoles (NGO)

FLO Fairtrade Labelling Organizations International

FO farmer organisation

FOOD Foundation of Occupational Development

FSC Forest Stewardship Council

FTA free trade area

G&S Grades and Standards

GIS geographic information system

GM genetic modification

GMO genetically modified organism

GNI gross national income

GNP gross national product

GNP per capita the value of a country’s final output of goods and services in a year,

divided by its population, reflecting the average income of a country’s

citizens

GoZ Government of Zambia

HACCP hazard analysis critical control point

HCM home consumption

HVAP high value agricultural products

HVP high value (export) product

ICT information and communication technology

IDRC International Development Research Centre

IFDC International Fertilizer Development Center

IFPRI International Food Policy Research Institute

IIRR International Institute of Rural Reconstruction

IPCC Intergovernmental Panel on Climate Change


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IRR internal rate of return

ISO International Organization for Standardization

IT information technology

ITC International Trade Centre

KENFAP The Kenya National Federation of Agricultural Producers

KIT Royal Tropical Institute

KWCP Kanakantapa Women Cassava Processors

MACO Ministry of Agriculture and Cooperatives

MCTI Ministry of Commerce, Trade and Industry (Zambia)

MERCOSUR Southern Cone Common Market of South America

MIS market information service

MISTOWA Market Information Systems for Trader Organisations in West Africa

MMW4P making markets work for the poor

MSC Marine Stewardship Council

Mt metric tonne

NAFTA North American Free Trade Agreement

NASCOMEX the NASFAM Commodity Marketing Exchange

NASDEC NASFAM Development Corporation

NASFAM National Smallholder Farmers Association of Malawi

NGO non-governmental organisation

NHFA Neno Hills Farmers’ Association

NIE New Institutional Economics

NTAE non-traditional agricultural export

NTFP non-timber forest product

ODI Overseas Development Institute

OECD Organisation for Economic Co-operation and Development

OPVs open pollinated varieties

PAM Programme Against Malnutrition

PES Payments for Environmental Services

PEST Political/legal, Economic, Social/cultural, and Technology analysis

PMCA participatory market chain analysis

PO producer organisation


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PR public relations

PRAPACE Potato and Sweet Potato Research Network of Eastern and Central

Africa

PTBF (selling) price to be fixed

QA quality assurance

R&D research and development

RCE rural collective enterprise

RESIMAO Réseau des Systèmes d’Information de Marché de l’Afrique de l’Ouest

RNFI rural non-farm income

RTA Regional Trade Alliance

SADCC South African Development Coordination Conference

SADP Smallholder Agribusiness Development Project

SAGARPA Ministry of Agriculture, Livestock, Rural Development, Fisheries and

Food

SAI Social Accountability International

SAN Sustainable Agriculture Network

SANGONeT Southern African NGO Network

SDC Swiss Agency for Development and Cooperation

SDR Ministry for Rural Development

SEEP Small Enterprise Education and Promotion Network

SEs small enterprises

SIDA Swedish International Development Agency

SIDS Small Island Developing States

SLIMF small and low intensity managed forests

SME(s) small and medium sized enterprises

SMS short message service

SNIC National Seed Certification Service

SNV Stichting Nederlandse Vrijwilligers (Netherlands Development

Organisation)

SPS Sanitary and Phytosanitary Agreement of the WTO

SSA sub-Saharan Africa

SWOT strengths, weaknesses, opportunities and threats

TBT Agreement on Technical Barriers to Trade of the WTO


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UNCTAD United Nations Conference on Trade and Development

UNECE United Nations Economic Commission for Europe

UNESCO United Nations Educational, Scientific and Cultural Organization

USAID United States Agency for International Development

USDA United States Department of Agriculture

USP unique selling point

VCA value chain analysis

WFP World Food Programme

WHO World Health Organization

WTO World Trade Organization

ZDA Zambia Development Agency

Unit One: Small Agribusinesses and Markets

Unit Information 2

Unit Overview 2 Unit Aims 2

Unit Learning Outcomes 2 Unit Interdependencies 2

Key Readings 3

References 4

1.0 Markets and marketing 7

Section Overview 7 Section Learning Outcomes 7

1.1 What is a market? 7 1.2 What is marketing? 8

Section 1 Self Assessment Questions 11

2.0 Markets and poverty reduction 12

Section Overview 12 Section Learning Outcomes 12 2.1 Why do markets matter? 12

2.2 The indirect effects of markets 17


3.0 Challenges and opportunities for small agribusinesses 24

Section Overview 24

Section Learning Outcomes 24

3.1 What is a ‘small agribusiness’? 24

3.2 Strengths and weaknesses of small agribusinesses 26 3.3 Transaction costs 28


4.0 Private enterprises and food value chains 32

Section Overview 32

Section Learning Outcomes 32

4.1 An introduction to food value chains 32

4.2 The issues for private participation 33 Section 4 Self Assessment Questions 38

Unit Summary 40

Unit Self Assessment Questions 41

Key Terms and Concepts 43

P538 Marketing for Small Agribusinesses Unit 1

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UNIT INFORMATION

Unit Overview

This unit begins by introducing definitions of ‘the market’ and ‘marketing’. We then

review the current thinking on markets and poverty reduction, before turning to the

specific issues surrounding market participation by small-scale agribusinesses.

Finally, we introduce the concept of value chains and look at the role of the private

sector in food commodity systems, its challenges and possible responses.

Unit Aims

To distinguish different approaches to markets and marketing.

To highlight the connection between markets and poverty reduction and to

introduce the issues surrounding smallholders’ participation in markets.

To discuss private sector roles in food markets.

Unit Learning Outcomes

By the end of this unit, students should be able to:

define ‘the market’ and to differentiate between different approaches to

marketing

identify the direct and indirect importance of markets in poverty reduction.

define a ‘small agribusiness’ and to identify the strengths and weaknesses of

smallholders

recognise the role of private enterprises in food value chains

Unit Interdependencies

Unit 4

The characteristics of value chains for staple foods, export commodities and high

value products are discussed in Unit 4, building on the value chain concept

introduced in Section 4.

Units 6 and 7

The four Ps of the marketing mix, mentioned in Section 1.2, are discussed in detail in

Units 6 (Product and Quality) and 7 (Place, Price, and Promotion).

Unit 8

Value chains and value chain analysis are fully explored in Unit 8, Value Chain

Analysis.


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KEY READINGS

Jaffee S (1995) Transaction costs, risk and the organization of private sector food

commodity systems. In: Jaffee S, Morton J Marketing Africa’s High Value Foods.

Kendall Hunt, Dubuque, Iowa, pp. 21–62.

From this classic account of transaction costs in African markets, this reading provides the basis

for Section 4. The early sections (pp. 21—30) give a good introduction to what we mean by value

chains and the concept and empirical nature of transaction costs.

Keegan WJ, Green MC (2013) Introduction to global marketing. In: Global

Marketing, Global Edition, 7th edn. Pearson Education Inc, New Jersey, pp. 26–

57.

Chapter 1 is an introduction to global marketing. The introduction and overview, and review of

principles, pp. 27—32, set the scene for much of what follows. Note what is said on p. 28:

‗Marketing is a universal discipline, as applicable in Argentina as it is in Zimbabwe.‘

The focus on global marketing, pp. 32—52, sets out the particular approach of this book; read it

not only to be able to:

comment and reflect on your own ‗lived‘ experience of global marketing

but also to

discern how such an environment may impinge on small-scale markets in developing countries

and also to

identify what may be learnt from global markets and applied by marketers in developing

countries

The section on forces affecting global integration, pp. 44—50, is relevant to markets in

developing countries which are linked to the wider market environment, especially for export

products, and also where goods imported from global markets compete with domestic products.


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REFERENCES

ADB-DFID (2005) Making Market Systems Work Better for the Poor (M4P): an

Introduction to the Concept. Discussion paper prepared for the ADB-DFID ‘Learning

Event’ ADB Headquarters, Manila. February 2005.

Available from: http://www.eldis.org/vfile/upload/1/document/0708/DOC21034.pdf

[Accessed 24 June 2013]

Abor J, Quartey P (2010) Issues in SME development in Ghana and South Africa.

International Research Journal of Finance and Economics 39 218–228.

Brown JG with Deloitte & Touche (1994) Agroindustrial Investment and Operations.

The World Bank, Washington DC, pp. 10–11.

Diao X, Hazell P (2004) Exploring Market Opportunities for African Smallholders.

IFPRI 2020 Africa Conference Brief 6.

Available from: http://www.ifpri.org/pubs/ib/ib22.pdf [Accessed 24 June 2013]

Dixie G (2005) Horticultural Marketing. Marketing Extension Guide 5, Food and

Agriculture Organization of the United Nations, Rome.

