Acknowledgments

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Reprinted, 1991

The designations employed and the presentation of material in this publication do not imply the expression of any opinion what so ever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

M-62
ISBN 92-5-102710-2

All rights reserved. No pan of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the copyright owner. Applications for such permission, with a statement of the purpose and extent of the reproduction, should be addressed to the Director, Publications Division, Food and Agriculture Organization of the United Nations, Via delle Terme di Caracalla, 00100 Rome, Italy.

(c) FAO 1989

Foreword

If farmers are to increase production, more attention needs to be paid to the fact that their output must be marketed at a rewarding price. Commercialization of the small farm sector requires the development of market-orientated production, as opposed to the occasional sale of subsistence surpluses. Success in commercializing this sector thus depends on the orientation of production to meet market demand and on the removal, or reduction, of a broad range of marketing constraints.

In most countries marketing problems are currently regarded as beyond the scope of field-level agricultural extension workers who are the officers in direct contact with the farmers. Even when extension workers are able to identify marketing problems faced by farmers their lack of expertise in this field, or knowledge of appropriate sources of assistance, makes them unable to help.

This manual, which has been prepared by G. Dixie of High Value Horticulture plc, U.K. on behalf of the Food and Agriculture Organization of the United Nations (FAO), aims to provide appropriate resource and training material on marketing for extension officers working with farmers who produce horticultural produce for both domestic and export markets. Although the manual is too detailed for everyday use by most extension workers, it is hoped that it will be used by agricultural colleges for their training courses in agricultural marketing and, indeed, may encourage such colleges to devote a greater part of their curricula to marketing. Further, it is also expected that this manual will be used by marketing officers working with ministries of agriculture in training field-level extension officers and that it will be a valuable reference work for marketing extension workers where resources permit such specialization. The manual should also prove of value to processing organizations, traders' associations and others working in the area of horticultural marketing.

The author would like to thank J. Spector for the graphics, C. Penn for the cover photograph and E. Seidler and A. Shepherd of FAO for their comments on the draft. Many others have contributed ideas to this manual, albeit most unknowingly. Due acknowledgement is made to B. Blower, A. El-Beltaqq, E. Burton, L. Koyn, A. Dhriani, M. Mulandi, A. Paldi, O. Karsegard, C. Guichard, K. Martin, K. Thompson, S. New, S. Harris, R. Bond, H. Dhad, G. Hawtin, D. Phillips, R. Watkins, J. Green, H. Khan, Koranteng, G. West, A. Sargent, M. Sargent, J. Nishtar, J. Leggett, Prof. L. Hudson, Ikram Ullah Khan, and many other farmers, traders, officials and scientists whose names are forgotten, but whose wisdom and faces are vividly remembered.

Introduction

As agriculture and society develop, marketing becomes ever more important. In subsistence agriculture a farmer will mainly be feeding himself and his neighbours. The local community's taste and requirements are well understood. Transport and post-harvest losses are not serious problems. As the populations of the cities expand farmers have the added responsibility of feeding not only the rural market but the growing distant urban markets. The farmer therefore has to take on commercial and marketing skills. Marketing is the process by which the space between the producer and the consumer is bridged. The process obviously involves transport and techniques for minimizing crop losses. An effective distribution system will also require the establishment of rural businesses such as truck drivers and packaging manufacturers, contractors and wholesalers. The production/marketing chain is a twoway process. Produce flows from the rural areas into the cities and money and market information should flow back. As tastes in the city market evolve the rural community can use this market information to target its production accordingly.

In horticultural farming, where prices are rarely regulated, financial viability depends as much upon business and marketing skills as on the farmer's technical expertise. It is high-value crops which are often a crucial component of viable small farms. This manual is a response to that growing farmer need for commercial and marketing knowledge and is an entirely practical handbook. The techniques and advice have been tested and proven in the field.

After an introduction to horticultural marketing in Chapter 1, Chapter 2 gives examples of successful horticultural marketing case studies. The book then covers the three stages in horticultural marketing projects. Research and analysis are discussed in Chapter 3 and decision making and agreeing on an action plan in Chapter 4. Chapter 5 discusses some of the many different actions, activities and functions which can help to resolve marketing problems. Chapter 6 concludes the manual by setting out some of the most common mistakes that have bedevilled marketing projects.

Chapter 1 - The marketing process

What is marketing?

