Food and Fertilizer Technology Center - publications

Jun. 01, 2003

Helping Farmers to Sell What They Grow


Marketing has been a major problem for the Asian farmers for several decades, as they have moved from subsistence agriculture, producing food for their own families, to commercial farming, producing food for sale. In the early years of commercial agriculture, the main problems of Asian farmers were getting their produce to market, and learning how to carry out marketing business. Today, the main problems are lack of market demand and low prices for agricultural products (
Fig. 1
).


In recent years, the marketing situation has got worse. It is increasingly difficult for Asian farmers to sell what they grow. This is partly because they are producing more. Improved production means that there is now a surplus of many domestic products. Another important change is the growth in agricultural imports under WTO. A large amount of the food being sold in Asian markets was produced on farms overseas.


Most imported food products are cheaper than their Asian counterparts, because they are produced on farms a hundred or even a thousand times larger. These products are also being sold through very efficient marketing channels, often by multinational business. Multinational agribusiness, armed with modern marketing skills and a huge marketing capability, is gaining increasing power in the markets of Asia, as in the rest of the world.


Every dollar spent on food imports is a lost opportunity for local farmers. Already, Asian farm incomes are low compared to those of people living in cities. They are very small compared to the annual incomes earned on large farms overseas. A dangerously large number of Asian farmers are close to bankruptcy, because they cannot sell their products at a price which is high enough to cover their production costs and provide an income for their families.


Improving the marketing system in a way which benefits Asian farmers will not solve these problems all by itself, but it will certainly help. An efficient marketing system brings enormous benefit to farmers. It cuts down on spoilage, reduces the number of transactions, and ensures that pricing is transparent. It also brings benefits to consumers, by enabling them to buy a wide range of high-quality products at a reasonable price.


Consumer-Oriented Marketing


It is widely agreed that farmers should look at agriculture from a new perspective. Rather than looking at it in terms of production, they should look at it from the viewpoint of modern urban consumers. The market environment is changing rapidly. Consumer tastes are becoming global. Consumers will buy local produce only if it reflects their preferences.


One very important consideration for consumers is food safety and health. Consumers like to know where and how their food is being grown. This could be encouraged to become a bias in favor of local produce. A bias of this kind would give Asian farmers a strong marketing advantage, especially when they adapt their production methods, including their use of agricultural chemical, to suit consumer tastes.


This in turn needs a new kind of marketing information: what do consumers want? Modern multinational companies base their operations on sophisticated surveys and analysis of consumer preferences. Asian farmers must learn to do the same thing.


Asian farmers also need to work in the same way as modern agribusiness, integrating agricultural production with postharvest processing and marketing. Otherwise, small-scale farmers will be isolated from the modern food production and distribution system.


Collective Action


One small-scale farmer working as an individual cannot do much to find out about consumer preferences, or integrate his production with postharvest handling and distribution. In Asia, nearly all agricultural production is carried out on small farms. The average size of land holdings may be less than one hectare. This means that most produce being marketed originated as one of thousands of small shipments. Cooperatives can improve the efficiency of marketing, as they can "pool" these shipments. They can also provide modern storage and grading facilities that would be beyond the reach of individual farmers.


Aaian farmers need to take collective action. In this way, they can achieve economies of scale and avoid exploitation by other groups in the food distribution system.


Another way to gain economies of scale is a strategic alliance between cooperatives on the one hand, and food processors and distributors on the other hand.


E-Commerce


Information technology has led to the development of a new kind of marketing, known as e-commerce. In e-commerce, the Internet connects producers directly with consumers. Some Asian farmers are now marketing by Internet very successfully on an individual basis, creating and maintain-ing their own websites. More often, they engage in e-commerce as a member of an agricultural cooperative, with all the advantages this entails. An agri- cultural cooperative can develop a large and sophisticated website, often with a database, offering a wide range of products.


In connecting consumers and producers directly, e-commerce has several benefits. Distribution costs are lower, and there is less need to invest in expensive facilities. Barriers of time and distance fall. Marketed crops go direct to consumers when they are harvested.


E-commerce for agricultural products is still at an early stage, and its marketing share is still relatively small. Many farmers do not have access to the Internet, or their connectivity is very slow. A lower literacy rate excludes many farmers from using the Internet. It may be difficult for farmers to acquire a computer, and the skills they need to use it. Furthermore, some surveys have found that consumers are not completely satisfied with e-commerce. The two weak points seem to be the quality of the produce and the delivery service.