Available from: http://www.fao.org/docrep/008/a0185e/a0185e00.htm


NB Copies of this guide can also be ordered by email.

Dorward A, Fan S, Kydd J et al (2004b) Rethinking Agricultural Policies for Pro-poor

Growth. ODI Natural Resource Perspectives No 94.

Available from: http://www.odi.org.uk/resources/download/620.pdf


Dorward A, Kydd J, Morrison J, Urey I (2004a) A policy agenda for pro-poor

agricultural growth. World Development 23(1) 73–89.

Dorward A, Kydd J, Poulton C (2005) Beyond liberalisation: ‘developmental co-

ordination’ policies for African smallholder agriculture. IDS Bulletin 36(2), Institute of

Development Studies, UK, pp. 80–85.

Available from: http://www.future-agricultures.org/pdf%20files/Dorward.pdf


This paper describes the market co-ordination challenges facing agri-food value chains in poor

rural areas.

Ellis F (1990) Agricultural Policies in Developing Countries. Cambridge University

Press.

http://www.eldis.org/vfile/upload/1/document/0708/DOC21034.pdf

http://www.ifpri.org/pubs/ib/ib22.pdf

http://www.fao.org/docrep/008/a0185e/a0185e00.htm

http://www.odi.org.uk/resources/download/620.pdf

http://www.future-agricultures.org/pdf%20files/Dorward.pdf


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Farrington J, Mitchell J (2006) How Can the Rural Poor Participate in Global Economic

Processes? ODI Natural Resource Perspectives No 103.



Foresight (2011) The Future of Food and Farming. The Government Office for

Science, London.

Available from: http://www.bis.gov.uk/assets/bispartners/foresight/docs/food-and-

farming/11-546-future-of-food-and-farming-report.pdf [Accessed 24 June 2013]

FSC SLIMF (undated) Small and Low Intensity Managed Forests (SLIMFs). Forest

Stewardship Council SLIMF website.

Available from: http://www.fsc.org/slimf.html [Accessed 24 June 2013]

Henson S, Masakure O, Boselie D (2005) Private food safety and quality standards for

fresh produce exporters: the case of Hortico Agrisystems, Zimbabwe. Food Policy 30

371–384.

Jaffee S (1995) Transaction costs, risk and the organisation of private sector food

commodity systems. In: Jaffee S, Morton J Marketing Africa’s High Value Foods.

Kendall Hunt, Dubuque, Iowa, pp. 21–62.

Kaplinsky R, Morris M (2002) A Handbook for Value Chain Research. International

Development Research Centre, Canada.

Keegan WJ (2002) Global Marketing Management, International Edition, 7th edn.

Prentice Hall International Series in Marketing, Upper Saddle River, New Jersey, pp.

1–4.

Keegan WJ, Green MC (2013) Global Marketing, Global Edition, 7th edn. Pearson

Education Inc, New Jersey.

Maertens M, Swinnen J (2006) Trade, Standards and Poverty: Evidence from Senegal.

LICOS Discussion Paper 177/2006, LICOS Centre for Transition Economics.

Available from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=950485


ODI (2002) Non-farm Income in Rural Areas. Policy Planning and Implementation,

Key Sheets for Sustainable Livelihoods No 14, ODI/DFID/Netherlands Ministry of

Foreign Affairs.



Poole ND (2009) Making markets – and institutions – work for the poor. Eurochoices

8(1) 40–45.


http://www.bis.gov.uk/assets/bispartners/foresight/docs/food-and-farming/11-546-future-of-food-and-farming-report.pdf

http://www.bis.gov.uk/assets/bispartners/foresight/docs/food-and-farming/11-546-future-of-food-and-farming-report.pdf

http://www.fsc.org/slimf.html



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Poulton C, Dorward A, Kydd J (2005) The Future of Small Farms: New Directions for

Services, Institutions and Intermediation. Presented at the IFPRI/ODI/Imperial

College London ‘Future of Small Farms’ Research Workshop, Wye, UK, 26–29 June

2005. Sections 1–3, pp. 223–234.

Available from: http://www.ifpri.org/sites/default/files/publications/sfproc.pdf


Tiffin M (2003) Transition in sub-Saharan Africa: agriculture, urbanisation and income

growth. World Development 31(8) 1343–1366.

UN (2010) Millennium Development Goals Report 2010. United Nations (UN), New

York.

Available from:

http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%2

0-low%20res%2020100615%20-.pdf [Accessed 24 June 2013]

World Bank (2007) World Development Report 2008: Agriculture for Development.

The World Bank, Washington DC.

Available from:

http://siteresources.worldbank.org/INTWDR2008/Resources/WDR_00_book.pdf


http://www.ifpri.org/sites/default/files/publications/sfproc.pdf

http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%20-low%20res%2020100615%20-.pdf

http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%20-low%20res%2020100615%20-.pdf

http://siteresources.worldbank.org/INTWDR2008/Resources/WDR_00_book.pdf


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1.0 MARKETS AND MARKETING

Section Overview

This section provides some definitions of ‘the market’ and describes different

approaches to ‘marketing’.

Section Learning Outcomes

By the end of this section, students should be able to:

define ‘the market’

distinguish different forms of ‘marketing’

1.1 What is a market?

The most common conception of a market is as a physical place where we go to buy

food or other products, or for the smallholder, the local gathering where periodically,

they sell their produce. In economic, business, and development terms, however,

‘the market’ has different meanings.

How would you define a market?

Consider the definitions of a ‘market’ presented in 1.1.1.

1.1.1 The market — some definitions

(1) The economist‘s perspective

‗The term ‗market‘ as used by economists has a different meaning from ordinary usage. It does not mean literally the physical place in which commodities are sold or purchased (as in ‗village market‘), nor does it mean the stages that a commodity passes through between the producer and the consumer (as in marketing channels). Rather it refers in an abstract way to the purchase and sale transactions of a commodity and the formation of its price. Used in this way, the term refers to the countless decisions made by producers of a commodity (the supply side of the market) and consumers of a commodity (the demand side of the market), which taken together determine the price level of the commodity ... the term is detached from any particular geographical coverage. The geographical scope of the term depends on the context in which it is being used. It may refer to the local situation in some part of the rural economy, for example the market for cassava in southern Tanzania, or it can refer to the country as a whole, the region, or the international economy. Thus the expression ‗world market‘ refers to the process of price formation at an international level for traded agricultural commodities.‘

Source: Ellis (1990) pp. 6—7.


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(2) The business perspective

Business people tend to use the term ‗market‘ to describe the groups of individuals or organizations that make up the pool of actual and potential customers for their goods and services. These groups fall into one or more of the following categories: geographic, demographic or socioeconomic, psychographic, behavioural or sectoral.

Source: summarised from Brown (1994) pp. 10—11.

(3) The New Institutional Economics‘ perspective

Markets are a type of ‗institution‘ or mechanism that exists to facilitate exchange, co-ordination and allocation of resources, goods and services between buyers and sellers, between producers, intermediaries and consumers; competitive markets can provide ‗efficient‘ co-ordination by reducing the cost and risk of carrying out transactions, can encourage business development and also help to achieve broader economic objectives. But markets are not always competitive or efficient. Markets as an institution can be imperfect.

Source: adapted from ADB-DFID (2005) p. 4.

What would you say are the main differences between these views?

Answer.

The first definition, that of an economist, focuses on the market as a process through which prices are set by repeated buying and selling transactions. This market may relate to a particular geographical area or region, or may be global.

The second definition, from a business marketing perspective, focuses on

the actual or potential customers for a product or service. Hence the second definition is concerned less with the process of setting prices and more with the identification of customers to whom the product will appeal.

Finally, the third definition derives from the New Institutional Economics (NIE) approach to development. This approach places attention on the ‘governance’ of economic exchange (that is, the rules and practices governing how buyers and sellers come together), the transaction costs and

risks involved in market exchanges between buyers and sellers, and the means of reducing these costs and risks. We return to the theme of transaction costs in Section 3.3.

Clearly different participants in markets have quite different views on the definition

and role of markets. No view is necessarily more ‘correct’ than the other – as noted

above by Ellis, the meaning depends on the context.

1.2 What is marketing?

As with markets, marketing is a term that has a number of different meanings,

depending on the context. Grahame Dixie (2005) offers two definitions that are

particularly relevant to horticultural marketing and which have different emphases

(see 1.2.1, below).


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1.2.1 Two marketing definitions

(1) ‗Marketing involves finding out what your customers want and supplying it to them at a profit.‘

This definition stresses two important points:

− the marketing process has to be customer-oriented, so the marketer has to identify buyers and understand what products they want and how they want to be supplied;

− marketing is a commercial process and has to provide farmers transporters, traders, processors etc with a profit or they will go out of business, so the production—marketing chain has to deliver the right products at the right time and make enough profit to continue to operate.