The chairman of one of the world's largest retail groups once said:

Marketing involves finding out what your customers want and supplying it to them at a profit.

This description stresses the two crucial points that govern marketing:

Firstly, that the whole marketing process has to be customer oriented. Production must supply customers with what they want or need. This is the only reason people spend their money.

Secondly, that marketing is a commercial process and is only sustainable if it provides all the participants with a profit.

A more classical definition is:

The series of services involved in moving a product (or commodity) from the point of production to the point of consumption.

This definition emphasizes that agricultural marketing is achieved by a series of processes. In this we include harvesting techniques, the grading and sorting of crops and the packing, transport, storage, processing, distribution and selling of products. These are the mechanics of marketing.

A broader view of marketing is provided by the following definition:

The series of activities involved in making available services and information which influence the desired level of production relative to market requirements, and the movement of the product (or commodity) from the point of production to the point of consumption.

This definition covers the services which should be covered by the extension officer, such as providing information and advice. This role includes:

Finding out what the customer wants

Supplying him at a profit

• collection, evaluation and dissemination of market information;
• assistance in the planning and scheduling of production;
• securing the market for producers, e.g. through contracts with buyers;
• advice on the best practical post-harvest practices;
• coordination of inputs, transport, storage, credit and post-harvest facilities.

Although this definition is more comprehensive it still only describes the activities involved in marketing. The key activity of an extension officer, or any public servant concerned with improving agricultural marketing, is the commercialization of the rural economy. This involves: finding out what the customer wants and helping to set up the production/marketing system which supplies that demand and maximizes the income of rural areas.

Progress is achieved by concerted effort. Very often the marketing officer's role is to take an overview and coordinate the efforts of others.

Why is marketing important?

The importance of good marketing can be conveniently considered from the four different perspectives of the national economy, the farmer, the product and the consumer.

At the national level as societies and countries develop there is a movement of people from the countryside into the towns and cities.

Populations in developing countries are expanding, normally at around three percent a year. Urban populations, however, are expanding on average at about four percent a year. This means that the number of people needing to be fed by the rural communities will double in 16 years. In addition, since the amount of food eaten by each individual normally increases as people become wealthier, the supply of food for the towns and cities will need to double approximately every 10 to 14 years.

This change in population distribution will create new or improved opportunities for both farmers and rural employment, particularly if new roads and improved transport are provided.

Subsistence farming (that is, just providing enough food for the farmer and the immediate family) will become less important. Although proportionately there will be fewer farmers, their role will become ever more important because their task will be to feed the growing urban populations. To do so will require the farmer to become more specialized and more skilled so that more food can be produced. The extension officer's first role in marketing is to guide and assist farmers in the process of change from subsistence farming to commercial farming. There is a role for him or her at each stage in the development of agriculture, encouraging farmers to develop new skills needed to market and sell their produce. Even in highly developed societies where farmers are acknowledged as highly skilled producers they are very often weakest at marketing.

The second important role is to try to secure and maximize rural incomes. The reasons why people move from the countryside into the town vary from country to country and from case to case. Possibly the most important factor is the high relative incomes that can be earned in the towns and on regular employment. An important part of the extension officer's role should be to encourage and help the rural community to take control and develop the marketing of its food products. They should try to ensure that the maximum proportion of the retail price is circulated back to the rural areas.

At the farmer level the most disadvantaged farmers are those with small units of land. These farmers will find that they cannot generate sufficient funds from their small land area to support themselves and their families by growing only traditional crops, e.g. wheat and rice. They will find it difficult to compete with produce grown by large farms using mechanization.

In developed agriculture successful small farms can and do survive. We can learn lessons from their survival. Viable small farms tend to specialize in highoutput enterprises. These are crop or livestock systems which are capable of generating high incomes per unit of land. Typical examples in livestock are dairy and chickens, and in crops are fruit, vegetables and flowers. In the United Kingdom, for example, the average size of a cereal farm is around 120 hectares (300 acres), a dairy farm is 60 hectares (150 acres), a typical field vegetable farm would be about 30 hectares (75 acres), a fruit farm 25 hectares (63 acres) and a glasshouse holding 1.5 hectares (4 acres).

Importance of marketing for the country

The strengths and weaknesses of big and small farms are summarized in Table 1.