Further improvements are needed. Governments can do a great deal to create an environment favorable for e-commerce. Information is a key need, including training for farmers. Governments also need to pass and enforce regulations to enforce data protection and improve security.


The Role of Wholesale Markets


A system of public wholesale markets is generally considered a very successful way of promoting fair trade, improving the quality of produce, and improving access by farmers to marketing information.


Wholesale markets have been a cornerstone of the efforts of many countries to improve agricultural marketing. South Korea is a good example. In 2000, more than 40% of all fruits and vegetables were traded at public wholesale markets.


Prompt payment is important for farmers. With computerized transactions, farmers can now be paid as soon as the auction is completed (
Fig. 2
). Computerized information systems also make it possible for farmers to have good access to marketing information, and check on prices being paid for produce in different parts of the country.


The Future of Wholesale Markets


There is a tendency today for supermarkets and other large retailers to buy direct from farmers, often under contract, rather than through wholesale markets. While direct marketing may eventually replace wholesale markets, this does not mean that wholesale markets are unimportant or obsolete. They are part of the sequence of development.


The experience of Asian countries which now have highly developed economies, including their agricultural marketing systems, underlines the importance of wholesale markets as a stage in that development. Wholesale markets help ensure that marketing costs are low, and that farmers receive a reasonable share of the final purchase price. Otherwise, most of the profit from farming tends to go to dealers and retailers, rather than farmers.


Unfortunately, the fact that farmers need wholesale markets does not guarantee their success. For wholesale markets to succeed, it is important for them to be sufficiently large, and to have computerized operations.


Postharvest Technology


The loss of fresh produce during handling and transportation and marketing can be significant. The role of postharvest activity is to prevent, as much as possible, any deterioration of the fresh produce between the harvest and the end use. A successful postharvest system needs a good understanding of the biological characteristics (including respiration, ethylene production, and softening of the produce) and the conditions the produce will be under from harvest to consumption.


Postharvest treatment of fresh produce includes simple treatment such as curing, in which the harvested produce is stored for a few days in a shady place or in a cool room. This reduces the water content and prolongs the storage life. More sophisticated methods use refrigeration and cold air or cold water to cool the produce quickly and keep it cool.


Packaging and transportation methods are also an important aspect of technology. These can be a large part of marketing costs. For example in Korea, the cost of packaging and transport comprise 35% of the final purchase price. Good packaging should be low-cost, and able to withstand rough handling and vibration during transport. It should also be able to withstand high humidity during precooling. Finally, since packaging produces a great deal of waste, it should be made of materials that can be recycled efficiently.


Conclusion


The market environment is changing rapidly. Consumer tastes are becoming global, as is the trade in agricultural products. These changes, and the growth of information technology, urbanization and industrialization, mean that Asian countries need to restructure their agricultural marketing systems.


For the first time, the domestic markets of Asian countries are in danger of being dominated by a relatively few large foreign distributors. If a marketing system is to benefit the majority of small-scale farmers, rather than a few large corporations, it must have a number of vital features.


Farmers must have access to assembly points in major production areas. They need to be organized into a cooperative system. There should be wholesale markets in urban areas, with sale by auction.


On the government side, there is a need for policies which promote planned production and marketing, a good market information system and a sufficient supply of soft loans to farmers. Facilities such as wholesale markets and marketing information systems should be regarded as part of a country's normal infrastructure, and be included in the government's normal planning and funding.


International FFTC Seminar on Improving Agricultural Marketing under Trade Liberalization


Held in Seoul, South Korea, on May 20-24


Number of countries participating: 10 (Denmark, Indonesia, Japan, Korea, Malaysia, Philippines, Taiwan, Thailand, USA, Vietnam)


No. of papers presented: 17


No. of participants : 18 plus observers


Co-sponsor : NACF (National Ag. Cooperative Federation)


Index of Images


Figure 1 Traditional Market Open-Air Fruit Stall in Asia<BR>


Figure 1 Traditional Market Open-Air Fruit Stall in Asia


Figure 2 Modern Wholesale Market, Serving Small-Scale Farmers


Figure 2 Modern Wholesale Market, Serving Small-Scale Farmers

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