(2) Marketing is ‗the series of services involved in moving a product from the point of production to the point of consumption‘

This definition emphasises that marketing is a series of interconnected activities, including planning, growing, harvesting, grading, packing, transport, storage, distribution and sale, as well as the transfer of information.

Source: adapted from Dixie (2005) pp. 2—3.

The second of Dixie’s definitions of marketing coincides with the discussion of value

chains in Section 4.1 of this unit, where we consider how the various activities along

the chain from producer to consumer are co-ordinated and controlled.

Dixie’s first definition fits more closely with the business marketing concept common

to enterprises outside the agricultural sector, and this is the sense in which we will

generally consider marketing. Keegan (2002) describes the evolution of the

marketing concept from its origins in the 1960s to the strategic, and often global,

approach that characterises current marketing strategies (see 1.2.2).

1.2.2 The evolution of the marketing concept

‗During the past three decades the concept of marketing has changed dramatically. It has evolved from an initial focus on the product and on making a ―better‖ product where better was based on internal standards and values. The objective was profit, and the means to achieving the objective was selling, or persuading the potential customer to exchange his or her money for the company‘s product.

The new concept of marketing and the four Ps

‗The ―new‖ concept of marketing, which appeared in about 1960, shifted the focus of marketing from the product to the customer. The objective was still profit, but the means of achieving the objective expanded to include the entire marketing mix, or the ―four Ps‖' as they became known: product, price, place (channels of distribution), and promotion …

The strategic concept of marketing

‗The strategic concept of marketing evolved in the 1990s, and ‗shifted the focus of marketing from the customer or the product to the customer in the context of the broader external environment. Knowing everything there is to know about the customer is not enough. To succeed, marketers must know the customer in a context including the competition, government policy and regulation, and the broader economic, social, and political macro forces that shape the evolution of markets.‘ The marketing objective shifted from profit to stakeholder benefits — providing value for both customers and employees.‘

Source: Keegan (2002) p. 3.


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Keegan refers to the four Ps that were central to the development of the new concept

of marketing and are still fundamental in marketing practice. These four elements of

the marketing mix constitute the basic variables that the marketer can change in

order to differentiate their product from others’:

the product itself can be modified

the price may be raised or lowered

the place where the product is sold, also incorporating the distribution

channels, transport and storage processes through which it arrived there

the promotion of the product through advertising, personal sales and other

promotional methods

The focus of business marketing on these variables within the context of the broader

external environment distinguishes business marketing from a more traditional

economist’s view of the way markets function.

Neoclassical economics traditionally assumes that a producer faces a given demand

for their product. This is generally expressed in terms of a demand curve, showing

the quantity of the product that they can expect to sell if they charge a certain price.

Under the special case of perfect competition, the producer is one of many producing

identical products, and so has to accept the going ‘market price’ for the product. At

this price, they can sell as much of the product as they can profitably produce. In

other words, if ‘price’ is on the y axis and the ‘quantity’ that can be sold on the

axis, the demand curve is a horizontal line. Under other market conditions, the

producer has some flexibility to change the price that they charge, but they have to

accept that sales volume may decrease as a consequence of raising the price.

1.2.3 The special case of perfect competition

Source: unit author

By contrast, marketers maintain that, through manipulating the four Ps of the

marketing mix, the marketer can change the demand faced for a product and,

thereby (hopefully) raise the quantity sold at a given price. Whereas a selling

orientation emphasises promotional activities and price-cutting to increase sales,

clever marketing might even allow a marketer to raise the price of the product and

increase sales. The secret lies in creating a perception in the consumer’s mind that

the product is somehow different, better or more desirable than others. The more

successful a marketer is at doing this, the more market power (defined as the

freedom to set price) they create for themselves.


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Section 1 Self Assessment Questions

uestion 1

Match up the definitions of a ‘market’ with the type of viewpoint.

Market Viewpoint

(a) Actual or potential customers (i) New Institutional Economics

(b) Institutions that facilitate exchange (ii) Economist

(c) The process of price determination (iii) Business marketer

uestion 2

Identify the four Ps of the marketing mix from the following:

(a) people

(b) promotion

(c) place

(d) presentation

(e) packaging

(f) price

(g) position

(h) product

uestion 3

True or false?

Marketing involves producing a good product and persuading people that it is what

they need.

uestion 4

True or false?

The strategic concept of marketing involves knowing the customer well, within the

environmental context of competition, government policy and regulation, and the

broader societal forces that shape markets.

Q

Q

Q

Q


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2.0 MARKETS AND POVERTY REDUCTION

Section Overview

This section discusses the direct and indirect effects of markets in poverty reduction.



understand why markets are important for poverty reduction

describe the indirect effects of markets on poverty reduction

2.1 Why do markets matter?

Since the global community agreed to the Millennium Development Goals (MDGs) in

the year 2000, international development concerns have been focused on improving

the livelihoods of poor people around the world. While poverty is multidimensional,

the reference point of the MDGs most frequently referred to is Goal 1: Eradicate

extreme poverty and hunger. Associated with this Goal are certain targets:

Halve, between 1990 and 2015, the proportion of people whose income is less

than one dollar a day

Halve, between 1990 and 2015, the proportion of people who suffer from

hunger

Another target has been added which explicitly links poverty and hunger to economic

growth and employment opportunities:

Achieve, full and productive employment and decent work for all, including

women and young people

The figure in 2.1.1, below, shows how the first of these targets is being met – or not

– adjusted in 2010 to $1.25 to allow for inflation.

According to the World Development Report 2008 (World Bank 2007) – hereafter

referred to as the WDR 2008 – three-quarters of the poor people in the world live in

rural areas. It is not only markets and economic development that are important for

poverty reduction and achieving economic growth that will benefit the poorest

people. Agriculture is the principal economic activity of most of the world’s poor and

strengthening rural production and marketing are key factors in addressing the

challenges of poverty reduction.


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2.1.1 Goal 1

Source: UN (2010) p. 6.

Synthesising knowledge from a wide range of sources, the WDR 2008 offers a

typology of three agricultural worlds: ‘one agriculture-based, one transforming, one

urbanized’ (p. 1). Most of sub-Saharan Africa is agriculture-based. Much of the

remaining global poverty is concentrated in the Middle East and North Africa, South

and East Asia, and is included in the ‘transforming world’. The balance of rural

poverty is in ‘urbanised’ Latin America. For sub-Saharan Africa, the WDR argues that

growth will happen through investment where the agricultural potential is medium to

high, while at the same time ensuring the livelihoods and food security of

subsistence farmers: ‘Getting agriculture moving requires improving access to

markets and developing modern market chains. It requires a smallholder-based

productivity revolution …’ (p. 20).

In relation to poverty reduction, three inferences can be drawn, one about

agriculture in particular and two about economic growth in general:


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The aim is to achieve sustainable development and poverty reduction through

the development of commercial agriculture.

Economic growth is essential to reducing poverty.

Small businesses matter for economic growth to occur.

Where growth has been strong, hundreds of millions of people have risen above

absolute poverty levels; where it is weak, poverty persists or even worsens. Higher

rates of growth usually result in more rapid poverty reduction, especially over

periods of a decade or more. Where average incomes rise fast, the incomes of poor

people tend to rise fast too. And agriculture and rural businesses are a key sector,

and developing markets efficiently can be extremely important to improving

livelihoods of the poorest and contributing to wider economic growth.

According to the discussion paper ‘Making market systems work better for the poor’

(ADB-DFID 2005), markets can provide the link between wider economic growth and

the rural poor through diverse effects:

‘Markets, when they work, can be an efficient mechanism for the

exchange, co-ordination and allocation of resources, goods and services

in an economy. Well functioning markets that support competition and

lower the costs of doing business provide incentives for trade and

investment, and hence growth and poverty reduction. Markets are the

main ‘transmission mechanisms’ between growth in the wider economy

and the lives of the poor. They are important for poor remote areas

because of the linkages they offer between the local economy and the

national and global economies. The way markets function will determine

the rate and pattern of growth and consequently, the speed and extent of

poverty reduction.’

Source: ADB-DFID (2005) p. 2.

2.1.2 Natural resources products — linking rural and urban economies

Source: unit author © Nigel Poole


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So, economic growth lifts incomes including those of the poor. Markets provide the

means of sharing economic growth across the economy. But the way in which

markets work affects how the benefits are distributed. Poole (2009) argues that

markets need institutions and policies to work fairly (see 2.1.3).