It is by understanding the strengths and weaknesses of both groups of farmers that it is possible to promote crops and cropping systems which favour the smaller farm. These growers need help in access to markets, by being provided with good production advice and market information to strengthen their ability to negotiate.

Horticultural products are mainly sold fresh; some are eaten raw while others are cooked. Some horticultural products have traditionally been processed when no other form of storage was available, e.g. dried fruit and jams. As society develops and becomes more affluent the market for processed and prepared horticultural products develops. A market also develops for horticultural products such as flowers and house and garden plants which are sold for purely aesthetic reasons. Increased wealth also brings with it an increased demand for product diversity in the form of new crops, off-season supplies and different flavours.

TABLE 1. Strengths and weaknesses of large and small farms

Horticultural products are perhaps most easily defined as what they are not. They are not cereals or the major industrial crops. Generally, but not exclusively, they are not staple crops. Table 2 lists examples of some of the major horticultural products.

Important characteristics of horticultural crops are:

• that they are mainly eaten for their contribution to the flavour and interest of food and for the supply of minor but essential nutrients, especially vitamins;
• that they are not basic food commodities; people will put off buying if the price is too high;
• that consumption levels vary, depending on the selling price and the income of the buyer,
• that many of the crops are not traded in large volumes and there is a limited market;
• that the products are perishable, which means there is always a reduction in quality if they are not sold immediately, usually leading to a fall in value;
• that there is a wide range and variety of horticultural products (see Table 2). If one product is too highly priced the consumer will generally buy another;
• that the products are normally traded in a very free market where price is determined by supply and demand.

All these factors contribute to the crucial and reoccurring fact about horticultural crops: that prices, and especially the prices the farmers obtain, are variable and difficult to predict.

Take an extreme example, but one that occurs regularly:

A farmer who has high quality tomatoes to sell when few other crops are available may easily get a price equivalent to many times his growing cost. However, a farmer who is trying to sell tomatoes when the market is oversupplied and his fruit is two days old may not be able to sell his produce at all.

Wholesale prices may double or halve in the same day, depending on the skill of the salespeople and on consumer demand.

Horticultural crop prices can fluctuate widely:

• from year to year;
• from the start of the season to the main supply period;
• from day to day; and
• from market to market.

This extreme variance in price makes horticultural production potentially both very profitable and very risky. Often, success depends on marketing skills and on obtaining good prices rather than on production expertise. Table 3 gives an example of the effect that price differences can have on farmer profitability.

TABLE 2. Some major horticultural products

TABLE 3. Effect of different prices farmer profit

NOTE: Marketing costs will include harvesting, packaging, grading, transport and market commissions.

As Table 3 demonstrates, farmer B made a profit because he was able to sell his produce at a 50 percent higher price than farmer A who just broke even. The example of farmer C shows that sometimes even higher profits can be obtained when lower yields are achieved, for example by off-season production. Sometimes, in situations of over-supply, prices fall so low that farmers are best advised to minimize their loss by not harvesting their crops. Farmer D would have made a lower loss if he had not bothered to harvest and market his produce.

This manual will look at some of the techniques which can be used to maximize farmer prices. These include:

• improving the quality and presentation of the produce;
• identifying the highest price buyer,
• negotiating from strength;
• scheduling production when there is limited competing supply.

Equally important is the extension offficer's role in helping farmers to minimize risks. Generally, risk and profit are related. In other words highly profitable crops are often very risky. We will further explain some of the techniques available to minimize risk, such as:

• selling a proportion of produce at firm contract prices;
• growing a crop range which includes a mix of high and low risk products;
• investing in technology which increases yield stability and therefore income stability.

The importance of good marketing for the consumer

In effect the extension officer has a role as the farmers' lousiness adviser. Very often farmers will already carry out some of these strategies but with discussion the techniques can be improved and new strategies introduced.

The consumer is particularly important. Finding out what the consumer wants and satisfying his demand is the key to successful marketing and, in itself, is a valuable service to society.

Fruit and vegetables are universally considered as vital elements in a healthy diet. Not only do they provide crucial vitamins and proteins, but an increasing weight of medical evidence is demonstrating broader health giving qualities. Some of these are set out below:

• The fibre content of horticultural products is believed to be valuable in preventing heart disease and bowel complaints.
• Vitamin C can help prevent stomach cancer and gum disease.
• Vitamin D, in the vegetable-derived carotene, may reduce the incidence of lung cancer.
• Lack of vitamin A causes children to go blind. Research in Indonesia showed that even well-nourished children who lack Vitamin A had greater risk of illness and even death than undernourished children with an adequate Vitamin A supply. Vitamin A is available from dark green leaf vegetables, tomatoes, carrots, pumpkins, papaya and sweet potatoes.