2.1.3 Making markets — and institutions — work for the poor?

'Making Markets Work for the Poor' (MMW4P) is an approach to poverty reduction in developing countries that stresses the importance of commercial activities in the livelihoods of poor peoples, but acknowledges that the competitive market ideal, like states, often fails to provide the structures, incentives and information to include all the poor …

The approach does not envisage a strong policy dimension to making markets work for poor people. Interventions are not aimed primarily at individuals or groups of the poor themselves, but at making the market systems work. Institutions are key, and improvements are sought through organisational and institutional development initiatives and self-regulatory activities to improve the efficiency and equity in commercial arrangements …

[Therefore] improvements in the institutional environment for business have an important policy dimension which can create stronger incentives through legal and policy initiatives. One such area which needs attention in developing countries is competition policy, needed to regulate economic activity to protect small firms and other stakeholders, and promote economic initiatives at early stages of development.‘

Source: summarised from Poole (2009) p. 40.

Despite the difficulties, integrating smallholders and small agribusinesses into

markets is a key part of poverty reduction and overall growth. Agricultural production

is thought to be particularly important for poverty reduction, as outlined by Dorward

et al (2004a) in 2.1.4.

2.1.4 The role of agricultural growth in poverty reduction

‗Johnston and Mellor (1961) argued that in the early stages of development in agrarian dominated economies, agriculture generates export earnings, labor, capital and domestic demand to support growth in other sectors, and agricultural products meet increasing domestic demands from increasing populations with high income elasticity of demand for food. Empirical evidence from the sectoral productivity literature supports the view that agricultural growth promotes poverty reduction.‘

Source: Dorward et al (2004a) pp. 74—75.

A recent major report by the UK Government on ‘The Future of Food and Farming’

(Foresight 2011) unsurprisingly draws explicit links between agriculture and the

health and nutritional status of the poor. As the demographic structures of poorer

countries change, the need for efficient markets will increase (2.1.5, below).


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2.1.5 Foresight — growing populations?

‗Policy makers should assume that today‘s population of about seven billion is most likely to increase to around eight billion by 2030 and probably to over nine billion by 2050. Most of these increases will occur in low- and middle-income countries; for example, Africa‘s population is expected to double from one billion to approximately two billion by 2050 … Population growth will also combine with other transformational changes, particularly in low- and middle-income countries as rising numbers of people move from rural areas to cities that will need to be serviced with food, water and energy.‘

Source: Foresight (2011) p. 14.

What is of considerable interest is the context of this Foresight report: the subtitle is

‘Challenges and Choices for Global Sustainability’. While not the immediate focus of

this module, issues of climate change and emissions reduction, competition for key

resources, and maintaining biodiversity and ecosystem services are likely to affect

how agricultural and other markets develop, and the evolving relationships between

local, national and global governance systems which will shape such markets.

Keegan and Green (2013) present a typology of countries according to

the stages of market development (pp. 69–78). Why is this only a

partial analysis for our purposes? For a low-income country with which

you are familiar, can you suggest other characteristics that might give a

more thorough depiction?

Answer.

Keegan and Green discuss the economic types primarily from the viewpoint of their attractiveness for international business – after all, it is a book on

Global Marketing. What he refers to as ‘limited industrialization and a high

percentage of the population engaged in agriculture and subsistence farming’ (p. 69) may not be so interesting at first to international business, but it does account for significant domestic economic activity with genuine potential for growth:

‘Agriculture has a well-established record as an instrument for poverty reduction. But can it also be the leading sector of a growth strategy for the

agriculture-based countries? Besides the sheer size of the sector, two arguments, applied to the agriculture-based countries of sub-Saharan Africa, support the view that it can.

The first is that in many of these countries, food remains imperfectly tradable because of high transaction costs and the prevalence of staple foods that are only lightly traded, such as roots and tubers and local cereals. So, many of these countries must largely feed themselves. Agricultural

productivity determines the price of food, which in turn determines wage costs and the competitiveness of the tradable sectors. Productivity of food

staples is thus key to growth.

The second is that comparative advantage in the tradable subsectors will still lie in primary activities (agriculture and mining [and fisheries and other natural resources products?]) and agroprocessing for many years, because of resource endowments and the difficult investment climate for

manufactures …’

Source: World Bank (2007) pp. 6–7.


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In short, domestic markets really do matter for poor countries as much if not more

than internationally traded commodities and high value export products.

It is worth adding a final note to this discussion on the importance of markets for

development and poverty reduction, and on the focus on agriculture. A cautious

comment on the approach taken by the World Bank is the following:

While it would be quite wrong to criticise it for lack of depth and detail, the

WDR 2008 is a policy approach that encapsulates global agricultural

development within an overarching paradigm of commercialisation. In terms

more philosophical than are customary in development economics debates, it

can be said that the approach is, as it were, a ‘meta-narrative’ for developing

country agriculture – both ‘modernising’ in the sense of development theory,

and ‘modernist’ in the sense of underlying philosophy. Inherent in such a broad

policy approach – or discourse – are the dangers of reductionism and

generalisation at the expense of a need to disaggregate contexts and policy

prescriptions to a lower empirical level. Probably there is a task to deconstruct

the overarching perception of reality into meaningful units of analysis and

action, or to seek ‘particularity’ and ‘locality’, the quality of characteristics

which pertain to a specific case or context or location, or reality. In short, we

must continue to ask how agricultural commercialisation can benefit the

poorest; and whether the WDR 2008 tends to gloss over the development

‘losers’, whose limited assets and capabilities consign them to exit from

agriculture and often from rural life into – probably – the lowest echelons of

urban-industrial society. Answering these questions anticipates the next section

but is not precisely the purpose of this module. Keep it in mind.

2.2 The indirect effects of markets

Markets for agricultural and natural resources products are important not only for

producers and processors who are directly involved, but also for the wider rural

population. Indirect poverty-reducing effects of markets may be manifested in a

number of interlinked forms, including:

• employment in the agricultural sector

• rural non-farm income

• lower food prices for consumers

Employment versus direct market participation

When considering the importance of markets for smallholders, we generally tend to

think of smallholders working more or less independently on their own land, selling

their produce directly to the market. Less attention is often paid to the importance of

employment on larger farms or estates.

Recent decades have seen the growth of international markets for high value

agricultural products, particularly fruit and vegetables. Many farmers in developing

countries are involved in export-oriented production of high value products.

However, concern has been expressed that stringent quality and safety standards in

high income markets is making it increasingly difficult for smallholders to participate.

As discussed in Section 3.2, smallholders generally find it difficult to provide the


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product traceability and quality assurance required by these markets. Consequently,

there is concern that smallholders are being pushed out of potentially high value

markets, and failing to enjoy the benefits of this export trade.

However, it may not all be bad news. Research in Senegal, summarised in 2.2.1,

suggests that high-standard agricultural production and trade can directly reduce

poverty and improve welfare, even if it is realised through employment in large-scale

agro-industrial production.

2.2.1 Poverty reduction, smallholders and wage labour

‗First horticultural exports from Senegal to the EU have grown sharply over the past decade, despite strongly increasing food standards in the EU. Second, these exports have strong positive effects on poor households‘ income. We estimate that these exports reduced regional poverty by around 12 percentage points and reduced extreme poverty by half. Third, tightening food standards induced structural changes in the supply chain including a shift from smallholder contract-based farming to large-scale integrated estate production. However, these changes mainly altered the mechanism through which poor households benefit: through labor markets instead of product markets. Moreover, the impact on poverty reduction is stronger as the poorest benefit relatively more from working on large-scale farms than from contract farming.‘

‗By creating employment opportunities that are relatively more accessible for the poorest households, FFV [fresh fruit and vegetable] estate farming has contributed to the reduction of poverty.‘

Source: Maertens and Swinnen (2006) pp. 2 and 23.

Maertens and Swinnen’s work demonstrates that direct participation of smallholders

in agricultural markets is not the only, nor necessarily the best, way in which poorer

households can be involved in markets.

Why would wage labour benefit the poorest households more than

smallholder production?

Answer.

If the poorest have limited or no access to land and inputs, and limited ability to meet quality and production standards, they would be excluded from smallholder production for many markets anyway. Wage labour allows them to earn a wage and potentially produce subsistence crops on their

land.

Given the lack of resources available to the poorest households, wage labour may

therefore be more accessible than attempting to market their own produce.

Rural non-farm income

Rural non-farm income (RNFI) includes earned and unearned income received by

rural people from the urban economy (via temporary migration, remittances,

welfare, pensions, interest) and the rural non-farm economy, which includes

activities based in local towns (ODI 2002). This generally includes secondary sectors,

such as manufacturing, processing and construction) and tertiary sectors including

transport, trade, finance, rent, and services. Some primary sectors, such as mining,


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would also be included in the rural non-farm economy. Crop and animal husbandry

(including forestry, horticulture, aquaculture, apiculture and wage labour in those

sub-sectors) are generally considered as ‘farm’ activities.

Rural non-farm income is generally agreed to make a substantial and increasing

contribution to rural household incomes. Between 40% (in Latin America) and 75%

(in parts of sub-Saharan Africa) of rural income is now no longer derived directly

from farming (Farrington and Mitchell 2006). Some authors, such as Farrington and

Mitchell, therefore suggest that in many areas the most effective approach to rural

poverty reduction could be to enhance the skills of the rural poor to help them move

out of farming – and even out of rural areas altogether.

What do you think of this suggestion that ultimately the rural poor may

have to exit farming and possibly leave rural areas? Is this simply

pragmatic and inevitable, or should there be specific attention on

ensuring that poor rural farmers can remain in farming?

Answer.

There is no definitive answer to this question and different authors take

different views on the future of small farms. ‘Proponents of small farm development as the best strategy for initial mass poverty reduction (eg Lipton 2005) argue that the labour advantages of smallholder farms can continue to give them the competitive edge over larger farms if there exist effective and efficient services to assist them to raise labour and land productivity plus intermediaries to link them to remunerative output market

opportunities. Opponents of this view (eg Maxwell 2004) suggest that smallholder agricultural growth will depend on competitive engagement with very demanding produce markets, and that small farms face transaction costs in these markets that are too high to be overcome even with the assistance of intermediaries.’ Poulton et al (2005) p. 224.

While the rural non-farm economy may make an important contribution to rural

household incomes, access to these opportunities may be limited by socioeconomic

class, gender, ethnicity, and other social markers. Often the poorest or least

dominant groups are excluded from new opportunities. Rural non-farm opportunities

may have both positive and negative impacts on the well-being of the poor, outlined

in 2.2.2.

2.2.2 The impacts of rural non-farm income on well-being

On the positive side, non-farm activities may:

− tighten labour markets that the poor depend on, checking any downward trend in rural wages

− help manage risk, by providing more opportunities to spread risks and coping strategies

− complement other activities, for example, in the agricultural off-season, or part-time

− add value to farm activities and provide opportunities to learn skills and make new contacts

On the negative side, non-farm activities may:

− provide incomes too low for basic needs, and inadequate conditions


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− have highly differentiated returns with strong sector segmentation producing structural inequality

− be insecure due to mass underemployment and casual labour markets

− be located at a distance, dispersing the rural labour force and contributing to family breakdown

Source: summarised from ODI (2002) p. 1.

Although the rural non-farm sector may account for a significant proportion of

household income, in most rural areas of Africa, there are few opportunities for the

non-farm sector to drive overall growth and it tends still to be dependent on

agriculture (see 2.2.3). Agricultural growth can help raise non-agricultural incomes

because when agricultural incomes increase, rural people have more resources to

spend on non-foods. Conversely, demand for food can be increased by investments

that increase the productivity and incomes of the non-agricultural sector.

2.2.3 Farm and non-farm activities in pro-poor rural growth

‗The non-farm sector is important (especially seasonally) for its contribution to the incomes of the poor, but also helps to finance employment and investment on medium-scale farms. However, in most rural areas in Africa there are few opportunities for the non-farm sector to drive overall growth — it tends to be dependent on agriculture. In the many areas weakly integrated into markets, food supplies and prices, which are crucially important to the poor, will be influenced mainly by local production patterns, as will local wages. As a result, own-farm smallholder production and its continued development, is critically important to the poor, but so is the non-farm sector. Both must develop together so that the non-farm sector will, with time and improved markets, increasingly take over from smallholder agriculture its current dominant influence on real wages and food security.‘

Source: Dorward et al (2004b) p. 3.

Consider a specific rural area with which you are familiar. Find out what

are the main sources of rural non-farm income in the area? (If you do

not already know this, you may need to discuss with extension staff or

NGOs working in the area.) If known, what proportion of household

income does rural non-farm income comprise?

Lower food prices

There has been a clear, long-term downward trend in real prices of primary

agricultural commodities since the 1960s. While this results in poorer terms of trade

for farmers, low food prices benefit rural and urban food deficit households. It is not

clear what the overall balance will be for poor rural households between the direct

benefits of low food prices and the (indirect) effects of low prices on employment and

growth in the agricultural sector.

Although urban consumers are often considered the main beneficiaries of low food

prices, there may be a sizeable proportion of the rural population that are actually

net consumers too, as the example in 2.2.4, below, demonstrates.


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2.2.4 Net buyers and sellers of cereals in Maradi Department, Niger

‗The net sellers of grain to the towns are not evenly distributed among the rural population. In a large CARE sample in Maradi in 1996 the families defined as the most vulnerable (56%) produced 125 kg cereals/capita, against a moderately poor group (27%) who produced 311 kg, and a relatively well-off group of 17% who produced 580 kg/capita (CARE International au Niger & Université d‘Arizona, 1997). The average was 252 kg/capita, in a somewhat below average rainfall year. Food selling was near universal but if one estimates per capita needs at 200 kg/capita/annum, it is apparent that quite large numbers of rural families are net buyers of cereals, and that a minority are net sellers‘.

Source: Tiffin (2003) p. 1352.

In 2007–2008, many food prices rose due to global supply and demand imbalances.

Under these circumstances, farmers benefited, provided that they were net food

producers. Net consumers, of course, were adversely affected, and this includes the

rural poor as well as the urban poor. Both high prices and volatile prices are an issue

because of the adverse effects on producers and consumers, and the social and

political instability to which they give rise. Natural disasters play a part, as do

conditions in related markets such as oil, which is an important input as fuel for

agriculture and for fertiliser production.

2.2.5 The causes of the 2007—2008 price spike

The most likely contributing factors were a steady increase in global demand, in particular due to economic growth in middle-income countries; an increase in energy prices and regulatory changes encouraging the conversion of agricultural land to the production of biofuels; a series of poor wheat harvests in 2006 and 2007 in agriculturally important regions such as Australia; and a general rundown in commodity stocks. The height of the spike was undoubtedly exacerbated by the introduction or tightening of export restrictions by governments in some important producer countries. It has also been argued that commodity speculation was an important causal factor, but the empirical evidence for this is contested and does not allow the relative importance of the carious factors in causing or exacerbating the price spikes to be distinguished.

Source: Foresight (2011), p. 22.

Increased agricultural productivity is viewed as an important component of increased

pro-poor growth. As Dorward et al (2004b) state:

‘Large productivity increases are [therefore] needed from labour saving

technical change if smallholder agriculture is to drive pro-poor growth,

but this must be backed up by a growth in the rural non-farm economy.’

Source: Dorward et al (2004b) p. 3.


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Without increased demand, induced by growth in other agricultural and non-

agricultural sectors, even modest growth in grain productivity could depress

domestic staple grain prices, particularly in Africa where trade policies and poorly

functioning markets limit trade between regions. The decrease in prices would

benefit consumers and poor people in the region, but would also slow growth in

agricultural incomes, according to Diao and Hazell (2004). They point out that

another major avenue for increasing domestic demand for foods is through

investments that increase productivity in the non-agricultural sector. Their model

simulations show that if productivity increased in both the agricultural and non-

agricultural sectors (a two-engine growth strategy), demand for agricultural output

can increase much more rapidly (see 2.2.6).

2.2.6 A two-engine growth strategy

‗… if productivity in the export (traditional and non-traditional) and the food (livestock and grain) subsectors grows at a rate of 6 per cent and 1.5 per cent per year, respectively, while productivity in some manufacturing and service sectors grows by 4 per cent per year, then per capita agricultural income in Africa grows by 3 per cent per year; per capita food consumption grows by 3.5 per cent per year, and per capita agricultural exports grow by 8.0 per cent per year more than in the baseline scenario; this is four times the cumulative agricultural growth rate obtained by focusing on the agricultural sector alone. These results show the high payoff of a two-engine growth strategy.‘

Source: Diao and Hazell (2004) p. 4.


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uestion 5

Choose the correct answer.

Economic growth is essential to ________.

(a) increasing agricultural productivity

(b) poverty reduction

(c) income equality

uestion 6

True or false?

Investment in the non-agricultural sector can help stimulate demand for food

products.

uestion 7

True or false?

Agricultural growth does not help raise non-agricultural incomes.

uestion 8

Which of the following would generally be classed as rural non-farm income?

(a) Wage labour on an estate

(b) Wage labour in mining

(c) Remittances from relatives working in farming in another country

(d) Income from transporting agricultural produce

(e) Income from non-timber forest products collected on communal forest land

Q

Q

Q

Q


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3.0 CHALLENGES AND OPPORTUNITIES FOR SMALL

AGRIBUSINESSES

Section Overview

In this section we first define what we mean by small agribusinesses. We then

examine the advantages and disadvantages of small agribusinesses – particularly

small farms – in comparison to larger competitors. Particular attention is given to the

issue of transaction costs.



define a ‘small agribusiness’

identify advantages and disadvantages of small farms and agribusinesses

3.1 What is a ‘small agribusiness’?

There is no universal definition of a ‘small agribusiness’ as indeed there is no

universal definition of a small enterprise.