Generally the amount of fruit and vegetables eaten is relatively low in the developing world. The low consumption levels are normally blamed on high prices. An efficient marketing system which minimizes transport costs and particularly wastage will significantly lower retail prices. It is the challenging task of the extension officer to accelerate the introduction of more efficient marketing processes which will lead to the lowering of consumer prices. As a result of lower prices, consumption will increase, which will offer the potential for expanded production.

Summary

This chapter has explained how urban markets will inevitably become bigger and more important. In addition to improved agricultural skills, farmers in the future will have to take on greater commercial skills.

Profitable production, particularly of high value crops, depends on supplying the customers with what they want. With the increased distances between the area of production and the points of consumption, systems will have to be set up to:

• deliver produce regularly and reliably to the market;
• provide a feed-back of information between the market and the growers so that production can be constantly oriented towards consumer demand.

It is up to the extension officer to use both ingenuity and intelligence to ensure that the maximum proportion of the retail price of food is returned to the rural community. Efficient marketing will reduce the cost of fresh produce, bringing with it improvements in the nation's health as well as expanding the market for high-value crops, which are themselves a crucial component of viable small-farmer systems.

Chapter 2 - Successful case studies in horticultural marketing

Introduction

In this chapter are six examples of how market knowledge has been used to significantly improve farmers' incomes. These examples cover the range of development of market-oriented horticultural production. They begin with an example of farmers starting to sell their products for the first time. Three examples then show how farmers in the developing world have improved marketing and thereby increased their incomes. Finally, two horticultural export examples are cited, in the first where a country started horticultural exports and the second where improved quality control helped an exporting country to maintain its market share. These case studies are not necessarily to be copied but it is important to study the techniques and skills used and how the farmers adapted their production and distribution to meet the needs of their customers.

Case 1 - Starting marketing, Hunza, northern Pakistan

Perspective

The high altitude areas of Pakistan, such as Hunza, were brought into contact with the major markets in the Punjab Plain by the building of the Karakoram Highway. The major crops grown were apricots, which were mainly dried, and some other deciduous fruits. Apart from very small volumes sold in the local markets, farmers only grew crops for their own needs. They had no experience or expertise of marketing and were completely unaware of prices, transport costs and the packaging and grading required by the major markets in Rawalpindi and Lahore. In addition they had no knowledge of how fruit was marketed let alone the names of reputable traders and their typical terms of trade. Because of the arduous nature of their living conditions there was close cooperation between families and the extreme isolation of the villages served to build a strong sense of community.

Action

As part of a large rural development project the villages were asked to form committees and to elect individuals for specific responsibilities, including one for marketing. The village marketing agents were called together and given specialist training. The responsibilities of the job were explained to them. These were to collect, transport and sell the villages' produce in the city markets. The agents would return to the growers the prices received less apportioned costs and a percentage commission. They were taken on a study tour of the potential markets to observe quality, price and market mechanisms and to help identify potential trading partners.

Selected traders and commission agents were invited to Hunza to train the village marketing agents in how they wanted the produce picked, packed and presented. The village agents then had the responsibility of training the growers in their area.

Prior to harvest, packaging and transport were organized and the agents, as planned, sold the produce in the main markets of the northern Punjab plain.

Result

The villages sold commercial volumes of produce for the first time ever. This has not only provided a cash income but also encouraged further developments in both production and processing. It is interesting to note that some of Hunza's dried apricots have been exported to European health food shops. They are in demand because they have been grown without either chemical fertilizer or pesticide.

Important notes

1. The new road opened up marketing opportunities.
2. The isolated nature of the villages made the growers particularly suitable for group marketing as they already had the necessary level of mutual trust. They also understood that they would have to work together if they were to succeed.
3. As this was an entirely new enterprise it was relatively easy to introduce a new marketing system which was both cooperative and provided a profit incentive for the village marketing agent.
4. The traders and commission agents were encouraged to assist and provide training, which they were prepared to do as it was in their own best interests. They recognized that new sources of supply would benefit their businesses.

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