3.1.1 What is an SME?

‗The issue of what constitutes a small or medium enterprise is a major concern in the literature. Different authors have usually given different definitions to this category of business. SMEs have indeed not been spared with the definition problem that is usually associated with concepts which have many components. The definition of firms by size varies among researchers. Some attempt to use the capital assets while others use skill of labour and turnover level. Others define SMEs in terms of their legal status and method of production.

The European Commission (EC) defined SMEs largely in term of the number of employees as follows:

− firms with 0 to 9 employees — micro enterprises;

− 10 to 99 employees — small enterprises;

− 100 to 499 employees — medium enterprises.

Thus, the SME sector is comprised of enterprises (except agriculture, hunting, forestry and fishing) which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria… However, the EC definition is too all-embracing to be applied to a number of countries. Researchers would have to use definitions for small firms which are more appropriate to their particular ―target‖ group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile, unless size is a factor which influences performance… Size has been defined in different contexts, in terms of the number of employees, annual turnover, industry of enterprise, ownership of enterprise, and value of fixed assets….

The UNIDO also defines SMEs in terms of number of employees by giving different classifications for industrialized and developing countries… The definition for industrialized countries is given as follows:

− Large — firms with 500 or more workers;

− Medium — firms with 100—499 workers;


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− Small — firms with 99 or less workers.

The classification given for developing countries is as follows:

− Large — firms with 100 or more workers;

− Medium — firms with 20—99 workers;

− Small — firms with 5—19 workers;

− Micro — firms with less than 5 workers.

It is clear from the various definitions that there is not a general consensus over what constitutes an SME...‘

Source: Abor and Quartey (2010) pp. 219—220.

Abor and Quartey (2010) go on to debate the similarities and differences between

definitions of SMEs in Ghana and South Africa. Whereas in Ghana there is no formal

definition, in South Africa national legislation defines an SME. While definitions may

seem irrelevant, ‘SMEs constitute a vital element of the development process, and

their contributions in terms of production, employment and income in developing

countries is widely recognized’ (p. 225). However definitions do matter in one very

important respect. According to Abor and Quartey, access to finance is the greatest

concern for the majority of SMEs – and it is in this that definitions matter: which

firms should gain from any preferential financing?

By using the term ‘small agribusiness’ we intend to include a wide range of micro-

and small enterprises based in rural areas. However, we want to also include in this

discussion other types of small-scale food-related enterprises that are not necessarily

of agricultural origin – such as fisheries; and also small-scale enterprises that are not

necessarily rural, such as urban retailing; and also rural non-food enterprises. What

is common to all these is some dependence on the management, production and

commercialisation of natural resources products and linked services. For example, we

include within this:

smallholder farmers and producers of food and non-food crops

small rural food processors and distributors

small-scale traders and intermediaries

small-scale collectors and processors of forest products, both wood and non-

wood

fishermen and small scale fish-farmers

producers of natural resource-based artisanal products and handicrafts

In terms of scale, it is difficult to give a global range, but perhaps it would be useful

to keep in mind micro- or small agribusinesses comprising 1–20 people, including

employees and/or family members. However, it is not always the number of

employees that makes a farm or agribusiness ‘small’. Consider the definition in 3.1.2,

below, which shows how an apparently simple concept (‘small’) can be difficult to

apply in practice.


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3.1.2 Small and low intensity managed forests (SLIMFs)

The Forest Stewardship Council (FSC) is an independent, non-profit organisation that promotes good forest management through forest certification worldwide. The FSC realised that small scale in forestry did not only relate to the number of employees, or even to the land holding size, but also to the intensity of use. They therefore developed a definition of Small and Low Intensity Managed Forests, to which more appropriate certification systems could be applied, as:

Small forest Area less than 100 hectares. National initiatives [formally

endorsed FSC national groups] can increase this up to a maximum

of 1000 ha to reflect the national situation.

Low intensity forest

Timber: The rate of harvesting is less than 20% of the mean

annual increment (MAI) within the total production forest area of

the forest management unit, and the annual harvest from the

total production forest area is no more than 5000 cubic metres.

Non-timber forest products: all natural forests being managed

exclusively for non-timber forest products (with the exclusion of

NTFP plantations) are considered ‗low intensity‘.

Source: adapted from FSC SLIMF website

How would you define a smallholder farm or fisheries or a small forest in

your region/country? Is there an official, or commonly used, definition of

a micro or small enterprise, and/or a small farm or forest?

3.2 Strengths and weaknesses of small agribusinesses

Small farms – and other small scale rural agribusinesses – have particular

advantages and disadvantages in producing for the market when compared to larger

competitors.

List any advantages and disadvantages you can think of for small farms.

According to Poulton et al (2005), small farms’ competitive advantages over large

farms lie mainly in:

their ability to access and supervise motivated family labour

their intensive local knowledge, for example about local growing conditions

Hortico Agrisystems, a fresh produce exporter in Zimbabwe, demonstrates this in the

comparison of their small-scale out-grower producers with larger producers, in 3.2.1.


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3.2.1 Performance of small-scale producers

‗Despite the significant learning curve associated with Agrisystems‘ exacting requirements, small-scale producers consistently perform as well as large producers, if not better. Thus, the proportion of production that meets the export quality standard is comparable across small and large-scale producers for mangetout and fine beans. In the case of baby corn, small-scale producers significantly out-perform large-scale producers in some years. Further, a supply-base of numerous small-scale producers that are geographically dispersed acts as an effective mechanism to reduce the risk of widespread crop failures due to disease and (to a lesser extent) weather, thus safeguarding Hortico‘s ability to fulfil customer orders.‘

Source: Henson et al (2005) p. 379.

What other advantages do Agrisystems see in working with small farms

not noted by Poulton et al (2005) above?

Answer.

Geographical dispersal of small farms reduces the risks of total crop failure for the buyer. This is not necessarily an advantage for an individual farmer, but collectively it makes them more attractive as outgrowers.

However, small farms and firms face high transaction costs (we return to this phrase

below) in almost all non-labour transactions because of their small scale, with severe

impacts on their abilities to fulfil market requirements. In particular, Poulton et al

(2005) note that small farms face high transaction costs in:

accessing capital

accessing market and technical information

accessing input and output markets

providing product traceability and quality assurance

These costs are exacerbated by:

poverty (with large needs for external sources of capital but limited assets for

collateral)

dispersion, production, and health uncertainty

low levels of education and skills in management and marketing

poor physical and informational communication systems

low density of economic activity in the poor rural areas where they

predominate


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The result of these high transaction costs and exacerbating factors is that:

‘Small farmers thus struggle to deliver reliable and regular supplies of a

given crop, particularly when quality is also tightly specified […] and in

responding rapidly to changes in buyers’ requirements. High transaction

costs become particularly problematic where individual transactions

require significant transfers of information about the source or any

credence attributes [see Key Terms] of commodities being transacted.

Such farmers also tend to lack political voice and market power.’

Source: Poulton et al (2005) pp. 223–224.

3.3 Transaction costs

Looking at the paragraphs above, you may notice that Poulton et al frame their

thinking about the advantages and disadvantages of small farms in terms of

transaction costs.

3.3.1 A definition of transaction costs

In a food marketing setting, transaction costs are the whole array of costs associated with buying, selling, and transferring ownership of goods and services. They are:

− the information costs incurred in identifying and screening different trading opportunities, outlets and partners

− the costs of negotiating trading agreements

− the costs of actually transferring goods, services and ownership rights

− the costs of monitoring trade conditions to determine whether the agreed terms are complied with

− the costs of enforcing stipulated terms through legal, social or other means

Source: based on Jaffee (1995) p. 28.

Jaffee (1995) describes three main dimensions that determine the level of

transaction costs in the trading environment:

Asset specificity: the extent to which physical and other assets required for

production and exchange are durable and specialised for a particular product or

trading relationship. Investing in specific assets exposes the investor to the risk

of severe bargaining and contractual enforcement problems, as they may be

locked into a particular trade relationship. Tree-crops, with extended gestation

periods, are an example of asset specificity: for instance coffee takes at least

three years after planting to produce its first crop. Once the farmer has planted

coffee, it is difficult to switch their investment to an alternative.


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Uncertainty: the overall degree of uncertainty surrounding the exchange

leads to increased transaction costs because more effort needs to be expended

collecting information in order to minimise risk, and monitor contract

implementation. A farmer might choose to sell their produce through a broker,

for example, but they need to know whether the broker is trustworthy and

giving them a good deal. Finding this out may incur additional costs.

Competitive market structure: in particular the number of alternative

buyers and sellers affects the ability of trading partners to negotiate and

enforce agreements. Where remote farmers have only one or a few

intermediaries offering to buy their produce at the farmgate, they are in a poor

negotiating position to get a good price, raising their transaction costs.

While these three elements may determine the level of transaction costs faced by

market participants, a weak institutional environment can exacerbate transaction

costs for all participants, and conversely changes to the institutional environment can

help reduce overall transaction costs, reducing the cost of doing business – and of

marketing products.

3.3.2 Weak institutions and transaction costs

‗The ‗weak institutions‘ argument adds a further explanation for slow market development in terms of weak institutional support to market and private sector development (World Bank, 2002) with cultural, political and legal factors undermining clear property rights and hence private investment incentives. Here the liberalisation agenda that tried to escape the problem of state failure in market interventions has run up against different problems of serious state failure, now in delivering public goods – the institutions and infrastructure needed for privatised competitive markets to operate in the challenging conditions where poverty is most intractable.‘

Source: Dorward et al (2005) p. 81

Can you think of an example of ways in which the institutional

environment might help limit transaction costs? Which ‘dimension’ of

transaction costs would this affect?

Answer.

One example would be the need for clearly defined and enforced property rights, which allow buyers and sellers to undertake a transaction with more

confidence. This facilitates trade by reducing the uncertainty in the trading environment.

Jaffee distinguishes six different types of transaction costs, identifies their origins

and provides examples of different forms of transaction costs, shown in 3.3.3

(below).


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3.3.3 Transaction costs in a commodity trading setting

Types of transaction cost

Source/origin of costs Tangible forms of transaction costs

Search costs Lack of knowledge about opportunities (eg products, prices, demand, supply, trading rights, market outlets)

Personal/personnel time

Travel expenses

Communication costs

Screening costs Uncertainty about the reliability of potential suppliers/buyers

Uncertainty about the actual quality of goods/services offered

Consulting service fees

Advertising/promotion costs

Bargaining costs Conflicting objectives and interests of transacting parties

Uncertainty about willingness of others to trade on certain terms

Uncertainty over transactor rights and obligations

Costs of credit rating checks

Licensing fees

Insurance premiums

Transfer costs Legal, extra-legal or physical constraints on the movement/transfer of goods

Handling/storage costs

transport costs

bribery and corruption expenses

Monitoring costs Uncertainty about transactor compliance with specified terms

Uncertainty about possible changes in the quality of goods and services

Auditing fees

product inspection charges

Investments in measurement devices

Enforcement costs Uncertainty about the level of damages/injury to a transacting party arising from contractual non-compliance

Problems in exacting penalties through bilateral arrangements or through use of third parties

Arbitration, legal, court fees

Costs to bring social pressure

Source: Jaffee (1995) p. 30.


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uestion 1

Indicate which of the following are typically problems associated with small farms

and firms?

(a) Access to input and output markets

(b) Access to family labour

(c) Provision of product traceability

(d) Access to capital

(e) Access to local knowledge

uestion 10

True or false?

Transaction costs include the costs of inputs (such as fertilisers and seeds) and

irrigation.

uestion 10

Fill in the missing word/phrase.

Jaffee describes three main dimensions that determine the level of transaction costs.

The installation of large-scale specialised processing and post-harvest facilities is an

example of _______________.

uestion 12

Tick the correct answer.

In a monopsonistic output market (ie one with only one or a few buyers) a seller’s

threats to terminate trade and sell to competitors will be less credible. This

potentially leads to problems of higher transaction _____________.

(a) Search costs

(b) Enforcement costs

(c) Monitoring costs

Q

Q

Q

Q


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4.0 PRIVATE ENTERPRISES AND FOOD VALUE CHAINS

Section Overview

In this section we introduce the concept of the food value chain and the role of

private enterprises. We then examine some of the barriers facing private enterprises

participating in food marketing and ways in which the barriers can be reduced.



explain the concept of food value chains

describe the issues facing private enterprises engaged in food marketing and

responses to these

4.1 An introduction to food value chains

Food marketing is the physical and economic link between raw material producers

and the purchases made by food consumers. Between these two ends of the chain,

food marketing entails a large number of steps, involving different industries,

markets, and sometimes countries. Jaffee (1995) refers to this chain as a ‘food

commodity system’; here we use the term ‘food value chain’ to cover the same

issues.

4.1.1 The value chain — a definition

‗The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use.‘

Source: Kaplinsky and Morris (2002) p. 4.

Jaffee describes how a product can be thought of as ‘flowing’ from one stage to

another: production, transport, processing, packaging and retailing. At each stage

the product gains value as its form is changed and it is graded, stored, packaged,

and transported in order to more closely match consumer demands. Other ‘flows’

accompanying the physical product include:

information flowing between consumers, traders and producers

financial flows occurring in the opposite direction to the product as investment

in production and processing and remuneration for product sales

ownership flows where the right or title accompanies the product flow


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Jaffee goes on to note that food marketing generally involves specialised technical or

market knowledge, skills or assets in particular locations. The need for specialisation

leads to potential benefits of a division of labour, such that different individuals or

organisations undertake the tasks in which they have a competitive advantage. The

presence of a large number of individuals or organisations in the value chain, and the

interdependence among them, creates a need for effective co-ordination of the

participants’ decisions and activities.

4.1.2 Commodity chain — firewood 'flowing' to Ouagadougou

Source: unit author © Nigel Poole

Because of the interdependence of the participants in the value chain, and the need

to link and co-ordinate different parties, Jaffee suggests that food production and

marketing activities should be viewed as elements in a comprehensive system. The

central issues are then:

co-ordination of the different activities in the systems

control over the allocation of costs and benefits between participants

4.2 The issues for private participation

The marketing of food products is subject to a number of problems related to risk,

inadequate information, high transaction costs, logistics and high overall marketing

costs. These problems can constitute major barriers to the co-ordination of food

value chains.

Market liberalisation was expected to stimulate economic and agricultural growth,

thus reducing poverty and increasing food security. The private sector was expected

to deliver goods and services that the public sector had previously tended to deliver


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inefficiently and expensively. According to Dorward et al (2005), in some countries,

these market-led policies have successfully delivered growth where there are dense

populations, good infrastructure, and a diversified agricultural and rural economy,

like Bangladesh. In much of Africa, however, the record of market liberalisation has

not been so good, and there has been little success in

‘developing input, output and financial markets offering attractively

priced, timely and reliable services that are critical for food crop

intensification’

Source: Dorward et al (2005) p. 81.

We have already looked at some of the market access constraints facing smallholders

in Section 3. In many cases, small agribusinesses face a ‘transaction failure’ because

the returns from transactions (buying and selling) do not justify the risks and costs

involved.

Dorward et al (2005) argue that in agri-food value chains there is a need to co-

ordinate changes and investments at different points in the chain. There is no point

investing in producing milk for the market, for instance, if there is no cold-chain

available to transport, process, and store it. Different enterprises need to be co-

ordinated in order to develop and market new products – but often the excessively

high risks and uncertainty do not justify this.

4.2.1 The challenge of co-ordination

‗Co-ordination and opportunism are particularly problematic causes of transaction failure where technical change requires significant and enterprise specific investments at a number of different points along a supply chain (eg in delivery of seasonal finance, input and output services to farmers) for that supply chain to function. The central co-ordination challenge facing smallholder agricultural development is, therefore, how to develop supply chain systems that provide smallholders with access to the range of pre-harvest services that they require at the same time as enhancing their access to remunerative output market opportunities. This requires non-market co-ordination (sometimes, but not necessarily, led by the state) to deal with risks that inhibit complementary and mutually dependent investments along a supply chain, where these investments are held back by thin markets and by the high costs in controlling opportunism (eg in produce grading and seasonal finance).‘

Source: Dorward et al (2005) p. 82—83.

Barriers to private enterprise participation

Jaffee (1995) described the barriers to private enterprise participation and co-

ordination of food value chains under four main headings, summarised below, that

can affect the risks and transaction costs faced by producers and marketing

enterprises.

Technical characteristics of the food product. Food products are bulkier and

more perishable than many products, creating physical handling and transport

problems. Perishability in particular limits the time during which a food product

can be marketed as fresh and used as a raw material in processing. It may

require investment in specialised transport and storage facilities.


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Production characteristics of the food commodity. Compared to

manufacturing, agricultural production occurs over a dispersed geographical

area resulting in high costs of information transfer to producers about

consumer preferences, and conversely to marketers about crop availability, as

well as high transport costs. Small producers supplying large-scale processing

operations may find few buyers and hence have little bargaining power.

Facilitation of production. Food marketing or processing enterprises may

support producers through, for instance, the supply of services such as

technical information, finance, and inputs (seed, fertilisers, etc). However, the

incentives for a food marketing enterprise to provide services depends on their

ability to derive benefits from it, such as increased output, enhanced quality or

better co-ordinated output. However, in a strongly competitive output market,

the food marketer may be unable to ensure they benefit from their investment.

Such investments may therefore be more likely to occur in a non-competitive –

monopsonistic – output market.

Processing and distribution. Some food processing and distribution

operations require investments that private enterprises may lack the ability or

desire to make. Some, such as the construction of roads, may have public good

characteristics; others, such as processing, storage or transport facilities, may

be too ‘lumpy’ for an individual enterprise, requiring operations at too great a

scale for current supplies.

Most high value foods are perishable in their raw state and require rapid sale or

processing to retain value and prevent deterioration. Significant price premiums or

discounts are likely to be used to ensure high-quality supplies. In general, moderate

to high levels of uncertainty will accompany procurement of high value food

materials, increasing transaction costs.

Post-harvest primary processing generally does not require high levels of technical

sophistication or asset specificity compared to some manufacturing, thus lowering

transaction costs. Nonetheless, some foods (such as meat and fish canning or

freezing) do entail significant fixed cost elements and economies of scale, creating a

barrier to entry and a challenge in obtaining sufficient supplies.

Lowering the barriers

Jaffee (1995) goes on to describe a range of technical, institutional, and other

approaches that can reduce these barriers to private enterprise participation in, and

co-ordination of, food value chains. In particular, he focuses on measures that

improve efficiency and co-ordination in value chains.

Technological measures. New technologies affecting food marketing

possibilities may be applied throughout the food value chain. For instance, new

crop varieties may allow out-of-season harvesting or improved storage

properties. New storage and transport technologies can facilitate flows of

perishable food products; processing technologies (eg pasteurisation, or ultra-

high temperature processing) can extend the marketable life of foods.


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Laws, rules and standards. Well-defined and enforced property rights are

essential for the efficient exchange of commodities. Clarity over ownership and

rights to use, trade, and alter assets is vital to market development. Quality

grades and standards facilitate trade over long distances and among strangers,

because standardised goods can be more easily traded ‘on description’ and do

not require individual inspection.

Can you think of any quality grades and standards in use in your

country/region, which help facilitate long-distance trade?

Spot market trading. Where goods, services, money, and titles are

transferred ‘on the spot’, market prices offer clear and powerful incentives and

information to buyers and sellers.

Reputations, brand names, and advertising. Reputations can help signal

competence and credibility. A good reputation reduces the cost of ‘arms-length’

trade as buyers and sellers have greater confidence in one another, lowering

screening costs and subsequent monitoring of product quality.

Consider your own purchasing decisions. Are there any particular brands

that signal reliable quality to you?

Personalised trading networks. Buyers and sellers often develop a

relationship of trust with groups of suppliers and customers with whom they

are inclined to deal. In environments where formal legal procedures for

monitoring and enforcing agreements are lacking, trust and reciprocity are

likely to be crucial factors in the development of trade.

Brokerage. Brokers are intermediaries who link suppliers and customers but

do not actually take title over commodities traded. Brokers can reduce costs for

both sides because they are well informed about market conditions, can bring

together diverse buyers and sellers, and may bulk up small sales to achieve

economies of scale.

Contract co-ordination. This represents an intermediary arrangement

between spot markets and vertical integration. In contrast with spot markets,

the agreed exchange is in promised, rather than already produced, goods

and services. Contracts allow buyers to transfer complex information to sellers

about future delivery time, location, and quality preferences. Such contracts

help reduce uncertainty for both buyers and sellers.

Can you think of an example of contract co-ordination in food production

systems?


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Answer.

Contract farming or outgrower schemes are a form of contract co-ordination.

Farmers promise to provide their produce to the contracting company; the contracting company can specify qualities, delivery locations and even schedules.

Co-operatives and associations. Farmers, processors, wholesalers, retailers

or exporters may form associations in order to undertake joint investments,

implement common practices or collective self-regulation. Groups may reduce

problems of ‘lumpy’ investment, reduce risks, lower transaction costs and

counter the market power of larger buyers or suppliers.

Vertical integration. This involves the combination of two or more separate

stages of production and marketing under common ownership and

management. Integration can help reduce production/logistical costs, lower

transaction costs, eliminate market risks and uncertainties, and have

advantages in the early stages of market development.

Government intervention. Where market, contractual, and co-operative

mechanisms fail to effectively co-ordinate production and marketing activities,

there may be justification for government intervention. This may reduce risks

and transaction costs faced by private firms and individuals. Intervention does

not necessarily mean direct provision of goods or services: regulation, taxation

and subsidisation may also be employed.

Summing up this overview of the issues and challenges, the WDR 2008 argues that:

‘Markets are good for efficiency, and much progress has been made in

market development, especially under private sector leadership. But

further efficiency gains will require public sector support to deliver the

necessary public goods, foster institutional innovation, and secure

competitiveness. Because efficient markets do not always secure socially

desirable outcomes, complementary policies are often needed to ensure

smallholder participation.

A large agenda remains in improving the performance of the marketing

systems in developing countries. Public investments to expand access to

rural infrastructure and services – such as rural roads and transport

services, physical markets, telecommunications, and electricity – will be

critical to reducing transaction costs and physical losses and to enhancing

transparency and competitiveness in traditional markets. Technical and

institutional innovations reduce transaction costs and risks also show

promise, especially the wider use of information technologies (mobile

phones the internet, and commodity exchanges) and vertical coordination

arrangements with individual farmers or producer organizations’.

Source: World Bank (2007) pp. 133–134.


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uestion 13

Which of the following ‘flow’ in a value chain?

(a) products

(b) finance

(c) design

(d) information

(e) markets

(f) labour

(g) ownership

uestion 14

Consider the production and marketing of milk in a smallholder dominated production

system. Match the characteristics that affect milk market transaction costs.

(a) Technical characteristics

(i) Specialised pasteurisation/Ultra high

temperature treatment facilities

(b) Production characteristics (ii) Highly perishable product

(c) Processing and distribution

characteristics

(iii) Dispersed smallholders/In potentially inaccessible locations

uestion 15

The transfer of complex information from buyers to sellers about their product

delivery and quality requirements is best achieved by _____________.

(a) Spot markets

(b) Vertical integration

(c) Contract co-ordination

Q

Q

Q


© SOAS CeDEP 39

uestion 16

Reputations, brand names, and advertising can help reduce which types of

transaction costs?

(a) Search costs

(b) Screening costs

(c) Transfer costs

(d) Enforcement costs

Q


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UNIT SUMMARY

In this unit we have looked at:

different approaches to the definition of markets and marketing, from

economic, business, and development standpoints

the evolution of the marketing concept and the meaning of the four Ps

why markets, economic growth, and agricultural growth are important for

poverty reduction

the indirect effects of markets through employment in the agricultural sector,

the rural non-farm economy, and lower food prices

what we mean here by a small agribusiness

the strengths and weaknesses of small agribusinesses, in particular of small

farms

the definition of transaction costs and different types of transaction costs

what we mean by food value chains and the issues for private sector co-

ordination of, and participation in, food value chains


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UNIT SELF ASSESSMENT QUESTIONS

uestion 1

In theory, a virtuous circle might be established between the growth of agricultural

and non-agricultural incomes. Increasing agricultural productivity leading to higher

agricultural incomes means rural people have more income to spend on non-

agricultural products and services. Growth in the non-agricultural sector leads to

greater demand for agricultural products, generating greater agricultural incomes.

Fit the stages into the relevant boxes.

Increased demand for food products

Higher non-agricultural growth and income

Spending on non-agricultural products and services

uestion 2

What might be the flaws in the scheme described in Question 1?

Q

Q


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uestion 3

Fill in the missing words/phrases using the list below.

Small farms struggle to deliver reliable and regular supplies of a given crop,

particularly when _______ is also tightly specified. Smallholders also often find it

difficult to provide product _______ required by high value product markets. High

_______ costs are especially problematic for small farms. _______ on larger estate

farms may offer opportunities through which the poorest households can participate

in high value markets. The _______ may also contribute significantly to rural

household incomes. Access to these opportunities may be limited by _______.

(a) quality

(b) socioeconomic status

(c) employment

(d) transaction

(e) rural non-farm economy

(f) traceability

Q


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KEY TERMS AND CONCEPTS

credence attributes qualities of a product that the consumer cannot directly

experience, but believes to be the case

high value foods usually refers to non-staples such as horticultural produce, fresh

fruit and vegetables, meat, fish, and dairy products

monopsony a market in which there is only one or a few buyers of the item

sold

value chain the full range of activities required to bring a product or service

from conception, through the different phases of production

(involving a combination of physical transformation and the input

of various producer services), delivery to final consumers, and

final disposal after use

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